Real-Time Public Reporting Requirements, 75422-75503 [2020-21568]
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Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations
COMMODITY FUTURES TRADING
COMMISSION
17 CFR Part 43
RIN 3038–AE60
Real-Time Public Reporting
Requirements
Commodity Futures Trading
Commission.
ACTION: Final rule.
AGENCY:
The Commodity Futures
Trading Commission (‘‘Commission’’ or
‘‘CFTC’’) is amending certain
regulations setting forth the real-time
public swap reporting and
dissemination requirements for swap
data repositories (‘‘SDRs’’), derivatives
clearing organizations (‘‘DCOs’’), swap
execution facilities (‘‘SEFs’’), designated
contract markets (‘‘DCMs’’), swap
dealers (‘‘SDs’’), major swap
participants (‘‘MSPs’’), and swap
counterparties that are neither SDs nor
MSPs. The amendments, among other
things, address certain issues related to
reporting post-priced swaps (‘‘PPS’’)
and disseminating swaps associated
with prime brokerage arrangements. In
addition, the Commission is adopting
technical amendments to certain
provisions in other parts of its
regulations.
SUMMARY:
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DATES:
Effective date: The effective date for
this final rule is January 25, 2021.
Compliance Date: SDRs, SEFs, DCMs,
and reporting counterparties must
comply with the amendments to the
rules by May 25, 2022; provided,
however, that SDRs, SEFs, DCMs, and
reporting counterparties must comply
with the amendments to §§ 43.4(h) and
43.6 of this final rule by May 25, 2023.
FOR FURTHER INFORMATION CONTACT:
Thomas Guerin, Special Counsel, (202)
734–4194, tguerin@cftc.gov; Matthew
Jones, Special Counsel, (202) 418–6710,
majones@cftc.gov; David E. Aron,
Special Counsel, (202) 418–6621,
daron@cftc.gov; Meghan Tente, Acting
Deputy Director, (202) 418–5785,
mtente@cftc.gov, each in the Division of
Market Oversight; John Roberts, Senior
Research Analyst, (202) 418–5943,
jroberts@cftc.gov, Office of the Chief
Economist; in each case at the
Commodity Futures Trading
Commission, Three Lafayette Centre,
1155 21st Street NW, Washington, DC
20581.
SUPPLEMENTARY INFORMATION:
I. Background
II. Amendments to Part 43
A. § 43.1—Purpose, Scope, and Rules of
Construction
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B. § 43.2—Definitions
C. § 43.3—Method and Timing for RealTime Public Reporting
D. § 43.4—Swap Transaction and Pricing
Data to be Publicly Disseminated in RealTime
E. § 43.5—Time Delays for Public
Dissemination of Swap Transaction and
Pricing Data
F. § 43.6—Block Trades and Large Notional
Off-Facility Swaps
G. § 43.7—Delegation of Authority
III. Swap Transaction and Pricing Data
Reported to and Publicly Disseminated
by Swap Data Repositories
A. Swap Transaction and Pricing Data
Elements
IV. Compliance Date
A. General
B. Changes to the Appropriate Minimum
Block Sizes and Cap Sizes
V. Related Matters
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Cost-Benefit Considerations
D. Antitrust Considerations
I. Background
Section 2(a)(13) of the Commodity
Exchange Act (‘‘CEA’’) authorizes and
requires the Commission to promulgate
regulations for the real-time public
reporting of swap transaction and
pricing data. Section 2(a)(13)(A) defines
‘‘real-time public reporting’’ as reporting
data relating to a swap transaction,
including price and volume, as soon as
technologically practicable after the
time at which the swap transaction has
been executed. Section 2(a)(13)(B)
authorizes the Commission to make
swap transaction and pricing data
available to the public in such form and
at such times as the Commission
determines appropriate to enhance price
discovery.
Section 2(a)(13) also imposes
statutory requirements on the
Commission. First, section 2(a)(13)(E)
requires the Commission to prescribe
regulations specifying what constitutes
large notional swap transactions and the
appropriate time delays for reporting
such transactions to the public. Second,
sections 2(a)(13)(E)(i) and 2(a)(13)(C)(iii)
of the CEA require the Commission to
protect the identities of counterparties
and certain business transactions. Third,
section 2(a)(13)(E)(iv) directs the
Commission, in promulgating
regulations under section 2(a)(13), to
take into account whether public
disclosure of swap transaction and
pricing data will ‘‘materially reduce
market liquidity.’’
Part 43 of the Commission’s
regulations implements real-time public
reporting requirements.1 Part 43
requires swap counterparties, SEFs, and
1 Commission regulations referred to herein are
found at 17 CFR chapter I.
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DCMs to report publicly reportable
swap transactions to SDRs.2 Subject to
certain exceptions, SDRs are required to
publicly disseminate this swap
transaction and pricing data in realtime.3
Following the adoption of part 43,
Commission staff has worked with
SDRs, SEFs, DCMs, and reporting
counterparties to address questions
regarding interpretation and
implementation of the regulatory
requirements. Several years ago, the
Division of Market Oversight (‘‘DMO’’)
also reviewed the Commission’s swap
reporting rules. After completing that
review, DMO announced 4 its Roadmap
to Achieve High Quality Swaps Data
(‘‘Roadmap’’),5 consisting of a
comprehensive review to, among other
things: ‘‘[(i)] Evaluate real-time
reporting regulations in light of goals of
liquidity, transparency, and price
discovery in the swaps market [; and
(ii)] Address ongoing issues of reporting
packages, prime brokerage, allocations,
risk mitigation services/compressions,
[exchange for related futures positions],
and [PPSs] by clarifying obligations and
identifying those distinct types of
transactions to increase the utility of the
real-time public tape.’’ 6
In February 2020, the Commission
proposed certain changes to part 43
(‘‘Proposal’’) 7 addressing the method
and timing of real-time reporting and
public dissemination generally and for
specific types of swaps—the delay and
anonymization of the public
dissemination of block trades and large
notional trades; the standardization and
validation of real-time reporting data
elements; the delegation of specific
authority to Commission staff; and the
clarification of specific real-time
reporting questions and common issues.
The Commission received 33
comment letters regarding the
2 Real-Time Public Reporting of Swap
Transaction Data, 77 FR 1182 (Jan. 9, 2012) (‘‘2012
Real-Time Public Reporting Final Rule’’);
Procedures to Establish Appropriate Minimum
Block Sizes for Large Notional Off-Facility Swaps
and Block Trades, 78 FR 32866 (May 31, 2013)
(‘‘Block Trade Rule’’). 17 CFR 43.3(a)(1) through (3)
and (b)(1).
3 See id.; 17 CFR 43.4.
4 See Commission Letter 17–33, DMO Announces
Review of Swap Reporting Rules in Parts 43, 45,
and 49 of Commission Regulations (July 10, 2017),
available at https://www.cftc.gov/idc/groups/public/
@lrlettergeneral/documents/letter/17-33.pdf.
5 The Roadmap is available at https://
www.cftc.gov/sites/default/files/idc/groups/public/
@newsroom/documents/file/dmo_
swapdataplan071017.pdf. Comment letters are
available at https://comments.cftc.gov/
PublicComments/CommentList.aspx?id=1824.
6 Roadmap at 11.
7 See Real-Time Public Reporting Requirements,
85 FR 21516 (Apr. 17, 2020).
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Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations
Proposal.8 After considering the
comments, the Commission is adopting
portions of the rules as proposed;
revising other portions of the proposed
rules and adopting such portions as
revised; and declining to adopt the
remainder of the proposed changes. The
Commission believes the rules adopted
herein will increase transparency and
price discovery in the swaps markets;
provide clarity regarding obligations to
report and disseminate swap transaction
and pricing data; and lead to a more
effective real-time reporting regime.
II. Amendments to Part 43
A. § 43.1—Purpose, Scope, and Rules of
Construction
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The Commission is adopting nonsubstantive changes to § 43.1. The
Commission is removing § 43.1(b).
Existing § 43.1(b)(1), titled ‘‘Scope,’’
states that part 43 applies to all swaps,
as defined in CEA section 1a(47),9 and
lists certain categories of swaps as
examples. Existing § 43.1(b)(2) states
that part 43 applies to registered entities
and parties to a swap, and lists certain
categories of swap parties. The
Commission believes § 43.1(b) is
superfluous. The scope of part 43
coverage is clear from various CEA
sections and the operative provisions of
part 43.
The Commission is also redesignating existing § 43.1(c), entitled
‘‘Rules of construction,’’ as § 43.1(b).
The first sentence of existing § 43.1(c)
states that the examples in this part and
in appendix A to this part are not
exclusive. The Commission is deleting
8 The following entities submitted comment
letters: American Council of Life Insurers (‘‘ACLI’’);
Better Markets; Carnegie Mellon; Chatham
Financial; Chris Barnard; CHS Inc. and CHS
Hedging LLC (‘‘CHS’’); Citadel; Clarus Financial
Technology (‘‘Clarus’’); CME Group, Inc. (‘‘CME’’);
Credit Suisse; Depository Trust & Clearing
Corporation (‘‘DTCC’’); The Futures Industry
Association (‘‘FIA’’); FIA Principal Traders Group
(‘‘FIA PTG’’); Foreign Exchange Professionals
Association (‘‘FXPA’’); The Global Foreign
Exchange Division of the Global Financial Markets
Association (‘‘GFMA’’); Healthy Markets; ICE Clear
Credit and ICE Clear Europe (‘‘ICE DCOs’’); ICE
Trade Vault (‘‘ICE SDR’’); IHS Markit (‘‘Markit’’);
International Swaps and Derivatives Association,
Inc. and the Securities Industry and Financial
Markets Association (‘‘SIFMA’’) (collectively,
‘‘ISDA–SIFMA (Blocks)’’); ISDA and SIFMA
(collectively, ‘‘ISDA–SIFMA’’); Investment
Company Institute (‘‘ICI’’); Larry Harris and Kumar
Venkataraman (‘‘SMU’’); Managed Funds
Association (‘‘MFA’’); Massachusetts Institute of
Technology (‘‘MIT’’); The National Rural Electric
Cooperative Association and American Public
Power Association (‘‘NFP Electric Associations’’);
Navitech; Pacific Investment Management Company
LLC (‘‘PIMCO’’); The Asset Management Group of
the Securities Industry and Financial Markets
Association (‘‘SIFMA AMG’’); T. Rowe Price
(‘‘TRP’’); and Vanguard.
9 7 U.S.C. 1a(47).
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the reference to ‘‘appendix A’’ because
the Commission is removing examples
from appendix A.10 The Commission is
only removing this reference in case
there are other places within part 43 in
which market participants would rely
on examples.
The Commission is also deleting
§ 43.1(d), entitled ‘‘Severability.’’
Existing § 43.1(d) provides that if any
provision of part 43, or the application
thereof to any person or circumstance,
is held invalid, such invalidity shall not
affect other provisions or application of
such provision to other persons or
circumstances which can be given effect
without the invalid provision or
application. In the event a court
invalidates one or more provisions of
part 43, it is unclear that the
Commission would interpret all related
remaining provisions as continuing to
be effective in the absence of the invalid
provision(s). The Commission wishes to
maintain the flexibility to make that
determination at the time, and in light,
of any such ruling.
The Commission received no
comments on the changes to § 43.1. For
the reasons discussed above, the
Commission is adopting the changes
thereto as proposed.
B. § 43.2—Definitions
The paragraph of existing § 43.2 is not
lettered. The Commission is lettering
the existing paragraph as ‘‘(a)’’ and
adding paragraph (b) to § 43.2.
Paragraph (a) will contain all of the
definitions in existing § 43.2, as the
Commission is modifying them. New
paragraph (b) will clarify the terms not
defined in part 43 have the meanings
assigned to those terms in § 1.3 of the
Commission’s regulations, which was
implied before but was not explicit.
The Commission is also adding new
definitions, amending certain existing
definitions, and removing certain
definitions. Within each of these
categories of definitions, the
Commission discusses the changes in
alphabetical order, except as otherwise
noted.
1. New Definitions
The Commission is adding a
definition of ‘‘execution date’’ to § 43.2.
As proposed, ‘‘execution date’’ refers to
the date, determined by reference to
Eastern Time, on which swap execution
occurred. The Commission believes the
term is necessary for the new
regulations for PPSs.11 GFMA
comments the proposed definition of
10 The Commission discusses the changes to
appendix A in section III below.
11 The Commission discusses the regulations for
PPSs in section II.C.2.
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‘‘execution date’’ is ‘‘suitable’’ and
should align with the definition
proposed in the part 45 regulations, but
does not need to align with other
definitions.12
The Commission received three
comments opposing the definition’s
reference to Eastern Time. Chatham
believes the Commission should use
coordinated universal time (‘‘UTC’’)
instead of Eastern Time to avoid
reporting counterparties incurring time
and expense converting systems to track
in Eastern Time.13 The NFP Electric
Associations and CME both believe
‘‘execution date’’ should not reference
to a time and note that the reference to
eastern time is inconsistent with the
execution data elements in appendix A
that reference UTC.14
The Commission appreciates
commenters raising the reference to
Eastern Time is inconsistent with the
appendix A data elements regarding
execution that use UTC. The
Commission believes removing the
reference to time from the definition of
‘‘execution date’’ best addresses the
issue, as the reference to time is
unnecessary with time covered by the
data elements 15 that will continue to
reference UTC. As such, the new
definition of ‘‘execution data’’ will
mean the date of execution of a
particular swap.
The Commission is adding a
definition of ‘‘post-priced swap’’ to
§ 43.2. A ‘‘post-priced swap’’ will mean
an off-facility swap for which the price
is not determined as of the time of
execution. The Commission discusses
the new regulations for PPSs in section
II.C.2.
The Commission is adding a
definition of ‘‘reporting counterparty’’ to
§ 43.3. This definition is the same as the
existing definition of ‘‘reporting party’’
in § 43.2, but uses the more-specific
term ‘‘counterparty’’ instead of ‘‘party.’’
The Commission is adding a
definition of ‘‘swap execution facility’’
to § 43.2. Parts 43 and 45 currently use
the term, but only part 45 defines it.
‘‘Swap execution facility’’ will mean a
trading system or platform that is a SEF
as defined in CEA section 1a(50) and in
17 CFR 1.3, and that is registered with
the Commission pursuant to CEA
section 5h and 17 CFR part 37.
The Commission is adding a
definition of ‘‘swap transaction and
12 GFMA
at 4.
at 1. Chatham requested if the
Commission decides on eastern time, the
Commission should have SDRs convert UTC to
eastern time when submitting to the Commission.
14 NFP Electric Associations at 7; CME at 2.
15 The Commission discusses the data elements in
appendix A in section III below.
13 Chatham
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pricing data’’ to § 43.2 with minor
technical corrections for clarity. ‘‘Swap
transaction and pricing data’’ will mean
all data elements for a swap in appendix
A 16 of part 43 that are required to be
reported or publicly disseminated
pursuant to part 43. The Commission
believes this definition will help
distinguish between the different types
of data reported pursuant to the
different reporting regulations.
The Commission proposed adding the
following six definitions to § 43.2:
‘‘mirror swap;’’ 17 ‘‘pricing event;’’ 18
‘‘prime broker;’’ 19 ‘‘prime brokerage
agency arrangement;’’ 20 ‘‘prime
brokerage agent;’’ 21 and ‘‘trigger
swap.’’ 22 These definitions are all
16 The proposed definition of ‘‘swap transaction
and pricing data’’ referenced appendix C. The
Commission is changing the reference to appendix
A to reflect the Commission is keeping data
elements in appendix A.
17 The Commission proposed to define mirror
swap as a swap: (1) To which a prime broker is a
counterparty or both counterparties are prime
brokers; (2) that is executed contemporaneously
with a corresponding trigger swap; (3) that has
identical terms and pricing as the
contemporaneously executed trigger swap (except
that a mirror swap, but not the corresponding
trigger swap, may include any associated prime
brokerage service fees agreed to by the parties and
except as provided in the final sentence of this
‘‘mirror swap’’ definition); (4) with respect to which
the sole price forming event is the occurrence of the
contemporaneously executed trigger swap; and (5)
the execution of which is contingent on, or is
triggered by, the execution of the
contemporaneously executed trigger swap. The
notional amount of a mirror swap may differ from
the notional amount of the corresponding trigger
swap, including, but not limited to, in the case of
a mirror swap that is part of a partial reverse giveup; provided, however, that in such cases, (i) the
aggregate notional amount of all such mirror swaps
to which the prime broker that is a counterparty to
the trigger swap is also a counterparty shall be
equal to the notional amount of the corresponding
trigger swap and (ii) the market risk and contractual
cash flows of all such mirror swaps to which a
prime broker that is not a counterparty to the
corresponding trigger swap is a party will offset
each other (and the aggregate notional amount of all
such mirror swaps on one side of the market and
with cash flows in one direction shall be equal to
the aggregate notional amount of all such mirror
swaps on the other side of the market and with cash
flows in the opposite direction), resulting in such
prime broker having a flat market risk position.
18 The Commission proposed to define pricing
event as the completion of the negotiation of the
material economic terms and pricing of a trigger
swap.
19 The Commission proposed to define prime
broker as with respect to a mirror swap and its
related trigger swap, a SD acting in the capacity of
a prime broker with respect to such swaps.
20 The Commission proposed to define prime
brokerage agency arrangement as an arrangement
pursuant to which a prime broker authorizes one of
its clients, acting as agent for such prime broker, to
cause the execution of a trigger swap.
21 The Commission proposed to define prime
brokerage agent as a client of a prime broker who
causes the execution of a trigger swap acting
pursuant to a prime brokerage agency arrangement.
22 The Commission proposed to define trigger
swap as a swap: (1) That is executed pursuant to
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related to swaps entered into by prime
brokers (‘‘PBs’’). Because all of these
proposed definitions were used in the
text of proposed § 43.3(a)(6) or in one or
more of the proposed definitions that
were in turn used in proposed
§ 43.3(a)(6), the Commission discusses
all of the six proposed definitions in
section II.C.4.
2. Changes to Existing Definitions 23
The Commission is making nonsubstantive changes to the definitions
of: ‘‘as soon as technologically
practicable’’ (‘‘ASATP’’); ‘‘asset class;’’
‘‘novation;’’ ‘‘other commodity;’’ and
‘‘reference price.’’
The Commission proposed changing
the definitions of ‘‘appropriate
minimum block size,’’ ‘‘large notional
off-facility swap’’ (LNOFS), and ‘‘block
trade’’ in § 43.2.24 The Commission
discusses the three definitions together,
as the changes are inter-connected.
The Commission first proposed
changing the ‘‘block trade’’ definition in
a November 2018 rule proposal.25 Then,
in January 2020, the Commission
published a proposal to revise condition
(2) of the block trade definition in § 43.2
to state that: Is executed on the trading
one or more prime brokerage agency arrangements;
(2) to which a prime broker is a counterparty or
both counterparties are prime brokers; (3) that
serves as the contingency for, or triggers, the
execution of one or more corresponding mirror
swaps; and (4) that is a publicly reportable swap
transaction that is required to be reported to an SDR
pursuant to parts 43 and 45.
23 The Commission received one comment on the
existing definition of ‘‘physical commodity swap.’’
The NFP Electric Associations oppose defining
‘‘physical commodity swap’’ by reference to a swap
‘‘based on a tangible commodity’’ because such a
definition would be inconsistent with the language
of CEA section 1a(47) as well as the Commission’s
interpretations of ‘‘nonfinancial commodity’’ in the
context of swaps. NFP Electric Associations at 7.
The Commission declines to adopt any changes to
the definition of ‘‘physical commodity swap.’’ The
Commission believes the current definition is
sufficient, and would want to provide adequate
notice and comment for all market participants on
a change involving a swap definition.
24 Existing § 43.2 defines ‘‘appropriate minimum
block size’’ to mean the minimum notional or
principal amount for a category of swaps that
qualifies a swap within such category as a block
trade or LNOFS. Existing § 43.2 defines ‘‘block
trade’’ to mean a publicly reportable swap
transaction that: (1) Involves a swap that is listed
on a registered SEF or DCM; (2) occurs away from
the registered SEF’s or DCM’s trading system or
platform and is executed pursuant to the registered
SEF’s or DCM’s rules and procedures; (3) has a
notional or principal amount at or above the
appropriate minimum block size applicable to such
swap; and (4) is reported subject to the rules and
procedures of the registered SEF or DCM and the
rules described in part 43, including the
appropriate time delay requirements set forth in
§ 43.5.
25 See Swap Execution Facilities and Trade
Execution Requirement, 83 FR 61946 (Nov. 30,
2018) (‘‘2018 SEF NPRM’’). The Commission
continues to evaluate the 2018 SEF NPRM.
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system or platform, that is not an order
book as defined in § 37.3(a)(3), of a
registered SEF or occurs away from a
registered SEF’s or DCM’s trading
system or platform and is executed
pursuant to the registered SEF’s or
DCM’s rules and procedures.26 The
Proposal incorporated the 2020 SEF
NPRM’s proposed changes to the
definition of ‘‘block trade’’ in condition
(2), which would apply to swaps that
are not ‘‘off-facility swaps’’ and have
specified connections to a SEF or a
DCM.27 In the Proposal, the Commission
also proposed to incorporate condition
(3) of the existing ‘‘block trade’’
definition 28 into condition (1), which
would apply to ‘‘off-facility swaps.’’ 29
Condition (1) would make the separate
definition of ‘‘large notional off-facility
swap’’ unnecessary.
The Commission believes the change
to condition (2) permitting execution of
block trades—intended to be cleared or
not—on a SEF’s non-order book trading
systems or platforms furthers the CEA
goal of promoting swap trading on
SEFs.30 Moreover, for intended-to-be
cleared block trades executed on a SEF’s
non-Order Book trading system or
platform, the change would allow FCMs
to conduct pre-execution credit
screenings in accordance with § 1.73.
The Commission believes that having a
single set of block trade rules for both
intended-to-be cleared and nonintended to-be-cleared swap block
trades will help to reduce operational
26 This proposal addressed certain outstanding
block-trade no-action relief SEFs and market
participants have operated under for several years,
most recently under CFTC Staff Letter No. 17–60
(‘‘NAL No. 17–60). See Swap Execution Facility
Requirements and Real-Time Reporting
Requirements, 85 FR 9407 (Feb. 19, 2020) (‘‘2020
SEF NPRM’’).
27 As proposed, paragraph (2) of the ‘‘block trade’’
definition would read: (2) With respect to a swap
that is not an off-facility swap, a publicly reportable
swap that: (a) Involves a swap that is listed on a
SEF or DCM; (b) Is executed on the trading system
or platform, that is not an order book as defined in
§ 37.3(a)(3), of a SEF or occurs away from a SEF’s
or DCM’s trading system or platform and is
executed pursuant to the SEF’s or DCM’s rules and
procedures; (c) Has a notional or principal amount
at or above the appropriate minimum block size
applicable to such swap; and (d) Is reported subject
to the rules and procedures of the SEF or DCM and
the rules described in this part, including the
appropriate time delay requirements set forth in
§ 43.5.
28 This paragraph currently reads: Has a notional
or principal amount at or above the appropriate
minimum block size applicable to such swap.
29 As proposed, paragraph (1) of the ‘‘block trade’’
definition would read: (1) With respect to an offfacility swap, a publicly reportable swap that has
a notional or principal amount at or above the
appropriate minimum block size applicable to such
swap. The Commission also proposed minor
changes to the term ‘‘off-facility swap,’’ as
discussed below in this section.
30 See 7 U.S.C. 7b–3(e).
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complexity for both SEFs and market
participants.
In addition, the Commission believes
that new condition (2), in allowing
participants to use a SEF’s non-Order
Book functionalities to execute swap
block trades, is consistent with the
Commission’s regulatory approach to
mitigate risks of information leakage
(i.e., a ‘‘winner’s curse’’) as market
participants can use the functionality of
the SEF to execute a block trade in a
manner that will not disclose the order
to the entire market.31 SEFs currently
provide various modes of execution to
enable market participants to execute
block trades on the SEF without
providing disclosure of the block trade
to the market or to multiple market
participants.32
Finally, the Commission believes
permitting block trades to be executed
on a SEF’s non-Order Book trading
platforms while also allowing them to
‘‘occur away’’ from a SEF provides SEFs
increased flexibility. In particular, SEFs
will be able to provide execution
methods for block trades that are most
suitable, efficient, and cost-effective for
the product being traded, the SEF’s
market, and its market participants.
Therefore, the Commission is
adopting paragraph (2) of the ‘‘block
trade’’ definition as proposed with a
minor non-substantive technical edits
for clarity and consistency. However,
the Commission is not adopting
paragraph (1) of the proposed ‘‘block
trade’’ definition and is keeping the
definition of ‘‘large notional off-facility
swap’’ in part 43.
The Proposal combined the definition
of ‘‘large notional off-facility swap’’ into
the definition of ‘‘block trade’’ to
conform to proposed changes to § 43.5.
The changes to § 43.5 would have
created a single block trade
dissemination delay regardless of
whether the transaction was a ‘‘block
trade’’ or a ‘‘large notional off-facility
swap,’’ thus obviating the need for
separate definitions.33 However, since
the Commission is not changing
§ 43.5,34 it is necessary to retain separate
31 SEF Core Principles Final Rule, 78 FR at 33498,
33562, and 33563 (June 4, 2013).
32 For example, the Commission has observed that
some SEFs offer a ‘‘RFQ-to-one’’ functionality that
allows counterparties to bilaterally negotiate a block
trade between two potential counterparties, without
requiring disclosure of the potential trade to other
market participants on a pre-trade basis.
33 For example, under existing § 43.5, block trades
are subject to a 15 minute dissemination delay,
while LNOFS are subject to a range of
dissemination delays ranging from 15 minutes to 24
business hours depending upon the type of market
participant and asset class involved in the LNOFS
transaction.
34 The Commission discusses § 43.5 in section II.E
below.
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definitions for block trades and LNOFSs
in part 43. As a result, the Commission
is keeping the definition of ‘‘large
notional off-facility swap’’ in § 43.2 and
keeping the reference to ‘‘large notional
off-facility swaps’’ in the definition of
‘‘appropriate minimum block size.’’ 35
In light of the above changes, § 43.2
will define a ‘‘block trade’’ as a publicly
reportable swap transaction that: (1)
Involves a swap listed on a SEF or DCM;
(2) is executed on a SEF’s trading
system or platform that is not an order
book as defined in § 37.3(a)(3), or occurs
away from the SEF’s or DCM’s trading
system or platform and is executed
pursuant to the SEF’s or DCM’s rules
and procedures; (3) has a notional or
principal amount at or above the
appropriate minimum block size
applicable to such swap; and (4) is
reported subject to the rules and
procedures of the SEF or DCM and the
rules described in part 43, including the
appropriate time delay requirements set
forth in § 43.5.
The Commission received two
comments on the Proposal’s definition
of ‘‘block trade.’’ ICI believes the
proposed definition incorporating
‘‘block trade’’ and ‘‘large notional offfacility swap’’ would promote clarity
and consistency across Commission
regulations.36 The Commission is
declining to adopt the proposal because,
as described above, separate definitions
of ‘‘block trade’’ and ‘‘large notional offfacility swap’’ remain necessary since
the Commission is not changing § 43.5.
Conversely, the NFP Electric
Associations believe ‘‘[t]he concept of a
‘block trade’ is not well understood in
the swap markets’’ and recommends
that the Commission should continue
‘‘to use the descriptive term ‘large
notional off-facility swap,’ as drawn
from the primary language of CEA
section 2a(13)(E), rather than use ‘block
trade’. . . .’’ 37 The Commission agrees
and, for the reasons described above, is
retaining the separate definitions.
The Commission also received six
comments on the 2020 SEF NPRM’s
‘‘block trade’’ definition.38 Citadel,
ISDA–SIFMA, IECA, and Chris Barnard
35 The Commission is making non-substantive
edits to the definition for clarity.
36 ICI at 4.
37 NFP Electric Associations at 7.
38 The following entities submitted comment
letters: Chris Barnard; Citadel; FIA; International
Energy Credit Association (‘‘IECA’’); ISDA; and
ICAP Global Derivatives Limited (‘‘IGDL’’) and
tpSEF, Inc. (‘‘tpSEF’’) (collectively, ‘‘TP ICAP
SEFs’’). Since the proposed § 43.2 definition of
‘‘block trade’’ in the 2020 SEF NPRM is consistent
with the second part of the § 43.2 ‘‘block trade’’
definition in the Proposal, the Commission is
considering the comments in evaluating the
proposed changes to the ‘‘block trade’’ definition in
this release.
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all generally support the 2020 SEF
NPRM’s changes.39 Similarly, FIA
agrees with the Commission ‘‘that block
trades executed on a SEF’s non-[o]rder
[b]ook trading system or platform would
allow FCMs to conduct pre-execution
risk-based limit screenings in
accordance with [§ ] 1.73.’’ 40 Finally,
the TP ICAP SEFs support the proposed
changes to the definition of ‘‘block
trade,’’ but believe the Commission
should not limit the execution methods
that may be utilized by SEFs for block
trades to avoid discouraging SEF trading
and inconsistencies with the CEA,
‘‘which was clear that limiting modes of
SEF execution was not the intent of
Congress.’’ 41
The Commission disagrees with the
TP ICAP SEFs’ assertion there should be
no limitation on the method execution
that can be used for a block trade.42 By
exposing a swap transaction that is
above the appropriate minimum block
size to the entire market through the use
of a SEF order book,43 the Commission
believes that a market participant has
signaled that the risks of information
leakage and a ‘‘winner’s curse’’ are not
present to the same extent as they are in
other block trades. Therefore, such
transactions should not be afforded
flexible execution and delayed public
dissemination.
The Commission is changing the
definition of ‘‘embedded option’’ in
§ 43.2 by removing the reference to
39 Citadel at 1; ISDA–SIFMA at 1; IECA at 1–3;
Chris Barnard at 1.
40 FIA at 1; FIA at Appendix B. FIA separately
requests the Commission amend § 1.73 to confirm
clearing FCMs are not required to conduct preexecution risk-based limit screenings for
transactions executed bilaterally away from the
SEF’s non-order book trading system or platform
and then submitted for clearing. The Commission
declines to amend § 1.73 in this rulemaking. For the
avoidance of doubt, if the parties purport to execute
a block trade away from the SEF without first
obtaining a credit check, an FCM clearing member
that clears such trade and does not have knowledge
of such purported execution is not in violation of
the pre-execution credit check requirement under
§ 1.73. The Commission understands no mechanism
exists to enable pre-execution credit checks where
blocks are executed away from a SEF; however,
these final rules do not preclude participants from
developing and using such a mechanism in the
future.
41 TP ICAP SEFs at 4. Rather, the TP ICAP SEFs
believe that ‘‘SEFs have the greatest knowledge of
the liquidity and market characteristics to’’
determine which execution methods to offer for
block trades and as such ‘‘[t]he Commission should
defer to the SEFs in a manner consistent with
principles-based regulation to determine the
methodology that they wish to offer for executing
block trades.’’
42 The Commission notes that trades above the
appropriate minimum block size may still occur on
a SEF’s order book, as defined in § 37.3(a)(3),
however such transactions will not receive
treatment as block trades and will not receive a
dissemination delay.
43 17 CFR 37.3(a)(3) (‘‘Order Books’’).
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‘‘confirmation’’ at the end of the current
definition 44 to reflect the Commission’s
removal of the definition of
‘‘confirmation’’ from § 43.2, discussed
further below. As amended, ‘‘embedded
option’’ will mean any right, but not an
obligation, provided to one party of a
swap by the other party to the swap that
provides the party holding the option
with the ability to change any one or
more of the economic terms of the swap.
The Commission is changing the
definition of ‘‘execution’’ in § 43.2 45 by
replacing the reference to execution
occurring ‘‘orally, in writing,
electronically, or otherwise’’ with ‘‘by
any method’’ to shorten the definition
without substantively altering it. The
Commission is also removing the phrase
that execution occurs simultaneous with
or immediately following the
affirmation of the swap because the
Commission is removing the term
‘‘affirmation’’ from § 43.2 as well.46 As
amended, ‘‘execution’’ will mean an
agreement by the parties, by any
method, to the terms of a swap that
legally binds the parties to such swap
terms under applicable law. The NFP
Electric Associations support the
alignment of defined terms and
concepts between part 45 and part 43,
such as the common definition of
‘‘execution.’’ 47
The Commission is amending the
definition of ‘‘off-facility swap’’ in
§ 43.2 by removing the reference to
‘‘publicly reportable’’ and ‘‘registered.’’
Existing § 43.2 defines off-facility swap
as any publicly reportable swap
transaction that is not executed on or
pursuant to the rules of a registered 48
SEF or DCM. The Commission is
removing the requirement that the swap
be ‘‘publicly reportable’’ because
determining whether a swap transaction
is an off-facility swap depends only on
whether a swap was executed on or
pursuant to the rules of a SEF or DCM;
44 ‘‘Embedded option’’ is currently defined as any
right, but not an obligation, provided to one party
of a swap by the other party to the swap that
provides the party holding the option with the
ability to change any one or more of the economic
terms of the swap as those terms previously were
established at confirmation (or were in effect on the
start date).
45 Existing § 43.2 defines ‘‘execution’’ as an
agreement by the parties (whether orally, in writing,
electronically, or otherwise) to the terms of a swap
that legally binds the parties to such swap terms
under applicable law. The existing definition
further provides that execution occurs simultaneous
with or immediately following the affirmation of
the swap.
46 The Commission discusses the proposed
removal of ‘‘affirmation’’ in section II.B.3.
47 NFP Electric Associations at 6.
48 The Commission is also changing ‘‘registered
SEF’’ to ‘‘SEF’’ throughout part 43. The Commission
discusses this change in section II.C.1.a.
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whether it is also a publicly reportable
swap transaction is irrelevant.
The Commission is changing the
definition of ‘‘public dissemination and
publicly disseminate’’ in § 43.2. Existing
§ 43.2 defines ‘‘public dissemination
and publicly disseminate’’ as to publish
and make available swap transaction
and pricing data in a non-discriminatory
manner, through the internet or other
electronic data feed that is widely
published and in machine-readable
electronic format. Separately,
§ 43.3(d)(1) requires that SDRs ‘‘publicly
disseminate’’ swap transaction and
pricing data in a consistent, usable, and
machine-readable electronic format that
allows the data to be downloaded,
saved, and analyzed.
The definition of ‘‘public
dissemination and publicly
disseminate’’ varies enough from
§ 43.3(d)(1) to create ambiguity for SDRs
as to the format they must use in
publicly disseminating swap transaction
and pricing data. For instance, the
definition of ‘‘publicly disseminate’’
requires that access be nondiscriminatory, but § 43.3(d)(1) does not
explicitly require access be nondiscriminatory. Therefore, the
Commission is re-locating the
qualification in § 43.3(d)(1) that SDRs
publicly disseminate swap transaction
and pricing data in a consistent, usable,
and machine-readable electronic format
that allows the data to be downloaded,
saved, and analyzed to the definition of
‘‘public dissemination and publicly
disseminate’’ in § 43.2.49 As amended,
the definition of ‘‘public dissemination
and publicly disseminate’’ will mean to
make freely available and readily
accessible to the public swap
transaction and pricing data in a nondiscriminatory manner, through the
internet or other electronic data feed
that is widely published. Such public
dissemination shall be made in a
consistent, usable, and machinereadable electronic format that allows
the data to be downloaded, saved, and
analyzed.50 The Commission did not
propose changing the definition of
‘‘publicly reportable swap transaction,’’
but received six comments on the
definition.
ISDA–SIFMA and ICE SDR both
request the Commission clarify the list
49 As discussed below in section II.C.8, the
Commission is removing existing § 43.3(d)(1) in
conjunction with moving the substance of the
requirement to the definition of ‘‘publicly
disseminate.’’
50 The revised definition of ‘‘public dissemination
and publicly disseminate’’ is also discussed below
in section II.C.7 with respect to the responsibilities
of SDRs to make publicly disseminated swap
transaction and pricing data available to the public.
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of swaps that are not included in the
definition.51 The Commission believes,
with one exception, the current
definition and the original part 43
adopting release adequately describe the
swaps excluded from the definition,
which, as ISDA–SIFMA point out,
include inter-affiliate swaps and
portfolio compression exercises. The
Commission understands that since
2012, different multi-party swap
portfolio risk reduction exercises have
evolved to accomplish the same goals as
portfolio compression exercises. To the
extent any such risk reduction exercises
serve the same purposes as portfolio
compression exercises, the Commission
is of the view that the resulting new or
amended swaps from the exercise
would not be deemed publicly
reportable swaps. The purpose of such
risk reduction exercises, similar to
portfolio compression exercises, is to
mitigate risk by replacing or changing
swaps, which have already been
publicly reported if the original swaps
were publicly reportable swap
transactions. Any new or amended
swaps executed as a result of these
exercises would not be arm’s-length
transactions resulting in a
corresponding change in the market risk
position between the parties, but may
not otherwise meet the Commission’s
portfolio compression exercise
definitions.52 To qualify, the sole
purpose of such risk reduction
exercises, like portfolio compression
exercises, must be to mitigate risk by
replacing or changing swaps that have
already been publicly reported, if the
original swaps were publicly reportable
swap transactions. In addition, the
resulting new or amended swaps must
be entered into between the same
counterparties as the original swap(s)
that is amended or terminated, and the
risk reduction exercises must be market
risk neutral and performed by
automated systems of third-party service
providers. If these conditions are
satisfied, like portfolio compression
exercises, the replacement or amended
swaps resulting directly from a risk
reduction exercise would not fall within
the definition of publicly reportable
swap transaction.53
51 ISDA–SIFMA at 49; ICE SDR at 7. ISDA–SIFMA
note that the list of swaps not included in the
definition may include (i) inter-affiliate swaps, (ii)
portfolio compression exercises, and (iii) postallocation swaps. ICE SDR notes that it was unclear
whether cross-border transactions are exempt from
the definition.
52 77 FR 1182 at 1187 (Jan. 9, 2012).
53 For avoidance of doubt, the Commission makes
clear that the evaluation of whether a swap that
results from a risk reduction exercise does or does
not fall within the definition of publicly reportable
swap transaction is separate and distinct from the
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In response to ICE SDR’s comment
that it is unclear whether cross-border
transactions are exempt from the
definition the ‘‘publicly reportable swap
transaction,’’ the Commission notes that
its cross-border guidance covers crossborder reporting requirements. The
Commission does not want to reassess
the existing definition or its crossborder guidance without providing
adequate notice for all market
participants to comment on.
The NFP Electric Associations believe
the Commission should exclude a
subset of off-facility non-financial
commodity swaps from the definition
because few, if any, of such swaps
enhance discovery.54 Similarly, Clarus
believes providers of portfolio
compressions should report trade level
details to SDRs for public
dissemination.55 The Commission
disagrees and is keeping compressions
on the list of transactions excluded from
the publicly reportable swap definition
or excluding non-financial commodity
swaps. The Commission believes its
determination that compression swaps
do not contribute to price discovery,56
and that the CEA requires the public
dissemination of all swaps,57 still holds
true.
ICE DCOs and CME believe if the
Commission finalizes § 43.3(a)(5), it
should also change the definition of
publicly reportable swap transaction to
exclude swaps created through DCO
default management processes.58 The
Commission agrees with CME and ICE
DCOs, and is amending the definition to
exclude ‘‘swaps entered into by a [DCO]
as part of managing the default of a
clearing member.’’ However, the
Commission discusses this change in
section II.C.3 below.
The Commission is changing the
definition of ‘‘trimmed data set’’ in
§ 43.2 by changing the standard
deviation used in the calculation of the
trimmed data set from four to two for
the ‘‘other commodity’’ asset class, and
from four to three for all other asset
classes. The Commission discusses the
evaluation of whether or not the platform operating
such risk reduction exercises is subject to SEF
registration requirements. See Core Principles and
Other Requirements for Swap Execution Facilities,
78 FR 33476, 33482–33483 (Jun. 4, 2013).
54 NFP Electric Associations at 6.
55 Clarus at 2.
56 2012 Real-Time Public Reporting Final Rule at
77 FR 1187 (Jan. 9, 2012).
57 Id. at 1223.
58 ICE DCOs at 2; CME at 7–8. The commenters
believe including such swaps could result in frontrunning as the default management processes may
span multiple days. ICE DCOs believe DCO default
management swaps may be impractical for part 43
reporting because they can be executed at the
portfolio level.
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reasoning behind these changes in
section II.F.2.
3. Removed Definitions
The Commission is removing the
definition of ‘‘Act’’ from § 43.2 because
the term is defined in § 1.3.
The Commission proposed removing
the definition of ‘‘business day’’ from
§ 43.2 because the term is defined in
§ 1.3. Further, the Commission proposed
removing the definition of ‘‘business
hours’’ because the term would have
been unnecessary as a result of the
Commission’s proposal to remove
references to ‘‘business hours’’ in the
§ 43.5 regulations for the timing delays
for block trades.
The Commission received one
comment on removing the definition of
‘‘business day.’’ DTCC notes § 43.2 does
not include Saturdays while § 1.3
includes Saturdays; thus, replacing
§ 43.2 with § 1.3 would impact SDR
operations as well as the currency
conversion requirements in proposed
§ 43.6(g)(4).59 Further, DTCC believes it
is unclear whether the term ‘‘holiday’’
as used in the ‘‘business day’’ definition
in § 1.3 has an identical meaning as
existing § 43.2.60
The Commission agrees with DTCC
that removing the definition of business
day from § 43.2 would create a
discrepancy in the regulations that
would impact operations for all market
participants. Therefore, the Commission
is not adopting the proposal to remove
the definition of business day from
§ 43.2. Similarly, the Commission is not
adopting the proposal to remove the
term ‘‘business hours’’ from § 43.2
because, as the Commission discusses in
section II.E.2, § 43.5(c) will continue to
reference ‘‘business hours.’’
The Commission is removing the
definition of ‘‘confirmation’’ from
§ 43.2, along with the following related
definitions: ‘‘affirmation’’ and
‘‘confirmation by affirmation.’’ These
definitions are unnecessary in part 43,
as they are not used in any of the
regulations.
The Commission is removing the
definition of ‘‘executed’’ from § 43.2.
The current definition is vague and the
definition of ‘‘execution date’’ will
provide the specificity that the current
‘‘executed’’ definition lacks.
The Commission is removing the
definition of ‘‘real-time public
reporting’’ from § 43.2. Existing § 43.2
defines ‘‘real-time public reporting’’ as
the reporting of data relating to a swap
transaction, including price and
volume, ASATP after the time at which
the swap transaction has been executed.
The CEA currently already defines
‘‘real-time public reporting’’ as to report
data relating to a swap transaction,
including price and volume, ASATP
after the time at which the swap
transaction has been executed.61 To
avoid creating confusion between the
two definitions, the Commission is
removing the definition in part 43.
The Commission is removing the
definition of ‘‘reporting party’’ from
§ 43.2 because it is adding the moreprecise definition of ‘‘reporting
counterparty’’ to § 43.2, as discussed
above.
The Commission proposed removing
the following definitions from § 43.2 as
a result of proposed changes to §§ 43.5
and 43.6 for block trades and LNOFSs:
‘‘futures-related swap,’’ ‘‘major
currencies,’’ ‘‘non-major currencies,’’
and ‘‘super-major currencies.’’ The
Commission declines to adopt the
proposal to remove these definitions
from § 43.2.
The Commission is also removing the
following definitions from § 43.2 as a
result of changes simplifying the
definition of ‘‘novation:’’ ‘‘remaining
party,’’ ‘‘transferee,’’ and ‘‘transferor.’’
The Commission is removing the
‘‘unique product identifier’’ (‘‘UPI’’)
definition from § 43.2. ‘‘Unique product
identifier’’ is currently only used in
§ 43.4(e). The Commission is deleting
existing § 43.4(e), as discussed below in
section II.D.1. Therefore, the definition
of UPI in § 43.2 is unnecessary.
The Commission is removing the
definition of ‘‘widely published’’ from
§ 43.2. ‘‘Widely published’’ means to
publish and make available through
electronic means in a manner that is
freely available and readily accessible to
the public. ‘‘Widely published’’ is
currently referenced in the definition for
‘‘public dissemination and publicly
disseminate’’ as the standard by which
SDRs must publish data.62 The
Commission believes that the plain
meaning of the term ‘‘widely published’’
is clear and that the definition is
unnecessary and may cause confusion.
C. § 43.3—Method and Timing for RealTime Public Reporting
1. § 43.3(a)(1) Through (3)—Method and
Timing for Reporting Off-Facility Swaps
and Swaps Executed on or Pursuant to
the Rules of a SEF or a DCM
a. § 43.3(a)(1)—General Rule
The Commission is adopting changes
to § 43.3(a)(1). Existing § 43.3(a)(1): (i)
61 7
59 DTCC
U.S.C. 2(a)(13)(A).
term ‘‘widely published’’ is also used in
existing § 43.6(g)(4) for currency conversions.
at 2.
62 The
60 Id.
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Requires a ‘‘reporting party’’ to report
publicly reportable swap transactions to
SDRs ASATP after execution; and (ii)
states that for purposes of part 43, a
registered SDR includes any SDR
provisionally registered with the
Commission pursuant to part 49.
The Commission is changing the
reference to a ‘‘reporting party’’ to
reference the persons that, depending
on the circumstances, have the reporting
obligation for a publicly reportable swap
transaction: A reporting counterparty; a
SEF; or a DCM to be more precise. The
Commission is also rewording
§ 43.3(a)(1) for brevity and adding a
cross-reference to proposed § 43.3(a)(2)
through (6), which address matters such
as who must report publicly reportable
swap transactions and the timing
thereof. Consequently, the Commission
is adding language to § 43.3(a)(1) stating
that it would be ‘‘subject to’’ proposed
§ 43.3(a)(2) through (6) to reflect that,
with respect to the transactions and
persons covered by proposed
§ 43.3(a)(2) through (6), the provisions
thereof apply instead of the general
ASATP requirement of proposed
§ 43.3(a)(1). The Commission is also
adding a requirement that the publicly
reportable swap transaction reporting
required pursuant to proposed
§ 43.3(a)(1) through (6) be done in the
manner set forth in proposed
§ 43.3(d).63
Finally, the Commission is deleting
the sentence in § 43.3(a)(1) stating that
for purposes of part 43, a registered SDR
includes any SDR provisionally
registered with the Commission
pursuant to part 49. The Commission is
replacing all references to registered
SDRs with references to SDRs in
§ 43.3(a) specifically and throughout
part 43.64 The Commission is removing
the reference to ‘‘registered’’ because
registered and provisionally registered
SDRs are subject to the same
Commission regulations, but the
existing regulations only referenced
‘‘registered’’ SDRs.
The Commission did not receive any
comments on the non-substantive
changes to § 43.3(a)(1). For the reasons
discussed above, the Commission is
adopting the changes to § 43.3(a)(1) as
proposed with non-substantive edits for
clarity. Amended § 43.3(a)(1) will
require reporting counterparties, SEFs,
or DCMs responsible for reporting a
swap to report the publicly reportable
swap transaction to an SDR ASATP after
63 The Commission discusses § 43.3(d) in section
II.C.8 below.
64 To limit repetition, the Commission will not
discuss this change repeatedly throughout this
release.
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execution subject to § 43.3(a)(2) through
(6) and in the manner set forth in
§ 43.3(d).
b. § 43.3(a)(2)—Swaps Executed on or
Pursuant to the Rules of a SEF or a DCM
The Commission is adopting nonsubstantive changes to § 43.3(a)(2).
Existing § 43.3(a)(2) states that a party to
a publicly reportable swap transaction
can satisfy its part 43 real-time public
reporting obligations by executing
publicly reportable swap transactions
on or pursuant to the rules of a SEF or
DCM. Existing § 43.3(b)(1) states that
SEFs and DCMs satisfy their real-time
public reporting obligations by
transmitting swap transaction and
pricing data to SDRs ASATP after the
publicly reportable swap transaction
was executed on or pursuant to the rules
of the trading platform or facility.
The Commission is replacing
§ 43.3(a)(2) with the existing
requirement in § 43.3(b)(1). New
§ 43.3(a)(2) will state that SEFs or DCMs
must report publicly reportable swap
transactions executed on or pursuant to
the rules of a SEF or DCM ASATP after
execution. As a result, § 43.3(a)(2),
instead of § 43.3(b)(1), will contain
SEFs’ and DCMs’ part 43 reporting
obligations. In revising § 43.3(a)(2), the
Commission is replacing the reference
to a ‘‘registered [SEF]’’ with a reference
to SEFs because the term ‘‘registered’’ is
unnecessary with the Commission
defining ‘‘SEFs’’ in § 43.2 as registered
SEFs.65
The Commission did not receive any
comments on the structural and nonsubstantive changes to § 43.3(a)(2). For
the reasons discussed above, the
Commission is adopting the changes as
proposed. Amended § 43.3(a)(2) will
require that for each swap executed on
or pursuant to the rules of a SEF or
DCM, the SEF or DCM shall report swap
transaction and pricing data to an SDR
ASATP after execution.
c. § 43.3(a)(3)—Off-Facility Swaps
The Commission proposed nonsubstantive changes to § 43.3(a)(3).
Existing § 43.3(a)(3) requires reporting
parties to report all off-facility swaps to
an SDR for the appropriate asset class in
accordance with the rules set forth in
part 43 ASATP following execution, and
sets out the reporting hierarchy for these
publicly reportable swap transactions.66
The Commission is clarifying in
§ 43.3(a)(3)(iii) through (v) that, in
situations where the parties to an off65 To limit repetition, the Commission will not
discuss this change throughout this release.
66 The Commission did not propose substantive
amendments to the reporting hierarchy.
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facility publicly reportable swap
transaction must designate which of
them is the reporting counterparty, they
must make such designation prior to the
execution of the off-facility publicly
reportable swap transaction so that there
is no delay in reporting the off-facility
publicly reportable swap transaction
pursuant to part 43. The Commission
believes it will prevent a delay if the
parties do not make such designation
until after the off-facility publicly
reportable swap transaction is executed
or cannot agree on such designation.
Because the Commission is adding
part 43 reporting requirements specific
to PPSs, clearing swaps, and mirror
swaps, respectively, in new § 43.3(a)(4)
through (6), the Commission is
introducing proposed § 43.3(a)(3) with
‘‘except as otherwise provided in
paragraphs (a)(4) through (6) of this
section.’’
The Commission did not receive any
comments on the changes to § 43.3(a)(3).
For the reasons discussed above, the
Commission is adopting the changes to
§ 43.3(a)(3) as proposed with nonsubstantive edits for clarity. Amended
§ 43.3(a)(3) will require that, except as
otherwise provided in § 43.3(a)(4)
through (6), a reporting counterparty
report all publicly reportable swap
transactions that are off-facility swaps to
an SDR for the appropriate asset class in
accordance with the rules set forth in
part 43 ASATP after execution. Unless
otherwise agreed to by the parties prior
to execution, the reporting hierarchy
will remain the same as it is in existing
§ 43.3(a)(3).67
2. § 43.3(a)(4)—Post-Priced Swaps
a. Proposal
The Commission proposed new
§ 43.3(a)(4) to address issues market
participants face in reporting PPSs.
‘‘Post-priced swap’’ is a newly defined
term in § 43.2 that means an off-facility
swap for which the price has not been
determined at the time of execution.
Existing § 43.3(a) generally requires the
reporting party for each publicly
reportable swap transaction to report
67 The hierarchy will remain: (i) If only one party
is a SD or MSP, then the SD or MSP shall be the
reporting counterparty; (ii) if one party is an SD and
the other party is a MSP, then the SD shall be the
reporting counterparty; (iii) if both parties are SDs,
then prior to execution of a publicly reportable
swap transaction that is an off-facility swap, the
SDs shall designate which party shall be the
reporting counterparty; (iv) if both parties are MSPs,
then prior to execution of a publicly reportable
swap transaction that is an off-facility swap, the
MSPs shall designate which party shall be the
reporting counterparty; and (v) if neither party is an
SD or MSP, then prior to execution of a publicly
reportable swap transaction that is an off-facility
swap, the parties shall designate which party shall
be the reporting counterparty.
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certain swap terms to an SDR ASATP
after execution of the transaction.
Market participants raised concerns
with complying with the ASATP
requirement for a category of swaps
with respect to which one or more terms
are unknown at the time the swap is
executed.68
In the Proposal, the Commission
proposed a longer deadline for reporting
swap transaction and pricing data for
PPSs. Proposed § 43.3(a)(4)(i) would
permit the reporting counterparty to
delay reporting a PPS to an SDR until
the earlier of the price being determined
and 11:59:59 p.m. eastern time on the
execution date. Proposed § 43.3(a)(4)(i)
would further provide that, if the price
of a publicly reportable swap
transaction that is a PPS is not
determined by 11:59:59 p.m. eastern
time on the execution date, the
reporting counterparty shall: (i) Report
all swap transaction and pricing data for
such PPS other than the price and any
other then-undetermined variable term,
and (ii) report each such item of
previously undetermined swap
transaction and pricing data ASATP
after such item is determined.69
Proposed § 43.3(a)(4)(ii) would provide
that the more lenient proposed reporting
deadline in § 43.3(a)(4)(i) would not
apply to publicly reportable swap
transactions with respect to which the
price is known at execution but one or
more other variable terms are not yet
known at the time of execution.70
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b. Comments on the Proposal
The Commission received two
comments opposing a delay from realtime reporting for PPSs. Citadel
comments that instead of reducing the
amount of information publicly reported
in real-time, the Commission should
enhance the reported data by
implementing a separate flag to
68 See, e.g., ISDA Request for No-action Relief for
Post-priced Swaps (Mar. 26, 2013), available at
https://www.isda.org/2013/03/26/no-action-reliefrequest-post-price-swaps-under-parts-43-and-45/.
69 While the proposed definition of ‘‘post-priced
swap’’ would be a swap for which the price has not
been determined at the time of execution, such a
swap with additional terms that are also not
determined at the time of execution would also fall
within the proposed ‘‘post-priced swap’’ definition.
Consequently, if a PPS also has non-price terms that
are not determined at the time of execution, a value
for such non-price terms must be reported ASATP
after it is determined. If a placeholder value that
satisfies the allowable values parameters for an
unknown variable term was previously reported for
such undetermined swap transaction and pricing
data, then such swap transaction and pricing data
must be corrected ASATP after it is determined.
70 The Commission notes that when the price is
known at execution but one or more variable terms
are not yet known, the reporting counterparty must
report the swap ASATP and then report the variable
terms later ASATP after each item is determined.
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specifically identify PPSs.71 Further,
Citadel believes the proposal seems
overly broad because it includes swaps
where key economic terms are fully
agreed at the time of execution (e.g.,
where a spread above or below a
reference index price is the key
economic term, but the reference index
price is not published until later in the
day).72 DTCC recommends minimizing
carve-outs for strict validation rules
wherever possible to avoid deviating
from standardization and creating
additional complexities.73
Better Markets comments that any
delay in public reporting would
advantage certain market participants
but reporting on the date of execution
would be achievable for the vast
majority of PPSs contingent on an
independent market measure.74 In
addition, Better Markets believes
delayed reporting for supposed
‘‘hedging needs’’ should not be
accommodated until the Commission
publishes additional information
necessary to examine the implications
of such a proposal.75
The Commission received six
comments supporting a delay from realtime reporting for PPSs. AMG supports
permitting a reporting counterparty to
report PPSs at the earlier of the price
being determined or 11:59:59 p.m.
eastern time on the execution date.76
ICI comments that the proposal would
provide clarity and consistency so
market participants can understand
when their trading information will be
publicly disseminated to the market.77
Further, ICI believes funds may enter
into PPSs in the form of swaps on
various well-known indices and these
swaps are priced based on the relevant
index, which typically is published an
hour or two after the close of the
relevant markets.78 ICI states that
existing SDs have inconsistent practices
regarding when they report these swaps
and the Commission’s proposal will in
most cases prevent a fund’s trading
information from being prematurely
disseminated and used to front run the
fund’s trades.79
ISDA–SIFMA strongly agree with the
proposal.80 GFMA supports the ISDA–
SIFMA response.81
71 Citadel
at 10.
72 Id.
73 DTCC
74 Better
at 2.
Markets at 8.
75 Id.
77 ICI
CME believes that PPSs and other
swaps with variable term(s) that are not
known at the time of execution should
not be reported or disseminated until
such time that the price(s) and all other
variable term(s) are known.82 CME
believes the proposed requirement to
have PPSs reported no later than
11:59:59 p.m. eastern time on the day of
execution is misplaced as it would not
further price transparency without a
price.83 CME also believes the proposal
to require the immediate reporting of
swap transactions with respect to which
the price is known at execution but one
or more other variable terms are not yet
known is similarly misplaced.84
FIA suggests the Commission amend
the Proposal to require the reporting of
a PPS only after the price is determined,
regardless of whether the price is
determined on or after the execution
date. FIA believes there is no value in
reporting swap data without a price
element and that reporting only after the
price has been determined should
reduce the risk of front-running.85
The Commission received one
comment maintaining that the proposal
lacked needed explanation. Better
Markets comments that the
Commission’s general description is
undoubtedly accurate, but it does not
sufficiently describe the use of PPSs for
the public to determine the value, if
any, of such transactions that would
justify codifying a delayed public
reporting timeline.86 Further, Better
Markets believes the proposal relied too
heavily on only a few market
participants and the Commission should
instead look at common fact patterns,
the identified asset classes using PPS
practices, and the volume of PPSs
within each asset class.87
The Commission received one
comment regarding an alternative
proposal of reporting PPSs ASATP and
then updating the report after the price
is determined (in response to the
Commission’s request for comment 2).
ISDA–SIFMA oppose the alternative
proposal and comment that PPSs should
have a reporting delay before being
publicly disseminated by the SDR.88
ISDA–SIFMA believe the reporting of
PPSs before the price is determined
does not serve any price discovery
function and may increase the costs of
hedging by signaling to other
participants that a SD will be hedging a
82 CME
76 SIFMA
AMG at 6.
at 3–4.
83 Id.
at 8.
84 Id.
78 Id.
85 FIA
79 Id.
86 Better
80 ISDA–SIFMA
81 GFMA
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at 11.
Markets at 8.
87 Id.
at 14.
88 ISDA–SIFMA
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particular large notional trade the
following day.89 Further, ISDA–SIFMA
believe reporting counterparties should
be able to submit data to the SDR as
soon as available, and that the SDR
should be permitted to delay public
dissemination (similar to the process for
block trades).90
The Commission received one
comment related to the alternative of an
indefinite delay for PPSs (in response to
the Commission’s request for comment
3). ISDA–SIFMA comments that PPS
reporting under part 43 should be
delayed until (a) the price is
determined, or (b) 11:59:59 p.m. eastern
time on the next business day following
the execution date. If the price is still
not yet known at 11:59:59 p.m. eastern
time on the next business day following
the execution date, ISDA–SIFMA
comments that the reporting
counterparty should then report the data
elements that are known. Further,
ISDA–SIFMA believe that the majority
of PPSs would have the price
determined prior to T+1. ISDA–SIFMA
believe the reporting of PPSs before the
price is determined may increase the
costs of hedging by signaling to other
participants that a SD will be hedging a
particular large notional trade the
following day.91 As such, ISDA–SIFMA
believe a T+1 cutoff will significantly
reduce potential unnecessary hedging
costs by reducing the number of PPSs
reported without a price.92
The Commission received one
comment regarding whether the
definition of PPS should be amended to
exclude swaps for which the price is not
known at execution because it is
contingent upon the outcome of SD
hedging (in response to the
Commission’s request for comment 4).
ISDA–SIFMA comments that swaps for
which a price is not known at execution
because it is contingent upon the
outcome of SD hedging should benefit
from a reporting delay. ISDA–SIFMA do
not believe permitting such swaps to
receive the reporting delay in proposed
§ 43.3(a)(4) would change trading
behavior.93
The Commission received three
comments addressing indicators for
PPSs. ISDA–SIFMA do not support an
additional indicator to identify whether
the price for a PPS is not known because
it is contingent on SD hedging. ISDA–
SIFMA believe that an identifier that
specifies the reason the price is not
known for a PPS would exacerbate the
potential for other market participants
to trade ahead of SD hedging.94 ISDA–
SIFMA believe the Commission should
not modify its proposed post-priced
swap indicator and anything more
granular could exacerbate the issues
(e.g., front running) that the PPS
proposal intends to remedy.95 CME
opposes additional data elements
related to PPSs as they are of no value
to market participants.96 In contrast to
CME, ICI supports an additional
indicator to identify whether the price
for a PPS is not known because it is
contingent on SD hedging, and notes
that such an indicator would provide
the CFTC with additional information
regarding each PPS.97
The Commission received one
comment regarding costs and benefits.
ISDA–SIFMA recommend that reporting
for PPSs be delayed at least until
11:59:59 p.m. eastern time on the next
business day following the execution
date because of the potential cost to
customers that results from the
proposed 11:59:59 p.m. eastern time
cutoff for PPSs, particularly in the
context of global equity index trades.98
ISDA–SIFMA give a cross-border
example showing that a post-priced
swap indicator could indicate to other
market participants that an SD will
continue hedging a large notional trade
on T+1, which could hurt the client’s
execution.99
The Commission received one
comment addressing an inconsistency
with proposed validations. CME
comments that the proposed PPS
reporting process is inconsistent with
the validations proposed in the
Proposal.100 Further, CME believes
since the Commission did not
specifically identify which data
elements constitute ‘‘other economic or
other terms’’ in proposed § 43.3(a)(4)(ii),
it is not clear if the proposed validations
would allow for the reporting of all
these data elements.101 However, CME
states it is clear from the variable term
‘‘quantity’’ that is referenced in the
Proposal that § 43.3(a)(4)(ii) is not
consistent with the proposed
validations.102 CME notes that many
proposed data elements relate to
quantity (notional quantity, etc.), and
some of these data elements, such as
quantity unit of measure and total
notional quantity, are mandatory data
94 Id.
95 Id.
96 CME
at 4.
97 Id.
elements that would need to be
populated to pass proposed
validations.103 CME states that while the
proposed quantity unit of measure data
element allows for submission of a
dummy value, the allowable values and
validations for the other proposed
quantity data elements would require
the reporting party to submit an
inaccurate value to comply with
proposed § 43.3(a)(4)(ii) and the
proposed validations.104 CME suggests
that the Commission identity all data
elements that comprise the variable
terms and elements for any swap and
either (1) open up the proposed
validations to permit submission of
such transactions with one or more
blank data elements; (2) establish
dummy variables as necessary for each
of the variable terms such that the
dummy variables could be submitted to
pass validations; or (3) open all
validations for all data elements for
such swaps covered by
§ 43.3(a)(4)(ii).105
c. Final Rule
For reasons discussed in the Proposal
and as more fully considered in light of
comments, discussed below, the
Commission is adopting § 43.3(a)(4) as
proposed with a minor ministerial
change for clarity. The Commission is
modifying the swap data technical
specification in response to a comment
from CME that § 43.3(a)(4) was
inconsistent with the swap data
technical specification.
The Commission agrees with
commenters that believe the reporting
and public dissemination of PPSs
ASATP after execution, but before the
price is determined, generally does not
serve a significant price discovery
function. However, the Commission
disagrees with CME’s comment that the
public dissemination of a PPS prior to
the price being determined never
provides any value to the market. The
Commission believes the public
dissemination of a PPS ASATP after
execution with a blank price, or with a
placeholder price that reflects the
reporting counterparty’s expectation of
the future event on which pricing is
contingent, would not enhance price
discovery and may confuse the market.
The Commission also believes, and thus
agrees with Citadel, that when the price
of a PPS is set as a spread above or
below a referenced index that is to be
published later in the day, the
publishing of such spread and the
reference index would serve a price
89 Id.
98 ISDA–SIFMA
90 Id.
99 Id.
91 Id.
100 CME
92 Id.
101 Id.
104 Id.
102 Id.
105 Id.
93 Id.
at 51.
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103 Id.
at 4.
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discovery function. Specifically,
publishing the spread above or below a
referenced index that is not published
until a later time would inform market
participants of the current pricing
formula at which specific products are
being traded. Market participants could
use such information for intra-day price
discovery even though the referenced
index is not published until later in the
day.
The Commission also agrees with FIA
and ICI that the publishing of swap
transaction and pricing data for PPSs
ASATP after execution presents unique
and heightened risks of front running.
Public reporting of PPSs before their
prices are determined would allow
market participants to transact in swaps
ahead of the event on which the price
is contingent, potentially
disadvantaging a counterparty to the
PPS and increasing its costs. The
Commission believes the increase in
costs could be expected to lead market
participants to forego the use of such
swaps, thereby materially reducing
swap market liquidity.
The Commission believes proposed
§ 43.3(a)(4) strikes an appropriate
balance between public transparency
and price discovery, and concerns that
immediate publication of PPSs would
materially reduce market liquidity.
In permitting the delayed reporting of
PPSs until the earlier of the price being
determined or the end of the execution
day, the Commission expects that the
majority of PPSs will be publicly
disseminated only after their price has
been determined. This will allow
market participants to transact those
PPSs without the risk that public
dissemination will negatively affect the
determination of the price, and thus
address the Commission’s concern
regarding a potential material reduction
in market liquidity.
The Commission also expects the end
of the day reporting deadline in
§ 43.3(a)(4) will result in some PPSs
being publicly disseminated prior to
their price being determined. The
Commission, balancing the delayed
reporting of PPSs with the potential
harms to transparency that would
accrue if counterparties were
incentivized to structure swaps as PPSs
to take advantage of a longer reporting
delay, believes an end of day reporting
deadline is appropriate. The
Commission believes an end of day
reporting deadline for PPSs is necessary
to ensure that the regulation does not
inappropriately restrict public
transparency and price discovery by
encouraging or permitting the
indefinitely delayed reporting of PPSs.
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Additionally, the Commission is
modifying the technical specification in
response to a comment by CME. The
Commission agrees with CME that the
validations in the draft specification
needed to be revised to ensure that
swaps required to be reported pursuant
to § 43.3(a)(4) would be consistent with
the validations proposed in the
specification. The validations in the
technical specification have been
revised accordingly.
The Commission agrees with DTCC
that adding exceptions to the proposed
validations in the technical
specification, as the Commission is
doing to facilitate the reporting of swaps
with variable terms, should generally be
avoided because it creates complexities
and impedes the standardization of
reporting brought about by strict
validation rules. However, the
Commission is cognizant of its statutory
directive to make swap transaction and
pricing data available as appropriate to
enhance price discovery while taking
into account whether the public
dissemination will materially reduce
market liquidity. Accordingly, the
Commission does not view the benefits
of simplicity and standardization
available under the alternative approach
of providing an indefinite delay in
reporting PPSs until all variable terms
are determined as sufficient reason to
justify deviation from the more balanced
approach that the Commission believes
best suited to effectuate this statutory
directive.
3. § 43.3(a)(5)—Clearing Swaps
The Commission is amending
§ 43.3(a) by adding DCOs to the
reporting counterparty hierarchy for
clearing swaps that are publicly
reportable swap transactions to address
the limited circumstances in which
DCOs may execute clearing swaps that
meet the definition of a publicly
reportable swap transaction in part 43.
Proposed § 43.3(a)(5) stated that
notwithstanding the provisions of
§ 43.3(a)(1) through (3), if a clearing
swap, as defined in § 45.1, is a publicly
reportable swap transaction, the DCO
that is a party to such swap shall be the
reporting counterparty and shall fulfill
all reporting counterparty obligations
for such swap ASATP after execution.
The Commission received two
comments on the proposed amendments
to § 43.3(a)(5). ICE DCOs and CME
believe that if the Commission finalizes
proposed § 43.3(a)(5), the Commission
should amend the definition of
‘‘publicly reportable swap transaction’’
in § 43.2 to exclude swaps created
through DCO default management
processes to avoid frustrating the default
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75431
management process by allowing frontrunning if the processes span multiple
days.106 They also believe it would be
impractical as the default management
process may be achieved through the
sale at the portfolio (not individual
swap) level, which ‘‘does not lend
itself’’ to part 43 reporting.107 Also, they
believe the prices disseminated with
default management related swaps
would not be relevant to market
participants as the prices are affected by
the clearing house’s priority to take
timely action, so mistaken reliance on
these prices may lead to price
dislocations and market disruption.108
The Commission agrees with ICE
DCOs and CME that the Commission
should amend the definition of publicly
reportable swap transaction to exclude
swaps created through DCO default
management processes because of
§ 43.3(a)(5). The Commission is
concerned that the new requirement
could impede the efficacy or ability of
DCOs to proceed with default
management exercises.
As such, the Commission is adopting
§ 43.3(a)(5) as proposed, but as
discussed above in section II.B.2, is
amending the definition of ‘‘publicly
reportable swap transaction’’ in § 43.2(a)
to exclude swaps entered into by a DCO
as part of managing the default of a
clearing member. New § 43.3(a)(5) will
require that notwithstanding the
provisions of § 43.3(a)(1) through (3), if
a clearing swap, as defined in § 45.1(a),
is a publicly reportable swap
transaction, the DCO that is a party to
such swap shall be the reporting
counterparty and shall fulfill all
reporting counterparty obligations for
such swap ASATP after execution.
4. § 43.3(a)(6)—PB Swaps
The Commission understands that
prime brokerage swaps begin with a
counterparty opening an account with a
PB that grants limited agency powers to
the counterparty. These limited powers
enable the counterparty, as an agent for
the PB, to enter into swaps with
approved executing dealers (‘‘ED’’),
subject to specific limits and
parameters, such as credit limits and
collateral requirements. The PB also
enters into ‘‘give-up’’ arrangements with
approved EDs in which the EDs agree to
negotiate swaps with the counterparty,
acting as an agent for the PB, within the
specified parameters and to face the PB
as counterparty for the resulting ED–PB
swap (‘‘ED–PB Swap’’).
106 ICE
DCOs at 2; CME at 7–8.
107 Id.
108 Id.
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The Commission understands that in
a prime brokerage swap, the
counterparty seeks bids for the desired
swap from one or more of the approved
EDs, within the parameters established
by the PB. Once the counterparty and
ED agree on the terms, the Commission
believes that both the counterparty and
ED provide a notice of the terms to the
PB, and those terms constitute the ED–
PB Swap, which the PB must accept if:
The swap is with an approved ED; the
counterparty and ED have committed to
the material terms; and the terms are
within the parameters established by the
PB. Once the ED–PB Swap is accepted
by the PB, the PB enters into a mirror
swap (‘‘Mirror Swap’’) with the
counterparty with identical economic
terms and pricing, subject to
adjustment, as a result of the prime
brokerage servicing fee.
a. Proposal
The CEA authorizes the Commission
to make swap transaction and pricing
data available to the public in such form
and at such times as the Commission
determines appropriate to enhance price
discovery.109 In 2017, DMO announced
its intention to review the reporting
regulations addressing ongoing issues of
reporting prime brokerage
transactions.110 In response to concerns
that publicly disseminating all legs of a
prime brokerage transaction incorrectly
suggests the presence of more trading
activity and price discovery than
actually exists, the Commission
proposed to define and exempt certain
legs of prime brokerage transactions,
defined as ‘‘mirror swaps,’’ from public
dissemination.
i. Proposed New § 43.2 Definitions
Related to Mirror Swaps
As noted above at section II.C, the
Commission proposed adding the
following six definitions to § 43.2:
‘‘mirror swap;’’ ‘‘pricing event;’’ ‘‘prime
broker;’’ ‘‘prime brokerage agency
arrangement;’’ ‘‘prime brokerage agent;’’
and ‘‘trigger swap.’’ Since these six
proposed definitions are related to the
109 7
U.S.C. 2(a)(13)(B).
at 11. DMO has previously provided
no-action relief from the real-time public reporting
requirements for swaps executed pursuant to prime
brokerage arrangements in response to concerns
that reporting both legs of prime brokerage
transactions would incorrectly suggest the presence
of more trading activity and price discovery in the
market than actually exists. See Commission Letter
No. 12–53, Time-Limited No-Action Relief from (i)
Parts 43 and 45 Reporting for Prime Brokerage
Transactions, and (ii) Reporting Unique Swap
Identifiers in Related Trades under Part 45 by Prime
Brokers (Dec. 17, 2012), available at https://
www.cftc.gov/sites/default/files/idc/groups/public/
@lrlettergeneral/documents/letter/12-53.pdf (‘‘NAL
No. 12–53’’).
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Commission’s proposal to exempt
mirror swaps from public
dissemination, the Commission
discusses these definitions in this
section.
The Commission proposed adding the
term ‘‘prime brokerage agency
arrangement’’ to § 43.2(a). ‘‘Prime
brokerage agency arrangement’’ would
mean an arrangement pursuant to which
a PB authorizes one of its clients, acting
as agent for such PB, to cause the
execution of a particular leg of a prime
brokerage transaction. The
Commission’s goal in proposing the
‘‘prime brokerage agency arrangement’’
definition and using this defined term
in other definitions in proposed
§ 43.2(a) was to help ensure that the
scope of unreported mirror swaps is
limited to swaps that are, among other
things, integrally related to the other
leg(s) of a prime brokerage transaction
that will always be required to be
reported.
The Commission proposed adding the
term ‘‘prime brokerage agent’’ to
§ 43.2(a) as a new definition that would
mean a client of a PB who causes the
execution of a particular leg(s) of a
prime brokerage transaction acting
pursuant to a prime brokerage agency
arrangement.
The Commission also proposed
adding the term ‘‘prime broker’’ to
§ 43.2(a). ‘‘Prime broker’’ would mean
with respect to a mirror swap and the
related leg(s) of a PB transaction that
will not be required to be reported, a SD
acting in the capacity of a PB with
respect to such swaps. The Commission
proposed to use the term ‘‘prime
broker’’ in the proposed definitions of
‘‘prime brokerage agency arrangement,’’
‘‘prime brokerage agent,’’ and ‘‘trigger
swap’’ in proposed § 43.2(a), and in
proposed § 43.3(a)(6), to establish the
parameters of when a ‘‘mirror swap’’
would not be reportable under part 43
if it satisfied the terms of proposed
§ 43.3(a)(6)(i).
The Commission proposed adding the
term ‘‘trigger swap’’ to § 43.2(a) as a new
definition that would mean a swap: (1)
That is executed pursuant to one or
more prime brokerage agency
arrangements; 111 (2) to which one
counterparty or both counterparties are
PBs; (3) that serves as the contingency
for, or triggers the execution of, one or
111 The Commission understands that some
pricing events that result in trigger swaps are
negotiated by persons that are acting pursuant to a
prime brokerage agency arrangement with more
than one prime broker. The Commission
understands that some pricing events that lead to
trigger swaps are negotiated by two persons that are
each acting pursuant to a prime brokerage agency
arrangement with its respective prime broker.
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more corresponding mirror swaps; and
(4) that is a publicly reportable swap
transaction that is required to be
reported to an SDR pursuant to parts 43
and 45. The Commission proposed to
use the term ‘‘trigger swap’’ as an
element of a ‘‘mirror swap,’’ which the
Commission proposed to make not
reportable.
The Commission proposed adding the
term ‘‘pricing event’’ to § 43.2(a) as a
new definition that would mean the
completion of the negotiation of the
material economic terms and pricing of
a trigger swap. The Commission
proposed using the term ‘‘pricing event’’
in proposed § 43.3(a)(6)(i) to make it
clear when execution of a trigger swap,
which would be required to be reported
under proposed § 43.3(a)(6)(iv)
(discussed below in section II.C.4.b),
occurs.
The Commission proposed adding the
term ‘‘mirror swap’’ to § 43.2(a) to mean
a swap: (1) To which a PB is a
counterparty or both counterparties are
PBs; (2) that is executed
contemporaneously with a
corresponding trigger swap; (3) that has
identical terms and pricing as the
contemporaneously executed trigger
swap (except that a mirror swap, but not
the corresponding trigger swap, may
include any associated prime brokerage
service fees agreed to by the parties and
except as provided in the final sentence
of this ‘‘mirror swap’’ definition); (4)
with respect to which the sole price
forming event is the occurrence of the
contemporaneously executed trigger
swap; and (5) the execution of which is
contingent on, or is triggered by, the
execution of the contemporaneously
executed trigger swap. As further
proposed, the notional amount of a
mirror swap may differ from the
notional amount of the corresponding
trigger swap, including, but not limited
to, in the case of a mirror swap that is
part of a partial reverse give-up; 112
provided, however, that in such cases,
(i) the aggregate notional amount of all
such mirror swaps to which the PB that
is a counterparty to the trigger swap is
also a counterparty shall be equal to the
notional amount of the corresponding
trigger swap and (ii) the market risk and
contractual cash flows of all such mirror
swaps to which a PB that is not a
counterparty to the corresponding
trigger swap is a party will offset each
other (and the aggregate notional
amount of all such mirror swaps on one
side of the market and with cash flows
in one direction shall be equal to the
aggregate notional amount of all such
112 A ‘‘partial reverse give-up’’ is described below
in section II.C.4.b.
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mirror swaps on the other side of the
market and with cash flows in the
opposite direction), resulting in each PB
having a flat market risk position.
The Commission proposed defining
the term ‘‘mirror swap’’ to delineate a
group of swaps that do not have to be
reported under part 43 if the related
conditions set forth in proposed
§ 43.3(a)(6) are satisfied. The
Commission believed that because the
terms and pricing of a trigger swap and
its related mirror swaps are similar, part
43 reporting of both a trigger swap and
the related mirror swaps could falsely
indicate the occurrence of two or more
pricing events and incorrectly suggest
the presence of more trading activity
and price discovery than actually exist.
The Commission proposed using the
word ‘‘contemporaneously’’ in clause
(2) of the ‘‘mirror swap’’ definition
rather than ‘‘simultaneously’’ to reflect
the fact that it may take time for
potential parties to a mirror swap to
receive the terms of such mirror swap
and to verify that the terms are within
the parameters established by the
governing prime brokerage arrangement.
The Commission proposed the
language regarding associated prime
brokerage service fees in clause (3) of
the proposed ‘‘mirror swap’’ definition
to reflect that a mirror swap may
contain fees that a PB that is a
counterparty to a mirror swap may
charge as a fee for serving as a PB in
such swap. The Commission
understands that PBs typically charge
their clients a service fee for the swap
intermediation service that PBs provide.
The PB service fee is meant to reflect
PBs’ credit intermediation costs as well
as PBs’ back-office and middle-office
administrative services costs related to
trigger swaps and mirror swaps (e.g.,
booking, reconciling, settling, and
maintaining such trigger swaps and
mirror swaps). The PB service fee is
typically agreed upon by a PB and its
client before a pricing event. To be
considered prime brokerage service fees
for purposes of clause (3) of the
proposed ‘‘mirror swap’’ definition,
such fees must be limited to the
foregoing purpose and cannot contain
any other elements.113
113 For example, the Commission would not
consider a purported prime brokerage service fee
providing the prime broker or its counterparty
exposure to a commodity to be a prime brokerage
service fee within the meaning of clause (3) of the
proposed ‘‘mirror swap’’ definition, as a result of
which the related ‘‘mirror swap’’ would not be a
mirror swap, and thus would not be within the
scope of proposed § 43.3(a)(6) (discussed below in
section II.C.4.b), and therefore would be reportable
under § 43.3(a)(1) through (3), as applicable,
depending on the facts and circumstances.
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ii. Proposed Regulations
Proposed new § 43.3(a)(6)(i) would
provide that a mirror swap, which the
Commission proposed to define in
§ 43.2(a), as discussed above in section
II.B.1, is not a publicly reportable swap
transaction. Proposed new § 43.3(a)(6)(i)
would also state that, for purposes of
determining when execution occurs
under § 43.3(a)(1) through (3), execution
of a trigger swap shall be deemed to
occur at the time of the pricing event for
such trigger swap.
Proposed new § 43.3(a)(6)(ii) would
provide parameters for determining
which counterparty is the reporting
counterparty for a given trigger swap in
situations where it is unclear, with
respect to a given set of swaps, which
are mirror swaps and which is the
related trigger swap. More specifically,
proposed new § 43.3(a)(6)(ii) would
state that if, with respect to a given set
of swaps, it is unclear which are mirror
swaps and which is the related trigger
swap, the PBs would be required to
determine which swap is the trigger
swap and which are mirror swaps.
Proposed new § 43.3(a)(6)(ii) would also
specify that, with respect to the trigger
swap to which a PB is a party, the
reporting counterparty shall be
determined pursuant to § 43.3(a)(3).
Proposed new § 43.3(a)(6)(ii) would add
that, notwithstanding the foregoing, if
the counterparty to a trigger swap that
is not a PB is an SD, then that
counterparty will be the reporting
counterparty for the trigger swap.
Proposed new § 43.3(a)(6)(iii) would
provide that, if, with respect to a given
set of swaps, it is clear which are mirror
swaps and which is the related trigger
swap, the reporting counterparty for the
trigger swap shall be determined
pursuant to § 43.3(a)(3).
Proposed new § 43.3(a)(6)(iv) would
provide that trigger swaps described in
proposed § 43.3(a)(6)(ii) and (iii) shall
be reported pursuant to the
requirements set out in § 43.3(a)(2) or
(a)(3), as applicable, except that the
provisions of proposed § 43.3(a)(6)(ii),
rather than of proposed § 43.3(a)(3),
shall govern the determination of the
reporting counterparty for purposes of
the trigger swaps described in proposed
§ 43.3(a)(6)(ii).
The goal of proposed § 43.3(a)(6)(ii) is
to have each trigger swap be reported
ASATP after its pricing event. The
Commission understands that one
counterparty to a trigger swap often will
have participated in negotiating the
related pricing event, so should be wellplaced to report the trigger swap
pursuant to part 43 in such
circumstances, particularly if that
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75433
counterparty is an SD, given that most
SDs are experienced with part 43
reporting. If the PB is an SD, but its
counterparty is not, the PB would be the
reporting counterparty for the trigger
swap even though the PB may not learn
of the pricing event for some time.
However, pursuant to proposed
§ 43.3(a)(7), discussed below in section
II.C.5, the PB could contract with a
third-party service provider (which
could include a party to the pricing
event (e.g., an executing broker)) to
handle such reporting if it believes
reporting such publicly reportable swap
transaction in a timely manner (i.e.,
ASATP after the pricing event, per
proposed § 43.3(a)(6)(i)) would be
problematic, while remaining fully
responsible for such reporting.
Similarly, even in circumstances in
which neither counterparty to a trigger
swap participated in negotiating the
related pricing event (e.g., a double giveup prime brokerage swap structure),
such counterparties can contract with a
third-party service provider to handle
such reporting if they believe that
reporting such trigger swap in a timely
manner (i.e., ASATP after the pricing
event, per proposed § 43.3(a)(6)(i))
would be problematic for them, while
remaining fully responsible for such
reporting.
b. Comments on the Proposal
The Commission received one
comment opposing the proposal to
provide an exemption from real-time
reporting for mirror swaps. Citadel
comments the Commission should
instead enhance swap transaction and
pricing data by implementing a separate
flag to specifically identify mirror
swaps.114
The Commission received two
comments supporting the proposal to
provide an exemption from real-time
reporting for mirror swaps. CME
comments that publishing information
regarding mirror swaps would not
provide any information of value to
market participants.115 FXPA similarly
notes their agreement with
Commissioner Berkowitz’s assessment
that ‘‘duplicated reporting can create a
false signal of swap trading volume and
potentially obscure price discovery by
giving the price reported for a single
prime brokerage swap twice as much
weight relative to other non-prime
brokerage swaps.’’ 116
The Commission received an
additional two comments that support
the proposal but also suggest
114 Citadel
at 10.
at 5.
116 FXPA at 4.
115 CME
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modifications. ISDA–SIFMA support
the proposed treatment of mirror swaps
as non-publicly reportable swap
transactions.117 ISDA–SIFMA note that
even though mirror swaps resemble
hedging swaps, the key difference is that
hedges occur in the market while mirror
swaps are solely entered into as a
function of a PB acting as a credit
intermediary between parties that
agreed to the terms of the relevant
swap.118
ISDA–SIFMA also believe the current
proposal could be improved by
modifying obligations to report trigger
swaps where the reporting obligation
may fall on a prime broker. ISDA–
SIFMA suggest that when an off-facility
trigger swap is entered into with a SD
that is not a PB with respect to such
trigger swap, that SD should always
report such trigger swap ASATP after
such pricing event.119 However, ISDA–
SIFMA believe that when a pricing
event occurs between two non-SDs, the
related trigger swap should be reported
ASATP upon acceptance of the prime
broker.120
ISDA–SIFMA also note that non-SDs
generally do not have the necessary
systems to effectuate reporting and PBs
would thus be reluctant to delegate
reporting responsibility to a non-SD.121
ISDA–SIFMA believe a PB would
therefore report a trigger swap when the
pricing event occurred between two
non-SDs, which could only occur after
the PB has accepted the trigger swap.
ISDA–SIFMA believe that requiring the
PB to report a trigger swap sooner than
acceptance is impractical and would
have the negative effect of limiting PB
client access to non-SD liquidity.122
ISDA–SIFMA believe that PB client
access to non-SD liquidity would be
limited under the Proposal because PBs
would be concerned with their ability to
comply with the reporting requirement
and may restrict their PB clients from
transacting with non-SDs.123
ISDA–SIFMA acknowledge that the
suggestion that PBs be required to report
trigger swaps after the PB has accepted
the trigger swap may lead to a delay in
the reporting of the trigger swap.124
ISDA–SIFMA state that the extent of the
delay would vary based on factors that
include the sophistication of the nonSD’s operational and systems capability,
but that they assume reporting would be
feasible within a T+1 timeline.125 ISDA–
SIFMA suggest using the proposed
prime broker transaction indicator
exclusively for such non-SD trigger
swaps to assist in indicating to market
participants that such trigger swaps may
be reported later than the occurrence of
the pricing event.126
ISDA–SIFMA do not believe
additional indicators for trigger swaps
are necessary because pricing data that
is of interest to the public are already
included in the swap transaction and
pricing data for the trigger swap.127
ISDA–SIFMA believe it is not
practicable to require the potential
additional reporting data elements on
which the Commission sought comment
because the relevant reporting
counterparty may not have access to
such information.128
GFMA supports ISDA–SIFMA’s
response and similarly believes that the
above modifications to the proposal are
necessary.129
The Commission received one
comment addressing definitions. ISDA–
SIFMA do not believe the proposed
definitions need to be modified to
reflect that prime brokerage fees might
not be included in all mirror swaps.
ISDA–SIFMA comments that clause (3)
of the proposed ‘‘Mirror Swap’’
definition appears to adequately address
such a possibility.130
ISDA–SIFMA support the
Commission’s proposed definition for
‘‘prime broker’’ and believes it
accurately describes the term as
understood in common industry
practice.131 However, ISDA–SIFMA
anticipate that the related definitions for
‘‘mirror swap’’ and ‘‘trigger swap’’
would create unintended challenges and
suggests revisions to those definitions
that reference a newly defined term,
‘‘prime broker swap.’’ 132 ISDA–SIFMA
suggest revisions to clarify that the
defined terms apply across asset classes
and were not intended to imply that a
prime brokerage agency arrangement is
limited to the execution of the trigger
swap.133 ISDA–SIFMA also suggest a
revision to the definition of trigger swap
that would not, in conjunction with
proposed § 43.3(a)(6)(i), require the
public dissemination of a mirror swap if
the associated trigger swap was exempt
125 ISDA–SIFMA
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117 ISDA–SIFMA
at 66.
at 52–53.
127 ISDA–SIFMA at 51–53.
128 Id.
129 GFMA at 1, 5–6.
130 ISDA–SIFMA at 53.
131 ISDA–SIFMA at 53–54.
132 Id.
133 Id.
at 51–53, 64–66.
119 Id.
120 Id.
at 64.
122 Id.
123 ISDA–SIFMA
124 ISDA–SIFMA
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at 51–53, 64–66.
at 52.
18:27 Nov 24, 2020
c. Final Rule
The Commission is adopting the
proposal and the proposed new § 43.2
definitions related to mirror swaps with
some modifications suggested by
commenters, as discussed further
below.138
The CEA authorizes the Commission
to make swap transaction and pricing
data available to the public in such form
and at such times as the Commission
determines appropriate to enhance
price discovery.139 The Commission
concludes, as informed by commenters,
that price discovery will be enhanced by
excluding mirror swaps from public
dissemination. The Commission
believes that price discovery will not be
enhanced because the terms and pricing
of a trigger swap and its related mirror
swap(s) are the same and the current
requirement to report both trigger and
mirror swaps may be falsely indicating
the occurrence of two or more pricing
events. The Commission understands
that such potentially false indications
may also incorrectly suggest the
presence of more trading activity and
price discovery in the market than
actually exists. The Commission is
therefore finalizing the portions of the
proposed amendments that clarify that
126 ISDA–SIFMA
118 Id.
121 ISDA–SIFMA
from public dissemination for any
reason.134
The Commission received one
comment specifically regarding costs
and benefits. ISDA–SIFMA comments
that adding an additional reporting data
element identifying if a swap was a
mirror swap or a trigger swap would
only result in added costs and
complexity to PB reporting, without
commensurate benefit to regulatory
oversight.135 ISDA–SIFMA believe that
the real-time reporting of mirror swaps
would neither enhance price
transparency nor serve any price
discovery purpose given that there
would be no new or additional pricing
information released to the market and
publicly disseminating mirror swaps
with a mirror swap flag would only
create noise on the public tape.136 With
respect to the prevalence of mirror
swaps, ISDA–SIFMA note that all PB
intermediated transactions have at least
one mirror swap, but ISDA–SIFMA
cannot speak to percentages because
firms have strict internal policies on
what sort of information can be shared
with or amongst other firms.137
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134 ISDA–SIFMA
135 ISDA–SIFMA
at 65.
at 57.
136 Id.
137 Id.
at 58.
addition, the Commission made minor nonsubstantive technical edits for clarity.
139 7 U.S.C. 2(a)(13)(B) (emphasis added).
138 In
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mirror swaps are not publicly reportable
swap transactions.
The Commission disagrees with the
comment that mirror swaps should
continue to be publicly disseminated.
The commenter suggests that the
Commission address concerns that
mirror swaps may create false signals of
swap trading volume by requiring the
reporting of a new indicator for mirror
swaps, but the Commission notes that
none of the other commenters assert that
the public reporting of mirror swaps
enhances price discovery. The
Commission believes that it would be
inconsistent with section 2(a)(13) of the
CEA for the Commission to continue to
require the public dissemination of
swap transaction and pricing data that
does not enhance price discovery.140
The Commission is also finalizing as
proposed those portions of the proposal
that provide that the execution of a
trigger swap, for purposes of
determining when execution occurs
under § 43.3(a)(1) through (3), shall be
deemed to occur at the time of the
pricing event for such trigger swap.
Since all of the material terms of trigger
swaps are determined at the time of its
related pricing event, the Commission
believes it would enhance price
discovery for swap transaction and
pricing data associated with trigger
swaps to be reported in real time and
disseminated, subject to any applicable
time delay described in § 43.5, ASATP
after the occurrence of the pricing event.
The Commission disagrees with the
comment that a PB should be required
to report a trigger swap after the trigger
swap has been accepted by the PB in
circumstances where the counterparty
to the trigger swap is not an SD. The
commenter acknowledges that
conditioning the requirement to report a
trigger swap upon the acceptance of the
trigger swap by a PB would permit an
indefinite delay in the reporting of some
trigger swaps. The Commission believes
that the proposed indefinite delay is
generally inconsistent with the section
2(a)(13) of the CEA and would have
negative impacts on transparency, price
discovery, and liquidity. Since all of the
material terms of trigger swaps are
determined at the time of its related
pricing event, the Commission believes
it would enhance price discovery for
swap transaction and pricing data
associated with trigger swaps to be
reported in real time and disseminated,
subject to any applicable time delay
described in § 43.5, ASATP after the
occurrence of the pricing event.
The Commission is also finalizing the
proposed definition of mirror swap and
140 7
141 In addition, the Commission made minor nonsubstantive technical edits for clarity.
U.S.C. 2(a)(13)(B).
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trigger swap with modifications
suggested by commenters.141 The
Commission believes it is necessary to
define a mirror swap and trigger swap
with specificity to ensure that
§ 43.3(a)(6) only exempts from public
reporting those legs of a prime brokerage
transaction that might incorrectly
suggest the presence of more trading
activity and price discovery than
actually exist.
The Commission agrees with
comments suggesting clarifying
revisions to the proposed definitions of
mirror swap and trigger swap, and the
creation of a newly defined term ‘‘prime
broker swap.’’ These modifications seek
to clarify that such terms apply across
asset classes and were not intended to
imply that a prime brokerage agency
arrangement is limited to the execution
of the trigger swap. The Commission did
not intend to imply otherwise and
believes such clarifications may help
market participants better understand
their obligations. Accordingly, the
Commission is amending proposed
§ 43.2(a) to define the term ‘‘Prime
broker swap’’ as ‘‘any swap to which a
SD acting in the capacity as PB is a
party.’’ Under this definition, both the
trigger swap and mirror swap would be
prime broker swaps. The Commission is
similarly amending the proposed
definitions of ‘‘Prime brokerage agency
arrangement’’ and ‘‘Prime brokerage
agent’’ to reference PB swaps instead of
trigger swaps.
The Commission is amending the
proposed definition of ‘‘Trigger swap’’
to clarify that a PB swap executed on or
pursuant to the rules of a SEF or DCM
shall be treated as the trigger swap for
purposes of part 43. The Proposal did
not directly address the potential fact
pattern where a leg of a prime brokerage
transaction is executed on a facility. In
such instances, the Commission
believes that it is preferable for that leg
to be deemed the trigger swap so that it
can be reported in real-time by the SEF
or DCM.
The Commission is amending the
proposed definition of ‘‘Mirror swap’’ to
replace references to ‘‘notional’’ with a
broader reference to ‘‘contractually
agreed payment and delivery amounts.’’
The Commission believes that use of the
broader term ‘‘contractually agreed
payment and delivery amounts’’
clarifies that the term mirror swap may
apply to swaps in all asset classes,
including swaps for which the term
‘‘notional’’ may not generally be used by
market participants. The Commission is
also amending the proposed definition
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75435
of ‘‘Mirror swap’’ to remove the phrase:
Including, but not limited to, in the case
of a mirror swap that is part of a partial
reverse give-up. While the Commission
understands that the definition of
‘‘Mirror swap’’ may apply to swaps
associated with partial reverse give-ups,
as described in the Proposal, the
Commission believes such specific
reference in the text of the regulation is
unnecessary.
The Commission is otherwise
finalizing the proposed definitions of
mirror swap and trigger swap as
proposed. The Commission believes the
definitions are necessary to ensure that
§ 43.3(a)(6) only exempts from public
reporting those legs of a prime brokerage
transaction that might incorrectly
suggest the presence of more trading
activity and price discovery than
actually exist.
The Commission is therefore defining
a mirror swap to mean a swap: (1) To
which (i) a PB is a counterparty or (ii)
both counterparties are prime brokers;
(2) that is executed contemporaneously
with a corresponding trigger swap; (3)
That has identical terms and pricing as
the contemporaneously executed trigger
swap (except (i) that a mirror swap, but
not the corresponding trigger swap, may
include any associated prime brokerage
service fees agreed to by the parties and
(ii) as provided in paragraph (5) of this
‘‘mirror swap’’ definition); (4) With
respect to which the sole price forming
event is the occurrence of the
contemporaneously executed trigger
swap; and (5) The execution of which is
contingent on, or is triggered by, the
execution of the contemporaneously
executed trigger swap. The contractually
agreed payments and delivery amounts
under a mirror swap may differ from
those amounts of the corresponding
trigger swap if: (i) Under all such mirror
swaps to which the PB that is a
counterparty to the trigger swap is also
a counterparty, the aggregate
contractually agreed payments and
delivery amounts shall be equal to the
aggregate of the contractually agreed
payments and delivery amounts under
the corresponding trigger swap; and (ii)
the market risk and contractually agreed
payments and delivery amounts of all
such mirror swaps to which a PB that
is not a counterparty to the
corresponding trigger swap is a party
will offset each other, resulting in such
PB having a flat market risk position at
the execution of such mirror swaps.
The Commission is similarly defining
a trigger swap to mean a swap: (1) That
is executed pursuant to one or more
prime brokerage agency arrangements;
(2) to which one counterparty or both
counterparties are prime brokers; (3)
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that serves as the contingency for, or
triggers, the execution of one or more
corresponding mirror swaps; and (4)
that is a publicly reportable swap
transaction that is required to be
reported to an SDR pursuant to parts 43
and 45. A PB swap executed on or
pursuant to the rules of a SEF or DCM
shall be treated as the trigger swap for
purposes of part 43.
The Commission expects the parties
to a trigger swap to promptly convey
those terms to the relevant prime
broker(s) that would be a party or
parties to related mirror swaps. Any
delay in conveying such terms should
not be used as an opportunity to find
additional counterparties to take part in
unreported mirror swaps.142 The
Commission may construe any
purported mirror swaps resulting from
such activity as not executed
contemporaneously with the related
trigger swap, and thus not within the
scope of the proposed mirror swap
definition or, as a result, § 43.3(a)(6),
and therefore reportable under
§ 43.3(a)(1) through (3), as applicable,
depending on the facts and
circumstances.
The Commission disagrees with
comments suggesting the proposed
definition of trigger swap be amended to
allow an exception to the requirement
that such swap be a publicly reportable
swap transaction reported to an SDR,
where the trigger swap is otherwise
exempt from public reporting. The
Commission is excluding mirror swaps
from public dissemination because of its
concern that the public dissemination of
both trigger and mirror swaps may
falsely indicate the occurrence of two or
more pricing events. The Commission’s
concern that the publication of a mirror
swap may mislead the market is
premised on the publication of the
associated trigger swap. If the trigger
swap is not publicly disseminated, this
concern is moot. The Commission is
therefore not amending the definition of
trigger swap to allow for an exception to
the requirement that a trigger swap be
a publicly reportable swap transaction
that is reported to an SDR.
The Commission agrees with the
comment suggesting revisions to clarify
and simplify reporting obligations for
trigger swaps. The Commission is
changing the title of § 43.6(a)(6) from
‘‘Mirror swaps’’ to the more general
‘‘Prime Broker swaps’’ as the paragraph
142 This could include, but would not be limited
to, a potential party to a mirror swap receiving the
terms of a related trigger swap from one party to the
trigger swap and seeking additional counterparties
to a mirror swap while waiting to receive the
matching terms of the trigger swap from the other
party thereto.
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contains reporting obligations related to
trigger swaps. The Commission is
modifying proposed § 43.6(a)(6)(ii) to
clarify that the obligation for PBs to
determine which swaps are mirror
swaps and which are trigger swaps
applies when the trigger swap would
occur between two PBs under a prime
brokerage agency arrangement. The
Commission is also removing the
distinction in proposed §§ 43.6(a)(6)(ii)
and 43.6(a)(6)(iii) that would have
created slight differences in the process
for determining the reporting
counterparty for certain off-facility
trigger swaps.
5. § 43.3(a)(7)—Third-Party Facilitation
of Data Reporting
The Commission is adding new
§ 43.3(a)(7) to provide for the third-party
facilitation of data reporting. New
§ 43.3(a)(7) states that any person
required by part 43 to report swap
transaction and pricing data, while
remaining fully responsible for
reporting as required by part 43, may
contract with a third-party service
provider to facilitate reporting.
Regulation 45.9 provides for third-party
facilitation of data reporting, and the
Commission believes a parallel
requirement in part 43 will provide
regulatory certainty by expressly
permitting the same opportunity for part
43 reporting.
The Commission received one
comment on the proposal. Markit
comments the proposed explicit
acknowledgement that third-party
reporting services may be used to meet
part 43 reporting requirements will
encourage more firms to provide such
services and will consequently result in
reduced compliance costs.143 The
Commission agrees with Markit, and for
the reasons discussed above, is adopting
§ 43.3(a)(7) as proposed.
6. § 43.3(b)—Public Dissemination of
Swap Transaction and Pricing Data
The Commission is adopting changes
to § 43.3(b). Existing § 43.3(b)(2) 144
states that registered SDRs shall ensure
that swap transaction and pricing data
is publicly disseminated ASATP after
such data is received from a SEF, DCM,
or reporting party, unless such publicly
reportable swap transaction is subject to
a time delay described in § 43.5, in
which case the publicly reportable swap
transaction shall be publicly
disseminated in the manner described
in § 43.5.
143 Markit
at 8.
the Commission discussed above in section
II.C.1, the Commission is moving the substance of
existing § 43.3(b)(1) to revised § 43.3(a)(2).
144 As
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The Commission is re-locating
existing § 43.3(b)(2) to § 43.3(b)(1). The
Commission is replacing the language in
existing § 43.3(b)(2) stating that SDRs
‘‘shall ensure’’ swap transaction and
pricing data is publicly disseminated
with an SDR ‘‘shall publicly
disseminate’’ swap transaction and
pricing data ASATP to clarify that SDRs
must disseminate the data, rather than
ensure it is done. The Commission is
also correcting two references to
‘‘publicly reportable swap transaction’’
to reference ‘‘swap transaction and
pricing data.’’
The Commission is re-locating
§ 43.3(c)(1) to § 43.3(b)(2) in conjunction
with the above relocation of § 43.3(b)(2)
to § 43.3(b)(1). Existing § 43.3(c)(1)
states that any SDR that accepts and
publicly disseminates swap transaction
and pricing data in real-time shall
comply with part 49 and shall publicly
disseminate swap transaction and
pricing data in accordance with part 43
ASATP upon receipt of such data,
except as otherwise provided in part 43.
Because existing § 43.3(c)(1) is an SDR
obligation regarding the public
dissemination of swap transaction and
pricing data, the Commission is relocating it to revised § 43.3(b).
The Commission is also removing the
last phrase of existing § 43.3(c)(1),
which states that SDRs must publicly
disseminate swap transaction and
pricing data in accordance with part 43
ASATP upon receipt of such data,
except as otherwise provided in part 43.
The language is unnecessary given the
similar, but more precise, reference to
§ 43.5 in existing § 43.3(b)(2) and in
proposed § 43.3(b)(1).145 Finally, the
Commission is re-designating existing
§ 43.3(c)(2) and (3) as § 43.3(b)(4) and
(5), respectively.
The Commission did not receive any
comments on the non-substantive or
structural changes to § 43.3(b). For the
reasons discussed above, the
Commission is adopting the changes to
§ 43.3(b) as proposed. Separately, DTCC
recommends deleting the annual
independent review requirements for
SDRs in existing § 43.3(c)(3), redesignated § 43.3(b)(5), because SDRs
are subject to the system safeguards
requirements in § 49.24, so the
requirements in § 43.3(b)(5) create
unnecessary compliance costs and
burdens for SDRs.146 To the extent the
requirements overlap, the Commission
clarifies SDRs can apply the controls
145 The reference in § 43.3(c)(1) to ‘‘except as
otherwise provided in part 43’’ rather than solely
to § 43.5 is unnecessarily broad, given that § 43.5
currently is the only regulation in part 43
containing a delay to public dissemination.
146 DTCC at 3.
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testing provisions in § 49.24 by their
internal audit departments to satisfy
§ 43.3(b)(5), but the Commission is not
removing § 43.3(b)(5) from its
regulations.
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7. § 43.3(c)—Availability of Swap
Transaction and Pricing Data to the
Public
The Commission is relocating the
requirements to make swap transaction
and pricing data available to the public
from existing § 43.3(d)(1) and (2) to
§ 43.3(c)(1) and (2).147 Existing
§ 43.3(d)(2) specifies that SDRs must
make ‘‘publicly disseminated’’ 148 swap
transaction and pricing data ‘‘freely
available and readily accessible’’ to the
public.
The Commission is also changing
existing § 43.3(d)(1) and (2), redesignated as § 43.3(c)(1) and (2) to
establish requirements for SDRs to make
swap transaction and pricing data
available to the public on their websites.
First, the Commission is specifying that
SDRs must make swap transaction and
pricing data available on their websites
for a period of a least one year after the
initial ‘‘public dissemination’’ of such
data. Second, the Commission is moving
the format requirements for SDRs in
making this swap transaction and
pricing data available to the revised
definition of ‘‘public dissemination.’’
The Commission believes publishing
historical data supports the fairness and
efficiency of markets and increases
transparency, which in turn improves
price discovery and decreases risk.149
Most SDRs currently make historical
swap transaction and pricing data
available on their websites for market
participants to download, save, and
analyze.150 However, without clear
requirements on how long SDRs must
make this data available, or make
instructions available, a situation could
arise where swap transaction and
pricing data is reported, publicly
disseminated, and then quickly or
147 As discussed above in section II.C.6, the
Commission is re-locating the text of existing
§ 43.3(c)(1), as the Commission is modifying it, to
§ 43.3(b)(2), and existing § 43.3(c)(2) and (3) as
§ 43.3(b)(4) and (5), respectively.
148 Existing § 43.2 defines ‘‘publicly
disseminated’’ to mean to publish and make
available swap transaction and pricing data in a
non-discriminatory manner, through the internet or
other electronic data feed that is widely published
and in machine readable electronic format.
149 See Real-Time Public Reporting of Swap
Transaction Data, 77 FR 1182, 1183.
150 DTCC–SDR’s historical swap transaction and
pricing data is available at https://rtdata.dtcc.com/
gtr/; CME SDR’s historical swap transaction and
pricing data is available at https://
www.cmegroup.com/market-data/repository/
data.html; and ICE Trade Vault’s historical swap
transaction and pricing data is available at https://
www.icetradevault.com/tvus-ticker/#.
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unreasonably made unavailable to the
public. Removing data in this fashion
would deny the public a sufficient
opportunity to review the data and
ultimately impede the goals of
increasing market transparency,
improving price discovery, and
mitigating risk.
The Commission received three
comments supporting the proposal to
require SDR’s to make public data
available on their websites free for one
year.151 In particular, Citadel believes
SDRs should be required to make
available at least one year of historical
data free of charge.152 The Commission
agrees with commenters and is adopting
the changes to § 43.3(c) as proposed,
with one modification described below.
DTCC recommends clarifying the
connection between the fee requirement
in proposed § 43.3(c)(2) and the oneyear period set forth in § 43.3(c)(1) by
either (i) combining the requirements in
a single paragraph or (ii) changing the
language under § 43.3(c)(2) from
‘‘pursuant to this part’’ to ‘‘pursuant to
this paragraph (c).’’ 153 The Commission
agrees with DTCC and is changing ‘‘this
part’’ in § 43.3(c)(2) to ‘‘this paragraph’’
to clarify the connection.
Therefore, § 43.3(c) will state that
SDRs shall make: Swap transaction and
pricing data available on their websites
for a period of time that is at least one
year after the initial public
dissemination thereof; instructions
freely available on their websites on
how to download, save, and search such
swap transaction and pricing data; and
swap transaction and pricing data that
is publicly disseminated pursuant to
this paragraph available free of charge.
8. § 43.3(d)—Data Reported to SDRs
The Commission is adopting new
§ 43.3(d)(1) to require reporting
counterparties, SEFs, and DCMs to
report the swap transaction and pricing
data as described in the elements in
appendix A. The Commission provides
guidance with respect to the form and
manner of reporting such elements in
the technical specification published by
the Commission in place of existing
§ 43.3(d)(1).154 The Commission is also
adding § 43.3(d)(2) to require reporting
counterparties, SEFs, and DCMs to
151 Citadel
at 11; CME at 8; DTCC at 3.
at 11.
153 DTCC at 3. DTCC is concerned interpreting
§ 43.3(c)(2)’s fee requirement without any time
limitation would mean any such previously
publicly disseminated data held by an SDR must be
offered free of charge in perpetuity, which could
unnecessarily limit the services SDRs could provide
to market participants.
154 The Commission is relocating the requirement
in existing § 43.3(d)(1) to the definition of ‘‘publicly
disseminate’’ in § 43.2.
152 Citadel
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75437
satisfy SDR validation procedures when
reporting swap transaction and pricing
data to SDRs in place of existing
§ 43.3(d)(2).155
The Commission is also removing
existing § 43.3(d)(3). In its place, the
Commission is requiring reporting
counterparties, SEFs, and DCMs to use
the facilities, methods, or data standards
provided or required by the SDR to
which the reporting counterparty, SEF,
or DCM, reports the data.
The Commission believes reporting
counterparties will benefit from distinct
regulatory requirements in part 43 for
reporting the swap transaction and
pricing data as described in the data
elements in appendix A in the form and
manner provided in the technical
specification published by the
Commission. In addition, the
Commission believes the SDR validation
procedures the Commission is adopting
in § 43.3(f) will help improve the
timeliness and accuracy of data SDRs
publicly disseminate. However, the
Commission believes a companion
requirement to § 43.3(f) for reporting
counterparties, SEFs, and DCMs to
satisfy SDR validation procedures in
§ 43.3(d)(2) is necessary. Without a
companion requirement, ambiguity
could arise as to the responsibilities of
reporting counterparties, SEFs, and
DCMs to actually satisfy the validation
requirements in § 43.3(f).
The Commission received one
comment 156 on the changes to § 43.3(d).
DTCC believes the revisions would
benefit market participants by having
publicly disseminated swap transaction
and pricing data standardized across
SDRs via the requirements of the
technical specifications published by
the Commission pursuant to § 43.7.157
The Commission agrees with DTCC. For
the reasons discussed above, the
Commission is adopting the changes to
existing § 43.3(d) as proposed, with a
non-substantive technical change to
proposed § 43.3(d)(1) for clarity.
155 The Commission is relocating the requirement
in existing § 43.3(d)(2) to § 43.3(c)(1) and (2).
156 NFP Electric Associations also comment they
read CEA section 2(a)(13)(D) as only authorizing the
Commission to require registered entities to
disseminate data on swaps. As such, after a non-SD/
MSP/DCO reports an off-facility swap pursuant to
part 43, their reporting obligations should be
satisfied as there is no separate ‘‘public
dissemination’’ requirement in the CEA that falls on
such non-registered entities. The Commission
agrees nothing in existing or amended § 43.3(d)
imposes a public dissemination requirement on a
non-registered entity, and as such, the Commission
considers NFP Electric Associations’ concern
misplaced.
157 DTCC at 4.
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9. § 43.3(f)—Data Validation Acceptance
Message
The Commission is adopting new
regulations for SDRs to validate swap
transaction and pricing data in § 43.3(f).
New § 43.3(f) will require that, in
addition to validating each swap
transaction and pricing data report
submitted to it, the SDR also shall notify
the reporting counterparty, SEF, or DCM
submitting the report whether the report
satisfied the data validation procedures
of the SDR. The SDR will have to
provide such notice ASATP after
accepting the swap transaction and
pricing data report. New § 43.3(f)(1) will
provide that an SDR may satisfy the
validation requirements by transmitting
data validation acceptance messages as
required by § 49.10.158
New § 43.3(f)(2) will provide that if a
swap transaction and pricing data report
submitted to an SDR does not satisfy the
data validation procedures of the SDR,
the reporting counterparty, SEF, or DCM
required to submit the report has not
satisfied its obligation to report swap
transaction and pricing data in the
manner provided by § 43.3(d). The
reporting counterparty, SEF, or DCM
will not have satisfied its obligation
until it submits the swap transaction
and pricing data report in the manner
provided by § 43.3(d), which includes
the requirement to satisfy the data
validation procedures of the SDR.
The Commission is making one
change to the proposal in response to a
comment from DTCC. DTCC believes
the Commission should replace the
word ‘‘transmitting’’ with ‘‘making
available’’ to give market participants
flexibility in using the best available
means to achieve proposed § 43.3(f)(1)’s
purpose.159 The Commission agrees
‘‘transmitting’’ could limit SDRs in
providing information to their
customers. As a result, the Commission
is changing ‘‘transmitting’’ in § 43.3(f)(1)
to ‘‘making available.’’
The Commission believes rules for
validations in § 43.3(f) are critical for
ensuring accurate, high-quality swap
transaction and pricing data reaches the
public. The Commission’s regulations
do not currently require that SDRs
validate swap transaction and pricing
data. The Commission understands,
158 The Commission is adopting new regulations
for SDRs to validate swap transaction and pricing
data in a separate release amending parts 45, 46,
and 49.
159 DTCC at 4. DTCC is concerned proposed
§ 43.3(f)(1) is silent regarding other means by which
an SDR can satisfy the validation requirements and
is concerned that the proposed language
unnecessarily limits the means by which SDRs and
their members may arrange for access to such
information.
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however, that SDRs have implemented
validations as a best practice. As a
result, each SDR runs a number of
checks, or validations, on each message
prior to publicly disseminating it. A
failed validation can cause an SDR to
reject the message without
disseminating it to the public.
The Commission is concerned that the
lack of validation requirements has
resulted in reporting counterparties,
SEFs, and DCMs being unaware of, or
unfamiliar with, the existence of such
validations. The Commission is
concerned that the lack of awareness
may be resulting in reporting
counterparties, SEFs, and DCMs being
unclear about their responsibilities to
monitor their submissions to SDRs for
errors that may result in validation
failures that ultimately result in nondissemination. As a result, the
Commission is adopting § 43.3(d)(2) to
require reporting counterparties, SEFs,
and DCMs to satisfy SDR validation
procedures when reporting swap
transaction and pricing data to SDRs.
The Commission is also adopting
§ 43.3(f) to make clear the requirement
for each SDR to notify submitting
parties of their failure to meet the SDR’s
validation procedures and that an
entity’s reporting obligation is not
satisfied until the SDR’s validation
procedures have been satisfied.
The Commission received one
comment opposing validations. NFP
Electric Associations believe they will
impose a significant additional burden
on non-SD/MSP/DCO counterparties to
off-facility non-financial commodity
swaps and believe the Commission has
not proved the validations will achieve
a specific regulatory benefit to offset
these burdens.160 The Commission
acknowledges the concerns raised by
NFP Electric Associations, but believes
that as SDRs currently validate data, the
new regulations should not impose
significant additional burdens on all
reporting counterparties, including nonSD/MSP/DCO counterparties.
10. § 43.3(h)—Timestamp Requirements
The Commission is removing the
timestamp requirements in existing
§ 43.3(h)(1) through (4).161 Existing
§ 43.3(h)(1) through (4) sets forth
timestamp requirements for registered
entities, SDs, and MSPs for all publicly
reportable swap transactions.162
160 NFP
Electric Associations at 6–7.
Commission proposed moving the
§ 43.3(g) regulations for SDR hours of operation to
§ 49.28 and reserving § 43.3(g). See 84 FR at 21064
(May 13, 2019).
162 SEFs and DCMs must timestamp swap
transaction and pricing data relating to a publicly
reportable swap transaction with the date and time,
161 The
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Separately, existing § 43.3(h)(4)(i)
contains regulations regarding SDR fees.
The Commission is not substantively
amending § 43.3(h)(4)(i), but is relocating the requirement to § 43.3(g) in
light of the changes to § 43.3(h).
The updated list of data elements in
appendix A will cover the timestamps
described in § 43.3(h).163 Therefore,
§ 43.3(h)(1) through (3) requiring SEFs,
DCMs, SDs, MSPs, and SDRs to
timestamp swap transaction and pricing
data is now redundant. In addition, the
separate recordkeeping requirement for
timestamps duplicates other
recordkeeping requirements for SEFs,
DCMs, SDs, MSPs, and SDRs. SDRs
must already keep swap data for five
years following the final termination of
the swap and for an additional ten years
in archival storage.164 In a separate
release, the Commission is adding part
43 swap transaction and pricing data to
the recordkeeping requirement in
§ 49.12(b)(1) for SDRs.165 SEFs, DCMs,
SDs, and MSPs have similar
recordkeeping requirements for
swaps.166 As a result, SEFs, DCMs, SDs,
MSPs, and SDRs have to maintain
timestamps they disseminate as part of
recordkeeping requirements separate
to the nearest second, of when such SEF or DCM
receives data from a swap counterparty (if
applicable), and transmits such data to an SDR for
public dissemination. 17 CFR 43.3(h)(1). SDRs must
timestamp swap transaction and pricing data
relating to a publicly reportable swap transaction
with the date and time, to the nearest second when
such SDR receives data from a SEF, DCM, or
reporting party, and publicly disseminates such
data. 17 CFR 43.3(h)(2). SDs or MSPs must
timestamp swap transaction and pricing data for
off-facility swaps with the date and time, to the
nearest second when such SD or MSP transmits
such data to an SDR for public dissemination. 17
CFR 43.3(h)(3). Records of all timestamps required
by § 43.3(h) must be maintained for a period of at
least five years from the execution of the publicly
reportable swap transaction. 17 CFR 43.3(h)(4).
163 The Commission discusses appendix A in
section III below.
164 See § 45.2(f) and (g) (containing recordkeeping
requirements for SDRs); see also § 49.12(a)
(referencing part 45 recordkeeping requirements). In
the May 2019 notice of proposed rulemaking
relating to the Commission’s SDR regulations in
parts 23, 43, 45, and 49, the Commission proposed
to move the requirements in § 45.2(f) and (g) to
§ 49.12. See Certain Swap Data Repository and Data
Reporting Requirements, 84 FR 21044, 21103–04
(May 13, 2019).
165 The Commission is doing so by replacing the
term ‘‘swap data’’ with ‘‘SDR data,’’ which the
Commission proposes to define as data required to
be reported pursuant to two or more of parts 43, 45,
46, or 49 of the Commission’s regulations. See
Certain Swap Data Repository and Data Reporting
Requirements, 84 FR 21044, 21103–04 (May 13,
2019).
166 Existing § 45.2(c) requires SDs, MSPs, SEFs,
and DCMs to maintain records for each swap
throughout the life of the swap for a period of at
least five years following the final termination of
the swap.
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from § 43.3(h)(4), making the
requirement redundant as well.
The Commission did not receive any
comments on the changes to
§ 43.3(h)(1)–(4). For the reasons
discussed above, the Commission is
adopting the changes as proposed.
D. § 43.4—Swap Transaction and
Pricing Data To Be Publicly
Disseminated in Real-Time
1. § 43.4(a) Through (e)—Public
Dissemination, Additional Swap
Information, Anonymity, and Unique
Product Identifiers
The Commission is adopting several
changes to § 43.4(a) through (e). Existing
§ 43.4(a) generally requires that swap
transaction and pricing data be reported
to an SDR so that the SDR can publicly
disseminate the data in real-time,
including according to the manner
described in § 43.4 and appendix A.
Existing § 43.4(b) requires that any SDR
that accepts and publicly disseminates
swap transaction and pricing data in
real-time publicly disseminate the
information described in appendix A, as
applicable, for any publicly reportable
swap transaction. Existing § 43.4(c)
states that SDRs that accept and
publicly disseminate swap transaction
and pricing data in real-time may
require reporting parties, SEFs, and
DCMs to report to the SDR information
necessary to compare the swap
transaction and pricing data that was
publicly disseminated in real-time to
the data reported to an SDR pursuant to
section 2(a)(13)(G) of the CEA or to
confirm that parties to a swap have
reported in a timely manner pursuant to
§ 43.3.167 Existing § 43.4(d) contains
regulations for maintaining the
anonymity of the parties to a publicly
reportable swap transaction. Existing
§ 43.4(e) permits SDRs to disseminate
UPIs for certain data fields once a UPI
is available.
The Commission is deleting existing
§ 43.4(a) as it is overly general. As a
result, the Commission is re-designating
§ 43.4(b) through (d) as § 43.4(a) through
(c) and making minor non-substantive
changes. The Commission is also
removing existing § 43.4(e), which gives
SDRs discretion regarding what fields to
publicly disseminate after a UPI
exists.168 As discussed below in section
III, the UPI will be addressed in the
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167 The
real-time reporting requirements pursuant
to section 2(a)(13) of the CEA are separate and apart
from the requirements to report swap transaction
information to a registered SDR pursuant to section
2(a)(13)(G).
168 The Commission has not yet designated a UPI
and product classification system to be used in
recordkeeping and swap data reporting pursuant to
§ 45.7.
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swap transaction and pricing data
elements in appendix A.169
The Commission is adopting its
proposed changes to § 43.4(d)(4) with
modifications. The Commission
proposed removing § 43.4(d)(4)(i)
through (iii); re-designating § 43.4(d)(4)
as § 43.4(c)(4); consolidating the
substance of § 43.4(d)(4)(i) and (iii) in
proposed § 43.4(c)(4); and eliminating
the requirement in existing
§ 43.4(d)(4)(ii) that SDRs publicly
disseminate the actual assets underlying
certain swaps in the other commodity
asset class that either reference one of
the contracts described in appendix B to
part 43 170 or that are economically
related to such contracts.171
In proposing the changes to
§ 43.4(d)(4), the Commission believed
other commodity swaps referencing, or
economically related to, the contracts in
appendix B could still be sufficiently
bespoke to warrant additional masking.
Consequently, the Commission
proposed eliminating the requirement in
existing § 43.4(d)(4)(ii) that registered
SDRs publicly disseminate the actual
assets underlying other commodity
swaps that either reference one of the
contracts described in appendix B to
part 43 or that are economically related
to such contracts. Because the
Commission proposed removing that
requirement from existing
§ 43.4(d)(4)(ii), the Commission also
proposed removing appendix B to part
43 and re-designating existing appendix
E as appendix B.
The Commission is keeping the
masking requirements in existing
§ 43.4(d)(4), but re-locating the
requirement to § 43.4(c)(4) and making
minor technical edits. The Commission
has reconsidered whether expanding
masking outweighs reducing
transparency, and believes the analysis
that formed the basis for adopting
existing § 43.4(d)(4) remains operative.
As a result, the Commission is keeping
appendix B as well, as § 43.4(d)(4)
references it. The Commission is leaving
appendices B and E in their current
locations and making minor technical
edits to appendix E to reflect the
relocation of § 43.4(d)(4) to § 43.4(c)(4).
The Commission received two
comments on geographic masking of
commodities swap transactions. NFP
Electric Associations strongly support
the proposed additional masking of
swap transactions as it will help ensure
that business transactions and market
positions of counterparties are not
disclosed.172 CME, conversely, raised
issues with proposed § 43.4(c)(4). CME
notes § 43.3(c)(4) would require an SDR
to identify ‘‘. . . any specific delivery
point or pricing point associated with
the underlying asset of such other
commodity swap . . .’’ and publicly
disseminate it pursuant to appendix B
to part 43.173 CME, however, cannot
identify any data element(s) that would
be populated with delivery or pricing
points and believes that this would
render proposed § 43.4(c)(4)
unnecessary unless the Commission
anticipates those data elements being
part of a uniform product identifier.174
CME claims requiring CME to
implement such masking would require
the introduction of an additional data
element that would identify the regions
in proposed appendix B to which the
delivery or pricing point map, since the
reporting party, not the SDR, would
have that information.175 For reasons
discussed above, the Commission is not
adopting the proposed substantive
changes to § 43.4(c)(4).
2. § 43.4(f)—Process To Determine
Appropriate Rounded Notional or
Principal Amounts
The Commission is adopting nonsubstantive changes to existing § 43.4(f).
Existing § 43.4(f) requires reporting
parties, SEFs, and DCMs to report the
actual notional or principal amount of
any swap, including block trades, to an
SDR that accepts and publicly
disseminates such data pursuant to part
43.176 The Commission is re-designating
§ 43.4(f) as § 43.4(d) 177 and making
minor non-substantive changes. The
Commission received no comments on
the changes.
3. § 43.4(g)—Public Dissemination of
Rounded Notional or Principal Amounts
The Commission is re-designating
existing § 43.4(g) as § 43.4(e).178 The
Commission is also changing existing
§ 43.4(g), titled ‘‘Public dissemination of
rounded notional or principal
amounts,’’ which states that the notional
or principal amount of a publicly
reportable swap transaction, as
described in appendix A to this part,
shall be rounded and publicly
disseminated by a registered SDR, and
172 NFP
173 CME
Electric Associations at 7.
at 10.
174 Id.
175 Id.
176 See
169 In
addition, the Commission is making
technical non-substantive edits to § 43.4(a) for
clarity.
170 See existing § 43.4(d)(4)(ii)(A).
171 See existing § 43.4(d)(4)(ii)(B).
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75439
existing § 43.4(f)(1)–(2).
is due to removing § 43.4(a) and (e), and
re-designating § 43.4(b) through (d) as § 43.4(a)
through (c).
178 This is a result of re-designating § 43.4(f) as
§ 43.4(d).
177 This
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then sets out the rules for rounding. The
Commission is rephrasing § 43.4(g), redesignated as § 43.4(e), to state that the
notional or principal amount of a
publicly reportable swap transaction
shall be publicly disseminated by a
swap data repository subject to
rounding as set forth in § 43.4(f) and the
cap size as set forth in § 43.4(g).
The rounding rules in existing
§ 43.4(g) will be in § 43.4(f), titled
‘‘Process to determine appropriate
rounded notional or principal
amounts.’’ New § 43.4(f) will contain the
rounding rules set forth in existing
§ 43.4(g), subject to two substantive
changes explained below, among other
non-substantive changes.
The Commission is changing
§ 43.4(g)(8) and (9), re-designated as
§ 43.4(f)(8) and (9). Existing § 43.4(g)(8)
requires an SDR to round the notional
or principal amount of a publicly
reportable swap transaction to the
nearest one billion if it is less than 100
billion but equal to or greater than one
billion. The Commission is changing
§ 43.4(f)(8) to require rounding to the
nearest 100 million instead of one
billion. Existing § 43.4(g)(9) requires an
SDR to round the notional or principal
amount of a publicly reportable swap
transaction to the nearest 50 billion if it
is greater than 100 billion. The
Commission is changing existing
§ 43.4(f)(9) to require rounding to the
nearest 10 billion and adding the words
‘‘equal to or’’ before ‘‘greater than 100
billion’’ to include swaps with notional
or principal amounts that are exactly
100 billion, the omission of which from
the 2012 reporting rules appears to have
been an oversight.179
The Commission is concerned that
broadly rounded notional or principal
amounts could undermine the price
discovery purpose of real-time
reporting. The Commission is
particularly concerned about swaps
with notional or principal amounts over
1 billion because there tend to be fewer
swaps of such size relative to swaps
with smaller notional or principal
amounts. The Commission believes
smaller rounding increments for the
179 The omission of swaps with notional or
principal amounts of exactly 100 billion did not
change the rounding result. Although such swaps
are not presently subject to rounding due to their
omission from § 43.4(g)(9), even if they were
included therein, because their notional or
principal amount is a round number already, they
would not have been rounded, and would not be
rounded as a result of proposed § 43.4(f)(9).
However, because all swaps with notional or
principal amounts of greater than 100 billion will
be rounded to the nearest 10 billion if § 43.4(f)(9)
is adopted as proposed, such swaps would still
obtain the anonymizing benefits of § 43.4(f)(8) and
(9) when 100 billion is the nearest number to round
to pursuant to § 43.4(f)(8) or (9), as applicable.
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notional or principal amount of swaps
covered by proposed § 43.4(f)(8) and (9)
will improve price discovery for such
swaps. Rounding the notional or
principal amounts in smaller
increments in § 43.4(f)(8) and (9) also
would be consistent with the rounding
increments prescribed in § 43.4(g)(1)
through (7) (i.e., § 43.4(f)(1) through (7))
on a percentage basis. The Commission
did not receive any comments on the
proposal. For the reasons discussed
above, the Commission is adopting the
changes as proposed.
4. § 43.4(h)—Process To Determine Cap
Sizes
In the Proposal, the Commission
proposed removing the regulations for
initial cap sizes and replacing them
with new regulations for cap sizes. To
avoid removing regulations that still
need to be effective during the
compliance period for the changes to
§ 43.4(h) (which the Commission is still
re-designating § 43.4(g) as proposed),
the Commission has decided to leave
the existing regulations for the initial
cap sizes as § 43.4(g), while adding the
new updated regulations for cap sizes
during the post-initial period that were
proposed in the Proposal to new
§ 43.4(h). The Commission discusses the
new regulations in this section.
First, the Commission is redesignating existing § 43.4(h)(1)
(regulations for initial cap sizes) as
§ 43.4(g).180 Existing § 43.4(h) requires
the Commission to establish initial cap
sizes 181 and post-initial cap sizes.182
Existing § 43.4(h)(2) requires the
Commission to establish post-initial cap
sizes, according to the process in
§ 43.6(f)(1) using a one-year window of
180 This is a result of re-designating existing
§ 43.4(g) as § 43.4(e) and creating a separate section
for rounding in § 43.4(f).
181 Initial cap sizes for each swap category are the
greater of the initial appropriate minimum block
size for the respective swap category in existing
appendix F of part 43 or the respective cap sizes
in § 43.4(h)(1)(i) through (v). 17 CFR 43.4(h)(1). If
appendix F did not provide an initial appropriate
minimum block size for a particular swap category,
the initial cap size for such swap category was
equal to the appropriate cap size as set forth in
§ 43.4(h)(1)(i) through (v). Existing § 43.4(h)(1) also
requires SDRs, when publicly disseminating the
notional or principal amounts for each such
category, to disseminate the cap size specified for
a particular category rather than the actual notional
or principal amount in those cases where the actual
notional or principal amount of a swap is above the
cap size for its category. Existing § 43.4(h) does not
explicitly state that an SDR must publicly
disseminate swap data subject to the cap size limit,
but the Commission clarified this requirement in
the preamble to the 2012 Real-Time Public
Reporting Final Rule. See 2012 Real-Time Public
Reporting Final Rule, 77 FR 1182, 1214 (Jan. 9,
2012).
182 Before the Proposal, the Commission had not
yet established post-initial cap sizes.
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reliable SDR data for each relevant swap
category, recalculated no less than once
each calendar year and using the 75percent notional amount calculation
described in § 43.6(c)(3).183 The
Commission was to publish post-initial
cap sizes on its website at https://
www.cftc.gov,184 and the caps were to be
effective on the first day of the second
month following the date of
publication.185
The Commission is keeping the
substance of existing § 43.4(h)(1), while
also publishing post-initial cap sizes
using the 75-percent notional
calculation as required by existing
§ 43.4(h)(2) through (4). As discussed
above, to avoid removing regulations
needed during the compliance period
until market participants need to
comply with the regulations for postinitial cap sizes, the Commission is
retaining the substance of § 43.4(h)(1) in
new § 43.4(g) (titled ‘‘Initial cap sizes’’)
in its regulations.
Second, the Commission is
establishing cap sizes for each of the
proposed new swap categories set forth
in proposed § 43.6(c)(1)(i) (interest rate
(‘‘IRS’’)), (c)(2)(i) through (xii) (credit
(‘‘CDS’’)), (c)(4)(i) (foreign exchange
(‘‘FX’’)), and (c)(5)(i) (other commodity)
using the 75-percent notional amount
calculation.186 The Commission is
setting the cap sizes for those swap
categories containing swaps with
limited trading activity in the IRS, CDS,
FX, and other commodity asset class at
United States dollar (‘‘USD’’) 100
million, USD 400 million, USD 150
million, and USD 100 million,
respectively.187 The Commission is also
setting the cap size for all swaps in the
equity asset class at USD 250 million.
As indicated by the proposed cap size
tables published by the Commission, the
75-percent notional amount calculation
does not result in a cap size for certain
IRS categories set forth in proposed
§ 43.6(c)(1)(i).188 The Commission is
183 17
CFR 43.4(h)(2).
CFR 43.4(h)(3).
185 17 CFR 43.4(h)(4).
186 See section II.F.4 below for a discussion of the
process to determine appropriate minimum block
size. As mentioned above, using the 75% notional
amount calculation would be consistent with what
the Commission had intended when it adopted the
Block Trade Rule. See 17 CFR 43.4(h)(2).
187 New § 43.4(h) would reference the regulations
containing the categories for swaps with limited
trading activity: § 43.6(c)(1)(ii) (IRS);
§ 43.6(c)(2)(xiii) (CDS); § 43.6(c)(4)(iii) (FX);
§ 43.6(b)(5)(ii) (other commodity). The
Commission’s process for determining these
categories is discussed in section II.F.2 below.
188 The proposed cap size tables indicated that
the 75-percent notional amount calculation did not
result in a cap size for 15 IRS categories. There was
insufficient swap transaction and pricing data for
the Commission to determine a cap size for such
swap categories.
184 17
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setting the cap sizes for such IRS
categories at USD 100 million, the cap
size being assigned to other IRS with
limited trading activity.
The Commission received several
comments on its proposal to implement
post-initial cap sizes using the 75percent notional calculation. Most
commenters combined their comments
on raising cap sizes with the
Commission’s proposal to raise the
block threshold in § 43.6. As such, the
Commission discusses these comments
together, along with the Commission’s
decision to raise the cap sizes and block
thresholds, in section II.F.4 below.
Existing § 43.4(h)(2)(i) requires the
Commission to recalculate cap sizes no
less than once each calendar year. The
Commission proposed replacing
existing § 43.4(h)(2)(i), re-designated as
§ 43.4(g)(2)(i), with a flexible approach
permitting the Commission to
recalculate cap sizes when it
determined necessary. The Commission
is not adopting these changes. Most
commenters combined their comments
on the flexible approach for determining
cap sizes with the Commission’s
proposal to adopt a flexible approach for
determining block thresholds. The
Commission discusses these comments
together, along with the Commission’s
decision to keep the substance of the
current requirements in re-designated
§ 43.4(h)(9) and (10), in section II.F.1
below.
Separately, the Commission requested
comment on whether it should require
SDRs to remove any caps applied
pursuant to § 43.4(h) after six months to
reveal the actual notional amount after
six months of anonymity and whether
six months was long enough to mitigate
anonymity concerns. The Commission
received two general comments on the
topic. DTCC suggests the Commission
carefully consider the costs and burdens
associated with removing cap sizes as it
would deviate from current market
practice and would likely lead to
significant operational complexity for
implementation.189 MFA supports the
public dissemination of the full,
uncapped notional amount of block
trades and believes a shorter delay than
six months could be appropriate, but
notes that a six-month delay would
harmonize the Commission’s rules with
similar reporting in the fixed income
market on the Financial Industry
Regulatory Authority’s (‘‘FINRA’’) Trade
Reporting and Compliance Engine.190
The Commission received two
comments requesting faster removal.
Citadel recommends the Commission
189 DTCC
at 4.
190 MFA at 3.
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consider publishing full, uncapped
notionals of block trades three months
after execution.191 Clarus believes SDRs
should remove caps by T+1, as SEFs
already publish part 16 data T+1, to
introduce consistency for on-SEF and
off-SEF transactions and promote SEF
execution.192
The Commission received one
comment opposing SDR removal of
caps. GFMA believes caps protect the
ability of liquidity providers to manage
and hedge any risk exposure without
compromising anonymity.193 GFMA
notes large trades, such as those
facilitating merger and acquisition
transactions, are illiquid and potentially
sensitive in nature, and the ability to
successfully manage risk could be
compromised if a cap is removed, even
after time.194
Despite some commenters supporting
such a proposal, the Commission is
concerned about revealing information
that could enable market participants to
identify trading patterns or open
positions of swap counterparties. The
CEA requires the Commission ensure
swap transaction and pricing data
disseminated by SDRs does not identify
the transaction’s participants.195 The
Commission is concerned removing the
caps from this data after six months
could comprise the required anonymity
by allowing the public to associate
certain pricing and quantity data with
trading patterns. In addition, the
Commission shares GFMA’s concerns
about revealing information about
certain large trades that could be
sensitive given certain circumstances,
like corporate events like mergers and
acquisitions. Therefore, the Commission
is declining to adopt new rules
requiring SDRs remove cap sizes at this
time.
E. § 43.5—Time Delays for Public
Dissemination of Swap Transaction and
Pricing Data
1. § 43.5(a) and (b)—General Rule and
Public Dissemination of Publicly
Reportable Swap Transactions Subject
to a Time Delay
The Commission proposed many
technical changes to § 43.5(a) and (b).
The Commission proposed one
substantive change to remove references
to LNOFS transactions in § 43.5(a), and
throughout part 43, to reflect proposed
191 Citadel
at 8.
at 2.
193 GFMA at 8.
194 Id.
195 7 U.S.C. 2(a)(13)(E)(i).
75441
changes to § 43.5(c) for a single time
delay for block trade delays.196
The Commission proposed removing
the requirements of § 43.5(b)(1) and (2)
that SDRs must disseminate the
specified swap transaction and pricing
data no sooner than, and no later than
the prescribed time delay period and to
retain the requirement of § 43.5(b)(3)
that SDRs must disseminate the
specified swap transaction and pricing
data precisely upon the expiration of the
time delay period. The Commission also
proposed ministerial rephrasing
amendments to § 43.5(b). The
Commission believed that together, the
proposed amendments to § 43.5(b)
would improve the clarity of the
provision.
The Commission is keeping § 45.3(a)
and (b) without any changes because the
Commission is not adopting a single
time delay for public dissemination of
block trades. The Commission discusses
the decision to keep different time
delays in § 43.5 in the following section.
Since the changes to § 43.5(a) and (b)
would have conformed to changes the
Commission is not adopting, adopting
the changes would make § 43.5(a) and
(b) inconsistent with the rest of part 43.
As a result, the Commission is not
adopting any of the changes to § 43.5(a)
and (b).
2. § 43.5(c) Through (h)—Removal of
Certain Regulations Related to Time
Delays
a. Proposal
The Commission proposed removing
existing § 43.5(c) through (h) and adding
a new § 43.5(c) that would require SDRs
to implement a time delay of 48 hours
for disseminating swap transaction and
pricing data for each applicable swap
transaction with a notional or principal
amount above the corresponding
appropriate minimum block size, if the
parties to the swap have elected block
treatment. Because the time delays in
proposed § 43.5(c) would replace the
time delays in existing appendix C, the
Commission also proposed removing
appendix C.
Existing § 43.5(c) provides interim
time delays for each publicly reportable
swap transaction, not just block trades
and LNOFSs, until an appropriate
minimum block size is established for
such publicly reportable swap
transaction. The Commission adopted
§ 43.5(c) in case compliance with part
43 was required before the
establishment of appropriate minimum
192 Clarus
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196 The Commission discusses the definition of
‘‘large notional off-facility swap’’ in section II.B.2
above.
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block sizes.197 Because the Commission
has now established appropriate
minimum block sizes by swap
category,198 existing § 43.5(c) is
technically no longer applicable.
Existing § 43.5(d) through (h) phased
in the various time delays for the
dissemination of swap block trades and
LNOFSs over a one- to two-year period.
The Commission believed when it
adopted those regulations that providing
longer time delays for public
dissemination during the first year or
years of real-time reporting would
enable market participants to perfect
and develop technology and to adjust
hedging and trading strategies in
connection with the introduction of
post-trade transparency.199 Since the
phasing in of the time delays in existing
§ 43.5(d) through (h) is complete, the
Commission proposed to remove the
text remaining from the phase-in
concept.
Existing § 43.5(d) through (h) provides
specific time delays for the public
dissemination of swap transaction and
pricing data by an SDR. As background,
CEA section 2(a)(13)(E)(iv) directs the
Commission to take into account
whether public disclosure of swap
transaction and pricing data ‘‘will
materially reduce market liquidity.’’
When the Commission adopted the
Block Trade Rule in 2013, the
Commission understood that the
publication of detailed information
regarding ‘‘outsize swap transactions’’
(i.e., block trades and LNOFSs) could
expose swap counterparties to higher
trading costs.200 In this regard, the
publication of detailed information
about an outsize swap transaction could
alert the market to the possibility that
the original liquidity provider to the
outsize swap transaction will be reentering the market to offset that
transaction. Other market participants,
alerted to the liquidity provider’s large
unhedged position, would have a strong
incentive to exact a premium from the
liquidity provider when the liquidity
provider seeks to enter into offsetting
197 See Real-Time Public Reporting of Swap
Transaction Data, 77 FR 1182, 1217 (Jan. 9, 2012)
(stating ‘‘it is possible that compliance with part 43
may be required before the establishment of
appropriate minimum block sizes for certain asset
classes and/or groupings of swaps within an asset
class’’).
198 See § 43.6 (setting forth the block sizes for
various swap categories).
199 Real-Time Public Reporting of Swap
Transaction Data, 77 FR 1182, 1217 (Jan. 9, 2012).
200 See Block Trade Rule at 32871 n.44 (stating
that an ‘‘outsize swap transaction’’ is a transaction
that, as a function of its size and the depth of the
liquidity of the relevant market (and equivalent
markets), leaves one or both parties to such
transaction unlikely to transact at a competitive
price).
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trades to hedge this risk. As a result,
liquidity providers may be deterred
from becoming counterparties to outsize
swap transactions if swap transaction
and pricing data is publicly
disseminated before liquidity providers
can adequately offset their positions.
If a liquidity provider agrees to
execute an outsize swap transaction, it
likely will charge the counterparty the
additional cost associated with hedging
this transaction. In consideration of
these potential outcomes, the
Commission established the time delays
for block trades and LNOFSs to balance
public transparency and the concerns
that post-trade reporting would reduce
market liquidity.201 The Commission
did so in furtherance of its stated policy
goal to provide maximum public
transparency, while taking into account
the concerns of liquidity providers
regarding possible reductions in market
liquidity.202 The time delays established
by the Commission currently range from
15 minutes to 24 business hours,
depending upon the type of market
participant, method of execution, and
asset class.
When the Commission adopted the
time delays for block trades and
LNOFSs in 2012, it noted that
commenters to the proposal
recommended a range of time delays for
public dissemination of block trades
and LNOFSs, including end-of-day, 24
hours, T+1, T+2, a minimum of four
hours, and 180 days.203 In the Roadmap,
DMO stated an intention to evaluate
real-time reporting regulations in light
of goals of liquidity, transparency, and
price discovery in the swaps market.204
In response, the Commission received
comments on the time delays for block
trades and LNOFSs.
In response to the Roadmap
comments, the Commission proposed
significant changes to the time delays
for block trades and LNOFSs. In place
of the current time delays ranging
between 15 minutes to 24 business
hours, depending upon the type of
market participant, method of execution
and asset class, the Commission
proposed a single 48 hour time delay for
all block trades and LNOFSs. The
201 Cf. Federal Reserve Bank of New York Staff
Reports, An Analysis of OTC Interest Rate
Derivatives Transactions: Implications for Public
Reporting (Mar. 2012, revised Oct. 2012) at 3
(explaining that most post-trade reporting regimes
allow for reduced reporting requirements for large
transactions since immediate reporting of trade
sizes has the potential to disrupt market
functioning, deter market-making activity, and
increase trading costs).
202 78 FR 32870 (May 31, 2013).
203 See Real-Time Public Reporting of Swap
Transaction Data, 77 FR 1182, 1216 (Jan. 9, 2012).
204 Roadmap at 11.
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Commission sought comment on
whether a single 48 hour time delay was
necessary to account for potential
situations when a market participant
requires additional time to place a
hedge position without significant
unfavorable price movement and to
create some consistency with the
disclosure requirements of other
authorities for non-liquid swaps.
b. Comments on the Proposal
The Commission received three
comments supporting, and 15 comments
opposing, the proposed 48 hour time
delay for block trades and LNOFSs.
FXPA and GFMA support the
proposed delay for FX swaps because it
would assist market participants
conducting hedging activities.205 ACLI
similarly supports the proposed 48 hour
delay, but comments that it can take
days or weeks to execute large hedging
programs.206 ACLI believes the need for
price transparency in the swaps market
is not as compelling as it is in other
markets and that public dissemination
sooner than the time it takes to execute
hedging programs causes costs to endusers that outweigh any benefits to the
market.207
Other commenters express concern
that the proposed delay would have
negative impacts on transparency, price
discovery, and liquidity.208
Citadel expresses concern that
counterparties to a block trade or
LNOFS would have significantly more
information regarding the fair value of a
particular instrument than the rest of
the market, which could advantage
them when negotiating additional
transactions in both that and similar
instruments during the 48 hour
period.209 FIA PTG similarly believes
this information asymmetry created by
the proposal would be significant and
impact related futures, options, and
cash products.210 Healthy Markets,
SMU, and TRP believe the information
asymmetry would benefit large liquidity
providers at the expense of other market
participants.211 Citadel believes the
information asymmetry also benefits
current liquidity providers by increasing
barriers to entry for potential new
liquidity providers.212
205 FXPA
at 2–3; GFMA at 1,8–9.
at 2.
207 Id. at 2–3.
208 Better Markets, Carnegie Mellon, Chris
Barnard, CHS, Citadel, Clarus, FIA PTG, Healthy
Markets, ICI, MFA, MIT, SIFMA AMG, SMU, TRP,
and Vanguard.
209 Citadel at 6.
210 FIA at 2.
211 Healthy Markets at 2,7; SMU at 3; TRP at 2–
3.
212 Citadel at 7–8.
206 ACLI
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CHS, Citadel, and FIA PTG contrast
the proposed 48-hour time delay to time
delays in futures markets. Citadel notes
the five-minute deferral for block trades
in U.S. Treasury futures, a primary
hedging tool for the USD IRS.213 FIA
PTG notes the same.214 CHS believes the
difference between block futures
reporting deferrals and the proposed
time delay would impact futures market
participants and potentially result in
regulatory arbitrage.215
Better Markets, Carnegie Mellon,
Citadel, MIT, and SMU comment that
the Proposal is inconsistent with
research indicating that post-trade
transparency improves liquidity while
reducing transaction costs in financial
markets, including the swaps market.216
These commenters, as well as FIA PTG
and Healthy Markets, note that such
information was recently submitted to
FINRA as it considered a similar
proposal.217 218 Carnegie Mellon notes
the lack of academic studies or evidence
to support substantial dissemination
delays.219 SMU similarly notes the lack
of research indicating that SDs lose
significant sums to frontrunners and
their belief that SDs regularly oppose
timely reporting of blocks across
financial markets because it reduces
their pricing power.220
Commenters urge the Commission to
not adopt the proposal and to retain the
current reporting delays because the
current reporting delays have been
effective in supporting liquidity and risk
transfer.221 Other commenters urge the
Commission to not change the current
delays until the necessity of such
changes are more clearly supported by
a data analysis of market liquidity
conditions.222 Vanguard believes a 48hour delay is unwarranted based upon
current market liquidity, at least for IRS
213 Citadel
at 3.
PTG at 2–3.
215 CHS at 2.
216 Better Markets at 5; Carnegie Mellon at 2–4;
Citadel at 5; MIT at 1–2; SMU at 4–5.
217 Better Markets at 5; Carnegie Mellon at 2–4;
Citadel at 3; FIA PTG at 1; Healthy Markets at 7.
218 As background, FINRA requested comment on
a proposed pilot program to study changes to
corporate bond block trade dissemination based on
recommendations of the Securities and Exchange
Commission’s Fixed Income Market Structure
Advisory Committee. Specifically, the proposed
pilot was designed to study: An increase to the
current dissemination caps for corporate bond
trades, and delayed dissemination of any
information about trades above the proposed
dissemination caps for 48 hours. See FINRA
Regulatory Notice 19–12, available at https://
www.finra.org/rules-guidance/notices/19-12.
FINRA’s comment period closed in June 2019.
219 Carnegie Mellon at 3.
220 SMU at 4–7.
221 Clarus at 2; MFA at 2; TRP at 3.
222 Citadel at 4; ICI at 7; Vanguard at 5–6.
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214 FIA
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in the most liquid currencies.223 ICI
similarly comments that a ‘‘one size fits
all’’ delay does not reflect differences in
liquidity among different types of
swaps.224 TRP does not think an
additional delay is necessary because
indicators of a well-functioning market,
especially on SEFs, have constantly
increased since the implementation of
the current reporting deferrals for block
trades.225 FIA PTG believes any
perceived difficulty in hedging large
swap transactions is more likely due to
other elements of market structure, like
an incomplete transition to electronic
trading (including all-to-all platforms)
and limited competition among
liquidity providers.226
Clarus presents a methodology for
measuring liquidity using data publicly
disseminated by SDRs and comments
that because liquidity is currently
identical for swaps above and below the
appropriate minimum block size, it does
not appear that the proposed substantial
delay is necessary.227 Better Markets
and Citadel cite swaps data maintained
by Clarus for their assertions that all
market risks are adequately hedged
within current deferral periods.228 TRP
similarly comments that there is no
indication that liquidity providers are
unwilling to make markets because the
current reporting delays are too short.229
TRP notes studies indicating that market
liquidity, especially for on-SEF
transactions, has been consistently
improving.230 Citadel and Clarus further
note that more block trades were
executed in March 2020 than any prior
month.231 Citadel believes current
liquidity levels support reducing the
current 15 minute deferral for block
trades in standardized and liquid
instruments subject to mandatory
clearing and on-venue trading
requirements.232
The Commission also received
comments asserting that a 48-hour delay
would impair risk management
functions. Commenters note that the
Proposal would restrict access to current
prices, which would make it more
difficult for market participants to
correctly value transactions to support
end-of-day valuations and margin
calculations. Commenters believe such
difficulties would be particularly
pronounced during periods of market
223 Vanguard
at 6.
at 7.
225 TRP at 2.
226 FIA PTG at 2.
227 Clarus at 6.
228 Better Markets at 6; Citadel at 4.
229 TRP at 2.
230 Id.
231 Citadel at 4; Clarus at 6.
232 Citadel at 8.
224 ICI
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75443
volatility.233 Healthy Markets comments
the proposed delay would similarly
hamper efforts to comply with best
execution obligations.234
CME did not comment on whether 48
hours is an appropriate delay, but
supports the simplified approach of a
single time delay set forth in the
Proposal because it would be less costly
for SDRs to implement.235
The Commission received six
comments regarding the Commission’s
stated goal of harmonization. Better
Markets comments that harmonization
should not be used as pretext for
deregulatory initiatives contravening
statutory objectives, but acknowledged
harmonization of an appropriately
balanced regulatory framework that is
consistent with Congress’ instructions
and intent would be sensible and
statutorily commanded.236 Chris
Barnard comments that harmonization
should be reversed, with other
authorities shortening their public
reporting delays.237
FXPA comments that a 48-hour delay
would better align with MiFID II
requirements.238 In contrast, Citadel
comments that almost all European
(‘‘EU’’) swaps transactions receiving a
deferral are deferred four weeks and that
a 48 hour delay with capped notionals
would not increase harmonization with
an EU regime that provides a four-week
delay and does not cap notionals.239
Citadel and Clarus comment that there
is insufficient post-trade transparency in
Europe, and thus harmonization with
European regulations regarding
transparency is not desirable.240 SIFMA
AMG comments that the European
Securities and Markets Authority
(‘‘ESMA’’) recently both (i) adopted
regulations requiring certain products
be reported in 15 minutes or less and (ii)
released a consultation paper
questioning whether prior ESMA
reporting requirements achieved greater
market transparency.241
The Commission also received three
comments asserting that the
Commission did not put forward legally
sufficient support for the proposed 48hour delay. Healthy Markets comments
that the proposed reporting delay is
insufficiently supported to fulfill the
Commission’s obligations under the
233 Better Markets at 2; Citadel at 6, 7; Healthy
Markets at 4; MFA at 2.
234 Healthy Markets at 4.
235 CME at 11.
236 Better Markets at 7.
237 Chris Barnard at 2.
238 FXPA at 2–3.
239 Citadel at 6–7.
240 Citadel at 6–7; Clarus at 8.
241 SIFMA AMG at 5.
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APA.242 TRP comments that the
Commission did not allege any
‘‘material reduction in market
liquidity,’’ as required by the CEA, to
justify the proposed 19,200% increase
in the time delay for SEF-executed block
trades.243 Better Markets comments that
the proposal should be withdrawn in
the absence of data to reasonably
support the conclusion that a uniform
48-hour block trade reporting delay is
necessary across markets and asset
classes.244
c. Final Rule
For reasons discussed below, the
Commission is not adopting proposed
§ 43.5(c), which would have required
SDRs to implement a time delay of 48
hours for disseminating swap
transaction and pricing data for each
block trade or LNOFS, if the parties to
those swaps elected such treatment. The
Commission is also not removing the
existing regulatory text in § 43.5(d)–(h)
and appendix C that provides for
potential block and LNOFS time delays
ranging between 15 minutes to 24
business hours, depending upon the
type of market participant, method of
execution and asset class. The
Commission is removing and reserving
existing § 43.5(c) and paragraphs within
§§ 43.5(d), 43.5(e), 43.5(f), 43.5(g), and
43.5(h) as described further below. The
regulatory text being removed is
technically no longer applicable. The
Commission is also making nonsubstantive ministerial and conforming
edits to align the text with other changes
being made throughout this part.
The majority of commenters oppose
the proposed 48-hour delay and
expressed concern that such a delay
would have negative impacts on
transparency, price discovery, and
liquidity. Several commenters believe
that, particularly for the most liquid
products that are currently eligible for a
15-minute delay, there is no evidence
that current post-trade reporting
requirements have reduced market
liquidity. The Commission recognizes
the merit in those concerns. Taking into
account the comments and data
submitted by commenters regarding the
liquidity of, and necessary time to
hedge, U.S. dollar IRS swaps, the
Commission concludes that a 48 hour
delay would be particularly
inappropriate for those products and
would unnecessarily restrict
transparency and price discovery.
Existing § 43.5(d) through (h)
establish time delays for block trades
242 Healthy
Markets at 6.
at 2.
244 Better Markets at 3.
and LNOFSs that vary based upon the
type of market participant, method of
execution, and asset class, an approach
the Commission saw as appropriate to
balance public transparency and price
discovery against the concerns that posttrade reporting would reduce market
liquidity. Several commenters reference
and support this prior determination by
the Commission. These commenters
believe that the current varying time
delays are preferable to the proposed 48hour delay that did not distinguish
transactions according to the type of
market participant, method of
execution, and asset class. Informed by
commenters, the Commission agrees.
The Commission reiterates its stated
policy goal ‘‘to provide maximum
public transparency, while taking into
account the concerns of liquidity
providers regarding possible reductions
in market liquidity.’’ 245 The
Commission does not believe that this
policy goal is furthered by a universal
48 hour delay for all block and LNOFSs.
The Commission concludes, as
informed by comments opposing the
proposal, that this policy goal is better
served by the current, transaction
specific reporting delays that make
block and LNOFS swap transaction and
pricing data available quickly for more
liquid markets, with longer time delays
for less liquid markets.
The Commission believes the
transparency currently provided by the
dissemination of swap transaction data
promotes confidence in the fairness and
integrity of swaps markets. This
transparency increases participation in
the swaps markets and provides
enhanced price discovery that is of
particular value to buy-side participants
and end-users.
The Commission agrees with one
commenter that the proposed simplified
approach of a 48-hour time delay for all
block and LNOFSs may have reduced
operational costs compared to the
current approach of varying time delays.
However, the Commission is cognizant
of its statutory directive to make swap
transaction and pricing data available as
appropriate to enhance price discovery
while taking into account whether the
public dissemination will materially
reduce market liquidity. Accordingly,
the Commission does not view
operational cost savings potentially
available under an alternative simplified
time-delay regime sufficient reason to
justify deviation from the current
varied-time delay approach that the
Commission believes best suited to
effectuate this statutory directive.
243 TRP
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The Commission also agrees with
commenters that EU and CFTC
regulations requiring the public
dissemination of swap transaction and
pricing data differ significantly,
particularly with respect to the duration
of deferrals from public dissemination.
Since the Commission is not changing
the dissemination delays available to
block trades or LNOFSs, differences
with respect to the duration of deferrals
are not being harmonized at this time.
The Commission understands that EU
authorities are currently examining
potential changes to their public
dissemination rules, leading the
Commission to conclude that it is
premature to attempt harmonization
with respect to the duration of deferrals
at this time.
The Commission is removing and
reserving existing § 43.5(c). Existing
§ 43.5(c) provides interim time delays
for each publicly reportable swap
transaction, not just block trades and
LNOFSs, until an appropriate minimum
block size is established for such
publicly reportable swap transaction.
The Commission adopted § 43.5(c) in
case compliance with part 43 was
required before the establishment of
appropriate minimum block sizes.246
Because the Commission has now
established appropriate minimum block
sizes by swap category,247 existing
§ 43.5(c) is technically no longer
applicable.
The Commission is also removing and
reserving existing §§ 43.5(d)(1),
43.5(e)(2)(i), 43.5(e)(3)(i), 43.5(e)(3)(ii),
43.5(f)(1), 43.5(f)(2), 43.5(g)(1),
43.5(g)(2), 43.5(h)(1), and 43.5(h)(2).
These sections phased in the various
time delays for the dissemination of
swap block trades and LNOFSs after the
existing rules came into effect. Since the
phasing in of the time delays in existing
§ 43.5(d) through (h) is complete, the
Commission is removing the text
remaining from the phase-in concept.
F. § 43.6—Block Trades and Large
Notional Off-Facility Swaps 248
In the Proposal, the Commission
proposed removing the regulations for
initial appropriate minimum block sizes
and replacing them with new
regulations for appropriate minimum
block sizes. To avoid removing
246 See Real-Time Public Reporting of Swap
Transaction Data, 77 FR 1182, 1217 (Jan. 9, 2012)
(stating ‘‘it is possible that compliance with part 43
may be required before the establishment of
appropriate minimum block sizes for certain asset
classes and/or groupings of swaps within an asset
class’’).
247 See § 43.6 (setting forth the appropriate
minimum block sizes for various swap categories).
248 Existing § 43.6 was adopted in the Block Trade
Rule.
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regulations that still need to be effective
during the compliance period for the
changes to § 43.6, the Commission has
decided to leave the existing regulations
for the initial appropriate minimum
block sizes, including the existing swap
categories, while adding the new
updated regulations for appropriate
minimum block sizes during the postinitial period that were proposed in the
Proposal, including the new swap
categories. The Commission discusses
the new regulations in this section.
1. § 43.6(a)
Existing § 43.6(a) states that the
Commission shall establish the
appropriate minimum block size for
publicly reportable swap transactions
based on the swap categories in existing
§ 43.6(b) in accordance with the
provisions set forth in paragraphs (c),
(d), (e), (f) or (h) of § 43.6, as applicable.
Existing § 43.6(f) contains requirements
for the Commission to update the block
thresholds annually. Existing § 43.6(f)(1)
through (3) requires the Commission to
establish post-initial appropriate
minimum block size using a one-year
window of reliable SDR data
recalculated no less than once each
calendar year using the 67-percent
notional amount calculation for most
swap categories. Existing § 43.6(f)(4)
requires the Commission to publish
post-initial appropriate minimum block
size on its website. Existing § 43.6(f)(5)
specifies that unless otherwise indicated
on the Commission’s website, the postinitial appropriate minimum block size
shall be effective on the first day of the
second month following the date of
publication.
Similarly, § 43.4(h) contains
analogous requirements for the
Commission to update the cap sizes
annually. Existing § 43.4(h)(2) requires
the Commission to establish post-initial
cap sizes using a one-year window of
reliable SDR data recalculated no less
than once each calendar year using the
75-percent notional amount calculation.
Existing § 43.4(h)(3) requires the
Commission to publish post-initial cap
sizes on its website. Existing § 43.4(h)(4)
specifies that unless otherwise indicated
on the Commission’s website, the postinitial cap sizes shall be effective on the
first day of the second month following
the date of publication.
To implement a more flexible
approach than this current regime
provides, the Commission proposed
amending existing § 43.6(a) to instead
provide that the Commission would
establish appropriate minimum block
size at such times the Commission
determines necessary. Since the
processes for updating cap sizes and
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block thresholds are analogous, the
Commission discusses these changes
together in this section.
The Commission only proposed
changing the requirement to recalculate
the block thresholds and cap sizes
annually. The Commission proposed
keeping the requirement to post new
cap sizes and block thresholds on its
website in new § 43.4(g)(9) and
§ 43.6(e)(5), respectively. The
Commission also proposed keeping the
requirement for revised cap sizes to be
effective on the first day of the second
month following publication, unless
otherwise indicated by the Commission,
in new § 43.4(g)(10), but omitted the
effective date of any appropriate
minimum block size in error.
The Commission received two general
comments on the proposed flexible
approach. GFMA believes the flexible
approach to updating cap sizes and
block thresholds will create operational
burdens with limited benefits.249 GFMA
believes the flexible approach will be
difficult to implement and
operationalize and suggests the
Commission assess cap sizes annually
but not look to change the cap sizes
more than once per year.250 CME,
alternatively, supports no longer
requiring the Commission to update cap
sizes and block thresholds annually as
frequent changes to cap sizes will
require frequent SDR system updates at
unnecessary costs.251
As it expressed in the Proposal, the
Commission believed the flexible
approach would avoid frequent updates
to SDR systems without a clear benefit
to the real-time public tape.252 However,
the Commission explained it instead
expected to evaluate the cap sizes and
block thresholds on an ongoing basis to
update cap sizes and block thresholds
when doing so would benefit the public
tape.253 The Commission recognizes the
tension that creates, as it suggests the
Commission would review the data
more frequently than once each
calendar year, with market participants
unable to anticipate updates.
As a result, the Commission finds
GFMA’s point that the proposal would
be difficult to implement and
operationalize persuasive and
249 GFMA
at 7, 10.
GFMA also believes if an FX product is
considered for a future MAT determination, the
Commission should revisit the block thresholds to
ensure any determinations do not have a
detrimental impact on FX markets. The
Commission is unaware of any FX MAT
determinations and notes that any determinations
would follow the MAT process, which is separate
from part 43 reporting.
251 CME at 9–10.
252 Proposal at 85 FR 21532 (Apr. 17, 2020).
253 See id.
250 Id.
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75445
significant enough to reconsider the
proposed flexible approach. While CME
supports the Commission’s expectation
that the flexible approach would avoid
frequent updates, the Commission’s
concerns about creating uncertainty
override the anticipated benefits of the
proposal and the Commission is
declining to adopt the proposal to
amend § 43.6(a). Instead, the
Commission is maintaining the current
requirement to establish cap sizes using
a one-year window of reliable SDR data
according to the 75-percent notional
amount calculation recalculated no less
than once each calendar year in
§ 43.4(h)(2). Similarly, the Commission
is maintaining the current requirement
to establish appropriate minimum block
size using a one-year window of reliable
SDR data according to the 67-percent
notional amount calculation no less
than once each calendar year in
§ 43.6(g)(2).254
The Commission received two
comments on the effective date
requirements. CME believes the
effective date should instead be the date
determined by the Commission in
consultation with the SDRs.255 The
Commission is declining to adopt this
approach as it would create uncertainty
for market participants outside of SDRs.
Similarly, DTCC believes the effective
date should instead be not less than 90
days following publication, given the
highly technical nature of the changes,
that appropriate minimum block size is
delegated to Commission staff, and that
implementation could require a longer
amount of time.256 The Commission is
declining to adopt this change because
the regulations the Commission is
keeping give the Commission discretion
to determine a different effective date if
necessary. The Commission expects to
work with SDRs to help ensure
appropriate effective dates to
accommodate any technological
changes.
The Commission received three
comments on the publication
requirement. CME requests the
Commission explain whether the cap
thresholds or the actual methodology or
swap categories will change on an
ongoing basis without a rulemaking, and
how the Commission would notify the
public about changes to cap sizes so
SDRs do not have to establish programs
254 The Commission discusses the renumbering
changes to § 43.6 throughout the following sections.
255 Id. CME notes if the implementation date fell
on a weekday rather than a weekend when CME
implements changes, CME would need to develop
a new process, which would be a complex
undertaking and reduce the amount of testing that
could occur.
256 DTCC at 5–6.
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to monitor the Commission’s website.257
ISDA–SIFMA (Blocks) believe block and
cap threshold changes should go
through notice and comment, regardless
of changes to the categories or
methodologies.258 SIFMA AMG requests
the Commission adopt a 30-day notice
and public comment period and a three
month implementation period following
any appropriate minimum block size or
cap size changes.259
As the existing rules provide, the
Commission updates the cap sizes and
block thresholds on its website, but
modifies the categories and
methodologies through rulemaking.260
The Commission did not propose any
changes to the current process as the
Commission believes notification on the
Commission’s website provides
sufficient notice to market participants.
The Commission will continue
calculating block thresholds and cap
sizes for swap categories set forth in the
Final Rules using methodologies set
forth in the rules, but the application of
regulations does not require additional
notice and comment. The Commission
is concerned opening the results of
applying the methodologies to data
would suggest the methodologies are
open to public comment annually, when
opening the rules for public comment
each year would be an inefficient use of
Commission resources.
The Commission received one
comment on temporary changes to the
block thresholds and cap sizes. Citing
March 2020 volatility, ISDA–SIFMA
(Blocks) suggest the Commission create
a formal adjustment mechanism to
allow market participants to petition the
Commission to temporarily change
block and cap thresholds based on
observed market conditions, or enable
the Commission to do so subject to a
public comment process.261 The
Commission considered comments
raising this issue in the Block Trade
Rule, and ultimately decided the
requirement to analyze the thresholds
no less than once each calendar year
gives the Commission the authority to
update appropriate minimum block size
when warranted and as necessary to
respond to such circumstances.262 In
light of the Commission’s observations
and oversight of the markets during
periods of high volatility, including
March 2020, the Commission believes
this authority continues to give the
257 Id.
258 ISDA–SIFMA
(Blocks) at 7–8.
AMG at 4.
260 See also Block Trade Rule at 78 FR 32903
(May 31, 2013).
261 ISDA–SIFMA (Blocks) at 7–8.
262 Block Trade Rule at 78 FR 32903 (May 31,
2013).
259 SIFMA
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Commission sufficient authority to
respond to changing conditions. As a
result, the Commission is declining to
adopt ISDA–SIFMA’s suggestion for a
mechanism beyond the current rule.
2. § 43.6(b)—Swap Categories
Existing § 43.6(b) delineates the swap
categories referenced in § 43.6(a) by five
asset classes: IRS, CDS, equity, FX, and
other commodity. It then subdivides
these asset classes into various swap
categories. The categories group together
swaps with similar quantitative or
qualitative characteristics that warrant
being subject to the same appropriate
minimum block size.263
The Commission is concerned the
existing swap categories disparately
impact different swap transaction types.
For instance, the existing swap
categories group together economically
distinct swaps, such as IRS
denominated in U.S. dollars (‘‘USD
IRS’’) and IRS denominated in Japanese
yen (‘‘JPY IRS’’). Because the notional
amounts of USD IRS transactions are, on
average, higher than the notional
amounts of JPY IRS transactions, the
current IRS appropriate minimum block
size, which includes transactions from a
group of currencies, is too high for some
products, like JPY IRS, and too low for
others, like USD IRS. In other words,
USD IRSs are eligible for a
dissemination delay, even though a
delay may be unnecessary for a
counterparty to hedge the trade at
minimal additional cost due to the trade
size, and JPY IRS are ineligible for a
dissemination delay even though a
delay may be necessary for a
counterparty to hedge the trade without
incurring material costs due to the trade
size.
The Commission analyzed 2018–2019
part 43 SDR data for each asset class to
evaluate the sufficiency of the existing
swap categories. The Commission
reviewed all products within each asset
class, but removed certain swaps from
the data sets: Duplicate swap reports,
indicated by swaps having the same
unique swap identifier (‘‘USI’’);
terminated swaps; cancelled swap
reports; modifications to existing swap
reports; and swaps with notional values
of zero. The Commission removed FX
swaps with blank currency fields.
In addition, the Commission removed
CDS trades around the time the index
rolls twice a year. As new CDS indexes
are introduced each March and
September, many market participants
‘‘roll’’ their positions from the old ‘‘offthe-run’’ index into the new ‘‘on-the263 See Block Trade Rule at 78 FR 32872 (May 31,
2013).
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run’’ index. These trades are often done
as spread trades, similar to how futures
positions are rolled using calendar
spread trades during the expiration
cycle. As discussed below, commenters
raised including CDS roll days in the
CDS data set would result in
significantly larger thresholds for nonroll swaps. For almost all indices, the
Commission found there was a
substantial increase in daily notional on
those days in a way that could skew the
block thresholds.264 For example, on
September 27, 2018, CDXHY showed a
notional amount over 11 times the
annual daily sample average. The
Commission removed these swaps to
avoid significantly larger thresholds for
non-roll swaps.
The Commission proposed new swap
categories in § 43.6(c) 265 for swaps in
the IRS, CDS, FX, and other commodity
asset classes. The Commission discusses
comments on the specific swap
categories in the sections below. The
Commission received one comment
generally supporting new swap
categories. ICI believes the new
categories will be better calibrated to the
relative liquidity of the swap categories
in each asset class.266 The Commission
agrees with ICI and, for the reasons the
Commission discusses generally above
and specifically below for each asset
class, is adopting the new swap
categories, with some modifications.
The Commission received one
comment generally opposing the new
swap categories. Citadel believes the
new categories significantly increase
operational complexity for market
participants and trading venues, as each
threshold must be separately
implemented, monitored, and
surveilled.267 Citadel further believes
new categories would reduce market
transparency as the Commission
proposed setting the block threshold at
zero for certain newly-created categories
that have smaller trading volumes,
including instruments subject to
mandatory clearing, which would result
264 The analysis did not show similar patterns in
the option swap categories, and the Commission is
not adjusting options thresholds for roll periods.
265 In the Proposal, the Commission proposed
removing the existing swap categories in § 43.6(b)
and replacing them with new swap categories. As
explained above, the Commission has decided to
leave the existing regulation for initial appropriate
minimum block sizes, including the existing swap
categories, in § 43.6 to avoid removing regulations
that are still needed during the compliance period
for any changes to § 43.6. As a result, the
Commission is leaving the existing swap categories
as § 43.6(b) and renaming them ‘‘Initial swap
categories,’’ and adding the new swap categories for
the post-initial appropriate minimum block sizes in
§ 43.6(c) (titled ‘‘Post-initial swap categories’’).
266 ICI at 4–5.
267 Citadel at 9.
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in a reporting delay for swaps that are
currently reported in real time.268
As explained above, the Commission
believes the new swap categories are
better calibrated and will result in more
reliable appropriate minimum block
sizes. As explained below, the
Commission believes setting the
appropriate minimum block size to zero
is appropriate for swaps with a low
level of trading activity for which the
Commission cannot determine a robust
and reliable appropriate minimum block
size. In response to Citadel’s comment
that the rule could reduce transparency
for certain newly-created categories that
have smaller trading volumes, the
Commission has assessed the impact
that the new categories could have on
transparency as part of its review of the
2018–2019 data but nonetheless found
that block treatment was appropriate
given low liquidity. The Commission
finds that the appropriate minimum
block sizes for certain swaps will
increase thus leading to real-time
reporting for swaps that had previously
received block treatment and thereby
increased transparency. For these
reasons, the Commission is adopting the
new swap categories subject to the
modifications to the categories the
Commission describes below.
In addition, as mentioned above, in
the Proposal, the Commission proposed
removing the regulations for initial
appropriate minimum block sizes and
replacing them with new regulations for
appropriate minimum block sizes. As
part of this, the Commission proposed
removing the existing swap categories.
To avoid removing regulations that still
need to be effective during the
compliance period for the changes to
§ 43.6, the Commission has decided to
leave the existing swap categories in
§ 43.6(b), while adding the new updated
swap categories for appropriate
minimum block sizes during the postinitial period that were proposed in the
Proposal in § 43.6(c). The Commission
discusses the new regulations in this
section.
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a. Interest Rate Asset Class
Existing § 43.6(b)(1) sets forth the IRS
categories. The Commission based the
existing IRS categories on a unique
combination of three currency groups
and nine tenor ranges, for a total of 27
categories.
The Commission proposed new swap
categories for each combination of the
top 15 different currencies 269 and nine
268 Id.
269 See proposed § 43.6(b)(1)(i)(A)(1) through (15).
These 15 currencies are the currencies of Australia,
Brazil, Canada, Chile, Czech Republic, the
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tenor ranges,270 for a total of 135 swap
categories. The proposed nine tenor
ranges were the same nine tenor ranges
in existing § 43.6(b)(1)(ii)(A) through (I).
The proposed top 15 currencies added
the currencies of Brazil, Chile, the
Czech Republic, India and Mexico and
removed the currencies of Switzerland
and Norway from the currencies in
existing § 43.6(b)(1)(i)(A). The
Commission proposed a 136th swap
category in § 43.6(b)(1)(ii) for IRS other
than those of the top 15 currencies and
the nine tenors. The Commission
proposed grouping these swaps with
low activity together and setting the
appropriate minimum block size to zero
to make each transaction eligible for
delayed dissemination.271
The Commission is adopting the new
IRS categories as proposed, but
numbered as § 43.6(c) in the regulations.
For IRS, the Commission believes new
swap categories referencing the top 15
currencies, which make up 96% of the
total population of IRS trades, will have
appropriate minimum block sizes that
better fit these swaps by grouping IRS
into more discrete categories. A 136th
category for swaps in currencies outside
of the top 15 currencies that will have
an appropriate minimum block size of
zero will address the swaps for which
there is not enough activity for the
Commission to compute a reliable and
robust appropriate minimum block size.
The Commission received three
comments on the new IRS categories.
SIFMA AMG believes the 135 new IRS
categories will burden market
participants with complicated reporting
that may not provide meaningful
transparency or price discovery for
numerous IRS categories.272 ISDA–
SIFMA (Blocks) are concerned the scope
of data was overly inclusive and not
representative of all swaps in a
particular swap category, especially
with CDS and IRS.273 ACLI requests that
interest rate products with a tenor of 10
years and greater be made into a
separate category because they have a
different sensitivity to risks than
shorter-dated interest rate products.274
When the Commission formulated the
proposed categories it recognized, as
SIFMA AMG comments, that increasing
European Union, Great Britain, India, Japan,
Mexico, New Zealand, South Africa, South Korea,
Sweden, or the United States.
270 See proposed § 43.6(b)(1)(i)(B)(1) through (9).
271 See proposed § 43.6(e)(4), discussed below in
section II.F.4.
272 SIFMA AMG at 6.
273 ISDA–SIFMA (Blocks) at 6–7. The
Commission discusses the ISDA–SIFMA (Blocks)
comment with respect to CDS in the following
section.
274 ACLI at 3–4.
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75447
the number of categories could increase
operational and reporting costs. The
Commission also recognized the
concern expressed by ISDA–SIFMA
(Blocks) that there must be enough
categories so that the categories are not
overly inclusive. The Commission
believes the new IRS categories balance
these concerns. As described in the
Proposal, the new swap categories
address the following two policy
objectives: (1) Categorizing together
swaps with similar quantitative or
qualitative characteristics that warrant
being subject to the same appropriate
minimum block size; and (2)
minimizing the number of swap
categories within an asset class in order
to avoid unnecessary complexity in the
determination process.275 The
Commission has determined that
increasing the number of categories
from the current level is necessary to
group swaps with a similar economic
impact and better ensure that the
appropriate minimum block size for
each swap is appropriate.
The Commission is not persuaded by
ACLI’s recommendation. To be
consistent, the Commission could not
just create a new interest rate category
based on risk sensitivity. The
Commission would have to adopt an
entirely new block regime based on
risk—it would have to establish new
categories and develop new appropriate
minimum block sizes on the basis of
risk. As explained fully in its § 43.6(e)
discussion, the Commission believes its
approach is superior to a risk-based
approach as the ultimate goal in
establishing thresholds is to focus on
liquidity differences across swap
categories, not risk-transfer per se.
b. Credit Asset Class
Existing § 43.6(b)(2) sets forth the CDS
swap categories. The Commission based
the current CDS swap categories on
combinations of three conventional
spread levels and six tenor ranges, for a
total of 18 swap categories. The
Commission proposed replacing the
current spreads and tenor ranges in
§ 43.6(b)(2)(i) and (ii) with seven
product types and four to six year tenor
ranges. The Commission proposed
setting the new CDS categories in
§ 43.6(b)(2) as: (i) Based on the CDXHY
product type and a tenor greater than
1,477 days and less than or equal to
2,207 days; (ii) based on the iTraxx
Europe product type and a tenor greater
than 1,477 days and less than or equal
to 2,207 days; (iii) based on the iTraxx
Crossover product type and a tenor
greater than 1,477 days and less than or
275 Proposal
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equal to 2,207 days; (iv) based on the
iTraxx Senior Financials product type
and a tenor greater than 1,477 days and
less than or equal to 2,207 days; (v)
based on the CDXIG product type and
a tenor greater than 1,477 days and less
than or equal to 2,207 days; (vi) based
on the CDXEmergingMarkets product
type and a tenor greater than 1,477 days
and less than or equal to 2,207 days; and
(vii) based on the CMBX product type.
The Commission proposed a new swap
category in § 43.6(b)(2)(viii) for CDS
with low activity and setting the
appropriate minimum block size to zero
to make them eligible for delayed
dissemination.276
The Commission is adopting the new
CDS categories with modifications. For
CDS, the Commission believes spreads
may not be a consistent measure for the
swap categories. Specifically, the
Commission is concerned products with
similar spreads are not necessarily
economically similar because all market
participants may not calculate the same
spread for a given product. In addition,
a product’s spread range can change,
making it difficult for parties to be
certain that they are eligible for block
treatment. Instead, the Commission
finds most market participants trade
specific credit products within specific
tenor ranges. The Commission finds the
most-traded CDS products are: (i) The
CDXHY; (ii) iTraxx Europe, Crossover,
and Senior Financials indexes; (iii)
CDXIG; (iv) CDXEmergingMarkets; and
(v) CMBX.277 For each CDS product
except for CMBX, the Commission finds
the four to six year tenors, or greater
than 1,477 days and less than or equal
to 2,207 days, make up around 90% of
all CDS trades. The Commission
believes a separate category for CDS
outside the products and/or tenor ranges
above that will have an appropriate
minimum block size of zero will address
these swaps for which there is not
enough activity for the Commission to
compute a reliable and robust
appropriate minimum block size.
The Commission received one
comment on the scope of data used to
276 See proposed § 43.6(e)(4), discussed below in
section II.F.4.
277 The Markit CDX family of indices is the
standard North American CDS family of indices,
with the primary corporate indices being the CDX
North American Investment Grade (consisting of
125 investment grade corporate reference entities)
(CDX.NA.IG) and the CDX North American High
Yield (consisting of 100 high yield corporate
reference entities) (CDX.NA.HY). The Markit CDX
Emerging Markets Index (CDX.EM) is composed of
15 sovereign reference entities that trade in the CDS
market. The Markit CMBX index is a synthetic
tradable index referencing a basket of 25
commercial mortgage-backed securities. Markit
iTraxx indices are a family of European, Asian and
Emerging Market tradable CDS indices.
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create the CDS categories. In response,
the Commission is adopting § 43.6(c)(2)
with additional swap categories for CDS
with optionality. ISDA–SIFMA (Blocks)
are concerned the scope of data was
overly inclusive and not representative
of all swaps in a particular swap
category, especially with CDS.278 First,
ISDA–SIFMA (Blocks) believe including
swaps with optionality skewed block
and cap sizes because non-delta–1
products 279 trade in higher notional
amounts than delta–1 products and do
not represent the underlying products
(i.e., the delta–1 products) that make up
the rest of the swap category.280 ISDA–
SIFMA (Blocks) believe this is shown
by, for example, the proposed
appropriate minimum block size for
CDXIG being $550 million notional,
while the proposed appropriate
minimum block size for CDXEM, whose
markets have very little option activity,
as $51 million notional.281 ISDA–
SIFMA (Blocks) also believe the data set
inappropriately included CDS rolls.282
Separately, ISDA–SIFMA (Blocks)
believe the data sets should capture
calm and stressed market conditions.
ISDA–SIFMA (Blocks) recommend the
Commission either: (1) Recalibrate the
proposed appropriate minimum block
sizes by excluding such products from
its data sets; or (2) create new categories
that would distinguish between these
products.283
In response to the ISDA–SIFMA
(Blocks) comment that it may be
inappropriate when determining the
block and cap thresholds to include
swap products with optionality in
particular swap categories, the
Commission examined non-option and
option products separately. The
Commission determined there is a
substantial difference in the distribution
of trade sizes between non-option and
option CDS products.284 During 2018 to
2019 the notional values of swaps with
optionality were approximately three to
six larger than non-option swaps. As a
consequence, for many swaps
categories, excluding options had an
economically meaningful effect on the
278 ISDA–SIFMA
(Blocks) at 6–7.
products refer to derivatives that have
no optionality (i.e., for a given instantaneous move
in the price of the underlying asset there is
expected to be an identical move in the price of the
derivative).
280 ISDA–SIFMA (Blocks) at 6–7.
281 Id.
282 Id.
283 Id. at 7.
284 Similar analysis of IRS and FX trading shows
that the differences between the size distributions
of option and non-option swaps was sufficiently
small that the Commission concluded block and
cap sizes in IRS and FX should be the same for
option and non-option swaps.
279 Delta–1
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calculated block and cap thresholds.
Accordingly, the Commission is
separating the option activity into
distinct swap categories for some
indices, and there will now be a swap
category for CDXIG and one for CDXIGoptions.
In response to the ISDA–SIFMA
(Blocks) comment that the data sets
used to determine appropriate
minimum block sizes should capture
calm and stressed market conditions,
the Commission notes the current data
set includes data from the fourth quarter
of 2018 when markets were stressed and
data from the third quarter of 2018 and
the first quarter of 2019 when the
markets were calm. The Commission
understands that basing appropriate
minimum block sizes primarily on
periods of high or low volatility would
lead to appropriate minimum block
sizes that are inappropriate under most
market conditions; thus, the adopted
appropriate minimum block sizes are
based on a sample that is representative
of market activity in a range of market
conditions.
The Commission also has determined
that it will not establish appropriate
minimum block sizes for stressed
market conditions. By their nature,
markets may be stressed for different
reasons and to different levels, and thus,
the appropriate minimum block sizes
cannot be determined in advance.
c. Equity Asset Class
Existing § 43.6(b)(3) specifies that
there shall be one swap category
consisting of all swaps in the equity
asset class. The Commission did not
propose changing the equity asset class
in § 43.6(b)(3).285
The Commission received one
comment on the equity asset class. ICI
requests the Commission consider
whether to include appropriate
minimum block size for equity swaps
because the assumption that a highly
liquid underlying cash market negates
the need for an appropriate minimum
block size does not hold true.286 The
Commission considered whether equity
swaps should be eligible for block
treatment but continues to believe that
there is a highly liquid underlying cash
market for equities and that the equity
index swaps market is not small relative
to the futures, options, and cash equity
index markets. The Commission
declines to adopt ICI’s suggestion at this
time, but will continue to assess the
285 As explained above, due to renumbering
issues, the regulations for post-initial appropriate
minimum block sizes in the equity asset class will
be found at § 43.6(c)(3), even though the
Commission proposed leaving them in § 43.6(b)(3).
286 ICI at 5.
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d. Foreign Exchange Asset Class
Existing § 43.6(b)(4) sets forth the FX
swap categories. The Commission
grouped the existing FX swap categories
by: (i) The unique currency
combinations of one super-major
currency 287 paired with another super
major currency, a major currency,288 or
a currency of Brazil, China, Czech
Republic, Hungary, Israel, Mexico,
Poland, Russia, and Turkey; or (ii)
unique currency combinations not
included in § 43.6(b)(4)(i).289
The Commission proposed replacing
the FX swap categories in § 43.6(b)(4)
with new swap categories by currency
pair. The new FX categories would be
comprised of FX swaps with one
currency of the currency pair being
USD, paired with another currency from
one of the following: Argentina,
Australia, Brazil, Canada, Chile, China,
Colombia, the European Union, Great
Britain, India, Indonesia, Japan,
Malaysia, Mexico, New Zealand, Peru,
Philippines, Russia, South Korea, or
Taiwan.
The Commission proposed creating a
new category for FX swaps in
§ 43.6(b)(4)(ii) (re-designated as
§ 43.6(c)(4)(ii)) where neither currency
in the currency pair is USD. Proposed
§ 43.6(c)(4)(ii) would be comprised of
swaps with currencies from Argentina,
Australia, Brazil, Canada, Chile, China,
Colombia, the European Union, Great
Britain, India, Indonesia, Japan,
Malaysia, Mexico, New Zealand, Peru,
Philippines, Russia, South Korea, or
Taiwan. Parties to these FX swaps could
elect block treatment if the notional
amount of either currency in the
currency exchange is greater than the
appropriate minimum block size for a
FX swap between the respective
currencies, in the same amount, and
USD described in § 43.6(c)(4)(i). The
Commission proposed adding a swap
category in § 43.6(b)(4)(iii) (redesignated as § 43.6(c)(4)(iii)) for FX
swaps that trade with relatively low
activity and setting the appropriate
287 § 43.2 defines ‘‘Super-major currencies’’ as the
currencies of the European Monetary Union (i.e.,
the euro), Japan (i.e., the yen), the United Kingdom
(i.e., the pound sterling), and the United States (i.e.,
the U.S. dollar).
288 § 43.2 defines ‘‘Major currencies’’ as the
currencies, and the cross-rates between the
currencies, of Australia (i.e., the Australian dollar),
Canada (i.e., the Canadian dollar), Denmark (i.e., the
Danish krone), New Zealand (i.e., the New Zealand
dollar), Norway (i.e., the Norwegian krone), South
Africa (i.e., the South African rand), South Korea
(i.e., the South Korean won), Sweden (i.e., the
Swedish krona), and Switzerland (i.e., the Swiss
franc).
289 See 17 CFR 43.6(b)(4).
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minimum block size to zero to make
these swaps eligible for delayed
dissemination.290
The Commission is adopting the new
FX swap categories as proposed, with
technical modifications to re-designate/
re-number certain requirements, as
discussed above. For FX, the
Commission finds that almost 94% of
the over 7 million FX swaps included
USD as one currency in each swap’s
currency pair. Of these swaps, the top20 currencies paired with USD were
currencies from Argentina, Australia,
Brazil, Canada, Chile, China, Colombia,
the European Union, Great Britain,
India, Indonesia, Japan, Malaysia,
Mexico, New Zealand, Peru,
Philippines, Russia, South Korea, or
Taiwan. The Commission believes a
separate category for FX swaps outside
the above currency pairs that will have
an appropriate minimum block size of
zero will address these swaps for which
there is not enough activity for the
Commission to compute a reliable and
robust appropriate minimum block size.
The Commission received two
comments on the new FX swap
categories. The FXPA believes the
Commission’s reliance on market data
has led to an appropriate outcome and
the Commission’s empirical analysis
supports the conclusions set forth in the
proposal and encourages the
Commission to commit to periodic
reviews of FX asset class categories on
a regular basis.291
GFMA, conversely, believes
significant changes have occurred to the
FX market and the Commission should
consider the impact of changes in FX
market conditions, including changes to
the number and size of transactions,
since the 2018–2019 time period for
which data was analyzed.292 GFMA also
believes notional may not be a good
proxy for liquidity of some products and
suggests the Commission not aggregate
notionals for non-deliverable forwards
and FX options and instead consider
them as distinct categories.293 GFMA
notes that several currencies—such as
Swiss francs (‘‘CHF’’)—that are
currently in the block/cap tables are not
in the proposed tables and these
currencies would now fall into the
‘‘limited trading activity’’ bucket, which
GFMA believes is surprising.294 GFMA
also notes that the proposed block and
cap tables have added several new
currencies, some of which are emerging
290 See proposed § 43.6(e)(4) (re-designated as
§ 43.6(g)(4)), discussed below in section II.F.4.
291 FXPA at 2.
292 GFMA at 9.
293 GFMA at 7, 10.
294 Id.
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market currencies that are more
volatile.295
The Commission acknowledges
GFMA’s comment that market
conditions may have changed since the
proposed categories were created,
creating potential that the categories
may be a looser fit today than when
designed. However, the Commission
believes that the swap categories are
appropriately based on an analysis of
SDR swap data, discussions with market
participants, as well as information from
commenters, including FXPA which
concurs with the outcome. The
Commission does not agree that the
block and cap sizes of certain currencies
are too high. The appropriate minimum
block size of an FX product is
determined by the FX category to which
the FX product belongs. The
Commission utilized 2018–2019 part 43
SDR data to construct the FX categories.
The Commission believes the FX
categories are appropriate as they
advance the Commission’s policy
objectives of (1) categorizing swaps with
similar quantitative or qualitative
characteristics that warrant being
subject to the same appropriate
minimum block size and (2) minimizing
the number of swap categories within an
asset class in order to avoid unnecessary
complexity in the determination
process.296
Per GFMA’s comment, the
Commission reviewed whether FX nondeliverable forwards and FX options
should be aggregated. The Commission
determined that aggregating the two
types of swaps is appropriate for
achieving its policy goals, and is
concerned treating them separately
would complicate the categories
without a commensurate benefit to
transparency.
e. Other Commodity Asset Class
Existing § 43.6(b)(5) sets forth the
other commodity swap categories. The
Commission grouped the existing other
commodity swap categories by either (1)
the relevant contract referenced in
existing appendix B of part 43 297 for
swaps that are economically related to
a contract in appendix B, or (2) futuresrelated swaps for swaps that are not
economically related to contracts in
appendix B.298 Swaps outside of
295 Id.
296 See
Block Trade Rule at 32872.
B to part 43 lists 42 swap categories
based on such contracts.
298 These swaps are: CME Cheese; CBOT
Distillers’ Dried Grain; CBOT Dow Jones-UBS
Commodity Index; CBOT Ethanol; CME Frost Index;
CME Goldman Sachs Commodity Index (GSCI),
(GSCI Excess Return Index); NYMEX Gulf Coast
297 Appendix
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§ 43.6(b)(5)(i) and § 43.6(b)(5)(ii) are
categorized according to the relevant
product type referenced in appendix D
of part 43.299
The Commission proposed new swap
categories for the other commodity asset
class based on the list of underliers in
existing appendix D to part 43. The
Commission also proposed modifying
the list of underliers in existing
appendix D and re-designating it as
appendix A.300 For swaps with a
physical commodity underlier listed in
appendix A, proposed § 43.6(b)(5)(i)
would group swaps in the other
commodity asset class by the relevant
physical commodity underlier. The
proposed list of underliers in appendix
A would be based on broad commodity
categories the Commission has
identified from its review of the swap
data from SDRs, rather than references
to specific futures contracts.
For other commodity swaps outside of
those based on the underliers in
proposed appendix A, the Commission
found the trade count was not high
enough to compute a robust and reliable
appropriate minimum block size. The
Commission proposed adding a swap
category in § 43.6(b)(5)(ii) for relatively
illiquid other commodity swaps and
setting the appropriate minimum block
size for these swaps at zero.301
The Commission is adopting the new
other commodity swap categories as
proposed in § 43.6(c).302 The
Commission believes the new other
commodity swap categories advance the
Commission’s policy objectives of (1)
categorizing swaps with similar
quantitative or qualitative
Sour Crude Oil; CME Hurricane Index; CME
Rainfall Index; CME Snowfall Index; CME
Temperature Index; or CME U.S. Dollar Cash
Settled Crude Palm Oil. The 18 swap categories in
§ 43.6(b)(5)(ii) are based on futures contracts to
which swaps in these categories are economically
related.
299 See § 43.6(b)(5)(iii). Appendix D establishes
‘‘other’’ commodity groups and individual other
commodities within these groups for swaps that are
not economically related to any of the contracts
listed in appendix B or any of the contracts listed
in § 43.6(b)(5)(ii). If there is an individual other
commodity listed, the Commission would deem it
a separate swap category, and thereafter set an
appropriate minimum block size for each such
swap category. If a swap is unrelated to a specific
other commodity listed in the other commodity
group in appendix D, the Commission would
categorize such swap as falling under the relevant
other swap category. See Block Trade Rule at 78 FR
32888 (May 31, 2013).
300 This was a structural change to reflect the
proposed removal of existing appendices A through
C.
301 See proposed § 43.6(e)(4), discussed below in
section II.F.4.
302 Due to the re-numbering described throughout
this section, the post-initial appropriate minimum
block sizes will be re-numbered as § 43.6(c) instead
of § 43.6(b) as the Commission proposed in the
Proposal.
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characteristics that warrant being
subject to the same appropriate
minimum block size and (2) minimizing
the number of swap categories within an
asset class in order to avoid unnecessary
complexity in the determination
process.303 However, the Commission is
not adopting the proposal to redesignate appendix D to appendix A.
The Commission had proposed to redesignate the appendix as a result of the
proposed removal of other appendices.
As the Commission is not removing all
of the other appendices as proposed,
appendix D will remain where it is.
The Commission received one
comment on the commodity asset class.
ICE SDR recommends the Commission
provide additional clarity on the
appropriate minimum block sizes in the
other commodity asset class table, as,
for example, electricity and natural gas
references do not specify whether they
apply to North America only or apply to
all global gas and electricity
products.304 ICE SDR notes commodity
index trades are not referenced and oil
should be clarified as to whether it only
applies to crude oil only or other refined
products.305
Based on the reasons above
concerning the Commission’s policy
objectives to maintain a reasonable
number of categories with adequate
breadth, the Commission declines to
create additional categories. Thus, the
categories will continue to cover all
products with the referenced underlier
regardless of geographic location.
Similarly, commodity index swaps
comprised of underliers that span
multiple categories will continue to be
in the other commodity swaps category
under § 43.6(c)(5)(ii) and other refined
oil products without their own category
will continue to be the broad oil
category.
3. § 43.6(c)—Methodologies To
Determine Appropriate Minimum Block
Sizes and Cap Sizes
Existing § 43.6(c) sets forth the
methodologies the Commission must
use to determine appropriate minimum
block sizes and cap sizes in the § 43.6(b)
swap categories. These methodologies
are: A 50-percent notional amount
calculation; a 67-percent notional
amount calculation; and a 75-percent
notional amount calculation.306
303 See Block Trade Rule at 78 FR 32872 (May 31,
2013).
304 ICE SDR at 8.
305 Id.
306 See § 43.6(c)(1), (2), and (3), respectively. Each
methodology ensures that within a swap category,
the stated percentage of the sum of the notional
amounts of all swap transactions in that category
are disseminated on a real-time basis. The
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For the initial period,307 the
Commission has used the 50-percent
notional amount calculation to
determine the appropriate minimum
block size.308 For the post-initial period,
existing § 43.6(f)(2) required the
Commission to use the 67-percent
notional amount calculation.309 For the
initial period, the Commission set the
initial cap sizes as the greater of the
interim cap sizes (the time before the
initial period) in all five asset classes
and the appropriate minimum block
size calculated using the 50-percent
notional amount calculation.310 For
post-initial cap sizes, existing § 43.4(h)
required the Commission to use the 75percent notional amount calculation for
all swap categories.311
Prior to the Proposal the Commission
had not calculated the post-initial block
sizes or cap sizes, although the
condition specified in § 43.6(f)(1) for
moving to the post-initial period had
been met, i.e., SDR collection of at least
one year’s worth of reliable data for the
particular asset classes. As a result, the
appropriate minimum block size and
cap sizes have remained at lower
thresholds than the Commission
intended when it adopted the Block
Trade Rule. In practice, this results in
more swaps qualifying for block
treatment and capping, at the expense of
more swaps being available to the
public without a delay or fewer swaps
capped to mask their notional value.
In the Proposal, the Commission
proposed removing the 50-percent
notional amount calculation in
§ 43.6(c)(1) and re-designating
§ 43.6(c)(2) and (3) as § 43.6(c)(1) and
(2), respectively. However, as discussed
above, to avoid removing regulations
that still need to be effective during the
instructions for each of the calculations require the
Commission to select all reliable publicly reportable
swap transactions within a swap category using one
year’s worth of data, converting them to the same
currency and, using a trimmed data set, determine
the sum of the notional amounts of swaps in the
trimmed data set, multiply the sum of the notional
amounts by 50, 67, or 75 percent, rank the results
from least to greatest, calculate the cumulative sum
of the observations until it is equal to or greater
than the 50, 67, or 75-percent notional amount,
select and round the notional amount, and set the
appropriate minimum block size equal to that
amount.
307 The initial period refers to the period of no
less than one year after an SDR started collecting
reliable data for a particular asset class as
determined by the Commission and prior to the
effective date of a Commission determination to
establish applicable post-initial cap sizes.
308 See § 43.6(e).
309 See § 43.6(f)(2).
310 See § 43.4(h)(1).
311 See § 43.4(h)(2)(ii). As discussed above in
section II.D.4, the Commission is adopting some
changes to the process to determine cap sizes in
§ 43.4(h), but will use the 75-percent notional
amount calculation for cap sizes.
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compliance period for the changes to
§ 43.6, the Commission has decided to
leave the existing regulations for the 50percent notional amount calculation,
while adding the new updated
regulations for appropriate minimum
block sizes during the post-initial period
that were proposed in the Proposal.
Therefore, the Commission is not
removing the reference to the 50-percent
notional calculation, but is moving it to
§ 43.6(d)(3). In addition, due to retaining
the existing swap categories in § 43.6(b),
the Commission is renumbering
§ 43.6(c) as § 43.6(d).
The Commission is also adopting
minor changes to the 50-percent, 67percent and 75-percent notional amount
calculations. The Commission is
updating certain steps of the statistical
calculations set forth in existing
§ 43.6(c)(2)(i) through (ix) to improve
clarity and sharpen their application.
Existing § 43.6(c)(2)(i) requires the
Commission to select all publicly
reportable swap transactions within a
specific swap category using a one-year
window of data. As re-designated,
§ 43.6(d)(1)(i) will require the
Commission to select all reliable SDR
data for at least a one-year period for
each relevant swap category to simplify
the language and clarify that the
Commission would be using SDR data
in its calculations.
Existing § 43.6(c)(2)(ii) requires the
Commission to convert to the same
currency or units and use a trimmed
data set, but does not specify what is
being converted. As re-designated,
§ 43.6(d)(1)(ii) will clarify the
Commission will convert the notional
amount to the same currency or units
and use a trimmed data set to improve
readability.
The Commission is updating the
definition of ‘‘trimmed data set’’ in
§ 43.2 to mean a data set that has had
extraordinarily large notional
transactions removed by transforming
the data into a logarithm with a base of
10, computing the mean, and excluding
transactions that are beyond two
standard deviations above the mean for
the other commodity asset class and
three standard deviations above the
mean for all other asset classes. The
Commission explains the change in this
section because the trimmed data set is
used in § 43.6(d)(2)(ii).
Trimming the data set avoids having
outliers skew the data set, which could
lead to inappropriately high appropriate
minimum block sizes.312 In applying the
existing methodologies to update to the
block thresholds and cap sizes,
312 See Block Trade Rule at 78 FR 32895 (May 31,
2013).
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Commission staff found that excluding
commodity transactions beyond four
standard deviations above the mean led
to including extraordinarily large
notional transactions that could skew
results. With commodity swaps in
particular, the Commission is concerned
that the wide variation in how reporting
counterparties report notional amounts
led to more outliers that should be
excluded from the trimmed data set.
Commission staff has found a similar
issue with four standard deviations for
the other asset classes, but to a lesser
extent than commodities, that the
Commission believes will be addressed
by moving from four standard
deviations to three.
The Commission is also changing the
rounding rules in the methodology.
Existing § 43.6(d)(2)(viii) directs the
Commission to round the notional
amount of the observation discussed in
§ 43.6(d)(2)(vii) ‘‘to’’ two significant
digits,313 or if the notional amount is
already significant ‘‘to’’ two digits,
increase the notional amount to the next
highest rounding point of two
significant digits.314 The Commission is
revising § 43.6(d)(2)(viii) to specify that
the Commission rounds the notional
amount of the observation ‘‘up to’’ two
significant digits, or if it is already
significant ‘‘to only’’ two digits, increase
the notional amount to the next highest
rounding point of two significant digits.
The Commission believes changing ‘‘to’’
to ‘‘up to’’ and ‘‘to only,’’ respectively,
in § 43.6(d)(2)(viii) clarifies the
Commission’s intent consistent with the
above example.
Finally, the Commission is replacing
the individual instructions for the 75percent and 50-percent notional amount
calculations contained in existing
§ 43.6(c)(1) and (3) with a crossreference to the procedures set out in
§ 43.6(d)(1). Since the steps for the
calculations are the same, crossreferencing the procedures in proposed
§ 43.6(d)(1) will reflect the calculation
steps are the same.
The Commission did not receive any
comments on the changes to § 43.6(d).
313 Significant digits means the number of digits
in a figure that express the precision of a
measurement instead of its magnitude. In a
measurement, commonly the in-between or
embedded zeros are included but leading and
trailing zeros are ignored. Non-zero digits, and
leading zeros to the right of a decimal point, are
always significant.
314 See Block Trade Rule at 78 FR 32892 (May 31,
2013), n. 241, which provided the following
example to explain the rounding instructions in
§ 43.6(c)(2)(viii): ‘‘if the observed notional amount
is $1,250,000, the amount should be increased to
$1,300,000. This adjustment is made to assure that
at least 67 percent of the total notional amount of
transactions in a trimmed data set is publicly
disseminated in real time.’’
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For the reasons discussed above, the
Commission is adopting the changes as
proposed.
4. § 43.6(e)—Process To Determine
Appropriate Minimum Block Sizes
Existing § 43.6(e) and (f) set forth the
processes for the Commission to set
appropriate minimum block size in the
initial 315 and post-initial period.
Existing § 43.6(f) directs the
Commission to establish the post-initial
appropriate minimum block size by
swap categories.316 The regulation
directs the Commission to update those
appropriate minimum block sizes no
less than once each calendar year
thereafter.317 For the swap categories
listed in existing § 43.6(e)(1), § 43.6(f)(2)
requires the Commission to apply the
67-percent notional amount
calculation.318 Swaps in the FX category
in existing § 43.6(b)(4)(ii) are to be
eligible for block trade or LNOFS
treatment, as applicable.319 Existing
§ 43.6(f)(4) directs the Commission to
publish the post-initial appropriate
minimum block sizes on its website and
states the appropriate minimum block
sizes will be effective on the first day of
the second month following the date of
publication.320
Prior to the Proposal, the Commission
had not published any post-initial
appropriate minimum block sizes. As
the condition specified in § 43.6(f)(1)
has been met, i.e., more than one year’s
worth of reliable SDR data has been
collected for the particular asset classes,
the Commission is moving to the postinitial period and raising the block
threshold to 67% and the cap sizes to
75%.
However, in the Proposal, the
Commission proposed removing the
regulations for initial appropriate
minimum block sizes in § 43.6(e) and
replacing them with new regulations for
appropriate minimum block sizes in the
post-initial period. To avoid removing
regulations that still need to be effective
during the compliance period for the
changes to § 43.6, the Commission has
decided to leave the substance of the
existing regulations for the initial
appropriate minimum block sizes in
§ 43.6(e) but move it to § 43.6(f),321
315 The initial period ended April 10, 2014 when
SDRs had collected one year’s worth of reliable
data.
316 See § 43.6(f)(1).
317 Id.
318 See § 43.6(f)(2).
319 See § 43.6(f)(3).
320 See § 43.6(f)(5).
321 In place of existing § 43.6(e), the Commission
is adding the regulations that specify there are no
appropriate minimum block sizes for swaps in the
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while updating the regulations for
appropriate minimum block sizes
during the post-initial period that were
proposed in the Proposal in renumbered
§ 43.6(g). The Commission discusses the
new regulations in § 43.6(g) in this
section.
Renumbered § 43.6(g)(1) will state the
Commission shall establish appropriate
minimum block size, by swap
categories, as described in § 43.6(g)(2)
through (6). Renumbered § 43.6(g)(2)
states the Commission shall determine
the appropriate minimum block size for
the swap categories described in
§ 43.6(c)(1)(i), (c)(2)(i) through (xii),
(c)(4)(i), and (c)(5)(i) by applying the 67percent notional amount methodology
in proposed § 43.6(d)(1). Re-designated
§ 43.6(g)(2) also clarifies that if the
Commission is unable to determine an
appropriate minimum block size for any
swap category described in
§ 43.6(c)(1)(i), the Commission shall
assign an appropriate minimum block
size of zero to such category.322 The
Commission is keeping the requirement
for the Commission to recalculate the
cap size no less than once each calendar
year in re-designated § 43.6(g)(1).323
New § 43.6(g)(3) sets forth the method
for determining appropriate minimum
block sizes for FX swaps. New
§ 43.6(g)(3) specifies that the parties to
an FX swap described in § 43.6(c)(4)(ii)
may elect to receive block treatment if
the notional amount of either currency
would receive block treatment if the
currency were paired with USD. In
other words, for each currency
underlying the FX swap, the
counterparties will determine whether
the notional amount of either currency
will be above the block threshold if
paired with USD, as described in
§ 43.6(c)(4)(i). If either notional amount
paired with USD is greater than the
block threshold, the swap described in
§ 43.6(c)(4)(ii) will qualify for block
treatment.
As discussed above in section II.F.2,
the Commission is setting the
appropriate minimum block size of all
equity asset class. This means the Commission has
to move existing § 43.6(e) and (f) to § 43.6(f) and (g).
322 The proposed appropriate minimum block
size tables published by the Commission indicated
that the 67-percent notional amount calculation
does not result in an appropriate minimum block
size for 15 IRS categories. There was insufficient
swap transaction and pricing data for the
Commission to determine an appropriate minimum
block size for those 15 IRS categories. The
Commission is setting the appropriate minimum
block size for such IRS categories at zero, the same
appropriate minimum block size being assigned to
other IRS with limited trading activity.
323 The Commission discusses this decision in
section II.F.1 above.
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swaps in certain swap categories 324 at
zero and treating them as block trades
in proposed § 43.6(g)(4). Finally, the
Commission is keeping existing
§ 43.6(f)(5), renumbered as § 43.6(g)(6),
which provides the effective date of
post-initial appropriate minimum block
sizes.
Aside from the new swap categories,
the substantive import of § 43.6(g) is the
Commission’s move to the post-initial
block threshold prescribed in the Block
Trade Rule; raising thresholds is not
implementing novel thresholds. More
specifically, the Commission is
implementing thresholds adopted in
2013 after notice and comment and that,
by regulation, were to be implemented
after an SDR had collected data for a
year, a threshold that has been met and
surpassed since April 2014.
These amendments thus reflect a
policy continuation that effectuates the
essential substance of what the
Commission deemed appropriate in
originally promulgating § 43.6. As
supported by a refreshed analysis
described below—including information
not available to the Commission in
2013—the Commission continues to
view the fundamental policy judgments
that supported its 2013 decision to
prescribe a 67-percent notional amount
calculation after an initial introductory
phase in period (now elapsed) as sound.
For reasons discussed below, the
Commission does not find comments to
the contrary to be persuasive.
When it promulgated the requirement
in 2013 that the notional amount
calculation be raised from 50-percent to
67-percent, the Commission’s goal was
to increase market transparency by
decreasing the portion of swaps within
a category that qualified for block
treatment and thus increasing the
number of trades reported in real
time.325 The Commission anticipated
that this enhanced transparency would
improve market integrity and price
discovery, while reducing information
asymmetries enjoyed by market makers
in predominately opaque swap
markets.326 The Commission also
anticipated that enhanced price
transparency would encourage market
participants to provide liquidity (e.g.,
through the posting of bids and offers),
particularly when transaction prices
move away from the competitive
price.327 In the Commission’s view,
using the 67-percent notional amount
calculation in the post-initial period
324 These
categories of swaps are in
§ 43.6(c)(1)(ii), (c)(2)(xiii), (c)(4)(iii), and (c)(5)(ii).
325 78 FR 32893, 32894 (May 31, 2013).
326 Id. at 32894.
327 Id.
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also would minimize the potential
impact of real time public reporting on
liquidity risk.328
The Commission continues to believe
that transparency will increase
liquidity, improve market integrity and
price discovery, while reducing
information asymmetries enjoyed by
market makers. As explained in section
V.C. below, this belief is supported by
an extensive review of the academic
literature. In addition, the Commission
received a number of comments noting
the importance of transparency in
regard to lowering trading costs and
pointing to a significant body of
academic literature that empirically
demonstrated this effect.329
When the Commission promulgated
existing § 43.6(f)(2), it recognized that
increasing the appropriate minimum
block size notional amount calculation
from 50-percent to 67-percent could
make it more difficult for SDs to hedge
the exposure created by trading a large
swap because real-time reporting and
public dissemination will be
required.330 Without a 15-minute pause
before a large trade is revealed, other
market participants could potentially
anticipate the trades of the SD trying to
hedge its position and act accordingly to
their own advantage, and this could
increase costs to SDs and other market
participants. However, the Commission
finalized existing § 43.6(f)(2) given the
significant benefits of market
transparency.
Notably, when § 43.6(f)(2) was
finalized, the Commission determined
that the 67-percent was appropriate.331
However, in response to comments
advocating for a gradual phase-in for
attaining that threshold, the
Commission adopted the 50-percent
threshold as a temporary bridge
measure.332 The Commission believed
this allowed for a more gradual phasein of the 67 percent notional amount
calculation for determining block
thresholds in the post-initial period
than what had been proposed.333
The Commission continues to believe
that raising the notional amount
calculation from 50-percent to 67percent strikes an appropriate balance
between the benefits of transparency
and the costs to SDs and other market
participants. Further, the Commission
believes that the cost of raising the
threshold is more limited today than it
328 Id.
329 See, e.g., MIT at 1–2; Carnegie Mellon at 2–
4; SMU at 4–5; and Citadel at 5.
330 78 FR 32919–20 (May 31, 2013).
331 Id. at 32920.
332 Id.
333 Id.
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was in 2013. The ability of traders to
profitably anticipate the hedging
demands resulting from LNOFSs (which
in turn, discourages market making) is
inversely related to market liquidity.
The 67-percent calculation will be
applied to categories of swaps which the
Commission has determined are
relatively liquid. As noted above, the
Commission has moved some illiquid
swaps from the categories that were
established in 2013 into more
appropriate categories.
However, as discussed in the
Compliance section, the Commission
recognizes it would be challenging for
market participants to come into
compliance with the post-initial
appropriate minimum block size at the
same time they have to come into
compliance with significant aspects of
some of the additional changes to § 43.6,
including the new swap categories. As
a result, the Commission is providing a
compliance period of 18-months for the
changes to the part 43 rules except for
§ 43.4(g) and § 43.6. In the Proposal, the
Commission proposed removing the
regulations for initial appropriate
minimum block sizes and replacing
them with new regulations for
appropriate minimum block sizes. To
avoid removing regulations that still
need to be effective during the
compliance period for the changes to
§ 43.4(g) and § 43.6, the Commission has
decided to leave the existing regulations
for the initial appropriate minimum
block sizes in § 43.6, while adding the
new updated regulations for appropriate
minimum block sizes during the postinitial period that were proposed in the
Proposal.
As shown below, the Commission
carefully reviewed the comments
opposed to the higher notional amount
calculations and does not find them to
be persuasive. The Commission
discusses the comments received on the
changes to § 43.6(g) thematically in the
following sections.
a. Increase in Block Trade Thresholds
The Commission received four
comments supporting raising the block
threshold to 67%. Better Markets
believes the proposed increase is
overdue and should be adopted.334
Chris Barnard supports raising the
thresholds from 50% notional to a
minimum of 67% notional based on
updated analysis.335 Citadel supports
the move from 50% to 67% to balance
market transparency and information
leakage risks, unlike the current
approach, where one-half of trading
334 Better
335 Chris
Markets at 2.
Barnard at 1.
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activity (by notional) is eligible for a
public reporting deferral.336 Citadel
further notes this approach is more
consistent with the European
approach.337 Clarus believes the
proposal will remove information
asymmetries from the markets.338
Two commenters raised concerns
about the March 2020 volatility as a
basis for their opposition to raising the
block thresholds. PIMCO believes their
counterparties were simply unable to
quote markets for block trades in
otherwise liquid products, in part, based
on their own inability to efficiently
manage the risks associated with
transacting in larger sizes in a volatile
market.339 In other cases, the bid-ask
spreads grew sufficiently large so as to
render the block trades economically
unfavorable and PIMCO believes the
dissemination of pre-trade information
in this manner further exacerbated the
winning counterparty’s ability to
efficiently hedge its risk in an illiquid
market.340 SIFMA AMG believes the
67% block test and the 75% cap test are
each substantially too high and would
adversely affect markets during periods
of high volatility or lower liquidity and
respectfully requests the Commission to
include data from the recent COVID–19
downturn in their review and analysis
to determine whether the higher limits
are indeed advisable.341
The Commission is not persuaded by
PIMCO’s and SIFMA AMG’s comments
that the threshold should not be raised
because it would be inappropriate in
periods of extreme volatility, such as
those experienced in March 2020. The
block trade levels are not designed to
address periods of extreme volatility.
Moreover, in March 2020, Commission
staff heard opposing views from market
participants, some of whom believed the
block thresholds did not need to be
lowered during the period of
volatility.342 As noted above, the
Commission also determined that it will
not establish appropriate minimum
block sizes for stressed market
conditions. By their nature, markets
may be stressed for different reasons
and to different levels, and thus, the
336 Citadel
at 9.
337 Id.
338 Clarus
at 2.
at 3–4.
339 PIMCO
75453
appropriate minimum block sizes
cannot be determined in advance.
Three commenters raised concerns
about the Commission’s analysis as a
basis for their opposition. Vanguard
believes changing the thresholds needs
to be supported by data to confirm that
a change in the appropriate minimum
block size is now justified, or, if
justified, what percentage change is
justified.343 ISDA–SIFMA (Blocks) have
previously stated the 67% calculation is
arbitrary because it focuses on sorting
swaps in a particular market by their
notional amount and determining
(without providing any economic
analysis) that a certain percentage of the
largest notional trades should be
blocks.344 ICI believes the Commission
should have done a fresh evaluation of
the 67% and 75% calculations, given
the passage of time since 2013, and the
Commission does not quantify the costs
and benefits associated with the trading
impacts.345
The Commission does not believe that
the threshold is arbitrary and is not
based on a data-driven analysis. Under
the current 50-percent threshold, while
the number of swap reported in realtime is large (87 and 82 percent for IRS
and CDS, respectively), this accounts for
less than half of total notional traded (46
and 39 percent for IRS and CDS,
respectively).346 For IRS, under the 67%
threshold, the Commission estimates
94% of trades, or 65% of IRS notional,
would be reported in real-time. For
CDS, under the 67% threshold, the
Commission estimates 95% of trades, or
62% of CDS notional, would be reported
in real-time. The Commission is
implementing the 67-percent threshold,
as required by existing § 43.6(f)(2),
based on its determination that the
higher threshold properly balances the
benefits of increased transparency with
costs to SDs and their customers. The
threshold is applied to categories that
comprise liquid swaps as determined by
an analysis based on recent data.
Four commenters raised concerns
about SEF execution methods as a basis
for their opposition. SIFMA AMG and
ISDA–SIFMA (Blocks) are concerned
that large trades that fall between the
current block trade thresholds and the
newer, larger proposed block trade
thresholds may now be subject to the
risk of information leakage as such
trades, to the extent they are subject to
340 Id.
341 SIFMA
343 Vanguard
342 The
344 ISDA–SIFMA
AMG at 2–4.
Commission notes there were also public
reports about transparency helping during the
March volatility. See, e.g., Chris Barnes, Is
transparency helping markets function?, Clarus
Financial Technology Blog, (Mar. 2020), available
at https://www.clarusft.com/is-transparencyhelping-markets-function/.
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345 ICI
at 3.
(Blocks) at 3–4.
at 6–7.
346 Percentages
computed using the set of
transactions for IRS and CDS from May 1, 2018 to
April 30, 2019. This is the same information used
to study the swap categories and compute block and
cap thresholds.
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the trade execution requirement, will
now be subject to the RFQ-to-three
process.347 Vanguard contends that for
most product types, the magnitude of
the proposed increase in appropriate
minimum block size would have an
adverse impact on liquidity with respect
to existing block trades, which would
no longer benefit from RFQ-to-one 348
and delayed reporting.349 ICI believes
subjecting more large transactions to a
higher level of transparency through the
RFQ-to-three requirement may
significantly impair liquidity for funds
and other buy-side participants in
stressed market conditions and may
increase the risk of pre-trade leakage of
valuable information about a fund’s
holdings and trading strategy.350
The Commission recognizes the
potential that some degree of
information leakage and liquidity
impairment could result from market
participants now being required to
execute some large-notional MAT swap
transactions—i.e., transactions that fall
within the window between the prior
and now-implemented thresholds (50
percent to 67 percent) that could
previously be executed as blocks and
through non-competitive means of
execution—on a SEF or DCM through
competitive means of execution.
However, more compelling in the
Commission’s view is the likelihood
that the bids and offers associated with
these large-notional MAT swap
transactions could, through increased
transparency and competition, stimulate
more trading and thereby enhance
liquidity and pricing. Further, the
Commission expects that commenters’
concern regarding information leakage
and liquidity impairment resulting from
being required to execute some largenotional MAT swap transactions on a
SEF or DCM through competitive means
of execution will be mitigated by the
fact that the appropriate minimum block
size is being raised for relatively liquid
products.
One commenter raised concerns about
putting SEFs at a competitive
disadvantage as a basis for their
opposition. ISDA–SIFMA (Blocks)
believe unattainably high block
thresholds will put SEFs at a
347 SIFMA AMG at 3 and ISDA–SIFMA (Blocks)
at 5. RFQ-to-three is the requirement for a market
participant to transmit a request for a bid or offer
to no less than three market participants who are
not affiliates of, or controlled by, the requester or
each other. See 17 CFR 37.9(a)(2)(B) and (3).
348 RFQ-to-one allows counterparties to bilaterally
negotiate a block trade between two potential
counterparties, without requiring disclosure of the
potential trade to other market participants on a
pre-trade basis.
349 Vanguard at 3–4.
350 ICI at 7.
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competitive disadvantage with non-U.S.
trading platforms and shift execution
(and trading business) away from the
U.S.351 Further, ISDA–SIFMA (Blocks)
believe the Commission could calculate
separate and distinct block sizes for the
SEF requirements, using only MAT
instruments where the impacts of high
thresholds are particularly
detrimental.352
In response to the ISDA–SIFMA
(Blocks) comment that higher block
sizes will put SEFs at a competitive
disadvantage with non-U.S. trading
platforms,353 the Commission
recognizes that there is a possibility that
some SDs could choose to execute MAT
swap transactions that will no longer
receive block treatment on a European
trading facility through a noncompetitive means of execution in order
to avoid executing the swap on a SEF
or DCM through a competitive means of
execution. However, the prospect of
transaction migration from the U.S. to
Europe is entirely speculative, and one
for which ISDA–SIFMA provide no
estimate or data (e.g., the number of
transactions likely to migrate offshore)
to gauge its likelihood or severity. The
Commission believes that most SDs will
continue to utilize U.S. markets which
have substantial liquidity and other
benefits that outweigh the information
leakage cost of executing a swap RFQto-3 as opposed to RFQ-to-1. The
Commission does not intend to create
opportunities for regulatory arbitrage
that could impair liquidity or
transparency in U.S. markets or
competitively disadvantage U.S. SEFs.
The Commission will monitor trading in
the markets affected by the final rule for
any such migration or arbitrage.
Four commenters raised concerns
about using risk metrics for appropriate
minimum block sizes as a basis for their
opposition. ISDA–SIFMA (Blocks)
believe the proposed thresholds do not
properly account for risk sensitivity and
if the Commission needs to pursue a
notional-based framework, the levels
should be established through a riskbased approach by using risk metrics
such as DV01 to account for the fact that
they are only proxies for true risk.354
SIFMA AMG states that rather than
adopting a 67% test for all products, the
Commission should analyze whether a
dollar value change test (a ‘‘DV01 Test’’)
would be a more appropriate standard
for interest rate products.355 ISDA–
SIFMA (Blocks) believe the number of
351 ISDA–SIFMA
(Blocks) at 5.
352 Id.
at 4.
355 SIFMA
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356 ISDA–SIFMA
(Blocks) at 4.
Suisse at 3.
358 ACLI at 3–4.
359 GFMA at 7, 10.
360 GFMA at 7–8.
357 Credit
353 Id.
354 Id.
true block trades in a given swap
category should depend on the relevant
level of liquidity and risk.356 Credit
Suisse supports ISDA–SIFMA (Block)’s
concerns around changes to the block
thresholds, including relying on
notional amounts may not sufficiently
account for risk sensitivity.357 ALCI
recommends that the Commission apply
a risk-based analysis to interest rate
products with a tenor of 10 years and
greater and, based on this analysis,
reduce the appropriate minimum block
size for such swaps.358
The Commission is neither persuaded
by comments that appropriate minimum
block sizes should be linked to risk by
metrics such as DV01, nor suggestions
that the number of true block trades in
a given swap category should depend on
the relevant level of liquidity and risk.
Although basing appropriate minimum
block size on DV01 theoretically might
be appropriate, the commenters have
not explained how this could be
accomplished in practice, nor are the
means for doing so apparent to the
Commission. For example, the
commenters have not explained
whether DV01 would be the only
criteria, or if other factors would be
utilized. In addition, DV01 changes
daily and there is no guidance on how
often thresholds should be adjusted.
Most significantly, the commenters have
not demonstrated that the appropriate
minimum block sizes that would result
from their risk-based approach would be
more appropriate than those that result
from the Commission’s approach, nor
that their approach would be less costly
to implement. Rather, as explained in
section V.C., the Commission believes
its approach is superior as the ultimate
goal in establishing thresholds is to
focus on liquidity differences across
swap categories, not risk-transfer per se.
One commenter raised concerns
specifically about FX swaps as a basis
for their opposition. GFMA was not
expecting such significant changes
between existing and proposed FX block
and cap sizes.359 For the ‘‘other
currency bucket,’’ GFMA believes that
the $150 million cap size, which is
higher than the cap for more liquid
currencies, listed in the table will result
in the illogical outcome of more
transparency for less liquid currency
pairs.360 GFMA believes more
transparency for these less liquid
currencies will create challenges for
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market participants to hedge in these
currencies.361
The Commission disagrees with
GFMA’s comment because the category
includes less liquid currency pairs.362
Categories of swaps will necessarily
combine more and less liquid swaps. As
discussed above in II.F, the Commission
arrived at the number of swap categories
by balancing the increased cost of
additional categories with the more
finely tuned block and cap sizes.
Further, simply comparing the cap sizes
for different currency pairs, as GFMA
does, may be inappropriate as the
underlying distribution of currency
pairs may be different.
One commenter raised concerns the
block threshold should be higher than
67% as a basis for their opposition.
Clarus believes the appropriate
minimum block size levels should be set
at 75%–90% and that the current 50%
level confers an unfair information
asymmetry to large SD banks who act as
liquidity providers for these large
swaps.363 Clarus states that, given that
there is strong evidence that block
trades have had no more market impact
in 2020 than smaller trades, it seems to
provide an unfair advantage to large
liquidity providers.364 Clarus also
believes that adding extra transparency
for large trades would provide market
participants with clearer signs of
liquidity and reduce information
asymmetry, which, during crisis times,
provides even greater reassurance that
markets are not ‘‘seizing up.’’ 365
At this time, given the data available
to it, the Commission disagrees with
Clarus that the appropriate minimum
block size levels should be set at 75%
to 90%. The Commission agrees that
adding extra transparency for large
trades would provide market
participants with clearer signs of
liquidity and reduce information
asymmetry, which, during crisis times,
provides even greater reassurance that
markets are not ‘‘seizing up.’’ However,
the Commission believes that the
adverse impact on SDs and their
customers of setting the threshold at 75
to 90% may be too significant to justify
setting the threshold at this level.
PIMCO is concerned the premature
dissemination of block trade details
transmits sensitive proprietary
information to short-term speculators
before SDs are able to hedge and
otherwise manage their risk and could
lead to market liquidity decreases, bid-
ask spreads widening, and costs to
PIMCO’s clients.366
As explained above in the
introduction to the § 43.6(e) discussion,
the Commission specifically considered
PIMCO’s concerns that raising the
notional amount calculation from 50percent to 67-percent could adversely
impact SDs and their clients because the
swaps would no longer benefit from
delayed reporting both in the 2013
rulemaking and in the current
rulemaking. The Commission has
determined to raise the notional amount
calculation to obtain the benefits of
increased transparency.
b. Block Size of Zero
The Commission received three
comments related to appropriate
minimum block sizes of zero. Clarus
strongly opposes the Commission’s
proposal to set the block threshold at
zero for any instrument that the
Commission currently considers
‘‘relatively illiquid.’’ 367 Clarus believes
that price discovery is just as important
for minor currencies as for major
currencies—possibly more so given the
fragmented nature of less liquid
markets—for example, IRS denominated
in CHF, on the grounds that instruments
must be closely monitored during the
planned transition away from London
Interbank Offered Rate (‘‘LIBOR’’) to
risk-free rates.368 GFMA believes the
proposed zero appropriate minimum
block size for the other currency bucket
is ‘‘not unwelcome.’’ 369 FXPA supports
the creation of a category for relatively
low liquidity FX swaps that will benefit
from an appropriate minimum block
size of zero.370
With respect to the proposed zero
appropriate minimum block sizes, the
Commission agrees with Clarus that
price discovery is important for illiquid
products. However, the Commission
must weigh the goal of public
transparency against the concern that
post-trade reporting would reduce
market liquidity. In illiquid markets,
transactions occur infrequently and the
benefit of real-time information is
limited. For example, if transactions
occur throughout the day and less than
every ten minutes on average, knowing
the price of a swap immediately after
execution will provide little additional
benefit than knowing the price of a
swap fifteen minutes after execution.
However, other market participants
could potentially anticipate the trades of
361 Id.
366 PIMCO
362 GFMA
367 Clarus
at 7–8.
363 Clarus at 8–9.
364 Id.
365 Id.
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c. Cross-Border Concerns
The Commission received one
comment addressing cross-border
concerns. GFMA believes the
Commission needs to coordinate with
its foreign regulator peers regarding
block and cap thresholds.371 GFMA
notes data that may be deemed marketsensitive in one jurisdiction should not
be made public in another, especially
for FX, which is a global market.372
In response to cross-border concerns
raised by GFMA, the Commission
anticipates that it will address the crossborder application of the reporting rules
in a separate rulemaking.
5. § 43.6(f)—Required Notification
The Commission is re-designating
existing § 43.6(g) as § 43.6(h) to reflect
the Commission’s decision to retain
§ 43.6(e) and (f) but add new § 43.6(c).
Existing § 43.6(g) sets forth the
requirements for parties to notify their
execution venue (i.e., SEF or DCM) of
the parties’ block trade election or notify
their SDR of the parties’ LNOFS
election.
Existing § 43.6(g)(1)(i) requires the
parties to a publicly reportable swap
transaction with a notional amount at or
above the appropriate minimum block
size to notify the SEF or DCM of their
election to have the publicly reportable
swap transaction treated as a block
trade. The current phrasing suggests
parties must elect to have a qualifying
publicly reportable swap transaction
treated as a block trade, instead of
letting parties choose. The Commission
believes having the option is important,
as some counterparties may not object to
having their block trade disseminated in
real-time. To give them the option, the
Commission is changing § 43.6(h)(1)(i)
to state if the parties make such an
election, the reporting counterparty
must notify the SEF or DCM.373
Existing § 43.6(g)(1)(ii) requires the
SEF or DCM to notify the SDR of a block
trade election when transmitting swap
transaction and pricing data to the SDR
in accordance with § 43.3(b)(1). The
Commission is retaining the substance
of existing § 43.6(g)(1)(ii) in reat 9.
372 Id.
369 GFMA
370 FXPA
the SD trying to hedge its position and
act accordingly to their own advantage,
and this could increase costs to SDs and
other market participants. Accordingly,
the Commission has determined that
zero appropriate minimum block sizes
are appropriate for the swap categories
with illiquid swaps.
371 GFMA
368 Id.
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at 7.
at 2.
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designated § 43.6(h)(1)(ii), but is
removing the specific reference to
§ 43.3(b)(1) and streamlining the
language to state the SEF or DCM, as
applicable, shall notify the SDR of a
block trade election when reporting the
swap transaction and pricing data to
such SDR in accordance with part 43.
The Commission is adding new
§ 43.6(h)(1)(iii) to clarify that SEFs and
DCMs may not disclose block trades
prior to the expiration of the applicable
dissemination delay in § 43.5(c) to avoid
ambiguity.
Existing § 43.6(g)(2) states that
reporting parties executing an offfacility swap with a notional amount at
or above the appropriate minimum
block size shall notify the applicable
registered SDR that such swap
transaction qualifies as an LNOFS
concurrently with the transmission of
swap transaction and pricing data in
accordance with part 43. The
Commission is clarifying in § 43.6(g)(2),
re-designated as § 43.6(h)(2), that the
parties to a publicly reportable swap
transaction that is an off-facility swap
with a notional at or above the
appropriate minimum block size can
elect to have the publicly reportable
swap transaction treated as a LNOFS. If
the parties make such an election, the
reporting counterparty will notify the
SDR. However, because the Commission
is keeping the term ‘‘large notional offfacility swap’’ in § 43.2, the Commission
is keeping the reference to ‘‘large
notional off-facility swap’’ in the rule.
The Commission received one
comment on the proposed amendments
to block trade notifications. Chatham
believes they provide more clarity to
reporting counterparties for how such
trades should be reported. Chatham
believes confusion currently exists
regarding whether the SDR may make
the calculation or whether the reporting
counterparty must do so. If the
Commission does not adopt this change,
Chatham encourages the Commission to
further clarify the SDRs also make the
block trade calculations.374 The
Commission agrees with Chatham that
the amendments will address ambiguity
around electing block treatment.
6. § 43.6(h)—Special Provisions Relating
to Appropriate Minimum Block Sizes
and Cap Sizes
The Commission is re-designating
existing § 43.6(h) as § 43.6(i) in response
to retaining § 43.6(e) and (f).375 The
374 Chatham
at 2.
the Proposal, the Commission proposed a
related conforming change in § 43.6(a). Currently,
that paragraph cross-references § 43.6(h). The
Commission is updating that provision so it crossreferences § 43.6(i) to reflect the re-designation.
375 In
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Commission is also not adopting the
proposal to remove existing § 43.6(h)(5)
(which will now be in renumbered
§ 43.6(i)(5)), which contains a provision
for determining the appropriate
currency classification for currencies
that succeed super-major currencies.
Existing § 43.6(h)(5) is still necessary
due to the need to retain § 43.6(b)
during the compliance period. As a
result of keeping § 43.6(h)(5), the
Commission is keeping existing
§ 43.6(h)(6) as § 43.6(h)(6) and making
substantive changes.
Existing § 43.6(h)(6) generally
prohibits the aggregation of orders for
different accounts to satisfy minimum
block trade size or cap size requirements
but contains an exception for orders on
SEFs and DCMs by certain commodity
trading advisors (‘‘CTAs’’), investment
advisers, and foreign persons
performing a similar role or function.
The Commission believed such a
prohibition was necessary to ensure the
integrity of block trade principles and
preserve the basis for the anonymity
associated with establishing cap
sizes.376
While the aggregation prohibition in
existing § 43.6(h)(6) is intended to
incentivize trading on SEFs and DCMs,
this incentive is nonexistent for swaps
that are not listed or offered for trading
on a SEF or DCM.377 The Commission
is therefore amending the aggregation
prohibition to provide for swaps not
listed or offered for trading on a SEF or
DCM.
Existing § 43.6(h)(6)(ii) conditions the
exception from the aggregation
prohibition on a CTA, investment
adviser, or foreign person having more
than $25 million in assets under
management. In adopting this condition,
the Commission explained that the $25
million threshold would help ensure
that persons allowed to aggregate orders
were appropriately sophisticated, while
at the same time not excluding an
unreasonable number of CTAs,
investment advisers, and similar foreign
persons.378
376 See
Block Trade Rule at 32904.
2013, DMO granted indefinite no-action
relief extending the exception to swaps that are not
listed or offered for trading on a SEF or a DCM. See
No-Action Relief For Certain Commodity Trading
Advisors and Investment Advisors From the
Prohibition of Aggregation Under Regulation
43.6(h)(6) for Large Notional Off-Facility Swaps,
Commission Staff Letter No. 13–48 (Amended),
(Aug. 6, 2013), available at https://www.cftc.gov/
sites/default/files/idc/groups/public/@
lrlettergeneral/documents/letter/13-48.pdf (‘‘NAL
No. 13–48’’). The Commission is incorporating this
no-action relief, along with its related conditions
(with one exception discussed below), into
§ 43.6(g)(5).
378 Block Trade Rule at 78 FR 32905 (May 31,
2013).
377 In
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However, the Commission has come
to believe the $25 million threshold may
be excluding more participants from
taking advantage of the exception than
initially expected.379 Therefore, the
Commission is removing the $25
million threshold in existing
§ 43.6(h)(6)(ii), even though the
threshold was a condition of DMO relief
in NAL No. 13–48.
Finally, the Commission is making
several non-substantive changes
throughout § 43.6(i)(6) for clarity,
updating cross-references, and
specifying the aggregated transaction is
reported as a block trade or LNOFS, as
applicable, and the aggregated orders
are executed as one swap transaction.
The Commission received one
comment on the proposed amendments
to § 43.6(h), which will be adopted in
§ 43.6(i). ICI agrees with the
Commission’s policy goal behind
removing the aggregation prohibition in
§ 43.6(h)(6), because the exception to
the prohibition does not exist for swaps
that are not listed or offered for trading
on a SEF or DCM.380 In addition, ICI
strongly supports removing the $25
million aggregation threshold as
advisers with less than $25 million in
assets under management have a valid
need to engage in block trades on behalf
of the funds they manage.381
The Commission has determined
removing the $25 million aggregation
threshold is appropriate because the
existing rule excludes appropriately
sophisticated CTAs, investment
advisers, or foreign persons from
aggregating trades and is adopting
§ 43.6(h) as proposed in renumbered
§ 43.6(i). As noted above, the
Commission intended to change existing
§ 43.6(h) to permit aggregation for swaps
not listed on a SEF or DCM, but
continue to require aggregation on a SEF
or DCM if the swap is listed on a SEF
or DCM. The Proposal inadvertently
eliminated the existing requirement
aggregation occur on a SEF or DCM if
the swap is listed on a SEF or DCM.
Accordingly, the Commission is adding
a condition to final § 43.6(i)(6) to clarify
aggregation must occur on a SEF or
DCM if the swap is listed on a SEF or
DCM.
7. § 43.6(i)—Eligible Block Trade Parties
The Commission is renumbering
§ 43.6(i) as § 43.6(j) in response to the
changes above related to retaining
certain existing regulations. In addition,
to conform to the proposed revisions to
§ 43.6(i)—specifically the removal of the
379 Proposal
380 ICI
at 85 FR 21540 (Apr. 17, 2020).
at 9.
381 Id.
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$25 million threshold in existing
§ 43.6(i)(6)(ii)—the Commission is
removing the $25 million threshold in
existing § 43.6(i)(1)(iii) (i.e.,
§ 43.6(j)(1)(iii), as re-designated). The
Commission is also making several nonsubstantive ministerial changes, such as
correcting cross-references and
capitalization.
As discussed above, ICI supports
removing the $25 million threshold
requirement to engage in block trades
and removing the condition requiring
that orders be on SEFs and DCMs.382
The Commission agrees with ICI and for
above-described reasons discussed in
the Proposal, the Commission is
adopting § 43.6(j) as proposed.
G. § 43.7—Delegation of Authority
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The Commission is adopting several
changes to § 43.7, which governs
Commission delegation of certain
authority to the DMO Director or such
other employee or employees as the
DMO Director may designate from time
to time (‘‘DMO staff’’). The Commission
is adding new (a)(1) to delegate the
authority to publish the technical
specification providing the form and
manner for reporting and publicly
disseminating the swap transaction and
pricing data elements in appendix A as
described in §§ 43.3(d)(1) and 43.4(a). If
it chooses to, the Commission may,
pursuant to § 43.7(c), which the
Commission did not propose to amend,
exercise any authority delegated
pursuant to proposed § 43.7(a)(1) (or any
other authority delegated pursuant to
§ 43.7(a)) rather than permit the DMO
Director or DMO staff to exercise such
authority.
Because there currently is a
§ 43.7(a)(1), the Commission is
renumbering existing § 43.7(a)(1) as
§ 43.7(a)(3). The Commission is further
renumbering existing § 43.7(a)(2) as
§ 43.7(a)(4) and replacing the reference
to § 43.6(f) with a reference to
§ 43.6(e).383 However, the Commission
is retaining the references to the initial
and post-initial periods, to avoid
removing regulations in effect during
the compliance period. Additionally,
the Commission is renumbering existing
§ 43.7(a)(3) as § 43.7(a)(2).384
The Commission did not receive any
comments on the changes to § 43.7. For
reasons discussed above, the
Commission is adopting the changes as
proposed.
382 See
id.
Commission discusses the changes to
post-initial appropriate minimum block sizes above
in section II.F.3.
384 The Commission discusses the changes to
post-initial cap sizes above in section II.D.4.
383 The
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III. Swap Transaction and Pricing Data
Reported to and Publicly Disseminated
by Swap Data Repositories
The Commission is revising the list of
swap transaction and pricing data
elements in appendix A to update it 385
to further standardize the swap
transaction and pricing data being
reported to, and publicly disseminated
by, SDRs. The swap transaction and
pricing data elements are currently
found in appendix A, which states that,
among other things, SDRs must publicly
disseminate the information in
appendix A in a ‘‘consistent form and
manner’’ for swaps within the same
asset class.
Existing appendix A includes a
description of each field, in most cases
phrased in terms of ‘‘an indication’’ of
the data that must be reported and
disseminated and an example
illustrating how the field could be
populated. For example, the description
of the ‘‘Asset class’’ field in table A1 of
appendix A calls for an indication of
one of the broad categories as described
in § 43.2(e), and the example provided
states IR (e.g., IRS asset class).
In adopting appendix A, the
Commission believed consistency could
be achieved in the data, but
intentionally avoided prescriptive
requirements in favor of flexibility in
reporting the various types of swaps.386
The Commission recognizes that over
the years each SDR has increasingly
standardized the swap transaction and
pricing data reported and disseminated.
However, SDRs have implemented the
field list in appendix A in different
ways, causing publicly disseminated
messages to appear differently
depending on the SDR. As such, the
Commission believes a significant effort
must be made to standardize swap
transaction and pricing data across
SDRs.
The Commission has reviewed the
data fields in appendix A to update the
existing list and provide further
specifications on reporting and public
dissemination. This assessment was part
of a larger review of the parts 43 and 45
data the Commission requires to be
reported to, and publicly disseminated
by, SDRs. The Commission reviewed the
swap transaction and pricing data data
fields in appendix A and the swap data
385 The Commission proposed deleting appendix
C and updating the list of swap transaction and
pricing data elements in existing appendix A and
moving them to appendix C. The Commission is not
adopting that proposal. Instead, the Commission is
revising the list of swap transaction and pricing
data elements in appendix A, and leaving appendix
C as it is.
386 See Real-Time Public Reporting of Swap
Transaction Data, 77 FR 1182, 1224 (Jan. 9, 2012).
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75457
elements in appendix 1 to part 45 to
determine if any currently required data
elements should be eliminated and if
any data elements should be added. As
part of this process, the Commission
also reviewed the part 45 swap data
elements to determine whether any
differences could be reconciled across
parts 45 and 43.387 The Commission
proposed the swap transaction and
pricing data elements to be publicly
disseminated would be a subset of the
part 45 swap data elements required to
be reported in appendix 1 to part 45.
After determining the set of swap data
and swap transaction and pricing data
elements, the Commission reviewed the
CDE Technical Guidance to determine
which data elements the Commission
could adopt according to the CDE
Technical Guidance.388 From there, the
Commission set out to establish
definitions, formats, standards,
allowable values, and conditions. After
completing this assessment, the
Commission proposed to list the swap
transaction and pricing data elements
required to be publicly disseminated by
SDRs pursuant to part 43 in appendix C.
In a separate proposal for part 45, the
Commission proposed to list the swap
data elements required to be reported to
SDRs pursuant to part 45 in appendix 1
to part 45.
DMO also published a draft technical
specification, along with validation
conditions, on the Commission’s
website at www.cftc.gov
contemporaneously with the
publication of the Proposal so market
participants could comment on the
Proposal and technical specification at
the same time.
The Commission proposed appendix
C would contain the list of swap
transaction and pricing data elements
required to be publicly disseminated by
SDRs, but the Commission recognized
that SDRs would need additional part
387 The Commission had intended that the data
elements in appendix A would be harmonized with
the data elements required to be reported to an SDR
for regulatory purposes pursuant to part 45. See
Real-Time Public Reporting of Swap Transaction
Data, 77 FR 1182, 1226 (Jan. 9, 2012) (noting that
it is important that the data fields for both the realtime and regulatory reporting requirements work
together). However, the Commission did not require
linking the two sets of data elements.
388 See Committee on Payments and Market
Infrastructures (‘‘CPMI’’) and the International
Organization of Securities Commissions (‘‘IOSCO’’),
Technical Guidance, Harmonization of Critical OTC
Derivatives Data Elements (other than UTI and UPI)
(Apr. 2018) (‘‘CDE Technical Guidance’’). The
Commission discusses the CDE Technical
Guidance, and the Commission’s role in its
development, in the February 2020 notice of
proposed rulemaking relating to the Commission’s
regulations in parts 45, 46, and 49. See Swap Data
Recordkeeping and Reporting Requirements, 85 FR
21578 (Apr. 17, 2020).
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45 swap data elements reported along
with these swap transaction and pricing
data elements. These swap data
elements include identifying
information like the identity of the
reporting counterparty, the USI or
unique transaction identifier (‘‘UTI’’),
and the submitter. However, DMO noted
these swap data elements separately in
the technical specification published on
https://www.cftc.gov to simplify the list
of publicly disseminated swap
transaction and pricing data elements in
appendix A.
The Commission discusses comments
received on the swap transaction and
pricing data elements in appendix A 389
required to be publicly disseminated by
SDRs below. As the part 43 swap
transaction and pricing data elements
will be a subset of the part 45 swap data
elements, most of these data elements
are discussed in more depth in the
related part 45 adopting release.
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A. Swap Transaction and Pricing Data
Elements
As a preliminary matter, the swap
transaction and pricing data elements in
appendix A do not include swap
transaction and pricing data elements
specific to swap product terms. The
Commission is heavily involved in
separate international efforts to
introduce UPIs.390 The Commission
expects UPIs will be available within
the next two years.391 Until the
Commission designates a UPI pursuant
to § 45.7, the Commission proposed
SDRs continue to accept and
disseminate, and reporting
counterparties continue to report, the
product-related data elements unique to
each SDR. The Commission believes
this temporary solution would have
SDRs change their systems only once
when UPI becomes available, instead of
twice if the Commission adopted
standardized product data elements
before UPIs are available.
In addition, the Commission notes
that it has adopted the CDE Technical
Guidance data elements as closely as
possible. This means that some terms
389 The Commission is not adopting the proposal
to move the part 43 swap transaction and pricing
data elements to appendix C. Instead, the
Commission is updating the data elements in
existing appendix A. The Commission will only
reference appendix A in the rest of this discussion.
390 See FSB, Governance arrangements for the
UPI: Conclusions, implementation plan and next
steps to establish the International Governance
Body (Oct. 9, 2019), available at https://
www.fsb.org/2019/10/governance-arrangements-forthe-upi/.
391 See id. The FSB recommends that
jurisdictions undertake necessary actions to
implement the UPI Technical Guidance and that
these take effect no later than the third quarter of
2022.
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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 has placed
footnotes in the technical specification
to explain these differences in at least
four terms as well as provide examples
and jurisdiction-specific requirements.
However, the Commission is not
including these footnotes in appendix
A. In addition, the definitions from CDE
Technical Guidance data elements
included in appendix A sometimes
reference allowable values in the CDE
Technical Guidance, which may not be
included in appendix A but can be
found in DMO’s 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
have set out governance arrangements
for CDE data elements (‘‘CDE
Governance Arrangements’’).392 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 and Quantity unit of measure).
The Commission invited comment on
all of the swap transaction and pricing
data elements proposed in appendix A.
The Commission discusses the swap
transaction and pricing data elements
below by category to simplify the
organization of comments received. To
the extent any comment involved data
elements adopted according to the CDE
Technical Guidance, however, the
Commission anticipates raising issues
according to the CDE Governance
Arrangements procedures 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.
392 CPMI and IOSCO, Governance Arrangements
for critical OTC derivatives data elements (other
than UTI and UPI), (Oct. 2019), available at: https://
www.iosco.org/library/pubdocs/pdf/
IOSCOPD642.pdf.
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1. Category: Clearing
The Commission proposed requiring
SDRs to publicly disseminate one data
element related to clearing: Cleared (1).
This data element is currently being
publicly disseminated by SDRs
according to the field in existing
appendix A ‘‘Cleared or uncleared.’’
The Commission received four
comments on clearing data elements.
Clarus and Citadel believe the name of
the DCO (or exempt DCO) where the
transaction is cleared should be publicly
disclosed given that this is a key data
element that affects transaction
pricing.393 CME is unaware of any
challenges market participants would
face in reporting additional clearing
data elements like the identity of the
DCO but believes it is unclear how any
additional clearing data elements would
enhance transparency and price
discovery.394 ISDA–SIFMA comments
that reporting terminated alpha swaps
on the public tape would create a
certain level of ‘‘noise’’ on the public
tape with little incremental value.395
The Commission is adopting the
clearing data element in appendix A as
proposed. The Commission is not
adopting an additional data element
identifying the DCO at which the swap
would be cleared. Most publicly
reportable swap transactions are original
swaps, which means they are swaps that
the counterparties or exchange will
submit for clearing. In many instances,
the counterparties may not yet know the
DCO to which they will submit the
original swap for clearing. As a result,
the Commission is concerned this
ambiguity could either encourage
counterparties to report unreliable data
or generally inconsistent reporting.
2. Category: Custom Baskets
The Commission proposed requiring
SDRs to publicly disseminate a custom
basket indicator.396 The Commission
believes this data element would help
market participants identify that a
disseminated price is associated with a
custom basket. The Commission
clarified that this data element is not a
field to indicate an otherwise exotic
swap.
The Commission did not receive any
comments on the custom basket
indicator data element in appendix A
and for reasons articulated in the
Proposal and reiterated above, is
adopting the data element as proposed.
393 Citadel
at 10; Clarus at 10.
at 11.
395 ISDA–SIFMA at 54.
396 This data element is Custom basket indicator
(25) in appendix A.
394 CME
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3. Category: Events
The Commission proposed requiring
SDRs to publicly disseminate four data
elements related to events.397 Reporting
counterparties currently report this
information to SDRs, but the
Commission proposed further
standardizing how this information is
reported across SDRs. The existing
event fields in appendix A include
cancellation and correction. The
Commission believes more specific
event information would help market
participants understand why certain
swap changes to publicly reportable
swap transactions are being publicly
disseminated.
The Commission received two
comments on the events data elements.
Citadel supports the Commission
adding a flag to identify swaps that
result from risk reduction services,
given that these may be publicly
reported with off-market prices.398
Clarus believes providers of any
compression-type activity should report
trade level details to SDRs and mark
them on the public tape as
compressions or risk-reduction
exercises.399 As explained in section
II.B.2, the Commission is clarifying
swaps resulting from post-trade, risk
reduction exercises performed by
automated systems that are market risk
neutral are not publicly reportable swap
transactions. As these swaps will no
longer appear on the public tape, a flag
to identify such swaps is not necessary.
The Commission is adopting the
events data elements in appendix A as
proposed, with a modification. The
Commission is adding an amendment
indicator data element to flag changes to
a previously submitted transaction.
4. Category: Notional Amounts and
Quantities
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The Commission proposed requiring
SDRs publicly disseminate eleven data
elements related to notional amounts
and quantities.400 SDRs are currently
publicly disseminating information
related to notional amounts, but the
Commission proposed standardizing
how this information is reported across
SDRs. The notional data elements in
existing appendix A include notional
397 In appendix A, these data elements are: Action
type (26); Event type (27); Event identifier (29); and
Event timestamp (30).
398 Id.
399 Clarus at 2.
400 In appendix A, these data elements are:
Notional amount (31); Notional currency (32); Call
amount (36); Call currency (37); Put amount (38);
Put currency (39); Notional quantity (40); Quantity
frequency (41); Quantity frequency multiplier (42);
Quantity unit of measure (43); and Total notional
quantity (44).
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currency and rounded notional. SDRs
would continue to cap and round the
notional amounts as required by § 43.4.
The Commission did not receive any
comments on adding or removing
notional amounts and quantities data
elements in appendix A and for reasons
articulated in the Proposal and
reiterated above, is adopting the
notional amounts and quantities data
elements in appendix A as proposed,
with the addition of three notional
amount schedule data elements to
appendix A.401
5. Category: Packages
The Commission proposed requiring
SDRs to publicly disseminate four data
elements related to package
transactions.402 The Commission
received four comments related to
package transactions. Citadel supports
the ‘‘package identifier’’ data element,
but recommends the Commission clarify
that the definition of a package includes
transactions that are executed using
‘‘list’’ functionality offered by a SEF,
where several transactions are grouped
together for pricing and execution
purposes.403
ISDA–SIFMA do not support
additional package related data
elements being disseminated on the
public tape because they are
exceptionally complex.404 Further,
ISDA–SIFMA believe reporting package
transactions to the tape can result in
fingerprinting since definitions of
‘‘package’’ vary across firms and there is
no consistent approach for industry
participants.405 CME also does not
support additional package related data
elements because although they would
not create implementation challenges
for SDRs, it is unclear how doing so
would enhance transparency and price
discovery.406 FXPA encourages the
Commission to provide examples with
respect to package data elements to
facilitate compliance, including a
particular example for reporting data
element Package transaction price
notation.407
The Commission is adopting the
package data elements in appendix A as
proposed, but is declining to require the
package identifier for part 43 reporting.
Further, the Commission is adding three
401 Notional amount schedule is three data
elements in the CDE Technical Guidance.
402 In appendix A, these data elements are:
Package identifier (46); Package transaction price
(47); Package transaction price currency (48); and
Package transaction price notation (49).
403 Citadel at 10.
404 ISDA–SIFMA at 55.
405 Id.
406 CME at 11.
407 FXPA at 3.
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package transaction swap data elements
to appendix A from the CDE Technical
Guidance: Package transaction spread;
Package transaction spread currency;
and Package transaction spread
notation. The Commission will also add
a package indicator data element to
appendix A.
The Commission believes Citadel’s
recommendation should be addressed
through the CDE governance process to
ensure jurisdictions adopt the data
element consistently. Finally, the
Commission does not believe the
package data elements require
examples, but DMO will monitor their
implementation and add examples to
the technical specification if they would
be beneficial in the future.
6. Category: Payments
The Commission proposed requiring
SDRs to publicly disseminate eight data
elements related to payments.408 SDRs
are currently publicly disseminating
information related to payments, but the
Commission proposed further
standardizing how this information is
reported across SDRs. The payment
fields in existing appendix A include
payment frequency and reset frequency,
and day count convention.
The Commission did not receive any
comments on the payments data
elements in appendix A and for reasons
articulated in the Proposal and
reiterated above, is adopting the data
elements as proposed.
7. Category: Prices
The Commission proposed requiring
reporting counterparties to report
seventeen data elements related to swap
prices for SDRs to publicly
disseminate.409 SDRs are currently
publicly disseminating information
related to prices, but the Commission
proposed further standardizing how this
information is reported across SDRs.
The payment fields in existing appendix
A include payment price, price
notation, and additional price notation.
In the price category, the Commission
proposed a Post-priced swap indicator
(68), in connection with the proposed
408 In appendix A, these data elements are: Day
count convention (53); Floating rate reset frequency
period (55); Floating rate reset frequency period
multiplier (56); Other payment type (57); Other
payment amount (58); Other payment currency (59);
Payment frequency period (63); and Payment
frequency period multiplier (64).
409 In appendix A, these data elements are:
Exchange rate (65); Exchange rate basis (66); Fixed
rate (67); Post-priced swap indicator (68); Price (69);
Price currency (70); Price notation (71); Price unit
of measure (72); Spread (73); Spread currency (74);
Spread notation (75); Strike price (76); Strike price
currency/currency pair (77); Strike price notation
(78); Option premium amount (79); Option
premium currency (80); and First exercise date (82).
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rules permitting a delay for reporting
PPS.410
The Commission did not receive any
comments on the price data elements in
appendix A and for reasons articulated
in the Proposal and reiterated above, is
adopting the data elements as proposed.
8. Category: Product
The Commission proposed requiring
SDRs publicly disseminate two data
elements relating to products, and has
included a placeholder data element for
the UPI.411 As discussed above, the
Commission believed that SDRs should
continue publicly disseminating any
product fields they are currently
publicly disseminating until the
Commission designates a UPI according
to § 45.7. Existing appendix A includes
a similar placeholder field for UPI.
The Commission received one
comment on the UPI. FXPA believes the
Commission should carefully review, or
consider guidance with respect to, the
unique product identifier data element
(87) as there are several related product
taxonomies in use today.412
The Commission is adopting the
products data elements in appendix A
as proposed. As explained above, the
placeholder reflects the Commission’s
decision for reporting counterparties to
continue to report product-related data
elements as they currently do until the
Commission designates a UPI in the
next two years.
9. Category: Settlement
The Commission proposed requiring
SDRs to publicly disseminate one data
element related to settlement:
Settlement currency (89). Existing
appendix A contains a field for
settlement currency.
The Commission did not receive any
comments on the settlement data
element in appendix A and for reasons
articulated in the Proposal and
reiterated above, is adopting the data
element as proposed, with the addition
of the CDE Technical Guidance data
element for Settlement location to
appendix A. This would help the
Commission collect information on
trades involving offshore currencies.
10. Category: Transaction-Related
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The Commission proposed requiring
SDRs to publicly disseminate seven
transaction-related data elements.413
410 The
Commission discusses PPS, including the
indicator, in section II.C.2 above.
411 In appendix A, these data elements are: Index
factor (85); Embedded option type (86); and Unique
product identifier (87).
412 FXPA at 3.
413 In appendix A, these data elements are: Nonstandardized term indicator (92); Block trade
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The transaction-related fields in existing
appendix A include execution
timestamp, indication of other price
affecting term, block trade indicator,
execution venue, and start and end date.
The Commission proposed one new
indicator, Prime brokerage transaction
indicator, in connection with the
proposed rules for reporting mirror
swaps.414
The Commission received one
comment on the Prime broker
transaction indicator data element.
ISDA–SIFMA believe the prime broker
transaction indicator should not be
subject to public dissemination if a
trigger swap is reported upon the
occurrence of the pricing event because
the public receives the pricing data in
real time like for any other part 43
reportable trade.415
The Commission received one
comment related to Platform identifier.
Citadel believes the MIC code of the
venue should be publicly disclosed to
assist market participants in
understanding current market dynamics
and locating active liquidity pools.416
Further, Citadel believes transactions on
EU MTFs and OTFs that the
Commission has deemed equivalent
should not be considered ‘‘off-facility
transactions’’ since it would allow CFTC
and market participants to assess the
impact of equivalence assessments.417
The Commission is adopting the
transaction-related date elements in
appendix A as proposed. With respect
to ISDA–SIFMA’s comment on Prime
brokerage indicator, the Commission
believes that the data element provides
appropriate notice to the public about
transactions that may not be reported
because they are part of a prime
brokerage arrangement. With respect to
Citadel’s comment, the Commission
notes that it adopting Platform identifier
according to the CDE Technical
Guidance. Any comments on the data
element should be addressed through
the CDE governance process.
IV. Compliance Date
A. General
In the Proposal, the Commission
suggested that the compliance date
would be at least one year from the date
that the last one of such final Roadmap
rulemakings was published in the
Federal Register.
election indicator (93); Effective date (94);
Expiration date (95); Execution timestamp (96);
Platform identifier (98); and Prime brokerage
transaction indicator (99).
414 The Commission discusses mirror swaps in
section II.C.4 above.
415 ISDA–SIFMA at 54.
416 Citadel at 11.
417 Id.
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The Commission received two
comments regarding the compliance
date. ICE DCOs believes the
Commission should adopt a ‘‘realistic
compliance implementation period that
allows for industry-wide coordination
and roll-out.’’ 418 GFMA believes twelve
months from publication of the Final
Rules should be the minimum
implementation period and changes to
part 43 technical specification should be
implemented for some period of time
before validations on such fields are
implemented.419
The Commission also received many
comments related to the compliance
date in response to the other Roadmap
proposals. Those comments are
discussed in the Federal Register
releases for the Roadmap proposals as
they were received, but the Commission
considered the comments for all three
Roadmap proposals together. The
Commission discusses the compliance
date comments at greater length in the
Federal Register release for the part 45
rules.
The Commission appreciates the
comments received on the compliance
date for the Proposal and for all of the
Roadmap proposals. Based on the many
comments that requested one
compliance date for all aspects of the
Roadmap proposals and the many
comments that requested a compliance
date that is more than one year from the
date the Roadmap proposals are
finalized, the Commission will, except
as discussed below, extend a unified
compliance date for this Final Rule that
is 18 months from the date of
publication in the Federal Register,
which matches the compliance date for
all three Roadmap proposals. To
accommodate an extended compliance
date for changes to the block thresholds
and cap sizes in § 43.4(h) and § 43.6
discussed in the next section, the
Commission encourages market
participants to comply with the existing
part 43 rules until the end of the 18month compliance period.
B. Changes to the Appropriate Minimum
Block Sizes and Cap Sizes
The Commission will extend the
compliance date for the post-initial
block thresholds and cap sizes in
§ 43.4(h) and § 43.6 separate from those
of the rest of the part 43 rules for an
additional twelve months. In this
instance, the Commission believes
market participants should have the
chance to adapt to the changes to part
43, including the new swap categories
and capping and rounding rules, before
418 ICE
DCOs at 1–2.
at 12.
419 GFMA
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having to comply with new block and
cap sizes.
In addition, the Commission
recognizes the changes to its part 43
rules in this release, along with the
changes to the part 45 rules in a separate
release, will provide the Commission
with an enhanced, standardized data set
that will help the Commission best
calibrate the appropriate minimum
block sizes when applying the 67percent and 75-percent thresholds.
Given the robust improvements to swap
data the Commission expects to realize
from the part 45 reforms and the
intervening period in which market
participants will need to update their
systems to comply with aspects such as
the new swap categories, the
Commission expects to use the new and
improved data to analyze the best way
to apply the thresholds and make any
adjustments as appropriate.
Since the Commission has to
recalculate the appropriate minimum
block sizes and cap sizes no less than
once each calendar year, the additional
twelve months will give the
Commission the opportunity to
recalculate the appropriate minimum
block sizes and cap sizes using the
publicly reportable swap transactions in
the new part 45 data to help ensure the
levels are appropriately calibrated. The
Commission intends to take action, as
necessary, to ensure the appropriate
minimum block sizes and cap sizes are
appropriately tailored. Moreover, the
additional time avoids creating
additional operational or compliance
challenges at the end of the 18-month
compliance period when market
participants begin compliance with the
updated part 43 rules.
Therefore, while the changes to the
rest of part 43 rules will have a
compliance period of 18 months,
§§ 43.4(h) and 43.6 and the new, postinitial block and cap sizes, calculated
according to the 67-percent and 75percent notional amount calculations,
will have a compliance date of one year
after the 18-month compliance period
(for a total of 30 months) for the rest of
the part 43 rule changes.
V. Related Matters
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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.420 The Commission has
previously established certain
definitions of ‘‘small entities’’ to be used
by the Commission in evaluating the
420 See
5 U.S.C. 601 et seq.
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impact of its rules on small entities in
accordance with the RFA.421 The
changes to part 43 adopted herein will
have had a direct effect on the
operations of DCMs, DCOs, MSPs,
PBs,422 reporting counterparties, SDs,
SDRs, and SEFs. The Commission has
previously certified that DCMs,423
DCOs,424 MSPs,425 SDs,426 SDRs 427,
and SEFs 428 are not small entities for
purpose of the RFA.
Various changes to part 43 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 nonSD/MSP/DCO reporting counterparties
are small entities for RFA purposes, the
Commission notes that section 2I of the
CEA prohibits a person from entering
into a swap unless the person is an
eligible contract participant (‘‘ECP’’),
except for swaps executed on or
pursuant to the rules of a DCM.429 The
Commission has previously certified
that ECPs are not small entities for
purposes of the RFA.430
421 See Policy Statement and Establishment of
‘‘Small Entities’’ for Purposes of the Regulatory
Flexibility Act, 47 FR 18618 (Apr. 30, 1982) (‘‘1982
RFA Release’’).
422 The Commission understands that all PBs
currently acting as such in connection with swaps
are SDs. Consequently, the RFA analysis applicable
to SDs applies equally to PBs.
423 See 1982 RFA Release.
424 The Commission has previously certified that
DCOs are not small entities for purposes of the RFA.
See DCO General Provisions and Core Principles, 76
FR 69334, 69428 (Nov. 8, 2011).
425 See SD and MSP Recordkeeping, Reporting,
and Duties Rules, 77 FR 20128, 20194 (Apr. 3, 2012)
(basing determination in part on minimum capital
requirements).
426 See id.
427 See Swap Data Repositories, 75 FR 80898,
80926 (Dec. 23, 2010) (basing determination in part
on the central role of SDRs in swaps reporting
regime, and on the financial resource obligations
imposed on SDRs).
428 See Core Principles and Other Requirements
for SEFs, 78 FR 33476, 33548 (June 4, 2013).
429 See 7 U.S.C. 2(e).
430 See Opting Out of Segregation, 66 FR 20740,
20743 (Apr. 25, 2001). The Commission also notes
that this determination was based on the definition
of ECP as provided in the Commodity Futures
Modernization Act of 2000. The Dodd-Frank Wall
Street Reform and Consumer Protection Act (the
‘‘Dodd-Frank Act’’) amended the definition of ECP
by modifying the threshold for individuals to
qualify as ECPs, changing an individual who has
total assets in an amount in excess of to an
individual who has amounts invested on a
discretionary basis, the aggregate of which is in
excess of. Therefore, the threshold for ECP status is
currently more restrictive than it was when the
Commission certified that ECPs are not small
entities for RFA purposes, meaning that there are
likely fewer entities that could qualify as ECPs
today than could qualify when the Commission first
made the determination.
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75461
The Commission has analyzed swap
data reported to each SDR 431 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 pursuant to 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 that 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 Final
Rule will affect a substantial number of
small entities.
Based on the above analysis, the
Commission does not believe that 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 Rules will not
have a significant economic impact on
a substantial number of small entities.
B. Paperwork Reduction Act
The PRA of 1995 432 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 would
result in the revision of a collection of
information for which the Commission
has previously received a control
number from the Office of Management
and Budget (‘‘OMB’’): OMB Control
Number 3038–0070 (relating to real-time
swap transaction and pricing data).
The Commission did not receive any
comments regarding its PRA burden
analysis in the preamble to the Proposal.
The Commission is revising the
information collection to reflect the
adoption of amendments to part 43, 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 PRA). In
the Proposal, the Commission omitted
the aggregate reporting burden for
proposed § 43.3 and § 43.4 in the
preamble and instead provided PRA
431 The sample data sets varied across SDRs and
asset classes based on relative trade volumes. The
sample represents data available to the Commission
for swaps executed over a period of one month.
These sample data sets captured 2,551,907 FX
swaps, 603,864 equity swaps, 357,851 other
commodity swaps, 276,052 IRS, and 98,145 CDS.
432 See 44 U.S.C. 3501.
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estimates for all of part 43. The
Commission is now including PRA
estimates for final § 43.3 and § 43.4
below.433 In addition, the Commission
is revising the information collection to
include burden estimates for one-time
costs that SDRs, SEFs, DCMs, and
reporting counterparties could incur to
modify their systems to adopt the
changes to part 43, as well as burden
estimates for these entities to perform
any annual maintenance or adjustments
to reporting systems related to the
changes. The Commission does not
believe the rule amendments as adopted
impose any other new collections of
information that require 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 43 that were not included in the
Proposal.
1. Swap Transaction and Pricing Data
Reports to SDRs—§ 43.3
Existing § 43.3 requires reporting
counterparties, SEFs, and DCMs to send
swap reports to SDRs ASATP after
execution of a publicly reportable swap
transaction. The Commission is
adopting changes that would add new
§ 43.3(a)(4) to give reporting
counterparties more time to report PPS
to SDRs. Currently, some entities report
PPS using a placeholder price, and then
send a swap report later amending the
price. Those entities would experience
a reduction in the number of swap
reports they are required to send
pursuant to § 43.3 under the Final
Rules. The Commission estimates 50
SD/MSP reporting counterparties would
reduce the number of PPS reports they
report to SDRs by 100 reports per
respondent annually or 5,000 reports in
the aggregate.
433 PRA estimates for all of part 43 are included
in the supporting statement being filed with OMB.
The Commission is not including PRA estimates for
all of part 43 below as the Final Rule affects PRA
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The Commission is also amending
§ 43.3 to establish new requirements for
reporting prime brokerage swaps in
§ 43.3(a)(6). New § 43.3(a)(6) will not
require SDRs to publicly disseminate
‘‘mirror swaps.’’ Reporting
counterparties will continue to report
mirror swaps to SDRs pursuant to part
45, but the amendment to § 43.3 will
reduce the number of reports SDRs are
required to publicly disseminate
pursuant to § 43.4. The amendment to
the requirement for SDRs in § 43.4 is
discussed in the next section below.
The Commission is also adding a new
requirement in new § 43.3(a)(5) for
DCOs to report swap transaction and
pricing data for clearing swaps that are
publicly reportable swap transactions.
Currently, § 43.3 does not account for
DCOs in the hierarchy of entities
required to report to SDRs. This would
be a new requirement for DCOs to send
swap transaction and pricing data
reports to SDRs, to the extent they are
not currently required to do so. DCOs
would only be required to do so when
reporting swaps associated with clearing
member defaults. However, the
Commission, recognizing the
importance of the DCO clearing member
default process, decided to exempt these
swaps from the definition of ‘‘publicly
reportable swap transaction,’’ with the
result being there will be no reporting
requirement for DCOs. As such, there is
now no PRA burden.
Existing § 43.3(h) requires
timestamping by multiple entities.434
The Commission is removing § 43.3(h).
Removing § 43.3(h)(1) would reduce the
amount of time SDs, MSPs, and
registered entities spend reporting swap
reports to SDRs, but would not amend
the number of reports they send.
Removing § 43.3(h)(2) would reduce the
amount of time SDRs spend publicly
disseminating swap reports, but would
434 Existing § 43.4(h)(1) requires registered
entities, SDs, and MSPs to timestamp real-time
swap reports with the time they receive the data
from counterparties, as applicable, and the time at
which they transmit the report to an SDR.
Registered entities, SDs, and MSPs then send these
timestamps to the SDR. Existing § 43.3(h)(2)
requires SDRs to timestamp the swap reports they
receive from SEFs, DCMs, and reporting parties,
and then timestamp the report with the time they
publicly disseminate it. SDRs then place these
timestamps on the reports they publicly
disseminate. Existing § 43.3(h)(3) requires SDs and
MSPs to timestamp all off-facility swaps they report
to SDRs. SDs and MSPs then report these
timestamps to SDRs. Existing § 43.3(h)(4) requires
that records of all timestamps required by § 43.3(h)
be maintained for a period of at least five years from
the execution of the publicly reportable swap
transaction. The Commission is adopting changes to
eliminate the recordkeeping requirements in
§ 43.3(h)(4). This would result in the removal of the
recordkeeping burden from collection 3038–0070,
which is currently 5,854 hours in the aggregate.
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not amend the number of reports they
send. Removing § 43.3(h)(3) would
reduce the amount of time SDs and
MSPs spend reporting off-facility swaps
to SDRs, but would not reduce the
amount of reports they send. Finally,
removing § 43.3(h)(4) would remove the
recordkeeping burden for these entities.
As a result of the removal of § 43.3(h),
the Commission is removing the current
recordkeeping burden of 5,854 hours
from the collection. The estimated
aggregate reporting burden for § 43.3 is
as follows:
Estimated number of respondents:
1,729 SEFs, DCMs, and reporting
counterparties.
Estimated number of reports per
respondent: 2,998.
Average number of hours per report:
.067.
Estimated gross annual reporting
burden: 725,696.
The Commission did not include any
burden estimates in the Proposal related
to the modification or maintenance of
systems in order to be in compliance
with the proposed amendments to
§ 43.3. The Commission estimates that
the cost for a reporting entity, including
DCMs, DCOs, MSPs, non-SD/MSPs,
SDs, and SEFs, to modify their systems
and maintain those modifications going
forward to adopt the Final Rule could
range from $24,000 to $74,000. There
are an estimated 1,732 reporting
entities, for a total estimated cost of
$84,868,000. The estimated cost range is
based on a number of assumptions that
cover tasks required to design, test, and
implement an updated data system
based on the new swap data elements
contained in part 43. The Commission
estimates it would take a reporting
entity an estimated total of 500 to 725
hours per reporting to perform the
necessary tasks. The Commission
estimates that the cost for an SDR to
modify their systems, including their
data reporting, ingestion, and validation
systems, and maintain those
modifications going forward may range
from $144,000 to $510,000 per SDR.
There are currently three SDRs, for an
estimated total cost of $981,000. The
estimated cost range is based on
assumptions that cover the set of tasks
required for the SDR to design, test, and
implement a data system based on the
list of swap data elements contained in
part 43. These numbers assume that
each SDR will spend approximately
3,000–5,000 hours to establish a
relational database to handle such tasks.
As noted above, the Commission is
soliciting comments on the revised
burden estimates for part 43, including
the estimated costs related to the
modification or maintenance of systems
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in order to be in compliance with the
amendments to § 43.3 that are being
adopted in the Final Rule.
2. Swap Transaction and Pricing Data
Reports Disseminated to the Public by
SDRs
As discussed above, existing § 43.3
requires reporting counterparties to
send swap reports to SDRs ASATP after
execution. The Commission is adopting
changes to § 43.3 to establish new
requirements for reporting prime
brokerage swaps in § 43.3(a)(6). The
amended rules would establish that
‘‘mirror swaps’’ would not need to be
publicly disseminated by SDRs.
Reporting counterparties would
continue to report mirror swaps to SDRs
pursuant to part 45, but the amendment
to § 43.3 would reduce the number of
reports SDRs would be required to
publicly disseminate according to
§ 43.4.
The Commission estimates that the
amendments would reduce the number
of mirror swaps SDRs would need to
publicly disseminate by 100 reports per
each SDR, for an aggregate burden hour
reduction of 20.10 hours.
The estimated aggregate reporting
burden total for § 43.4, as adjusted for
the reduction in reporting by SDRs of
mirror swaps, is as follows:
Estimated number of respondents: 3.
Estimated number of reports per
respondent: 1,499,900.
Average number of hours per report:
.009.
Estimated gross annual reporting
burden: 40,497.
The Commission did not include any
burden estimates in the Proposal related
to the modification or maintenance of
systems in order to be in compliance
with the proposed amendments to
§ 43.4. To avoid double-counting, the
Commission included the costs
associated with updates to § 43.3,
discussed above, as they would be
captured in the costs of updating
systems based on the list of swap data
elements in part 43. As noted above, the
Commission is soliciting comments on
the revised burden estimates for part 43
that are being adopted in the Final Rule.
C. Cost-Benefit Considerations
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1. Statutory and Regulatory Background
Section 15(a) 435 of the CEA requires
the Commission to consider the costs
and benefits of its actions before
promulgating a regulation under the
CEA or issuing certain orders. Section
15(a) further specifies that the costs and
benefits shall be evaluated in light of
435 7
U.S.C. 19(a).
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five broad areas of market and public
concern: (1) Protection of market
participants and the public; (2)
efficiency, competitiveness, and
financial integrity of markets; (3) price
discovery; (4) sound risk management
practices; and (5) other public interest
considerations. The Commission
considers the costs and benefits
resulting from its discretionary
determinations with respect to the
section 15(a) factors.
Generally, the Commission expects
that, taken together, the revisions and
additions to part 43 will improve the
real-time public reporting regime for
reporting counterparties, SEFs, DCMs,
SDRs, and market participants that use
real-time public data, with some
attendant costs. The discussion below
considers the costs and benefits the
Commission—informed by
commenters—foresees resulting from
the particular substantive amendments
it is adopting.436 Specifically, these are
the amendments to: § 43.3(a)(4) (postpriced swaps); § 43.3(a)(5) (clearing
swaps); § 43.3(a)(6) (prime broker
swaps); § 43.3(c) (availability of swap
transaction and pricing data to the
public); § 43.3(a)(4); § 43.3(f) (data
validation acceptance message); § 43.4(f)
(process to determine appropriate
rounded notional or principal amounts);
and §§ 43.4(h) and 43.6 (cap sizes and
block trades). The Commission
considers these costs and benefits
relative to the baseline established by
the requirements of its existing
regulations, or, where there are none,
relative to the baseline of current
industry practice.
The Commission lacks precise cost
data to quantify the costs and benefits
considered below.437 The Commission
provides a range estimate where
feasible, including programming costs
associated with the rule changes, for
instance. The Commission requested
comments to help refine its estimates for
quantifiable costs and benefits, but
received no comments providing
specific data or information regarding
how to quantify costs. Regarding
changes requiring technical updates to
436 Because the Commission does not foresee
material cost-benefit impact resulting from the nonsubstantive amendments it is also adopting, these
amendments are not discussed. Also, the proposed,
but not adopted, changes to the block delays
provided in § 43.5 are not discussed, since there is
no resultant change relative to the status quo
baseline.
437 As explained in the Proposal, many of the rule
changes will likely affect a wide variety of
proprietary reporting systems developed by SDRs
and reporting entities, putting SDRs and industry
participants in the best position to estimate
computer programming costs of changing the
reporting requirements.
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75463
reporting systems, where significant,
Commission staff estimated the hourly
wages market participants will likely
pay software developers to implement
each change to be between $48 and $101
per hour.438 Relevant amendments
below will list a low-to-high range of
potential costs as determined by the
number of developer hours estimated by
technical subject matter experts
(‘‘SMEs’’) in the Commission’s Office of
Data and Technology (‘‘ODT’’).
Quantifying other costs and benefits,
such as liquidity impacts and price
spread variances resulting from changes
in price transparency from a rule
change, are inherently harder to
measure, rendering quantification
infeasible in many cases. In addition,
quantification of effects relative to
current market practice may not fully
represent future activity if participants
change their trading behavior in
response to rule changes. Again, while
the Commission requested comments to
help it quantify these impacts, it did not
receive any responsive comments.
Accordingly, the Commission discusses
costs and benefits qualitatively when
quantification remains infeasible, after
taking into account relevant input of
commenters, or the lack thereof.
The discussion in this section is based
on the understanding that swap markets
often extend across geographical
regions. Many swap transactions
involving U.S. firms occur across
international borders. Some
Commission registrants are
headquartered outside of the U.S., with
the most active participants often
conducting operations both within and
outside the U.S. Where the Commission
does not specifically refer to matters of
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
438 The Commission estimated hourly wage rates
from the Software Developers and Programmers
category of the May 2019 National Occupational
Employment and Wage Estimates Report produced
by the U.S. Bureau of Labor Statistics, available at
https://www.bls.gov/oes/current/oes_nat.htm. The
25th percentile was used for the low range and the
90th percentile was used for the upper range
($36.89 and $78.06, respectively). Each number was
multiplied by an adjustment factor of 1.3 for
overhead and benefits (rounded to the nearest
whole dollar) which is in line with adjustment
factors the Commission has used for similar
purposes in other final rules. See, e.g., 77 FR at
2173 (Jan. 13, 2012) (using an adjustment factor of
1.3 for overhead and other benefits). These
estimates are intended to reflect U.S. developer
hourly rates market participants are likely to pay
when complying with the adopted changes.
Individual entities may, based on their
circumstances, incur costs substantially greater or
less than the estimated averages.
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with or effect on U.S. commerce under
CEA section 2(i).439
2. Costs and Benefits
a. § 43.3—Method and Timing for RealTime Public Reporting
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i. § 43.3(a)(4)—Post-Priced Swaps
New § 43.3(a)(4) establishes
requirements for reporting PPSs, which
the Commission defines as off-facility
swaps for which the price has not been
determined at the time of execution.440
New § 43.3(a)(4)(i) permits reporting
counterparties to delay reporting trades
identified as PPSs to SDRs until the
earlier of: (i) The price being
determined; and (ii) 11:59:59 p.m.
eastern time on the execution date.441
For swaps for which the price is known
at execution but some other term is left
for future determination (e.g., quantity),
reporting parties remain obligated to
report the swap ASATP after execution,
even absent the as-yet undetermined
terms.
The new requirements help address a
challenge reporting counterparties face,
and, in doing so, remedy an impediment
to the quality of the real-time tape.
Under existing regulations, reporting
parties must report all trades ASATP
after execution. Existing rules do not
address how reporting parties represent
unknown trade terms in swap reports to
SDRs or whether SDRs must accept
trade reports missing values or with
zero values in fields. SDRs often reject
these trades, which means reporting
counterparties cannot accurately report
PPSs in real time. The current lack of
specific requirements creates
inconsistencies in how and when
reporting counterparties report PPSs.
As expressed in the Proposal—and
undisputed by commenters—the
439 See 7 U.S.C. 2(i). CEA section 2(i) limits the
applicability of the CEA provisions enacted by the
Dodd-Frank Act, and Commission regulations
promulgated under those provisions, to activities
within the U.S., unless the activities have a direct
and significant connection with activities in, or
effect on, commerce of the U.S.; or contravene such
rules or regulations as the Commission may
prescribe or promulgate as are necessary or
appropriate to prevent the evasion of any provision
of the CEA enacted by the Dodd-Frank Act.
Application of section 2(i)(1) to the existing part 43
regulations with respect to SDs/MSPs and non-SD/
MSP counterparties is discussed in the
Commission’s Interpretive Guidance and Policy
Statement Regarding Compliance With Certain
Swap Regulations, 78 FR 45292 (July 26, 2013).
440 The Commission discusses PPSs further in
section II.C.2 above.
441 The Commission understands that PPSs can
arise in a variety of settings. One such setting is
where the price of the swap is tied to a reference
price that is not yet determined at the time of the
trade. Examples of this could include the daily
settlement price of a stock index or crude oil futures
or a benchmark such as the Argus WTI Midland
price.
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Commission believes that while some
variable term swaps, including PPS, are
reported shortly after execution, these
swaps also account for a significant but
unknown percentage of swaps not
reported to SDRs in a timely manner.442
While the Commission understands
anecdotally that untimely PPS reporting
is occurring, it cannot clearly identify
which swaps reported to date would be
classified as PPSs under the current
regulations.443 Consequently, the
Commission cannot reliably estimate
the magnitude of the new requirements’
impact with a reasonable degree of
certainty. However, under the updated
list of data elements in appendix A,
reporting parties will have to indicate
that a swap is a PPS, which will give the
Commission and the public a clearer
view of PPS activity.444
As discussed in section II.D.2, above,
and incorporated by reference for
purposes of the Commission’s
consideration of costs and benefits here,
the Commission received a number of
comments concerning new § 43.3(a)(4).
Some commenters oppose delaying PPS
reporting. For example, Citadel suggests
the Commission instead require realtime reporting and dissemination of
PPSs with an identifier for PPSs on the
public tape.445 Citadel believes an
identifier would address the concern
that the real-time publication of PPSs
confuses market participants.446
Other commenters believe the
Commission should delay PPS reporting
by a day or more. For example, ISDA–
SIFMA suggest delaying PPS reporting
until the earlier of (a) the price being
determined, or (b) 11:59:59 p.m. eastern
time on the next business day following
the execution date.447 ISDA–SIFMA
believe reporting PPSs earlier may
increase the costs of hedging by
signaling to other participants that a SD
will be hedging a particular large
notional trade the following day.448
442 85
FR at 21522 (Apr. 17, 2020).
may be possible to identify PPSs by
searching part 43 data to determine how many
swaps are reported with a missing price with a
reporting time close to execution time. However,
the Commission understands not all reporting
counterparties report PPSs close to execution and
instead wait until determining a price. It may also
be possible to assume swaps with a price but a large
difference between reporting time and execution
time are PPSs, but this may include swaps with
other non-price varying terms, such as quantity.
Finally, it may be possible to check parts 43 and
45 data for differences in the reported price. Since
all of these options are potentially over- or underinclusive, the Commission is currently unable to
reliably identify PPSs.
444 The Commission discusses the data element
for ‘‘post-priced swap indicator’’ in section III.
445 Citadel at 10.
446 Id.
447 ISDA–SIFMA at 50.
448 Id.
443 It
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ISDA–SIFMA believe a T+1 cutoff will
significantly reduce potential
unnecessary hedging costs by reducing
the number of PPSs reported without a
price.449
The Commission considered the costs
and benefits of delaying PPS reporting.
The Commission agrees that
dissemination of swap transaction and
pricing data immediately after execution
increases price transparency. But this
benefit is limited where the price of a
swap is not known.
The Commission also believes that,
because the PPS price is determined
after execution, SDs face unique risks
hedging a PPS. For example, the price
of some PPSs is tied to a reference price
that is not determined until the end of
the trading day. Publishing swap
transaction data before the price is
determined presents unique and
heightened risks of front running, as
market participants will be able to
transact in swaps ahead of the event on
which the price is contingent. This
could increase hedging costs,
disadvantaging the SD and the
counterparty to the PPS, and potentially
cause market participants to forego the
use of such swaps, thereby materially
reducing swap market liquidity. Thus,
there is significant benefit delaying
reporting until after price has been
determined.
The Commission has determined that
the final rules provide an appropriate
balance. Citadel’s faster reporting could
have a significant impact on the ability
of SDs to hedge their position, while
ISDA–SIFMA’s delayed reporting would
have a significant negative effect on
price transparency.
CME and FIA opposed reporting and
disseminating PPSs until all terms are
known, not only price.450 CME believes
there is no value in reporting swap
transaction and pricing data prior to all
variable terms being determined.451
While the Commission recognizes the
merit in these alternatives, the
Commission is concerned the delays
suggested by CME and FIA would be
long enough to impede the
Commission’s price transparency goals.
As a result, the Commission does not
believe that PPS reporting should be
delayed after price is known.
Baseline: The current regulations
require reporting parties to report all
swaps ASATP after execution; this
baseline does not contain an exception
for swaps with terms that have not been
determined at the time of execution, a
category of swaps which includes PPSs.
449 Id.
450 CME
451 CME
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at 3–4.
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As noted above, this potentially
conflicts with SDR standards, which
often mandate values in certain fields,
such as fields related to prices. Perhaps
reflecting this conflict, it appears many
PPSs and other swaps with terms that
have not been determined at the time of
execution are not reported until all
terms have been determined.
Benefits: This rule will establish a
bright-line standard for when PPSs and
other swaps with terms that have not
been determined at the time of
execution need to be reported for public
dissemination. By explicitly defining
obligations for PPSs and other swaps
with terms that have not been
determined at the time of execution, the
rule creates consistency in reporting and
reduces uncertainty. This would
strengthen market participant’s
confidence in the real-time public data.
Another benefit to the final
regulations it that the final requirements
would permit parties to hedge the
positions they acquire in a more costeffective way. For example, if a client
asks an SD to take the long side of a
large swap, the SD may be able to hedge
that position with less price impact if
other traders are unaware of the SD’s
hedging need. This ability to hedge
while mitigating price impact can often
translate to better pricing for the client.
Thus, the Commission anticipates final
§ 43.3(a)(4) would decrease SDs’
hedging costs, especially for large or
non-standardized trades, improve
customer pricing, and increase market
participants’ willingness to take
positions.452
Costs: Delayed reporting of PPSs may
reduce the amount of information
available to market participants and, as
a result, frustrate the goal of price
transparency. In particular, other market
participants would have a less-precise
estimate of intraday trading volume in
real-time, which can introduce
information asymmetry. For example, a
SD may be willing to make markets in
equity PPSs and non-PPS on a similar
underlying equity index. Access to realtime information on activity in both
markets would be equally important and
potentially allow for cross-market
arbitrage. With the delay in PPS, the SD
could be disadvantaged by a lack of
information related to PPS activity.
However, the realities of the market and
the reporting of PPSs today reduce the
cost burden linked to the reporting
delay.453 Further, the benefits of
452 The
Commission estimates for PRA purposes
that there would be a moderate decrease in the
burden incurred by market participants, as
discussed in the PRA section.
453 For example, PPSs are not standardized in
how they are reported. If, for example, all PPSs
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reporting swap data immediately after
execution is limited where price is not
known.
Another potential cost is that
§ 43.3(a)(4) might encourage traders to
trade more PPSs and fewer swaps for
which the price is known at execution.
For example, if choosing between two
swaps with comparable terms except
one has a price determined at the end
of the day, if the size is large relative to
the rest of the market, the delay could
encourage the counterparties to select
the swap with an unknown price. The
incentive to choose PPSs for a delay
would reduce transparency with fewer
trades reported ASATP after execution.
The Commission is adopting
§ 43.3(a)(4) to specify the requirements
for reporting PPSs. Notwithstanding the
potential costs identified above, the
Commission believes this change is
warranted in light of the anticipated
benefits.
ii. § 43.3(a)(5)—Clearing Swaps
Final § 43.3(a)(5) adds DCOs to the
reporting counterparty hierarchy for
clearing swaps that are publicly
reportable swap transactions. DCOs do
not typically report swap transaction
and pricing data under part 43, because
cleared swaps have already been
reported at execution: SEFs, DCMs, and
reporting counterparties report the
original, market-facing swap to SDRs for
public dissemination while sending the
swap to a DCO for clearing. Final
§ 43.3(a)(5) covers the limited cases
where a DCO executes a publicly
reportable swap transaction that has not
already been reported under part 43.
However, the Commission is adopting
an alternative to § 43.3(a)(5) raised by
commenters that would lead to
maintaining the status quo. ICE DCOs
and CME believe the Commission
should also amend the definition of
‘‘publicly reportable swap transaction’’
in § 43.2 to exclude swaps created
through DCO default management
processes to avoid allowing frontrunning if the processes span multiple
days.454 These commenters believe
§ 43.3(a)(5) would be impractical as the
default management process may be
achieved through the sale at the
portfolio (not individual swap) level,
which ‘‘does not lend itself’’ to part 43
reporting.455 Also, these commenters
believe the prices disseminated for
traded at a specified differential from the daily
settlement price, this would allow for more useful
real-time data. The data limitations ultimately
reduce the usefulness of PPS information, thus
reducing the cost of delays related to this swap
transaction and pricing data.
454 ICE DCOs at 2; CME at 7–8.
455 Id.
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75465
default management swaps would be
irrelevant as the prices are affected by
the DCO’s priority to take timely
action.456
While the Commission is adopting
final § 43.3(a)(5), the Commission is also
adopting the alternative proposed by
ICE DCOs and CME because the
Commission shares these commenters’
concerns that the new requirement
could impede the efficacy or ability of
DCOs to complete default management
exercises.
Baseline: The existing rules do not
expressly require DCOs to submit swap
transaction and pricing data to SDRs for
public dissemination.
Benefits: Final § 43.3(a)(5) will clarify
that, while DCOs have an obligation to
report swaps meeting the definition of
publicly reportable swap transactions,
they are not required to report swaps
resulting from default management
processes, based on the important role
these processes play for DCOs in
managing risk.
Costs: New § 43.3(a)(5) would have
imposed minor costs for DCOs as the
reporting counterparties for publicly
reportable swap transactions. However,
with the Commission’s decision to
exempt swaps related to default
management processes from public
reporting, DCOs and SDRs should incur
no additional costs from the new
requirements.457
iii. § 43.3(a)(6)—Prime Broker Swaps
Final § 43.3(a)(6) establishes rules for
publicly reporting PB swaps.458 The
new rule distinguishes between two
types of PB swap transactions for the
purposes of publicly reportable swap
transactions subject to real-time public
reporting: Mirror swaps, which are not
publicly reportable swap transactions,
and trigger swaps, which are. Further,
the Commission is adding a data
element to appendix A to require an
indicator flagging a swap as part of a
prime brokerage transaction. These
changes are explained in more detail in
sections II.C.4 and III.A above.
Banks typically offer prime brokerage
services to large, sophisticated
customers. Customers that avail
themselves of this service enter into an
agency agreement with their PB by
which the PB agrees to serve as the
counterparty for at least two off-setting
swaps: A trigger swap with its customer,
456 Id.
457 The Commission estimates for PRA purposes
that there would be no burden incurred by market
participants, as discussed in the PRA section.
458 As newly defined in § 43.2 a ‘‘prime broker
swap’’ is any swap to which a swap dealer acting
in the capacity as prime broker—a separate,
specifically defined term—is a party.
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and a flip-side mirror swap with a third
party, often referred to as an executing
broker; 459 although it will not be a
direct counterparty to the mirror swap,
the customer negotiates its terms (which
must fall within acceptable parameters
set forth in the agency agreement) with
the executing broker.460 This
arrangement facilitates an end-user’s
ability to lay off risk through swaps that
it directly negotiates with third-party
executing brokers, while foregoing the
need to have a separate ISDA agreement
(a necessity for direct-facing
counterparties to uncleared swaps) with
each executing brokers against which it
executes a swap.461 Instead, the PB
essentially stands in the middle of the
exchange negotiated between its
customer and the executing broker.
Because the PB is counterparty to both
a trigger swap and a mirror swap, it has
two offsetting exposures that should
leave it market risk neutral. The PB
does, however, take on counterparty
credit risk from both its customer and
the executing broker.
Existing part 43 does not expressly
address mirror swaps or trigger swaps,
and, as a result, both are currently
required to be reported to an SDR and
publicly disseminated ASATP as a
publicly reportable swap transaction.462
Existing part 43 also contains no data
elements to identify if a swap is related
to a prime brokerage agreement and, if
so, distinguish between the mirror and
trigger swaps. To the extent that both
mirror and trigger swaps are being
currently reported, the Commission is
concerned this creates a false sense of
market depth on the public tape and
therefore harms price discovery. A
simple example illustrates how
reporting both mirror and trigger swaps
can adversely affect price discovery: If
both swaps are reported, the public sees
double the trade count and double the
notional amount. Furthermore, as these
prices are expected to be similar, the
459 It is possible to observe a difference in the
reported price between the mirror and trigger swaps
as the mirror swap may include an adjustment
resulting from the prime brokerage servicing fees.
If so, it provides further support for SDRs only
disseminating trigger swaps to the public.
460 As ISDA–SIFMA notes, these arrangements
may involve multiple mirror swaps associated with
a trigger swap. See ISDA–SIFMA at 58.
461 Executing an underlying ISDA agreement can
be costly, and most end users will have an ISDA
agreement with few, if any, banks other than their
PB. The PB, however, already will have an ISDA
agreement with a large number of SDs. Further,
because the PB will be the counterparty to the
negotiated mirror swap, the executing broker will
quote a price based on the PB’s credit rating, not
the customer’s, which can result in more favorable
pricing than the customer would receive if
transacting directly.
462 § 43.3(a)(1) and (b)(2).
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market may appear more liquid and
efficient than it actually is. If, on the
other hand, only one swap is reported,
the public tape accurately reflects the
trade count and notional size following
the negotiated terms of trade.
Compounding the Commission’s
transparency concerns under existing
part 43 is its understanding, based on
anecdotal information, that PB swaps
are reported, to an unclear degree,
inconsistently. In particular, the
Commission is concerned mirror swaps
are currently under-reported because
some market participants, believing that
reporting mirror swap terms is
duplicative of the corresponding trigger
swap and would distort price
discovery.463 Because there is no data
element indicating which swaps
represent trigger or mirror swaps in the
public reporting requirements, the
Commission cannot reliably identify
how common these swaps may be. As
such, potential non-reporting of mirror
swaps under the existing regulations
makes it difficult to quantify how many
swap trades and open positions result
from PB activity.464 This creates
challenges for anyone seeking to use
swap transaction and pricing data for
analysis or historical studies of market
activity.
Pursuant to new § 43.3(a)(6)(i), a
mirror swap would fall outside the
obligations for ASATP reporting and
SDR public dissemination,465 though it
would still be reported to an SDR
pursuant to part 45. In contrast, the
trigger swap would remain subject to
both ASATP reporting and SDR public
dissemination under part 43 as well as
reporting under part 45.
As discussed in sections II.C.4 and III
above, and incorporated by reference for
purposes of the Commission’s
consideration of costs and benefits
herein, the Commission received several
comments concerning new § 43.3(a)(6),
including its associated definitions and
new prime broker transaction indicator
in appendix A.466 To the extent these
comments expressly address the
Proposal’s cost-benefit assessment or
otherwise raised issues with material
cost-benefit implications, they are
considered below in the discussions of
benefits and costs. Comments also
463 This would be the case if all the primary
economic terms are the same for, for instance, a
trigger swap and a single mirror swap. By reporting
both the mirror and the trigger swap, market
participants may assume that the volume of priceforming trade activity is higher than it actually is.
464 The swap transaction and pricing data
elements in appendix A would include a new data
element ‘‘Prime brokerage transaction indicator.’’
465 See § 43.3(a)(1) and (b)(2).
466 Citadel at 10; CME at 5; FXPA at 4; ISDA–
SIFMA at 51–53, 64–66; GFMA at 1, 5–6.
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addressed significant alternatives—
including Citadel’s recommendation to
require both mirror and trigger swap
reporting with an indicator to identify
that a swap was a mirror swap,467 and
ISDA–SIFMA’s recommendation to
relax trigger swap reporting
requirements—are discussed separately
below as well. The Commission did not
receive any comments that estimate the
number of mirror swaps or provide
information to quantify the swaps
resulting from prime brokerage activity,
or more generally, the rule’s costs or
benefits. ISDA–SIFMA expressly notes
that ‘‘strict internal policies’’ on
information-sharing among firms
preclude it from speaking to mirror
swap percentages and that it is ‘‘difficult
to quantifying the cost or benefit in
monetary terms.’’ 468
Baseline: Existing part 43 provides the
baseline for assessing the costs and
benefits of new § 43.3(a)(6) and its
attendant definitions and new prime
brokerage transaction indicator data
element in appendix A. Existing part 43
contains no express provision for mirror
swaps, trigger swaps, or PB transactions
generally. Rather, because both trigger
and mirror swaps fall within the current
definition of publicly reportable swap
transactions, real-time public reporting
of both swaps is required. As described
above, this is true even though there is
no way to determine from reported data
if and when swaps may be associated
with each other as trigger and mirror
swaps, or even the degree to which
mirror swaps are not reported. As also
discussed above, this undermines price
transparency and complicates the ability
of both market participants and the
Commission to assess, and draw
conclusions from, the real-time data.
Benefits: The Commission believes
that by excluding mirror swaps from
real-time reporting while requiring realtime reporting for trigger swaps, final
§ 43.3(a)(6) will enhance price discovery
for market participants who monitor the
public tape by preventing the
duplicative reporting of mirror swaps
that reflect the same economic terms as
trigger swaps. Generally speaking, the
Commission does not believe mirror
swaps, as they are currently reported,
improve price discovery. Several
comments support this conclusion.469
467 Citadel
at 10.
468 ISDA–SIFMA
at 58.
at 52, 57 (mirror swaps ‘‘do not
represent new pricing events’’ that enhance price
discovery; ‘‘real-time reporting of mirror swaps
would not enhance price transparency nor serve
any price discovery purpose given that there would
be no new or additional pricing information
released to the market’’); GFXD at 6 (supporting
ISDA–SIFMA response); CME at 5 (it ‘‘does not
469 ISDA–SIFMA
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Rather, inclusion of such duplicative
records can distort price discovery by
creating a false impression of market
volume at a particular price.470
In reaching this conclusion, the
Commission acknowledges marginal
transparency imperfections due to PB
swaps will remain. As discussed below
in the cost context, there are aspects of
mirror swap reporting that could
theoretically inform price discovery to
some degree regarding market
participant credit risk, total price
(including PB fees that reflect credit
intermediation costs), and that, in some
cases, a single trigger swap’s notional
value may be offset by multiple mirror
swaps. However, relative to distortion
from mirror swap double counting, the
Commission views these potentially
beneficial aspects of mirror swap
reporting as less impactful to the
integrity of the public tape. Further,
since mirror swaps are currently
required to be reported without any flag
indicative of their status or association
with a trigger swap, whatever
information they now convey on the
public tape is likely more akin to
distortive ‘‘noise’’ than helpful to
inform market participants.
Accordingly, the Commission believes
that, overall, excluding mirror swaps
from real-time reporting will improve
the quality of the real-time tape, thereby
enhancing price discovery relative to
the status quo.
The Commission also foresees
benefits from establishing clear rules for
PB swap reporting to alleviate reporting
ambiguity, but the price discovery value
of mirror swaps remaining unclear.
Uncertainty as to how market
participants are reporting PB swaps can
challenge the public tape’s quality, as
well as undermine its price discovery
utility. Further, to the extent some
market participants may not be fully
reporting PB swaps, while others may
be fully reporting these swaps,
§ 43.3(a)(6) should level the playing
field. Finally, as one commenter notes,
to the extent some market participants
are now reluctant to engage in PB swaps
because of regulatory uncertainty,
§ 43.3(a)(6) ‘‘should bring increased
liquidity to OTC swaps markets’’ by
countering this uncertainty.471
believe that publishing information regarding
mirror swaps would provide any information of
value to market participants’’).
470 See FXPA at 4 (agreeing ‘‘with Commissioner
Berkowitz’s assessment that ‘[d]uplicate reporting
can create a false signal of swap trading volume and
potentially obscure price discovery by giving the
price reported for a single prime brokerage swap
twice as much weight relative to other non-prime
brokerage swaps.’ ’’).
471 FXPA at 4.
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Costs: Mirror swaps may have
information value in the following
areas: (i) Credit risk, because the PB
establishes open positions between
itself and the executing broker, with
offsetting economic terms facing the
client; 472 (ii) total price, because the
price may reflect PB fees that reflect
PBs’ credit intermediation costs paid by
PBs’ clients; and (iii) mirror swap
multiplicity, because some mirror swaps
may not contain the same economic
terms as the trigger swap.
The informative value of each of the
above, however, is largely dependent on
a market participant’s ability to
recognize whether a reported swap is a
mirror swap. This is currently
impossible to determine because part 43
does not require mirror swaps to be
reported with any indicator.
Accordingly, relative to the status quo
baseline, the Commission views any
lost-transparency cost from not
requiring mirror swap reporting as
largely theoretical.473
Separately, eliminating mirror swap
dissemination could incentivize the use
of more complex mirror swaps to avoid
public reporting, increasing the
possibility of more complicated, risky
swaps being created. But the
Commission expects such risk to be
minimal, given that all trigger swaps
associated with prime brokerage
transactions will still be reported to
SDRs pursuant to part 45. Further, with
the benefit of part 45 data, the
Commission is well-positioned to
monitor, and respond as appropriate,
should PB swap activity appear to be
evolving as a real-time reporting
avoidance strategy.
Alternatives: The Commission
considered two significant alternatives
to the approach reflected in § 43.3(a)(6),
neither of which it finds preferable on
cost-benefit grounds for the reasons
discussed below.
Citadel advocates for the first
alternative approach, i.e., to retain the
current requirement for reporting both
trigger and mirror swaps while adding
a required indicator to flag mirror
swaps.474 This alternative would
472 Although the execution of the trigger swap
results in a change in the market risk position
between the PB and the executing broker, and the
execution of the mirror swap results in a change in
the market risk position between the PB and its
customer, the PB does not have any net market
exposure (because its market position is flat).
However, because the market risk position between
the PB and each of its counterparties changed, the
trigger swap and mirror swap both are currently
publicly reportable swap transactions.
473 The Commission estimates for PRA purposes
that there would be a moderate decrease in the
burden incurred by market participants, as
discussed in the PRA section.
474 Citadel at 10.
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provide market participants with realtime visibility into mirror swap activity.
It, however, would not correct the
double-counting problem—a problem
that Citadel does not dispute in its
comment—but rather would tolerate it
in exchange for some potential
incremental added insight deducible
from knowledge of whether a particular
swap is a mirror swap. Moreover, the
Commission sees merit in ISDA–
SIFMA’s concern that the public
dissemination of mirror swaps with an
associated flag is more likely to ‘‘create
noise on the tape’’ than meaningfully
improve price transparency, and is
unlikely to result in a regulatory
oversight benefit commensurate with its
‘‘added costs and complexity to prime
broker reporting.’’ 475
ISDA–SIFMA’s preferred alternative
would relax the ASATP timeframe for
reporting trigger swaps if the reporting
obligation falls on the PB, i.e., where the
trigger swap counterparty is not an SD.
Rather than require a PB to report a
trigger swap ASATP after the pricing
event for a trigger swap—the point at
which its material terms are determined
and reporting is most impactful for price
discovery—ISDA–SIFMA instead
advocates for requiring ASATP
reporting based off of a later,
indeterminate point when the PB
accepts the trigger swap.476 Trigger
swap acceptance can happen in a
variable timeframe that ISDA–SIFMA
believes should not exceed T + 1
relative to the pricing event.477 ISDA–
SIFMA justifies this alternative on
grounds that reporting the pricing event
ASATP in circumstances where the PB
is the reporting counterparty will
sacrifice liquidity because it is not
practicable for PBs to meet the
requirement.478 The Commission is
unconvinced that any liquidity cost that
might result if PBs find it impractical to
report certain trigger swaps ASATP after
the pricing event—a technical problem
that § 43.3(a)(6) could incentive PBs and
their customers to work to remedy—is
more compelling than the negative
impacts to price transparency and
discovery that will likely result if trigger
swap reporting is delayed for some
indeterminate, variable time beyond the
pricing event.
Notwithstanding potential costs, the
Commission believes new § 43.3(a)(6) is
warranted in light of the anticipated
benefits.
475 ISDA–SIFMA
at 57.
at 52.
477 Id. at 52, 66 n.113.
478 Id. at 52.
476 Id.
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iv. § 43.3(c)—Availability of Swap
Transaction and Pricing Data to the
Public
Existing § 43.3(d)(1) and (2) specify
the format in which SDRs make swap
transaction and pricing data available to
the public and require that disseminated
data must be made ‘‘freely available and
readily accessible’’ to the public.
Substantively, amended § 43.3(c)
changes these requirements to specify
that SDRs shall make such data publicly
available on their websites for at least
one year after dissemination, and
provide instructions on how to
download, save, and search the data. As
noted above in section II.C.7, the
Commission understands a one-year
data availability time-frame is current
practice for at least a majority of SDRs.
However, in that this is not a current
requirement, potential remains for an
SDR to elect to remove the data at some
point in the future, thereby depriving
market participants of extended data
access that may be useful as a tool to
assess market conditions.
The Commission received several
comments, all generally supportive of
amended § 43.3(c). None raised costbenefit issues, advocated an alternative,
or disputed the Proposal’s assessment
that costs will likely be negligible
because SDRs already make the public
reports available for more than one year.
Baseline: Current § 43.3(d)(1) and (2),
and the market conditions attendant to
them as described above, provide the
baseline for assessing the costs and
benefits of amended § 43.3(c).
Benefits: In that the Commission
believes SDRs are now for the most part
voluntarily doing what amended
§ 43.3(c) will now require, the provision
will provide a small incremental
benefit. That is, it will help assure that,
going forward, the status quo market
conditions that the Commission
considers a positive for price
transparency are not reversed.
Costs: In that the Commission
believes that SDRs are now for the most
part voluntarily doing what amended
§ 43.3(c) will now require, it does not
foresee material costs resulting from the
amendment.
v. § 43.3(d)—Data Reported to SDRs
The Commission is adopting revisions
to § 43.3(d), including on how reporting
counterparties, SEFs, and DCMs report
data to SDRs for public dissemination,
as well as respond to SDR notifications
of missing or incomplete data.479 These
479 Current § 43.3(d)(1) only requires SDRs
disseminate ‘‘data in a consistent, usable, and
machine-readable electronic format that allows the
data to be downloaded, saved and analyzed.’’ The
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requirements should help improve the
quality of data on the public tape.
Specifically, the rules require reporting
counterparties, SEFs, and DCMs, when
reporting swap transaction and pricing
data to an SDR, to: (i) Report data as
described in the elements in appendix
A in § 43.3(d)(1); (ii) satisfy SDR
validation procedures in § 43.3(d)(2);
and (iii) use the facilities, methods, or
data standards provided or required by
the SDR in § 43.3(d)(3). New § 43.3(d)(1)
will require reporting entities to adjust
their reporting systems to comply with
the new list of data elements in
appendix A. As discussed in a separate
release, these data elements in appendix
A will be a subset of the data elements
reported to SDRs pursuant to part 45.
The Commission believes a separate
regulatory requirement in part 43 avoids
confusion by having overlapping parts
43 and 45 requirements only in part 45.
However, for cost-benefit purposes, this
means most of the costs and benefits
associated with this change in part 43
have been analyzed by the Commission
in a separate part 45 release being
adopted at the same time. This costbenefit analysis will consider the costs
to SDRs for disseminating the updated
appendix A data elements, keeping in
mind the majority of the costs have been
accounted for in the part 45 release.
New § 43.3(d)(2) will require the
reporting counterparty, SEF, or DCM to
satisfy the data validation procedures of
the SDR for each required data element
listed in appendix A. Since § 43.3(d)(2)
is closely related to new data validation
requirements in § 43.3(f)(1) and the cost
considerations to validate overlap
significantly with initial design costs,
most, if not all, of the costs discussion
here will overlap with new § 43.3(f).
Baseline: Current § 43.3(d)(1) specifies
that SDRs disseminate data ‘‘in a
consistent, usable, and machinereadable electronic format that allows
the data to be downloaded, saved and
analyzed.’’ Regarding required data
elements, existing appendix A, entitled
‘‘Data Fields for Public Dissemination,’’
describes the data fields reporting
counterparties are required to report and
provides guidance for such reporting.
For each data field, there is a
corresponding description, example,
and, where applicable, an enumerated
list of allowable values. Furthermore,
under existing regulations, SDRs are not
required to apply any data validations
on the reports they receive. In addition,
the Commission understands that at
least some SDRs have flexible
application programming interfaces
(‘‘APIs’’) that allow reporting
counterparties to report data for part 43
purposes in many ways, making
standardization difficult, especially
across SDRs.480
Benefits: As mentioned above, the
Commission discusses the benefits of
updated and standardized data elements
in a separate release adopting changes to
part 45, as the part 43 data elements in
appendix A will be a subset of the part
45 data elements in appendix 1. For the
public, increased consistency will afford
market participants a more easilyaccessible, accurate view of activity
across all Commission-regulated swaps
markets. The Commission expects the
general public would also benefit when
the standardized information is more
easily combined across SDRs.
Along with the expected benefits that
will arise from the standardization and
uniformity of information reported in
real-time, the Commission expects
additional benefits related to the new
swap transaction and pricing data
elements in appendix A. For example,
there is a new data element allowing
users to identify whether a swap is a
PPS or if the swap is considered a
bespoke swap. This additional
information will allow for additional
options in processing and studying
market information.
Costs: The Commission expects
reporting entities and SDRs to incur
some initial costs to incorporate new
reporting guidance into their reporting
infrastructure (e.g., programming costs).
The Commission is adopting the
changes to part 43 concurrently with a
release adopting changes to part 45;
meaning the changes to parts 43 and 45
would largely require technological
changes that could merge two different
data streams into one. For example,
SDRs will have to make adjustments to
their extraction, transformation, and
loading (‘‘ETL’’) process in order to
accept feeds that conform to the new
technical specification and validation
conditions.
The Commission expects many of the
changes related to part 43 will be
planned and developed in accordance
with changes required under new
regulations in part 45. While the
Commission cannot apportion shares of
the aggregate total between these two
rules, the costs attributable to part 43
would be some smaller proportional
share of the indicated aggregate total
since the list of data elements subject to
real-time reporting is a small subset of
remaining text is how the data is made available to
the public and is being moved in the new final rule
text.
480 The Commission believes the lack of
specificity in reporting has encouraged using
flexible APIs.
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the full set reported under part 45. For
this reason, the costs described below
may most accurately represent the full
technological cost of satisfying the
requirements for both rules, with the
majority of the costs being allocated to
compliance with the part 45 rules.
ODT SMEs, using experience
designing data reporting, ingestion, and
validation systems, estimates the cost
per SDR range from $144,000 to
$510,000.481 ODT SMEs based this
estimate on assumptions that cover the
set of tasks required for the SDR to
design, test, and implement a data
system based on the list of swap data
elements in appendix A and any related
guidebooks.482 These numbers assume
that each SDR will spend approximately
3,000–5,000 hours to establish ETL into
a relational database on such a data
stream.483
For reporting entities, ODT SMEs
estimate the cost per reporting entity to
range from $24,000 to $74,000.484 ODT
SMEs base this estimate on a number of
assumptions that cover tasks required to
design, test, and implement an updated
data system based on the new swap data
elements, any guidebooks, and
validation conditions.485 These tasks
481 To generate the included estimates, ODT
SMEs used a bottom-up estimation method based
on internal Commission expertise. In brief, ODT
SMEs anticipate the task for the SDRs will be
significantly more complex than it is for reporters.
On several occasions, the Commission has
developed an ETL data stream similar to the
anticipated parts 43 and 45 data streams. These data
sets consist of 100–200 fields, similar to the number
of fields in appendix 1.
482 These assumptions include: (1) At a
minimum, the SDRs will be required to establish an
ETL process. This implies that either the SDR will
use a sophisticated ETL tool, or will be
implementing a data staging process from which the
transformation can be implemented. (2) It is
assumed that the SDR would require the
implementation of a new database or other data
storage vehicle from which their business processes
can be executed. (3) While the record structure is
straight forward, the implementation of a database
representing the different asset classes may be
complex. (4) It is assumed that the SDR would need
to implement a data validation regime typical of
data sets of this size and magnitude. (5) It is
reasonable to expect that the cost to operate the
stream would be lower due to the standardization
of incoming data, and the opportunity to
automatically validate the data may make it less
labor intensive.
483 The lower estimate of $144,000 represents
3,000 working hours at the $48 rate. The higher
estimate of $510,000 represents 5,000 working
hours at the $102 rate.
484 To generate the included estimates, a bottomup estimation method was used based on internal
Commission expertise. On several occasions, the
Commission has created data sets that are
transmitted to outside organizations. These data
sets consist of 100–200 fields, similar to the number
of fields in the appendix A.
485 These assumptions include: (1) The data that
will be provided to the SDRs from this group of
reporters largely exists in their environment, as the
back-end data is currently available. (2) The data
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include defining requirements,
developing an extraction query,
developing of an interim extraction
format (e.g., 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 formatting conversions would add
another 300 to 400 hours, resulting in an
estimated total of 500 to 725 hours per
reporting entity.486
However, the Commission reiterates
that these costs have been accounted for
in the separate part 45 adopting release.
The Commission repeats the analysis
here, but cautions the cost to SDRs in
updating their systems to disseminate
the updated data elements in appendix
A, most of which the SDRs are already
disseminating, would be a smaller
portion of the costs just described.
In summary, new § 43.3(d) places
regulations on the reporting
counterparty, SEF, or DCM related to
how data is reported to SDRs along with
requirements to satisfy the data
validation procedures of the SDR.
Taking into account the anticipated
costs, the Commission believes the rules
are warranted in light of the anticipated
benefits.
vi. § 43.3(f)—Data Validation
Acceptance Message
New § 43.3(f) establishes requirements
for SDRs to validate real-time public
data by sending SEFs, DCMs, and
reporting counterparties data validation
acceptance or rejection messages.
Validation requirements, for each data
element required under part 43, will be
fully described in a guidebook
published by DMO. The Commission
expects SDRs to implement these
validations while designing their
reporting systems to reflect the newly
transmission connection from the firms that provide
the data to the SDR currently exists. The
assumption for the purposes of this estimate is that
reporting firms do not need to set up infrastructure
components such as FTP servers, routers, switches,
or other hardware because these are already in
place. (3) Implementing the requirement does not
cause reporting firms to create back-end systems to
collect their data in preparation for submission. It
is assumed that firms that submit this information
have the data available on a query-able environment
today. (4) Reporting firms are provided with clear
direction and guidance regarding form and manner
of submission. A lack of clear guidance will
significantly increase costs for each reporter. (5)
There is no cost to disable reporting streams that
will be made for obsolete by the change in part 43.
486 The lower estimate of $24,000 represents 500
working hours at the $48 rate. The higher estimate
of $74,000 represent 725 working hours at the $102
rate.
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required data elements discussed above
in § 43.3(d).
Currently, the Commission does not
require validations by SDRs, and
therefore has not provided any guidance
on either the content or format of the
messages associated with these
validations. New validations will help
ensure reported data is accurate and
consistent across SDRs. While the
Commission does not currently require
validations, the Commission can
observe activity related to market
participants cancelling and correcting
publicly disseminated trade
information.487 While the new data
validation process will require
increased communication between the
reporting entity and the SDR, the
Commission expects these lines of
communication are already well
established through the current
reporting regime.
Baseline: SDRs are not currently
required to validate data sent by
reporting entities. However, the
Commission understands that SDRs
currently employ their own validations
for swap transaction and pricing data
reporting.
Benefits: The Commission expects
§ 43.3(f) will result in improved quality
of data reported to SDRs and
disseminated to the public. Improved
data quality helps market participants
make trading decisions and enables
better market oversight by regulators.
More accurate and complete data also
helps researchers learn about swaps
markets, which in turn can inform
future market and regulatory
decisions.488
It is difficult to estimate how many
trades are reported with errors under the
current system. The Commission
estimates more than 10% of trades are
subsequently corrected or cancelled. In
487 For example, based on a three week study in
January 2020, Commission staff found 11% of IRS
records linked to a ‘‘Cancel’’ action type and 8%
of records linked to a ‘‘Correct’’ action type. For
CDS, staff found 7% and 6% of records linked to
a ‘‘Cancel’’ and ‘‘Correct’’ action type, respectively.
These percentages are much larger for commodity
swaps and also appear to have a higher share
related to uncleared swaps.
488 The Commission is aware of at least two
publicly-available studies that discuss problems
with the current part 43 data. The first study found
that about 10% of CDS traded in their data set had
missing or zero prices. Y.C. Loon, and Z. (Ken)
Zhong, ‘‘Does Dodd-Frank affect OTC transaction
costs and liquidity? Evidence from real-time trade
reports,’’ Journal of Financial Economics (2016),
available at https://dx.doi.org/10.1016/
j.jfineco.2016.01.01. The second reported a number
of fields that were routinely null or missing, making
it difficult to analyze swap market volumes. See
Financial Stability Report, Office of Financial
Research (Dec. 15, 2015) at 84–85, available at
https://financialresearch.gov/financial-stabilityreports/files/OFR_2015-Financial-Stability-Report_
12-15-2015.pdf.
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addition to trades corrected or
cancelled, trades are reported with
errors (such as missing or zero prices)
that are not corrected, as errors are not
required to be corrected until they are
discovered. As such, the Commission
expects the updated requirements to
help ensure accurate data is reported for
public dissemination, by disallowing
the reporting of swap transaction and
pricing data that does not satisfy the
validations. The Commission expects
the improvements in accuracy to
increase transparency and improve
price discovery.
Costs: The Commission expects the
requirement to send and receive data
validation messages will create costs for
SEFs, DCMs, reporting counterparties,
and SDRs, but the majority of these
costs will be related to building systems
to accept and report data. The
Commission discussed these costs above
in the analysis of § 43.3(d). The
Commission expects the additional cost
to send a message once the validation
process is complete will be minimal as
SDRs already have developed lines of
communications with reporting entities.
While the Commission acknowledges
there will some costs associated with
this regulation, additional flexibility has
been provided to allow SDRs options in
how they perform validations. Based on
a comment from DTCC, the Commission
changed the rule text by replacing
‘‘transmitting’’ with ‘‘making available’’
to allow SDRs the flexibility to establish
more efficient lines of communication
to ensure the validation occurs with the
least possible disruption.489
The Commission is adopting § 43.3(f)
to establish requirements for SDRs to
validate real-time public data. Taking
into consideration the anticipated costs,
the Commission believes this change is
warranted in light of the anticipated
benefits.
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b. § 43.4—Swap Transaction and Pricing
Data To Be Publicly Disseminated in
Real-Time 490
i. § 43.4(f)—Process To Determine
Appropriate Rounded Notional or
Principal Amounts
The Commission is changing the
§ 43.4(f) rules for rounding actual
notional or principal amounts of a swap
before disseminating such swap
transaction and pricing data. The
Commission requires SDRs to
disseminate rounded notional or
principal amounts of swaps to conceal
the exact notional of swap transactions
489 DTCC
at 4.
Commission discusses the costs and
benefits related to cap size changes in § 43.4(h) in
the block thresholds discussion in § 43.6.
490 The
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in order to preserve the anonymity of
counterparties. Absent some degree of
concealment, disseminating the exact
notional of a swap could allow market
participants to more easily discern the
identity of the counterparties and gain
insight into the counterparties’ trading
strategies, which would potentially
discourage market participants from
executing swaps and harm liquidity.
Final § 43.4(f)(8) requires SDRs to
round the notional value of swap
transactions so that the revealed amount
is more precise. For example, final
§ 43.4(f)(8) requires trades with a
notional or principal amount less than
100 billion but equal to or greater than
one billion to be rounded to the nearest
100 million; the existing regulation
requires rounding to nearest billion.
Similarly, final § 43.4(f)(9) requires
SDRs to round trades with a notional or
principal amount greater than 100
billion to the nearest 10 billion before
disseminating such swap transaction
and pricing data; the existing
requirement is round to the nearest 50
billion. The Commission did not receive
any comments on the proposal.
This change effectively means that
market participants will have more
precise measures of the size of large
trades. The effects of this change on
anonymity are mitigated by the fact that
most of swaps to which these changes
will apply will also be eligible for block
and/or cap treatment. If a trade is
subject to cap treatment, no information
will be revealed about the trade size
above the capping level, such that this
change will have no anonymity impact
in many cases. For trades with a cap
above one billion, this change in
§ 43.4(f)(8) will allow for a more precise
estimate of total traded notional or
principal amounts, and thereby help
market participants achieve a more
accurate estimate of general market
trading activity.
Baseline: For both changes, the
baseline is the existing rule regarding
appropriate rounding (e.g., to the
nearest $1 billion if the swap is between
$1 billion and $100 billion).
Benefits: The rule changes will give
market participants more precise
information about the relationship
between pricing and size for large trades
to improve price discovery and lead to
more competitive markets.
Costs: The Commission expects actual
implementation costs to be negligible.
The Commission acknowledges the rule
may make it more likely market
participants, or competitors, can
identify the counterparties to a specific
trade. It may also make it more difficult
for traders to hedge positions they
acquire in large trades. If either were to
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occur, some counterparties to the trades
could experience higher trading costs.
As noted above, the benefits and costs
of the changes in § 43.4(f)(8) are
mitigated by the fact that change is only
relevant when cap sizes are above one
billion. Since the cap sizes for CDS and
FX are well below the one billion mark
for all swap categories, the change will
have no effect in those asset classes.
Only shorter-tenor IRS categories have
cap sizes above one billion.
The Commission is amending the
rules for rounding actual notional or
principal amounts of a swap.
Notwithstanding the anticipated costs,
the Commission believes this change is
warranted in light of the anticipated
benefits to increased transparency.
d. § 43.6—Block Trades
Section 43.6 specifies how the
Commission sets appropriate minimum
block sizes—thresholds determining
whether a transaction qualifies as either
a block trade or LNOFS 491 eligible for
a real-time public-reporting delay under
§ 43.5—as well as cap sizes protecting
counterparty identity by truncating the
transaction size displayed on the public
tape.492 As such, § 43.6 is an important
piece of the real-time reporting structure
that seeks to enhance price discovery
while giving due concern to liquidity
and counterparty anonymity as required
by CEA section 2(a)(13)(E).493
The cornerstones of current § 43.6 are
subsections (b) prescribing the swap
categories for which appropriate
minimum block sizes (also referred to as
block thresholds) and caps must be set,
and (c)–(h), which specify the process,
methodology and other details for how
the block thresholds and caps are
determined for the categories specified
in subsection (b). The Commission is
updating two primary areas of § 43.6: (1)
The swap categories; and (2) the
491 As defined in § 43.3(2), both block trades and
LNOFSs must have a notional or principal amount
above the appropriate minimum block size, though
the former are transacted on a SEF or DCM, while
the latter are transacted off-facility. Unless
otherwise indicated, for purposes of this discussion
they are collectively referred to as ‘‘block trades.’’
Appropriate minimum block sizes are also at times
referred to as ‘‘block thresholds’’ in this discussion.
492 See current § 43.4(h), and amended § 43.4(g) as
being adopted through this release.
493 The delay allows for greater liquidity for large
size trades, often by allowing SDs time to hedge
positions established to facilitate client
transactions. In addition to reporting delays, the
Commission has determined the largest trades
should receive additional protection by truncating
the size displayed on the public tape, i.e., caps. In
promulgating rules for blocks and caps in Block
Trade Rule, the Commission considered the benefits
of delayed reporting and anonymity against the
costs of reduced transparency. The Commission
considers the same factors for the changes adopted
in this release.
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methodologies and process for
calculating appropriate minimum block
size and cap sizes.494
As discussed above, the Commission
established a phased-in approach for the
block thresholds and cap sizes. In
general, the first phase involved using a
50-percent notional amount calculation
for block thresholds and a 67-percent
notional amount calculation for cap
sizes. In this release, the Commission is
moving to the second and final phase by
using a 67-percent notional calculation
for block thresholds and a 75-percent
notional calculation for cap sizes. Using
the 67-percent and 75-percent notional
calculations will generally result in
higher block thresholds and larger cap
sizes, but, as applied to the better
calibrated swap categories in § 43.6(c),
will result in some transactions
qualifying as blocks that previously
would not have, while others that
previously did may not going forward.
The Commission provides additional
background on its economic assessment
of the updated § 43.6(c) swap categories,
and their interplay with appropriate
minimum block size and cap sizes,
below.
As discussed at length in section II.F,
the Commission is changing the swap
categories in § 43.6(c) to alleviate
concerns the current categories are too
broad and would result in an
undesirable impact on certain categories
of swaps when appropriate minimum
block sizes and cap sizes are calculated
using the 67-percent and 75-percent
notional calculations, respectively. The
Commission believes the new
categories: (1) Group together swaps
with similar quantitative or qualitative
characteristics that warrant being
subject to the same appropriate
minimum block size thresholds and cap
sizes; and (2) minimize the number of
swap categories within an asset class in
order to avoid unnecessary complexity
in the determination process.495
As the Commission did in creating the
existing swap categories, the
Commission is grouping products with
similar characteristics. For example, the
Commission believes products are
typically related when: The products are
complements of, or substitutes for, one
494 As discussed in section II.F.1, existing
§ 43.6(f)(1) through (3) requires the Commission to
establish post-initial appropriate minimum block
size using a one-year window of reliable SDR data
recalculated no less than once each calendar year
using the 67-percent notional amount calculation
for most swap categories. Similarly, existing
§ 43.4(h)(2) requires the Commission to establish
post-initial cap sizes using a one-year window of
reliable SDR data recalculated no less than once
each calendar year using the 75-percent notional
amount calculation described in § 43.6(c)(3).
495 Proposal at 85 FR 21534 (Apr. 17, 2020).
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another; one product is a significant
input into the other product(s); the
products share a significant common
input; or the prices of the products are
influenced by shared external factors.
The Commission believes this is how
market participants assign products to
larger swap categories, including DCOs
when portfolio margining. Further, the
Commission recognizes some market
participants trade related products, and
the Commission did not want to create
a block rule that would disadvantage
one product for another product by
influencing market participants to trade
in the illiquid products.
The adoption of § 43.6(c) will expand
the number of swap categories the
Commission uses to calculate block
thresholds.496 For example, there will
be 136 distinct IRS categories with
distinct block thresholds, compared to
27 categories under the current rule.
The Commission believes the IRS
categories will better reflect trading
patterns for IRS by depending on
specific currencies.497
The Commission is adopting similar
changes for other asset classes. For CDS,
the new swap categories are no longer
based on observed spreads with
multiple tenor groups, but instead on
well-defined products (e.g., CDXIG,
CMBX, iTraxx) for a single tenor range
between four to six years (designed to
pick up the most actively traded five
year on-the-run CDS).
Further, in response to commenters,
the Commission found a notable
difference in the distribution of trade
sizes between non-option and option
CDS. As such, the Commission is giving
certain option CDS their own categories
to avoid skewing the appropriate
minimum block size threshold and cap
size calculations higher in CDS
categories in which they remained
combined with non-option CDS (thereby
resulting in more non-option CDS
falling under the thresholds, precluding
them from a block reporting delay or
notional-amount capping). For example,
the average option notional trade size is
three-to-six times larger than non-option
trades for certain CDS. This results in
clear differences in block and cap
treatment between option and nonoption swaps as 97-percent of total
notional for CDXIG options are eligible
496 The same logic applies to cap size
calculations.
497 For instance, this bucketing results in block
levels for the most active USD IRS products that
differ from levels for the still active, but slightly less
common JPY or GBP IRS products, where trade
sizes are lower. All currencies not included in one
of the 15 groups have a block size of zero—
essentially allowing this small subset of IRS to
receive full block treatment.
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for block and cap treatment, as
compared to 66-percent for nonoptions.498 For CDXIG, if options are
excluded, the calculated block and cap
thresholds decrease by 50- and 63percent, respectively (e.g., the new
block threshold is $500 million with
options trades included and $250
million with these trades removed). As
such, the Commission separated the
option activity into distinct swap
categories for CDXIG and CDXIGoptions.
FX swap categories include a list of 22
currencies exchanged for USD along
with the set of 180 swap categories,
comprised of each unique pairwise
combination of these 22 currencies. This
differs from the current set of 84 swap
categories comprised of 22 currencies
exchanged for one of the super-major
currencies (EUR, GBP, JPY, or USD).499
Finally, the Commission changed the
swap categories related to ‘‘Other
Commodity’’ to represent the
underlying commodity instead of
references to specific futures contracts
and exchanges.
The adoption of § 43.6(c) will result in
an appropriate minimum block size of
zero for swaps excluded from the
defined swap categories.500 This will
result in all trades for some types of
swaps (e.g., off-the-run CDS and certain
major and non-major currencies in the
IRS and FX asset classes) being eligible
for block treatment. For example, there
are IRS trades linked to 37 currencies,
but only 15 currencies that are explicitly
placed in a category. This subset was
primarily chosen based on trading
volume.501 Similarly, for CDS, all trades
in off-the-run series for major indices
along with other less active indices will
also be eligible for complete block status
with delayed reporting.502
As discussed in section II.F. above,
and incorporated by reference for
purposes of the Commission’s
consideration of costs and benefits
herein, the Commission received
numerous comments concerning the
block threshold and cap size
amendments. Many concern issues of
498 Note that a few index CDS categories,
including CDXEM and CMBX, do not have any
option trades during the time period that comprises
the data sample, so no adjustment is necessary.
499 While there are 84 current swap categories for
FX, 40 of these have a block size of zero.
500 The Final Rule also adjusts the fixed cap size
applied to currencies without swap categories by a
move from the current $250 million to $150
million.
501 For example, the 15 currencies that are
explicitly placed in a category make up 96% of the
total population of IRS trades.
502 The majority of off-the-run activity is linked
to IG indexes. Other indexes without defined swap
categories includes iTraxx Asia Ex-Japan, iTraxx
Australia, and iTraxx Japan.
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cost-benefit consequence, including the
trade-off between price transparency
and liquidity, which the Commission
considers below in the specific
discussions of costs and benefits.503
Comments also addressed two
significant alternatives: (1) Lowering
appropriate minimum block size and
cap thresholds rather than raising
them,504 and (2) risk-adjusting notional
values before determining block and cap
thresholds.505 The Commission
discusses the costs and benefits of these
two alternatives below. The
Commission did not receive any
comments quantifying the rule’s costs or
benefits, nor did it receive comments
providing data to help it do so.
In addition to the block threshold and
cap size amendments, the Commission
is changing the provisions for order
aggregation in existing § 43.6(h) and
revising the block trade definition in
§ 43.2.506 Order aggregation concerns
how individual orders can be aggregated
to result in a transaction eligible for
block treatment. Amended § 43.6(f) will
expand aggregation to include swaps
that are not yet available for trading on
a SEF or DCM. It will also remove the
existing requirement for at least $25
million in assets under management for
the aggregator, thus allowing more
market participants to aggregate
individual orders and receive block
treatment. The revised block trade
definition will enable market
participants to execute block trades on
a SEF, which will allow FCMs to
conduct pre-execution credit screenings
in accordance with § 1.73.507
Baseline: The Commission considers
the cost and benefits of its amendments
relative to the baseline of what its
regulations currently require. As
503 See, e.g., Clarus at 2 and Citadel at 9
(transparency/liquidity trade-off favors higher
thresholds) and PIMCO at 3–4 and SIFMA AMG at
2–4. (transparency/liquidity trade-off favors lower
thresholds).
504 See, e.g., PIMCO at 3–4; SIFMA AMG at 2–4;
Vanguard at 3 ISDA–SIFMA (Blocks) at 3–4; and ICI
at 6–7.
505 See, e.g., ISDA–SIFMA (Blocks) at 4; Credit
Suisse at 3; and ACLI at 3–4.
506 The remaining changes in § 43.6 are nonsubstantive and do not involve material costs or
benefits. Accordingly, the Commission does not
consider them. For example, § 43.6(d) discusses the
method for determining the appropriate minimum
block size, but the only change from the current
rule relates to the new definition for a ‘‘trimmed
data set,’’ which does not have material costs or
benefits.
507 This would effectively allow SEFs to offer a
‘‘RFQ-to-one’’ functionality that allows
counterparties to bilaterally negotiate a block trade,
without requiring disclosure of the potential trade
to other market participants on a pre-trade basis.
The ability to trade bilaterally on SEFs may be
particularly relevant for parties trading Made
Available for Trade (‘‘MAT’’) instruments, which
are required to be traded on SEFs.
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discussed in section II.F.2, existing
§ 43.6(f)(1) and § 43.4(h)(2),
respectively, provide that after the
collection of at least one year of reliable
SDR data collection—a threshold now
crossed—appropriate minimum block
sizes be calculated using a 67-percent
notional formula and caps be calculated
using a 75-percent notional formula as
applied to swap categories set out in
existing § 43.6(b).508 The Commission
extensively analyzed the costs and
benefits of the 50-percent threshold and
67-percent threshold when it adopted
the phased-in approach.509 Accordingly,
this state in which the Commission
should already be in, defines the
baseline against which the costs and
benefits of § 43.4(h) and § 43.6(c) are
considered below. In addition, for the
changes to the block trade definition,
the existing block trade definition
requires that block trades be executed
away from a SEF, pursuant to the rules
of the SEF.510
Benefits: Large trades receive
dissemination delays because large
trades often require intermediaries to
take large positions, albeit temporarily.
The costs to these intermediaries to
subsequently hedge the trade are
reduced by allowing the intermediaries
some period to hedge, prior to the initial
508 The relative costs and benefits of not
implementing the 67-percent and 75-percent
notional amount calculations required under
existing §§ 43.6(f)(1) through (3) and 43.4(h)(2) are
considered in the discussion of alternatives, below.
Given the Commission currently enforces a 50percent threshold, the Commission considered
using a 50-percent baseline and 67-percent as an
alternative threshold. The Commission did not do
so. Because the 67-percent threshold is required by
existing regulations and the Commission did not
propose amending the rule, the Commission uses a
baseline of 67-percent and below considers an
alternative threshold of 50-percent. This baseline
does not impact the cost benefit consideration, as
the economic analysis and conclusion using a 50percent baseline with a 67-percent alternative
threshold or a 67-percent baseline and a 50-percent
alternative threshold are identical.
509 78 FR 32866 at 32918–24 (May 31, 2013). In
that release, the Commission considered extensive
comments, the CEA’s factors for providing price
transparency, concerns about liquidity, anonymity,
competition, and the general benefits and
drawbacks of transparency. Based on those
considerations, the Commission has endeavored in
this release to adopt the 67-percent block threshold
with certain updates to reflect the Commission’s
experience with block trade delays since 2013,
including adjusting how the Commission applies
the notional amount calculations to CDS with
optionality, and providing guidance that certain
risk-reduction exercises are not publicly reportable
swap transactions to calibrate appropriate
minimum block sizes so as to mitigate any costs to
market participants.
510 As a practical matter, market participants are
currently relying on no-action relief (NAL No. 17–
60) to execute on a SEF block trades that are
intended-to-be-cleared (‘‘ITBC’’). The relief allows
the market participants to use any execution
method that is not an order book, as defined in
§ 37.3(a).
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trade becoming public knowledge. A
trade is ‘‘large’’ in this sense when it is
substantial relative to typical trade size
and daily volume in that instrument.
Similarly, for the largest trades, the
Commission allows for the truncation of
displayed notionals in order to preserve
anonymity and reduce hedging costs.
For this reason, blocks and caps should
account for instruments’ market
characteristics.
The Commission has recognized ‘‘the
optimal point in [the transparency/
liquidity interplay] defies precision.’’ 511
However, the optimal point remains the
Commission’s goal, and the Commission
believes the new swap categories, in
combination with raised block
thresholds and cap sizes, help the
Commission get closer to this goal.
Generally speaking, thresholds
determined in the context of swap
categories that better account for
product characteristics—as the
Commission believes the expanded
thresholds in § 43.6(c) do—result in
higher thresholds for instruments for
which large trades can readily be
hedged, which can improve
transparency with minimal impact on
liquidity. Conversely, in categories in
which large trade hedging is likely to be
more difficult, the resulting thresholds
should be lower, accommodating
liquidity.
The Commission expects the changes
to the swap categories will better
achieve the intention of the Block Trade
Rule to group swaps with similar
characteristics together, thereby
improving the transparency/liquidity
optimization. The block thresholds and
cap sizes applied in the context of
§ 43.6(c)’s swap categories will result in
levels that better reflect current liquidity
for each type of swap. For example,
USD IRSs currently represent most of
the actual trades in the IRS Super-Major
category, such that the current
appropriate minimum block size for JPY
IRS swaps (also in the Super-Major
category) is based largely on USD trades.
The new categories, which separate JPY
IRS from USD IRS will result in an
appropriate minimum block size that
better reflects the size distribution of
JPY rate swaps. This will mean that
instruments like the JPY IRS, with fewer
large trades (than USD IRS) will have
lower thresholds, meaning that smaller
trades will be eligible for block
treatment and have lower caps for such
instruments than if swap categories
were not changed. This will benefit
relatively large JPY IRS trades. The
move from spread-based (i.e., pricebased) to product-based swap categories
511 78
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for CDSs is expected to achieve similar
results, as the trade distribution is often
much more homogenous within a
product group than a spread category.
This change will have the additional
benefit of decoupling prices and
categories. Under the existing rules, a
product could move into a different cap/
block regime if its price changed, which
could disrupt markets. The new
categories are not price-dependent.
The amendment to the block trade
definition will enable market
participants to execute block trades on
SEFs. These trades may be executed
bilaterally so that a party wishing to
make a large trade on a SEF can choose
to reveal the would-be trade to a single
selected counterparty.512 In addition, it
would allow a 15-minute reporting
delay on such trades. The Commission
believes that permitting swap block
trades to be executed on SEFs pursuant
to Commission regulation would
provide tangible benefits to market
participants by allowing them to further
utilize a SEF’s trading systems and
platforms with the exception of the
order book, as defined in § 37.3(a). To
the extent that a SEF provides the most
operationally- and cost-efficient method
of executing swap block trades, the
amendment to the block trade definition
would help market participants to
continue realizing such benefits.
Additionally, allowing market
participants to execute swap block
trades on a SEF helps to facilitate the
pre-execution screening of transactions
against risk-based limits in an efficient
manner through SEF-based
mechanisms.513 The amendments
would preclude the need for market
participants to expend additional
resources to negate those changes.
Further, incorporating the current noaction relief in the Commission’s
regulations would promote the statutory
goal in CEA section 5h(e) of promoting
swaps trading on SEFs. Finally, the
amendment would permit SEFs to
extend the benefits of executed swap
block trades on-SEF to swaps not-ITBC
as well as ITBC swaps.
Regarding the ability to aggregate
orders into a large single trade, the
Commission expects the rule changes
will expand the opportunity to aggregate
512 Curtailing the number of entities that know its
trading plans can mitigate a ‘‘winner’s curse’’
problem for the trader, allowing it to get better
pricing. See, e.g., Riggs, et al., ‘‘Swap Trading after
Dodd-Frank: Evidence from Index CDS’’ 137 J of
Fin. Econ. 857 (2020), available at: https://doi.org/
10.1016/j.jfineco.2020.03.008.
513 The Commission also recognizes that many
SEFs and market participants have already
expended resources to implement technological and
operational changes needed to avail themselves of
the no-action relief under NAL No. 17–60.
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across more products and market
participants. By removing the $25million requirement, the Commission
expects to create a more equal and
accessible market by allowing the
opportunity to aggregate regardless of
the aggregator’s size. Extending the
aggregation policy to additional
products will allow more equal
treatment across products, potentially
reducing an entity’s incentive to trade a
product because of the differential
regulation.
Costs: The Commission recognizes
that some market participants could
experience some costs associated with
the expanding swap categorization, but
views them as less consequential
relative to the benefits described above.
As noted by some commenters, one
such potential cost is that traders may
find it more difficult to determine from
§ 43.6(c)’s expanded lists which
category is relevant for their swaps.514
Further, there will be operational
costs for reporting parties adjusting their
systems, by writing and implementing
new code, for instance. The Commission
expects the operational costs of these
changes to vary by asset class and the
activity level of the reporting entity, but
believes that the more granular
bucketing of block categories will help
mitigate costs. Costs may also differ
depending on the type of cost. For
instance, the Commission expects
market participants specializing in a
single swap category to face smaller
operational costs relative to those
operating across multiple categories,
given the single-category market
participants will likely only need to
adjust their operational systems (where
necessary) for a more limited number of
categories.
The Commission does not expect the
block trade definition amendment will
impose significant costs on market
participants. The change does not
reduce choices, but instead provides
block trade counterparties with the
additional choice of executing block on
SEFs. For counterparties choosing to
execute trades on SEFs, there will be no
increase in reporting costs as the
existing regulation requires
counterparties to report transactions to
a SEF after a block is executed. The final
regulation simply allows counterparties
to report the trade to the SEF before it
is executed. FCMs will also not incur
greater expenses as they currently use
SEFs to conduct pre-trade credit checks.
Finally, SEFs are not expected to incur
greater costs processing block trades
before execution than they incur
processing block trades after execution
514 See
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as the entire process is automated and
already in place.
The Commission expects minimal
costs resulting from changes in how
market participants aggregate orders
into a single large order to obtain block
treatment. As this ability is already
available to the largest market
participants, the Commission expects
the new increase in activity will be
small relative to current activity.
Regardless, any increase due to greater
aggregation will result in a reduction of
transparency, which can create inhibit
price discovery. Moreover, to the extent
that some entities, such as asset
managers, may encourage trading by
their clients in order to have sufficient
volume to meet the block threshold, the
rule may lead to increased agency
issues.
Notwithstanding the potential costs,
the Commission believes the substantive
changes to §§ 43.4(h), 43.6, and 43.2’s
definition of block trade change are
warranted in light of the anticipated
benefits.
Alternatives: Multiple commenters
suggest maintaining block and cap
levels at the initial-period levels instead
of raising them.515 The primary reason
is the expected difficulty executing large
trades between the existing 50-percent
and new 67-percent block thresholds.516
This section discusses the cost and
benefits of this alternative relative to
those of the relevant rules amended
herein. This alternative assumes the
new swap categories in § 43.6(c) and cap
sizes are maintained at the current
initial-period levels.
Maintaining the existing threshold
would, all else being equal, increase the
number of swaps eligible for block
delays. For those trades, SDs could find
it less difficult to hedge the exposure
515 For example, PIMCO ‘‘urges the CFTC not to
adopt increases to block and cap size, for purposes
of real time reporting delays, as these changes
would directly and adversely impact liquidity for
block products and increase prices for PIMCO’s
clients.’’ ISDA–SIFMA and Credit Suisse express
similar concerns. On the other side, Citadel
supports the increase as this ‘‘more appropriately
balances market transparency and information
leakage risks than the current approach’’ and also
‘‘increases harmonization with the EU post-trade
transparency framework.’’
516 ISDA–SIFMA and PIMCO use the extreme
volatility observed at the start of the COVID–19
pandemic to justify current levels and even suggest
lower appropriate minimum block size levels. The
Commission believes using this sample to define
block and cap thresholds would be a mistake since
this is an extreme outlier to historical market
activity. The Commission notes the sample used to
define block and cap thresholds does include a
more reasonable period of elevated volatility, such
as during the end of 2018. ISDA–SIFMA further
point to the significant increase in CDS, which is
now no longer an accurate comparison as new
option categories have dropped CDXIG from
$550mm to $250mm.
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created by trading a large swap, with
ASATP reporting and public
dissemination no longer required. For
example, without a 15-minute delay,
other market participants could
potentially anticipate the trades of the
SDs who are trying to hedge their
positions and act accordingly to their
own advantage (e.g., taking long
positions to eventually resell to the
SDs). As multiple commenters suggest,
if SDs face increased difficulties
hedging client demands, they could
increase the trading costs offered to
clients or, potentially, stop trading in
the relevant notional range, which in
turn could contribute to a decrease in
liquidity.517 This in turn could increase
price volatility and the bid-ask spread
facing some end-users.
The idea that SDs could experience
higher hedging costs if their intentions
were widely known has a long history.
Harris (2003), for example, suggests
other traders anticipating SDs hedging
trades could result in higher trading
costs for SDs.518 While none of the
comments to the Proposal quantified the
magnitude of this effect for swaps, there
is empirical research in other financial
markets on the effect of providing some
advantages to SDs in hedging their
trades. For example, one study
examined the effect of a Canadian
regulation that made equity trading
more difficult for high-frequency traders
(who are often seen as traders who
anticipate orders in equity markets).519
The policy change reduced trading. It
also led to a reduction of about 15% in
the impact on prices of the trades of
large institutional traders, which the
authors suggests may be due to the
reduction in trading by high-frequency
traders. At the same time, the authors
found evidence bid-ask spreads rose
after the regulatory change, such that
execution costs rose for small
institutional traders, while falling for
larger institutional traders (especially
those trading on information), as a result
of enhanced protection against frontrunners.520 Similarly, a study of equity
trading in Sweden found that highfrequency traders eventually do trade in
the direction of informed traders,
leading to higher trading costs.521
Another study found that a London
Stock Exchange (‘‘LSE’’) rule that
reduced post-trade transparency led to
reduced bid-ask spreads and execution
costs on the LSE, especially for illiquid
stocks, consistent with the order
anticipation hypothesis.522 Conversely,
an older study that looked specifically
at changes in the reporting delay
afforded to block trades on the LSE
found little evidence that delaying the
reporting of trade data reduces
customers’ cost of trading large
blocks.523
In sum, a certain body of academic
literature suggests more information
released in some circumstances can
negatively impact SDs’ hedging costs,
and consequently, the prices offered by
SDs to large traders. However, the
magnitude of these effects in swaps
markets is not precisely known. Further,
as discussed below, there is an offsetting
body of academic literature indicating
that, in at least some circumstances,
increased transparency lowers trading
costs.
The Commission believes maintaining
existing block thresholds would reduce
transparency in swaps markets by
increasing the overall number of trades
eligible for block delays and decreasing
the number of swaps reported in real
time. This would lead to decreased
accuracy in the real-time tape.
In the Proposal, the Commission
characterized the costs and benefits of
changing the cap and blocks thresholds
in regard to the potential effects on
liquidity of large blocks and on price
transparency. The Commission received
a number of comments that discussed
these liquidity and transparency
effects.524 With respect to transparency,
several commenters note the importance
of transparency in regard to lowering
trading costs, and pointed to a
significant body of academic literature
that empirically demonstrated this
effect.525 While none of the literature
cited by the commenters studied the
markets at issue here, they did evaluate
a variety of financial markets, and
generally found that better price
information leads to lower trading costs.
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521 See
517 PIMCO at 2. Similar concerns were expressed
in ICI at 7, Vanguard at 4, SIFMA AMG at 2–4, and
ISDA–SIFMA at 5.
518 Harris, Larry (2003), Trading and Exchanges:
Market Microstructure for Practitioners. See also
Brunnermeier, Markus and Lasse Pedersen (2005),
‘‘Predatory trading’’ J. of Fin, 60, 825–63, for a
theoretical treatment of this analysis.
519 Korajczyk, Robert and Dermot Murphy (2019)
‘‘High-Frequency Market Making to Large
Institutional Trades’’ Rev. of Fin. Stud., 32, 1034–
10.
520 See id.
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van Kervel, Vincent and Albert Menkveld
(2019), ‘‘High-Frequency Trading around Large
Institutional Orders’’, J of Fin., 74, 1091–1137.
522 See Friederich, Sylvain and Richard Payne
(2014) ‘‘Trading Anonymity and Order
Anticipation’’, J of Fin Markets, 21, 1–24.
523 See Gemmill, Gordon (1996), ‘‘Transparency
and Liquidity: A Study of Block Trades on the
London Stock Exchange under Different Publication
Rules’’ J of Fin, 51, 1765–1790.
524 See, e.g., Citadel at 9; GFMA at 7, 10; ICI at
4–5; SIFMA AMG at 6.
525 MIT at 1–2; Carnegie Mellon at 2–4; SMU at
4–5; and Citadel at 5.
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Some commenters cite the example of
the experiment for analyzing the effect
of transparency that was the Trade
Reporting and Compliance Engine
(‘‘TRACE’’) program. TRACE required
dealers to report all bond trades
(including price data) to the National
Association of Securities Dealers
(‘‘NASD’’), and the NASD made prices
for a subset of those bonds available to
traders. Three papers in leading finance
journals studied the effect of this pricing
information, and all found evidence that
the availability of pricing data from
TRACE lowered the costs of trading
bonds.526 Another example of increased
transparency occurred when new
reporting requirements came into effect
for single-name CDS, and the authors of
a subsequent study found that the
enhanced price transparency lowered
trading costs in these markets.527
These studies analyze a change in
information-related regulation based on
appropriate data before and after the
regulatory change. Without a similar
study for block and cap changes for
swaps, the Commission bases its
conclusion that greater transparency
will benefit the market on findings in
related markets.
The ideal appropriate minimum block
size balances the benefits of large size
blocks—increased transparency, price
discovery, and swaps market
competitiveness with their costs—
increased trading costs for SDs and their
customers and less liquidity. After
providing notice to the public of
proposed methods, considering public
comments and considering costs and
benefits of the proposed and alternative
methods, the Commission determined
in 2013 to adopt a 67-percent notional
amount calculation method, but to
implement a 50-percent notional
amount calculation method as a
conservative, transitionary level to
allow the market time to adjust before
moving to the more appropriate 67percent method.
As discussed in section II.F.4 above,
the Commission continues to believe the
67-percent method provides a better
outcome than the 50-percent method as
526 Bessembinder, Hendrick, William Maxwell
and Kumar Venkataraman (2006) ‘‘Market
transparency, liquidity externalities, and
institutional trading costs in corporate bonds’’ J of
Fin. Econ., 82, 251–288, Edwards, Amy, Larry
Harris, and Michael Piwowar (2007) ‘‘Corporate
Bond Market Transaction Costs and Transparency’’
J. of Fin. 62, 1421–1451, Goldstein, Michael, Edith
Hotchkiss, and Eric Sirri (2007), ‘‘Transparency and
Liquidity: A Controlled Experiment on Corporate
Bonds’’ The Rev. of Fin. Stud., 20, 235–273.
527 Loon, Yee Cheng, and Zhaodong Ken Zhong
(2014), ‘‘The impact of central clearing on
counterparty risk, liquidity, and trading: Evidence
from the credit default swap market,’’ J. of Fin.
Econ. 112, 91–115.
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it more appropriately balances the
tradeoff between transparency and
hedging costs, among other issues. The
initial conservative threshold resulted
in a wide band of swaps receiving block
treatment, to the detriment of
transparency, price discovery, and
swaps market competitiveness. The
Commission acknowledges, as comment
letters discuss, that the increased
transparency caused by the 67-percent
method potentially may result in higher
market costs for some market
participants and less liquidity.
However, the Commission has not been
presented with evidence that the 50percent notional amount calculation
method is clearly superior to the 67percent notional amount calculation for
appropriate minimum block size and
the 75-percent notional amount
calculation for caps, and the
Commission continues to believe that
the 67-percent and 75-percent methods
provides a superior balance of the
benefits and costs of blocks and capped
notionals.528 This is particularly true
given that the 67-percent and 75-percent
notional calculation methods will be
applied in the context of recalibrated
swap categories set out in § 43.6(c)—a
factor not taken into account in
comments advocating for the lowerthreshold alternative. Applied in the
context of the new swap categories, the
Commission believes the 67-percent and
75-percent notional thresholds will be
more responsive to liquidity needs,
including through separate option and
non-option CDS categories, adjusting
certain CDS appropriate minimum block
sizes around the roll months, the
expansion of zero-block size categories,
and clarifying certain risk reduction
exercises are not publicly reportable
swap transactions.
A second alternative advocated in
comments relates to risk adjusting
notional values before determining
block and cap thresholds (e.g., AGLI and
ISDA–SIFMA). Comments argue that, all
else being equal, longer-tenor contracts
have more risk-transfer and the
thresholds should reflect those
differences. For example, if thresholds
are the same for all tenors of an asset
class, the risk transfer of swaps at the
threshold value will be very different
across tenors. This is particularly
relevant for IRS, where there is
528 The ISDA–SIFMA letter suggests the only
reason to raise the threshold is to correct a problem
with price discovery and they are not aware of any
current problems. This is not a correct
interpretation of current part 43. The Commission
established requirements to increase block and cap
thresholds in 2013 without making them
conditional on identifying problems with price
discovery.
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significant variation in tenor and
different tenors represent different
amounts of risk transfer.
Although basing appropriate
minimum block size on DV01
theoretically might be appropriate, the
commenters have not explained how
this could be accomplished in practice,
nor are the means for doing so apparent
to the Commission. Moreover, the
ultimate goal in establishing thresholds
is to focus on liquidity differences
across swap categories, not risk-transfer
per se (although risk transfer may be a
factor influencing liquidity). In
addition, the Commission notes risk
adjusting across tenors would imply
that thresholds would be higher for
shorter-tenor swaps than longer-tenor
ones. For the most part, the rule reflects
this principle, since for IRS, block
thresholds are generally decreasing with
tenor.
Conclusion: The Commission is
adopting the changes above.
Notwithstanding the anticipated costs,
the Commission believes this change is
warranted in light of the anticipated
benefits.
3. Section 15(a) Factors
Section 15(a) of the CEA requires the
Commission to consider the costs and
benefits of the amendments to part 43
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.
As discussed above, the amendments
to part 43 include changes that reflect
what the Commission has learned about
the technical aspects of reporting as
well as changes that alter categories of
swaps. The Commission expects that
this, along with the data validation
requirements in § 43.3(f), will increase
the quality and timeliness of swap
transaction and pricing data reported
and publicly disseminated pursuant to
part 43.
a. Protection of Market Participants and
the Public
The Commission believes by
enhancing transparency, the reporting
requirements empower market
participants by informing them, in realtime, about the trade prices of a broad
set of swap products. This real-time
information helps protect these
participants from transacting at prices
significantly different from the
prevailing market. In addition, the
Commission believes enhanced
transparency allows for better
monitoring of the quantity and size of
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75475
market transactions, leading to
improved protection of market
participants and the public. As
discussed above, several of the changes
increase transparency, such as
improvements in how swap categories
are defined and improvements in
reported data. However, these same
changes at times may make it more
expensive for SDs to hedge large
positions they acquire, thereby
increasing hedging costs for trades
within certain size ranges.
b. Efficiency, Competitiveness, and
Financial Integrity of Markets
Real-time reporting of transactions
affects the efficiency of markets by
quickly providing new information to
all market participants in a standardized
manner. This real-time information,
which is publicly accessible, allows
prices to rapidly and efficiently adjust
to the prevailing trading conditions. To
the extent that these Final Rules reduce
the cost of information gathering and
processing, as the Commission expects,
market efficiency should be improved.
Improvements to real-time reporting
may also enhance competition, as
market participants may learn about the
prices and venues where potential
counterparties are executing their
transactions. As such, swaps markets
may become more competitive because
parties will have better access to the
prices where most participants are
transacting and will be able to use this
information to make their own trading
decisions.
The Final Rules, through their effects
on transparency, are also designed to
positively impact the financial integrity
of markets, because market participants
can verify that they are transacting at or
near prevailing market prices. In
addition to transparency, the
Commission expects changes to part 43
are likely to positively affect financial
integrity in other ways. In particular, the
Commission believes that more accurate
swap transaction and pricing data will
lead to greater understanding of
liquidity and market depth for market
participants executing swap
transactions. Also, changes improving
part 43 swap transaction and pricing
data for the public will expand the
ability of market participants to monitor
real-time activity by other participants
and to respond appropriately.
c. Price Discovery
Section 2(a)(13) of the CEA and the
Commission’s existing regulations in
part 43 implementing CEA section
2(a)(13) require swap transaction and
pricing data to be made available to the
public in real time. The Commission
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believes inaccurate and incomplete
swap transaction and pricing data
hinders the use of the swap transaction
and pricing data, which harms
transparency and price discovery. The
Commission expects market participants
will be better able to analyze swap
transaction and pricing data as a result
of the finalized amendments, because
the amendments will make swap
transaction and pricing data more
accurate and complete. The Commission
also expects price discovery to be
improved by avoiding duplicative
reporting of mirror swaps.
One aspect of the final regulations
does hold some potential to dampen
price discovery relative to the status quo
to a limited degree. Specifically, if
§ 43.4(a)(4) encourages more PPSs, then
this may also reduce price discovery
because fewer trades would have prices
that are known at the time of execution.
But countering this, as noted above,
removing mirror swaps from public
reporting could remove redundancy
false impressions of market activity,
thereby promoting the accuracy of the
data.
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d. Sound Risk Management Practices
The rule changes promulgated here
will have a variety of effects on risk
management practices. The effect of
increasing the threshold for block
determinations will result in more rapid
dissemination of trade data for trades
within specific size ranges. As
discussed above, some commenters note
that this change may make it more
expensive for SDs to manage the risk
they take on when accommodating
customer trades.529 If SDs face increased
difficulties to hedge client demands,
then the SDs may increase the trading
costs offered to clients or, potentially,
stop trading in the notional range,
which in turn can contribute to a
decrease in liquidity.530 These effects
may inhibit sound risk management by
SDs and their clients, respectively.
Conversely, to the extent the final
regulations result in more price
transparency for the reasons discussed
above, it is likely that trading costs will
fall for some swaps, particularly
smaller-sized swaps. This effect will
enable some market participants to more
readily hedge their inherent risk, and
thereby improve risk management.
e. Other Public Interest Considerations
More accurate swap transaction and
pricing data would be helpful to
researchers who may use the data to
improve the public’s understanding of
529 See,
530 See,
e.g., ISDA–SIFMA at 2.
e.g., SIFMA AMG at 3–4; PIMCO at 2–4.
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how swap markets function with respect
to market participants, other financial
markets, and the overall economy.
Higher-quality data would also likely
improve the Commission’s regulatory
oversight and enforcement capabilities.
D. Antitrust Considerations
Section 15(b) of the CEA requires the
Commission to take into consideration
the public interest to be protected by the
antitrust laws and to 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 that
the amendments to part 43 will result in
anti-competitive behavior. The
Commission did not receive any
comments on the antitrust
considerations in the Proposal.
List of Subjects in 17 CFR Part 43
Real-time public swap reporting.
For the reasons stated in the
preamble, the Commodity Futures
Trading Commission amends 17 CFR
part 43 as set forth below:
PART 43—REAL-TIME PUBLIC
REPORTING
1. The authority citation for part 43
continues to read as follows:
■
Authority: 7 U.S.C. 2(a), 12a(5), and 24a,
as amended by Pub. L. 111–203, 124 Stat.
1376 (2010).
2. Amend § 43.1 by removing
paragraphs (b) and (d), re-designating
paragraph (c) as paragraph (b), and
revising newly re-designated paragraph
(b).
The revision reads as follows:
■
§ 43.1 Purpose, scope, and rules of
construction.
*
*
*
*
*
(b) Rules of construction. The
examples in this part are not exclusive.
Compliance with a particular example
or application of a sample clause, to the
extent applicable, shall constitute
compliance with the particular portion
of the rule to which the example relates.
■ 3. Revise § 43.2 to read as follows:
§ 43.2
Definitions.
(a) Definitions. As used in this part:
Appropriate minimum block size
means the minimum notional or
principal amount for a category of
swaps that qualifies a swap within such
category as a block trade or large
notional off-facility swap.
As soon as technologically practicable
means as soon as possible, taking into
consideration the prevalence,
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implementation, and use of technology
by comparable market participants.
Asset class means a broad category of
commodities including, without
limitation, any ‘‘excluded commodity’’
as defined in section 1a(19) of the Act,
with common characteristics underlying
a swap. The asset classes include
interest rate, foreign exchange, credit,
equity, other commodity, and such
other asset classes as may be determined
by the Commission.
Block trade means a publicly
reportable swap transaction that:
(1) Involves a swap that is listed on
a swap execution facility or designated
contract market;
(2) Is executed on a swap execution
facility’s trading system or platform that
is not an order book as defined in
§ 37.3(a)(3) of this chapter, or occurs
away from the swap execution facility’s
or designated contract market’s trading
system or platform and is executed
pursuant to the swap execution facility’s
or designated contract market’s rules
and procedures;
(3) Has a notional or principal amount
at or above the appropriate minimum
block size applicable to such swap; and
(4) Is reported subject to the rules and
procedures of the swap execution
facility or designated contract market
and the rules described in this part,
including the appropriate time delay
requirements set forth in § 43.5.
Business day means the twenty-four
hour day, on all days except Saturdays,
Sundays and legal holidays, in the
location of the reporting party or
registered entity reporting data for the
swap.
Business hours means the consecutive
hours of one or more consecutive
business days.
Cap size means, for each swap
category, the maximum notional or
principal amount of a publicly
reportable swap transaction that is
publicly disseminated.
Economically related means a direct
or indirect reference to the same
commodity at the same delivery
location or locations, or with the same
or a substantially similar cash market
price series.
Embedded option means any right,
but not an obligation, provided to one
party of a swap by the other party to the
swap that provides the party holding the
option with the ability to change any
one or more of the economic terms of
the swap.
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.
Execution date means the date of
execution of a particular swap.
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Futures-related swap means a swap
(as defined in section 1a(47) of the Act
and as further defined by the
Commission in implementing
regulations) that is economically related
to a futures contract.
Large notional off-facility swap means
an off-facility swap that has a notional
or principal amount at or above the
appropriate minimum block size
applicable to such publicly reportable
swap transaction and is not a block
trade as defined in § 43.2.
Major currencies means the
currencies, and the cross-rates between
the currencies, of Australia, Canada,
Denmark, New Zealand, Norway, South
Africa, South Korea, Sweden, and
Switzerland.
Mirror swap means a swap:
(1) To which—
(i) A prime broker is a counterparty;
or
(ii) Both counterparties are prime
brokers;
(2) That is executed
contemporaneously with a
corresponding trigger swap;
(3) That has identical terms and
pricing as the contemporaneously
executed trigger swap, except:
(i) That a mirror swap, but not the
corresponding trigger swap, may
include any associated prime brokerage
service fees agreed to by the parties; and
(ii) As provided in paragraph (5) of
this ‘‘mirror swap’’ definition;
(4) With respect to which the sole
price forming event is the occurrence of
the contemporaneously executed trigger
swap; and
(5) The execution of which is
contingent on, or is triggered by, the
execution of the contemporaneously
executed trigger swap. The contractually
agreed payments and delivery amounts
under a mirror swap may differ from
those amounts of the corresponding
trigger swap if:
(i) Under all such mirror swaps to
which the prime broker that is a
counterparty to the trigger swap is also
a counterparty, the aggregate
contractually agreed payments and
delivery amounts shall be equal to the
aggregate of the contractually agreed
payments and delivery amounts under
the corresponding trigger swap; and
(ii) The market risk and contractually
agreed payments and delivery amounts
of all such mirror swaps to which a
prime broker that is not a counterparty
to the corresponding trigger swap is a
party will offset each other, resulting in
such prime broker having a flat market
risk position at the execution of such
mirror swaps.
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Non-major currencies means all other
currencies that are not super-major
currencies or major currencies.
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.
Off-facility swap means any swap
transaction that is not executed on or
pursuant to the rules of a swap
execution facility or designated contract
market.
Other commodity means any
commodity that is not categorized in the
interest rate, credit, foreign exchange,
equity, or other asset classes as may be
determined by the Commission.
Physical commodity swap means a
swap in the other commodity asset class
that is based on a tangible commodity.
Post-priced swap means an off-facility
swap for which the price is not
determined as of the time of execution.
Pricing event means the completion of
the negotiation of the material economic
terms and pricing of a trigger swap.
Prime broker means, with respect to a
mirror swap and its related trigger swap,
a swap dealer acting in the capacity of
a prime broker with respect to such
swaps.
Prime broker swap means any swap to
which a swap dealer acting in the
capacity as prime broker is a party.
Prime brokerage agency arrangement
means an arrangement pursuant to
which a prime broker authorizes one of
its clients, acting as agent for such
prime broker, to cause the execution of
a prime broker swap.
Prime brokerage agent means a client
of a prime broker who causes the
execution of one or more prime broker
swap(s) acting pursuant to a prime
brokerage agency arrangement.
Public dissemination and publicly
disseminate means to make freely
available and readily accessible to the
public swap transaction and pricing
data in a non-discriminatory manner,
through the internet or other electronic
data feed that is widely published. Such
public dissemination shall be made in a
consistent, usable, and machinereadable electronic format that allows
the data to be downloaded, saved, and
analyzed.
Publicly reportable swap transaction
means:
(1) Unless otherwise provided in this
part—
(i) Any executed swap that is an
arm’s-length transaction between two
parties that results in a corresponding
change in the market risk position
between the two parties; or
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75477
(ii) Any termination, assignment,
novation, exchange, transfer,
amendment, conveyance, or
extinguishing of rights or obligations of
a swap that changes the pricing of the
swap.
(2) Examples of executed swaps that
do not fall within the definition of
publicly reportable swap may include:
(i) Internal swaps between onehundred percent owned subsidiaries of
the same parent entity;
(ii) Portfolio compression exercises;
and
(iii) Swaps entered into by a
derivatives clearing organization as part
of managing the default of a clearing
member.
(3) These examples represent swaps
that are not at arm’s length and thus are
not publicly reportable swap
transactions, notwithstanding that they
do result in a corresponding change in
the market risk position between two
parties.
Reference price means a floating price
series (including derivatives contract
prices and cash market prices or price
indices) used by the parties to a swap
or swaption to determine payments
made, exchanged, or accrued under the
terms of a swap contract.
Reporting counterparty means the
party to a swap with the duty to report
a publicly reportable swap transaction
in accordance with this part and section
2(a)(13)(F) of the Act.
Super-major currencies means the
currencies of the European Monetary
Union, Japan, the United Kingdom, and
United States.
Swap execution facility means a
trading system or platform that is a
swap execution facility as defined in
CEA section 1a(50) and in § 1.3 of this
chapter and that is registered with the
Commission pursuant to CEA section 5h
and part 37 of this chapter.
Swap transaction and pricing data
means all data elements for a swap in
appendix A of this part that are required
to be reported or publicly disseminated
pursuant to this part.
Swaps with composite reference
prices means swaps based on reference
prices that are composed of more than
one reference price from more than one
swap category.
Trigger swap means a swap:
(1) That is executed pursuant to one
or more prime brokerage agency
arrangements;
(2) To which one counterparty or both
counterparties are prime brokers;
(3) That serves as the contingency for,
or triggers, the execution of one or more
corresponding mirror swaps; and
(4) That is a publicly reportable swap
transaction that is required to be
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reported to a swap data repository
pursuant to this part and part 45 of this
chapter. A prime broker swap executed
on or pursuant to the rules of a swap
execution facility or designated contract
market shall be treated as the trigger
swap for purposes of this part.
Trimmed data set means a data set
that has had extraordinarily large
notional transactions removed by
transforming the data into a logarithm
with a base of 10, computing the mean,
and excluding transactions that are
beyond two standard deviations above
the mean for the other commodity asset
class and three standard deviations
above the mean for all other asset
classes.
(b) Other defined terms. Terms not
defined in this part have the meanings
assigned to the terms in § 1.3 of this
chapter.
■ 4. Amend § 43.3 by
■ a. Revising paragraphs (a) through (d),
and (f),
■ b. Removing paragraphs (g) and (h),
■ c. Re-designating paragraph (i) as
paragraph (g),
■ d. Revising newly re-designated
paragraph (g).
The revisions read as follows:
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§ 43.3 Method and timing for real-time
public reporting.
(a) Responsibilities to report swap
transaction and pricing data in realtime—(1) In general. The reporting
counterparty, swap execution facility, or
designated contract market responsible
for reporting a swap as determined by
this section shall report the publicly
reportable swap transaction to a swap
data repository as soon as
technologically practicable after
execution, subject to paragraphs (a)(2)
through (6) of this section. Such
reporting shall be done in the manner
set forth in paragraph (d) of this section.
(2) Swaps executed on or pursuant to
the rules of a swap execution facility or
designated contract market. For each
swap executed on or pursuant to the
rules of a swap execution facility or
designated contract market, the swap
execution facility or designated contract
market shall report swap transaction
and pricing data to a swap data
repository as soon as technologically
practicable after execution.
(3) Off-facility swaps. Except as
otherwise provided in paragraphs (a)(4)
through (6) of this section, a reporting
counterparty shall report all publicly
reportable swap transactions that are
off-facility swaps to a swap data
repository for the appropriate asset class
in accordance with the rules set forth in
this part as soon as technologically
practicable after execution. Unless
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otherwise agreed to by the parties prior
to execution, the following shall be the
reporting counterparty for a publicly
reportable swap transaction that is an
off-facility swap:
(i) If only one party is a swap dealer
or major swap participant, then the
swap dealer or major swap participant
shall be the reporting counterparty;
(ii) If one party is a swap dealer and
the other party is a major swap
participant, then the swap dealer shall
be the reporting counterparty;
(iii) If both parties are swap dealers,
then the swap dealers shall designate
which party shall be the reporting
counterparty prior to execution of such
swap;
(iv) If both parties are major swap
participants, then the major swap
participants shall designate which party
shall be the reporting counterparty prior
to execution of such swap; and
(v) If neither party is a swap dealer or
a major swap participant, then the
parties shall designate which party shall
be the reporting counterparty prior to
execution of such swap.
(4) Post-priced swaps—(i) Post-priced
swaps reporting delays. The reporting
counterparty may delay reporting a
post-priced swap to a swap data
repository until the earlier of the price
being determined and 11:59:59 p.m.
eastern time on the execution date. If
the price of a publicly reportable swap
transaction that is a post-priced swap is
not determined by 11:59:59 p.m. eastern
time on the execution date, the
reporting counterparty shall report to a
swap data repository by 11:59:59 p.m.
eastern time on the execution date all
swap transaction and pricing data for
such post-priced swap other than the
price and any other then-undetermined
swap transaction and pricing data and
shall report each such item of
previously undetermined swap
transaction and pricing data as soon as
technologically practicable after such
item is determined.
(ii) Other economic terms. The postpriced swap reporting delay set forth in
paragraph (a)(4)(i) of this section does
not apply to publicly reportable swap
transactions with respect to which the
price is known at execution, but one or
more other economic or other terms are
not yet known at the time of execution.
(5) Clearing swaps. Notwithstanding
the provisions of paragraphs (a)(1)
through (3) of this section, if a clearing
swap, as defined in § 45.1(a) of this
chapter, is a publicly reportable swap
transaction, the derivatives clearing
organization that is a party to such swap
shall be the reporting counterparty and
shall fulfill all reporting counterparty
obligations for such swap as soon as
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technologically practicable after
execution.
(6) Prime broker swaps. (i) A mirror
swap is not a publicly reportable swap
transaction. Execution of a trigger swap,
for purposes of determining when
execution occurs under paragraphs
(a)(1) through (3) of this section, shall be
deemed to occur at the time of the
pricing event for such trigger swap.
(ii) With respect to a given set of
swaps, if it is unclear which is, or are
the mirror swap(s) and which is the
related trigger swap (including, but not
limited to, situations where there is
more than one prime broker
counterparty within such set of swaps
and situations where the pricing event
for each set of swaps occurs between
prime brokerage agents of a common
prime broker), or if under the prime
brokerage agency arrangement, the
trigger swap would occur between two
prime brokers, the prime broker(s) shall
determine which of the prime broker
swaps shall be treated as the trigger
swap and which are mirror swaps.
(iii) Trigger swaps shall be reported in
accordance with the following:
(A) Trigger swaps executed on or
pursuant to the rules of a swap
execution facility or designated contract
market shall be reported pursuant to
paragraph (a)(2) of this section; and
(B) Off-facility trigger swaps shall be
reported pursuant to paragraph (a)(3) of
this section, except that if a
counterparty to a trigger swap is a swap
dealer that is not a prime broker with
respect to that trigger swap, then that
swap dealer counterparty shall be the
reporting counterparty for the trigger
swap.
(7) Third-party facilitation of data
reporting. Any person required by this
part to report swap transaction and
pricing data, while remaining fully
responsible for reporting as required by
this part, may contract with a thirdparty service provider to facilitate
reporting.
(b) Public dissemination of swap
transaction and pricing data by swap
data repositories in real-time—(1) In
general. A swap data repository shall
publicly disseminate swap transaction
and pricing data as soon as
technologically practicable after such
data is received from a swap execution
facility, designated contract market, or
reporting counterparty, unless such
swap transaction and pricing data is
subject to a time delay described in
§ 43.5, in which case the swap
transaction and pricing data shall be
publicly disseminated in the manner
described in § 43.5.
(2) Compliance with 17 CFR part 49.
Any swap data repository that accepts
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and publicly disseminates swap
transaction and pricing data in real-time
shall comply with part 49 of this
chapter.
(3) Prohibitions on disclosure of data.
(i) If there is a swap data repository for
an asset class, a swap execution facility
or designated contract market shall not
disclose swap transaction and pricing
data relating to publicly reportable swap
transactions in such asset class, prior to
the public dissemination of such data by
a swap data repository unless:
(A) Such disclosure is made no earlier
than the transmittal of such data to a
swap data repository for public
dissemination;
(B) Such disclosure is only made to
market participants on such swap
execution facility or designated contract
market;
(C) Market participants are provided
advance notice of such disclosure; and
(D) Any such disclosure by the swap
execution facility or designated contract
market is non-discriminatory.
(ii) If there is a swap data repository
for an asset class, a swap dealer or major
swap participant shall not disclose swap
transaction and pricing data relating to
publicly reportable swap transactions in
such asset class, prior to the public
dissemination of such data by a swap
data repository unless:
(A) Such disclosure is made no earlier
than the transmittal of such data to a
swap data repository for public
dissemination;
(B) Such disclosure is only made to
the customer base of such swap dealer
or major swap participant, including
parties who maintain accounts with or
have been swap counterparties with
such swap dealer or major swap
participant;
(C) Swap counterparties are provided
advance notice of such disclosure; and
(D) Any such disclosure by the swap
dealer or major swap participant is nondiscriminatory.
(4) Acceptance and public
dissemination of all swaps in an asset
class. Any swap data repository that
accepts and publicly disseminates swap
transaction and pricing data in real-time
for swaps in its selected asset class shall
accept and publicly disseminate swap
transaction and pricing data in real-time
for all publicly reportable swap
transactions within such asset class,
unless otherwise prescribed by the
Commission.
(5) Annual independent review. Any
swap data repository that accepts and
publicly disseminates swap transaction
and pricing data in real-time shall
perform, on an annual basis, an
independent review in accordance with
established audit procedures and
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standards of the swap data repository’s
security and other system controls for
the purpose of ensuring compliance
with the requirements in this part.
(c) Availability of swap transaction
and pricing data to the public. (1) Swap
data repositories shall make swap
transaction and pricing data available
on their websites for a period of time
that is at least one year after the initial
public dissemination of such data and
shall make instructions freely available
on their websites on how to download,
save, and search such data.
(2) Swap transaction and pricing data
that is publicly disseminated pursuant
to this paragraph shall be made
available free of charge.
(d) Data reported to swap data
repositories. (1) In reporting swap
transaction and pricing data to a swap
data repository, each reporting
counterparty, swap execution facility, or
designated contract market shall report
the swap transaction and pricing data as
described in the elements in appendix
A of this part in the form and manner
provided in the technical specification
published by the Commission pursuant
to § 43.7.
(2) In reporting swap transaction and
pricing data to a swap data repository,
each reporting counterparty, swap
execution facility, or designated
contract market making such report
shall satisfy the data validation
procedures of the swap data repository.
(3) In reporting swap transaction and
pricing data to a swap data repository,
each reporting counterparty, swap
execution facility, or designated
contract market shall use the facilities,
methods, or data standards provided or
required by the swap data repository to
which the entity or reporting
counterparty reports the data.
*
*
*
*
*
(f) Data validation acceptance
message. (1) A swap data repository
shall validate each swap transaction and
pricing data report submitted to the
swap data repository and notify the
reporting counterparty, swap execution
facility, or designated contract market
submitting the report whether the report
satisfied the data validation procedures
of the swap data repository as soon as
technologically practicable after
accepting the swap transaction and
pricing data report. A swap data
repository may satisfy the requirements
of this paragraph by making available
data validation acceptance messages as
required by § 49.10 of this chapter.
(2) If a swap transaction and pricing
data report submitted to a swap data
repository does not satisfy the data
validation procedures of the swap data
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75479
repository, the reporting counterparty,
swap execution facility, or designated
contract market required to submit the
report has not satisfied its obligation to
report swap transaction and pricing data
in the manner provided by paragraph
(d) of this section. The reporting
counterparty, swap execution facility, or
designated contract market has not
satisfied its obligation until it submits
the swap transaction and pricing data
report in the manner provided by
paragraph (d) of this section, which
includes the requirement to satisfy the
data validation procedures of the swap
data repository.
(g) Fees. Any fee or charge assessed on
a reporting counterparty, swap
execution facility, or designated
contract market by a swap data
repository that accepts and publicly
disseminates swap transaction and
pricing data in real-time for the
collection of such data shall be
equitable and non-discriminatory. If
such swap data repository allows a fee
discount based on the volume of data
reported to it for public dissemination,
then such discount shall be made
available to all reporting counterparties,
swap execution facilities, and
designated contract markets in an
equitable and non-discriminatory
manner.
■ 5. Revise § 43.4 to read as follows:
§ 43.4 Swap transaction and pricing data
to be publicly disseminated in real-time.
(a) Public dissemination of data
fields. Any swap data repository that
accepts and publicly disseminates swap
transaction and pricing data in real-time
shall publicly disseminate the
information described in appendix A of
this part for the swap transaction and
pricing data, as applicable, in the form
and manner provided in the technical
specification published by the
Commission pursuant to § 43.7.
(b) Additional swap information. A
swap data repository that accepts and
publicly disseminates swap transaction
and pricing data in real-time may
require reporting counterparties, swap
execution facilities, and designated
contract markets to report to such swap
data repository information that is
necessary to compare the swap
transaction and pricing data that was
publicly disseminated in real-time to
the data reported to a swap data
repository pursuant to section
2(a)(13)(G) of the Act or to confirm that
parties to a swap have reported in a
timely manner pursuant to § 43.3. Such
additional information shall not be
publicly disseminated by the swap data
repository.
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(c) Anonymity of the parties to a
publicly reportable swap transaction—
(1) In general. Swap transaction and
pricing data that is publicly
disseminated in real-time shall not
disclose the identities of the parties to
the swap or otherwise facilitate the
identification of a party to a swap. A
swap data repository that accepts and
publicly disseminates swap transaction
and pricing data in real-time shall not
publicly disseminate such data in a
manner that discloses or otherwise
facilitates the identification of a party to
a swap.
(2) Actual product description
reported to swap data repository.
Reporting counterparties, swap
execution facilities, and designated
contract markets shall provide a swap
data repository with swap transaction
and pricing data that includes an actual
description of the underlying asset(s).
This requirement is separate from the
requirement that a reporting
counterparty, swap execution facility, or
designated contract market shall report
swap data to a swap data repository
pursuant to section 2(a)(13)(G) of the
Act and 17 CFR chapter I.
(3) Public dissemination of the actual
description of underlying asset(s).
Notwithstanding the anonymity
protection for certain swaps in the other
commodity asset class in paragraph
(c)(4) of this section, a swap data
repository shall publicly disseminate
the actual underlying asset(s) of all
publicly reportable swap transactions in
the interest rate, credit, equity, and
foreign exchange asset classes.
(4) Public dissemination of the
underlying asset(s) for certain swaps in
the other commodity asset class. A swap
data repository shall publicly
disseminate swap transaction and
pricing data in the other commodity
asset class as described in this
paragraph.
(i) A swap data repository shall
publicly disseminate swap transaction
and pricing data for publicly reportable
swap transactions in the other
commodity asset class in the manner
described in paragraphs (c)(4)(ii) and
(iii) of this section.
(ii) The actual underlying asset(s)
shall be publicly disseminated for the
following publicly reportable swap
transactions in the other commodity
asset class:
(A) Any publicly reportable swap
transaction that references one of the
contracts described in appendix B to
this part;
(B) Any publicly reportable swap
transaction that is economically related
to one of the contracts described in
appendix B of this part; or
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(C) Any publicly reportable swap
transaction executed on or pursuant to
the rules of a swap execution facility or
designated contract market.
(iii) The underlying assets of swaps in
the other commodity asset class that are
not described in paragraph (c)(4)(ii) of
this section shall be publicly
disseminated by limiting the geographic
detail of the underlying asset(s). The
identification of any specific delivery
point or pricing point associated with
the underlying asset of such other
commodity swap shall be publicly
disseminated pursuant to appendix E of
this part.
(d) Reporting of notional or principal
amounts to a swap data repository—(1)
Off-facility swaps. The reporting
counterparty shall report the actual
notional or principal amount of any
publicly reportable swap transaction
that is an off-facility swap to a swap
data repository that accepts and
publicly disseminates such data
pursuant to this part.
(2) Swaps executed on or pursuant to
the rules of a swap execution facility or
designated contract market. (i) A swap
execution facility or designated contract
market shall report the actual notional
or principal amount for all swaps
executed on or pursuant to the rules of
such swap execution facility or
designated contract market to a swap
data repository that accepts and
publicly disseminates such data
pursuant to this part.
(ii) The actual notional or principal
amount for any block trade executed on
or pursuant to the rules of a swap
execution facility or designated contract
market shall be reported to the swap
execution facility or designated contract
market pursuant to the rules of the swap
execution facility of designated contract
market.
(e) Public dissemination of notional or
principal amounts. The notional or
principal amount of a publicly
reportable swap transaction shall be
publicly disseminated by a swap data
repository subject to rounding as set
forth in paragraph (f) of this section, and
the cap size as set forth in paragraph (g)
of this section.
(f) Process to determine appropriate
rounded notional or principal amounts.
(1) If the notional or principal amount
is less than one thousand, round to
nearest five, but in no case shall a
publicly disseminated notional or
principal amount be less than five;
(2) If the notional or principal amount
is less than 10 thousand but equal to or
greater than one thousand, round to
nearest one hundred;
(3) If the notional or principal amount
is less than 100 thousand but equal to
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or greater than 10 thousand, round to
nearest one thousand;
(4) If the notional or principal amount
is less than one million but equal to or
greater than 100 thousand, round to
nearest 10 thousand;
(5) If the notional or principal amount
is less than 100 million but equal to or
greater than one million, round to the
nearest one million;
(6) If the notional or principal amount
is less than 500 million but equal to or
greater than 100 million, round to the
nearest 10 million;
(7) If the notional or principal amount
is less than one billion but equal to or
greater than 500 million, round to the
nearest 50 million;
(8) If the notional or principal amount
is less than 100 billion but equal to or
greater than one billion, round to the
nearest 100 million;
(9) If the notional or principal amount
is equal to or greater than 100 billion,
round to the nearest 10 billion.
(g) Initial cap sizes. Prior to the
effective date of a Commission
determination to establish an applicable
post-initial cap size for a swap category
as determined pursuant to paragraph (h)
of this section, the initial cap sizes for
each swap category shall be equal to the
greater of the initial appropriate
minimum block size for the respective
swap category in appendix F of this part
or the respective cap sizes in paragraphs
(g)(1) through (5) of this section. If
appendix F of this part does not provide
an initial appropriate minimum block
size for a particular swap category, the
initial cap size for such swap category
shall be equal to the appropriate cap
size as set forth in paragraphs (g)(1)
through (5) of this section.—
(1) For swaps in the interest rate asset
class, the publicly disseminated
notional or principal amount for a swap
subject to the rules in this part shall be:
(i) USD 250 million for swaps with a
tenor greater than zero up to and
including two years;
(ii) USD 100 million for swaps with
a tenor greater than two years up to and
including ten years; and
(iii) USD 75 million for swaps with a
tenor greater than ten years.
(2) For swaps in the credit asset class,
the publicly disseminated notional or
principal amount for a swap subject to
the rules in this part shall be USD 100
million.
(3) For swaps in the equity asset class,
the publicly disseminated notional or
principal amount for a swap subject to
the rules in this part shall be USD 250
million.
(4) For swaps in the foreign exchange
asset class, the publicly disseminated
notional or principal amount for a swap
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subject to the rules in this part shall be
USD 250 million.
(5) For swaps in the other commodity
asset class, the publicly disseminated
notional or principal amount for a swap
subject to the rules in this part shall be
USD 25 million.
(h) Post-initial cap sizes. (1) The
Commission shall establish, by swap
categories, post-initial cap sizes as
described in paragraphs (h)(2) through
(8) of this section.
(2) The Commission shall determine
post-initial cap sizes for the swap
categories described in paragraphs
(c)(1)(i), (c)(2)(i) through (xii), (c)(4)(i),
and (c)(5)(i) of § 43.6 by utilizing
reliable data collected by swap data
repositories, as determined by the
Commission, based on paragraphs
(h)(2)(i) and (ii) of this section. If the
Commission is unable to determine a
cap size for any swap category described
in § 43.6(c)(1)(i), the Commission shall
assign a cap size of USD 100 million to
such category.
(i) A one-year window of swap
transaction and pricing data
corresponding to each relevant swap
category recalculated no less than once
each calendar year; and
(ii) The 75-percent notional amount
calculation described in § 43.6(d)(2).
(3) The Commission shall determine
the post-initial cap size for a swap
category in the foreign exchange asset
class described in § 43.6(c)(4)(ii) as the
lower of the notional amount of either
currency’s cap size for the swap
category described in § 43.6(c)(4)(i).
(4) All swaps or instruments in the
swap category described in
§ 43.6(c)(1)(ii) shall have a cap size of
USD 100 million.
(5) All swaps or instruments in the
swap category described in
§ 43.6(c)(2)(xiii) shall have a cap size of
USD 400 million.
(6) All swaps or instruments in the
swap category described in § 43.6(c)(3)
shall have a cap size of USD 250
million.
(7) All swaps or instruments in the
swap category described in
§ 43.6(c)(4)(iii) shall have a cap size of
USD 150 million.
(8) All swaps or instruments in the
swap category described in
§ 43.6(c)(5)(ii) shall have a cap size of
USD 100 million.
(9) The Commission shall publish
post-initial cap sizes on its website at
https://www.cftc.gov.
(10) Unless otherwise indicated on
the Commission’s website, the postinitial cap sizes shall be effective on the
first day of the second month following
the date of publication of the revised
cap size.
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■
6. Revise § 43.5 to read as follows:
§ 43.5 Time delays for public
dissemination of swap transaction and
pricing data.
(a) In general. The time delay for the
real-time public reporting of a block
trade or large notional off-facility swap
begins upon execution, as defined in
§ 43.2. It is the responsibility of the
swap data repository that accepts and
publicly disseminates swap transaction
and pricing data in real-time to ensure
that the block trade or large notional offfacility swap transaction and pricing
data is publicly disseminated pursuant
to this part upon the expiration of the
appropriate time delay described in
paragraphs (d) through (h) of this
section.
(b) Public dissemination of publicly
reportable swap transactions subject to
a time delay. A swap data repository
shall publicly disseminate swap
transaction and pricing data that is
subject to a time delay pursuant to this
paragraph, as follows:
(1) No later than the prescribed time
delay period described in this
paragraph;
(2) No sooner than the prescribed time
delay period described in this
paragraph; and
(3) Precisely upon the expiration of
the time delay period described in this
paragraph.
(c) [Reserved]
(d) Time delay for block trades
executed on or pursuant to the rules of
a swap execution facility or designated
contract market. Any block trade that is
executed on or pursuant to the rules of
a swap execution facility or designated
contract market shall receive a time
delay in the public dissemination of
swap transaction and pricing data as
follows:
(1) [Reserved]
(2) The time delay for public
dissemination of swap transaction and
pricing data for all publicly reportable
swap transactions described in this
paragraph (d) shall be 15 minutes
immediately after execution of such
publicly reportable swap transaction.
(e) Time delay for large notional offfacility swaps subject to the mandatory
clearing requirement—(1) In general.
This paragraph shall not apply to offfacility swaps that are excepted from the
mandatory clearing requirement
pursuant to section 2(h)(7) of the Act
and 17 CFR chapter I, and this
paragraph shall not apply to those
swaps that are required to be cleared
under section 2(h)(2) of the Act and 17
CFR chapter I but are not cleared.
(2) Swaps subject to the mandatory
clearing requirement where at least one
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party is a swap dealer or major swap
participant. Any large notional offfacility swap that is subject to the
mandatory clearing requirement
described in section 2(h)(1) of the Act
and 17 CFR chapter I, in which at least
one party is a swap dealer or major
swap participant, shall receive a time
delay as follows:
(i) [Reserved]
(ii) The time delay for public
dissemination of swap transaction and
pricing data for all swaps described in
this paragraph (e)(2) shall be 15 minutes
immediately after execution of such
swap.
(3) Swaps subject to the mandatory
clearing requirement where neither
party is a swap dealer or major swap
participant. Any large notional offfacility swap that is subject to the
mandatory clearing requirement
described in section 2(h)(1) of the Act
and 17 CFR chapter I, in which neither
party is a swap dealer or major swap
participant, shall receive a time delay as
follows:
(i)–(ii) [Reserved]
(iii) The time delay for public
dissemination of swap transaction and
pricing data for all swaps described in
this paragraph (e)(3) shall be one hour
immediately after execution of such
swap.
(f) Time delay for large notional offfacility swaps in the interest rate, credit,
foreign exchange or equity asset classes
not subject to the mandatory clearing
requirement with at least one swap
dealer or major swap participant
counterparty. Any large notional offfacility swap in the interest rate, credit,
foreign exchange or equity asset classes
where at least one party is a swap dealer
or major swap participant, that is not
subject to the mandatory clearing
requirement or is excepted from such
mandatory clearing requirement, shall
receive a time delay in the public
dissemination of swap transaction and
pricing data as follows:
(1)–(2) [Reserved]
(3) The time delay for public
dissemination of swap transaction and
pricing data for all swaps described in
this paragraph (f) shall be 30 minutes
immediately after execution of such
swap.
(g) Time delay for large notional offfacility swaps in the other commodity
asset class not subject to the mandatory
clearing requirement with at least one
swap dealer or major swap participant
counterparty. Any large notional offfacility swap in the other commodity
asset class where at least one party is a
swap dealer or major swap participant,
that is not subject to the mandatory
clearing requirement or is exempt from
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such mandatory clearing requirement,
shall receive a time delay in the public
dissemination of swap transaction and
pricing data as follows:
(1)–(2) [Reserved]
(3) The time delay for public
dissemination of swap transaction and
pricing data for all swaps described in
this paragraph (g) shall be two hours
after the execution of such swap.
(h) Time delay for large notional offfacility swaps in all asset classes not
subject to the mandatory clearing
requirement in which neither
counterparty is a swap dealer or a major
swap participant. Any large notional
off-facility swap in which neither party
is a swap dealer or a major swap
participant, which is not subject to the
mandatory clearing requirement or is
exempt from such mandatory clearing
requirement, shall receive a time delay
in the public dissemination of swap
transaction and pricing data as follows:
(1)–(2) [Reserved]
(3) The time delay for public
dissemination transaction and pricing
data for all swaps described in this
paragraph (h) shall be 24 business hours
immediately after the execution of such
swap.
■ 6. Revise § 43.6 to read as follows:
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§ 43.6 Block trades and large notional offfacility swaps.
(a) Commission determination. The
Commission shall establish the
appropriate minimum block size for
publicly reportable swap transactions
based on the swap categories set forth in
paragraphs (b) and (c) of this section, as
applicable, in accordance with the
provisions set forth in paragraph (d), (e),
(f), (g), (h), or (i) of this section, as
applicable.
(b) Initial swap categories. Swap
categories shall be established for all
swaps, by asset class, in the following
manner:
(1) Interest rates asset class. Interest
rate asset class swap categories shall be
based on unique combinations of the
following:
(i) Currency by:
(A) Super-major currency;
(B) Major currency; or
(C) Non-major currency; and
(ii) Tenor of swap as follows:
(A) Zero to 46 days;
(B) Greater than 46 days to three
months (47 to 107 days);
(C) Greater than three months to six
months (108 to 198 days);
(D) Greater than six months to one
year (199 to 381 days);
(E) Greater than one to two years (382
to 746 days);
(F) Greater than two to five years (747
to 1,842 days);
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(G) Greater than five to ten years
(1,843 to 3,668 days);
(H) Greater than ten to 30 years (3,669
to 10,973 days); or
(I) Greater than 30 years (10,974 days
and above).
(2) Credit asset class. Credit asset
class swap categories shall be based on
unique combinations of the following:
(i) Traded Spread rounded to the
nearest basis point (0.01) as follows:
(A) 0 to 175 points;
(B) 176 to 350 points; or
(C) 351 points and above;
(ii) Tenor of swap as follows:
(A) Zero to two years (0–746 days);
(B) Greater than two to four years
(747–1,476 days);
(C) Greater than four to six years
(1,477–2,207 days);
(D) Greater than six to eight-and-a-half
years (2,208–3,120 days);
(E) Greater than eight-and-a-half to
12.5 years (3,121–4,581 days); and
(F) Greater than 12.5 years (4,582 days
and above).
(3) Equity asset class. There shall be
one swap category consisting of all
swaps in the equity asset class.
(4) Foreign exchange asset class.
Swap categories in the foreign exchange
asset class shall be grouped as follows:
(i) By the unique currency
combinations of one super-major
currency paired with one of the
following:
(A) Another super major currency;
(B) A major currency; or
(C) A currency of Brazil, China, Czech
Republic, Hungary, Israel, Mexico,
Poland, Russia, and Turkey; or
(ii) By unique currency combinations
not included in paragraph (b)(4)(i) of
this section.
(5) Other commodity asset class.
Swap contracts in the other commodity
asset class shall be grouped into swap
categories as follows:
(i) For swaps that are economically
related to contracts in appendix B of
this part, by the relevant contract as
referenced in appendix B of this part; or
(ii) For swaps that are not
economically related to contracts in
appendix B of this part, by the following
futures-related swaps:
(A) CME Cheese;
(B) CBOT Distillers’ Dried Grain;
(C) CBOT Dow Jones-UBS Commodity
Index;
(D) CBOT Ethanol;
(E) CME Frost Index;
(F) CME Goldman Sachs Commodity
Index (GSCI), (GSCI Excess Return
Index);
(G) NYMEX Gulf Coast Sour Crude
Oil;
(H) CME Hurricane Index;
(I) CME Rainfall Index;
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(J) CME Snowfall Index;
(K) CME Temperature Index;
(L) CME U.S. Dollar Cash Settled
Crude Palm Oil; or
(iii) For swaps that are not covered in
paragraphs (b)(5)(i) and (b)(5)(ii) of this
section, the relevant product type as
referenced in appendix D of this part.
(c) Post-initial swap categories. Swap
categories shall be established for all
swaps, by asset class, in the following
manner:
(1) Interest rate asset class. Swaps in
the interest rate asset class shall be
grouped into swap categories as follows:
(i) Based on a unique combination of
the following currencies and tenors:
(A) A currency of one of the following
countries or union:
(1) Australia;
(2) Brazil;
(3) Canada;
(4) Chile;
(5) Czech Republic;
(6) The European Union;
(7) Great Britain;
(8) India;
(9) Japan;
(10) Mexico;
(11) New Zealand;
(12) South Africa;
(13) South Korea;
(14) Sweden; or
(15) The United States; and
(B) One of the following tenors:
(1) Zero to 46 days;
(2) Greater than 46 and less than or
equal to 107 days;
(3) Greater than 107 and less than or
equal to 198 days;
(4) Greater than 198 and less than or
equal to 381 days;
(5) Greater than 381 and less than or
equal to 746 days;
(6) Greater than 746 and less than or
equal to 1,842 days;
(7) Greater than 1,842 and less than or
equal to 3,668 days;
(8) Greater than 3,668 and less than or
equal to 10,973 days; or
(9) Greater than 10,973 days.
(ii) Other interest rate swaps not
covered in the paragraph (c)(1)(i) of this
section.
(2) Credit asset class. Swaps in the
credit asset class shall be grouped into
swap categories as follows.
(i) Based on the CDXHY product type,
without options and a tenor greater than
1,477 days and less than or equal to
2,207 days;
(ii) Based on the CDXHY product
type, with only options and a tenor
greater than 1,477 days and less than or
equal to 2,207 days;
(iii) Based on the iTraxx Europe
product type, without options and a
tenor greater than 1,477 days and less
than or equal to 2,207 days;
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(iv) Based on the iTraxx Europe
product type, with only options and a
tenor greater than 1,477 days and less
than or equal to 2,207 days;
(v) Based on the iTraxx Crossover
product type, without options and a
tenor greater than 1,477 days and less
than or equal to 2,207 days;
(vi) Based on the iTraxx Crossover
product type, with only options and a
tenor greater than 1,477 days and less
than or equal to 2,207 days;
(vii) Based on the iTraxx Senior
Financials product type, without
options and a tenor greater than 1,477
days and less than or equal to 2,207
days;
(viii) Based on the iTraxx Senior
Financials product type, with only
options and a tenor greater than 1,477
days and less than or equal to 2,207
days;
(ix) Based on the CDXIG product type
and a tenor greater, without options
than 1,477 days and less than or equal
to 2,207 days;
(x) Based on the CDXIG product type
with only options and a tenor greater,
than 1,477 days and less than or equal
to 2,207 days;
(xi) Based on the
CDXEmergingMarkets product type and
a tenor greater than 1,477 days and less
than or equal to 2,207 days;
(xii) Based on the CMBX product
type; and
(xiii) Other credit swaps not covered
in paragraphs (c)(2)(i)–(xii) of this
section.
(3) Equity asset class. There shall be
one swap category consisting of all
swaps in the equity asset class.
(4) Foreign exchange asset class.
Swaps in the foreign exchange asset
class shall be grouped into swap
categories as follows:
(i) By the unique currency
combinations of the United States
currency paired with a currency of one
of the following countries or union:
Argentina, Australia, Brazil, Canada,
Chile, China, Colombia, the European
Union, Great Britain, India, Indonesia,
Japan, Malaysia, Mexico, New Zealand,
Peru, Philippines, Russia, South Korea,
or Taiwan.
(ii) By the unique currency pair
consisting of two separate currencies
from the following countries or union:
Argentina, Australia, Brazil, Canada,
Chile, China, Colombia, the European
Union, Great Britain, India, Indonesia,
Japan, Malaysia, Mexico, New Zealand,
Peru, Philippines, Russia, South Korea,
and Taiwan.
(iii) Other swap categories in the
foreign exchange asset class not covered
in paragraph (c)(4)(i) or (ii) of this
section.
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(5) Other commodity asset class.
Swaps in the other commodity asset
class shall be grouped into swap
categories as follows:
(i) For swaps that have a physical
commodity underlier listed in appendix
D of this part, by the relevant physical
commodity underlier; or
(ii) Other commodity swaps that are
not covered in paragraph (c)(5)(i) of this
section.
(d) Methodologies to determine
appropriate minimum block sizes and
cap sizes. In determining appropriate
minimum block sizes and cap sizes for
publicly reportable swap transactions,
the Commission shall utilize the
following statistical calculations—
(1) 67-percent notional amount
calculation. The Commission shall use
the following procedure in determining
the 67-percent notional amount
calculation:
(i) For each relevant swap category,
select all reliable SDR data for at least
a one-year period;
(ii) Convert the notional amount to
the same currency or units and use a
trimmed data set;
(iii) Determine the sum of the notional
amounts of swaps in the trimmed data
set;
(iv) Multiply the sum of the notional
amount by 67 percent;
(v) Rank order the observations by
notional amount from least to greatest;
(vi) Calculate the cumulative sum of
the observations until the cumulative
sum is equal to or greater than the 67percent notional amount calculated in
paragraph (d)(1)(iv) of this section;
(vii) Select the notional amount
associated with that observation;
(viii) Round the notional amount of
that observation up to two significant
digits, or if the notional amount
associated with that observation is
already significant to only two digits,
increase that notional amount to the
next highest rounding point of two
significant digits; and
(ix) Set the appropriate minimum
block size at the amount calculated in
paragraph (d)(1)(viii) of this section.
(2) 75-percent notional amount
calculation. The Commission shall use
the procedure set out in paragraph (d)(1)
of this section with 75-percent in place
of 67-percent.
(3) 50-percent notional amount
calculation. The Commission shall use
the procedure set out in paragraph (d)(1)
of this section with 50-percent in place
of 67-percent.
(e) No appropriate minimum block
sizes for swaps in the equity asset class.
Publicly reportable swap transactions in
the equity asset class shall not be treated
as block trades or large notional offfacility swaps.
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(f) Initial appropriate minimum block
sizes. Prior to the Commission making a
determination as described in paragraph
(g)(1) of this section, the following
initial appropriate minimum block sizes
shall apply:
(1) Prescribed appropriate minimum
block sizes. Except as otherwise
provided in paragraph (f)(1) of this
section, for any publicly reportable
swap transaction that falls within the
swap categories described in paragraph
(b)(1), (b)(2), (b)(4)(i), (b)(5)(i), or
(b)(5)(ii) of this section, the initial
appropriate minimum block size for
such publicly reportable swap
transaction shall be the appropriate
minimum block size that is in appendix
F of this part.
(2) Certain swaps in the foreign
exchange and other commodity asset
classes. All swaps or instruments in the
swap categories described in paragraphs
(b)(4)(ii) and (b)(5)(iii) of this section
shall be eligible to be treated as a block
trade or large notional off-facility swap,
as applicable.
(3) Exception. Publicly reportable
swap transactions described in
paragraph (b)(5)(i) of this section that
are economically related to a futures
contract in appendix B of this part shall
not qualify to be treated as block trades
or large notional off-facility swaps (as
applicable), if such futures contract is
not subject to a designated contract
market’s block trading rules.
(g) Post-initial process to determine
appropriate minimum block sizes—(1)
Post-initial period. The Commission
shall establish, by swap categories, the
appropriate minimum block sizes as
described in paragraphs (g)(2) through
(6) of this section. No less than once
each calendar year thereafter, the
Commission shall update the postinitial appropriate minimum block
sizes.
(2) Post-initial appropriate minimum
block sizes for certain swaps. The
Commission shall determine post-initial
appropriate minimum block sizes for
the swap categories described in
paragraphs (c)(1)(i), (c)(2)(i) through
(xii), (c)(4)(i), and (c)(5)(i) of this section
by utilizing a one-year window of swap
transaction and pricing data
corresponding to each relevant swap
category reviewed no less than once
each calendar year, and by applying the
67-percent notional amount calculation
to such data. If the Commission is
unable to determine an appropriate
minimum block size for any swap
category described in paragraph (c)(1)(i)
of this section, the Commission shall
assign a block size of zero to such swap
category.
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(3) Certain swaps in the foreign
exchange asset class. The parties to a
swap in the foreign exchange asset class
described in paragraph (c)(4)(ii) of this
section may elect to receive block
treatment if the notional amount of
either currency in the exchange is
greater than the minimum block size for
a swap in the foreign exchange asset
class between the respective currency,
in the same amount, and U.S. dollars
described in paragraph (c)(4)(i) of this
section.
(4) All swaps or instruments in the
swap category described in paragraphs
(c)(1)(ii), (c)(2)(xiii), (c)(4)(iii), and
(c)(5)(ii) of this section shall have a
block size of zero and be eligible to be
treated as a block trade or large notional
off-facility swap, as applicable.
(5) Commission publication of postinitial appropriate minimum block
sizes. The Commission shall publish the
appropriate minimum block sizes
determined pursuant to paragraph (g)(1)
of this section on its website at https://
www.cftc.gov.
(6) Effective date of post-initial
appropriate minimum block sizes.
Unless otherwise indicated on the
Commission’s website, the post-initial
appropriate minimum block sizes
described in paragraph (g)(1) of this
section shall be effective on the first day
of the second month following the date
of publication.
(h) Required notification—(1) Block
trades entered into on a trading system
or platform, that is not an order book as
defined in § 37.3(a)(3) of a swap
execution facility, or pursuant to the
rules of a swap execution facility or
designated contract market. (i) If the
parties make such an election, the
reporting counterparty shall notify the
swap execution facility or designated
contract market, as applicable, of the
parties’ election. The parties to a
publicly reportable swap transaction
may elect to have a publicly reportable
swap transaction treated as a block trade
if such swap:
(A) Is executed on the trading system
or platform, that is not an order book as
defined in § 37.3(a)(3) of this chapter of
a swap execution facility, or pursuant to
the rules of a swap execution facility or
designated contract market; and
(B) That has a notional amount at or
above the appropriate minimum block
size.
(ii) The swap execution facility or
designated contract market, as
applicable, shall notify the swap data
repository of such a block trade election
when reporting the swap transaction
and pricing data to such swap data
repository in accordance with this part.
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(iii) The swap execution facility or
designated contract market, as
applicable, shall not disclose swap
transaction and pricing data relating to
a block trade subject to the block trade
election prior to the expiration of the
applicable delay set forth in § 43.5(d).
(2) Large notional off-facility swap
election. The parties to a publicly
reportable swap transaction that is an
off-facility swap and that has a notional
amount at or above the appropriate
minimum block size may elect to have
the publicly reportable swap transaction
treated as a large notional off-facility
swap. If the parties make such an
election, the reporting counterparty for
such publicly reportable swap
transaction shall notify the applicable
swap data repository of the reporting
counterparty’s election when reporting
the swap transaction and pricing data in
accordance with this part.
(i) Special provisions relating to
appropriate minimum block sizes and
cap sizes. The following special rules
shall apply to the determination of
appropriate minimum block sizes and
cap sizes—
(1) Swaps with optionality. The
notional amount of a swap with
optionality shall equal the notional
amount of the component of the swap
that does not include the option
component.
(2) Swaps with composite reference
prices. The parties to a swap transaction
with composite reference prices may
elect to apply the lowest appropriate
minimum block size or cap size
applicable to one component reference
price’s swap category of such publicly
reportable swap transaction.
(3) Notional amounts for physical
commodity swaps. Unless otherwise
specified in this part, the notional
amount for a physical commodity swap
shall be based on the notional unit
measure utilized in the related futures
contract or the predominant notional
unit measure used to determine notional
quantities in the cash market for the
relevant, underlying physical
commodity.
(4) Currency conversion. Unless
otherwise specified in this part, when
the appropriate minimum block size or
cap size for a publicly reportable swap
transaction is denominated in a
currency other than U.S. dollars, parties
to a swap and registered entities may
use a currency exchange rate that is
widely published within the preceding
two business days from the date of
execution of the swap transaction in
order to determine such qualification.
(5) Successor currencies. For
currencies that succeed a super-major
currency, the appropriate currency
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classification for such currency shall be
based on the corresponding nominal
gross domestic product classification (in
U.S. dollars) as determined in the most
recent World Bank, World Development
Indicator at the time of succession. If the
gross domestic product of the country or
nation utilizing the successor currency
is:
(i) Greater than $2 trillion, then the
successor currency shall be included
among the super-major currencies;
(ii) Greater than $500 billion but less
than $2 trillion, then the successor
currency shall be included among the
major currencies; or
(iii) Less than $500 billion, then the
successor currency shall be included
among the non-major currencies.
(6) Aggregation. The aggregation of
orders for different accounts in order to
satisfy the minimum block trade size or
the cap size requirement is permitted for
publicly reportable swap transactions
only if each of the following conditions
is satisfied:
(i) The aggregation of orders is done
by a person who:
(A) Is a commodity trading advisor
registered pursuant to section 4n of the
Act, or exempt from such registration
under the Act, or a principal thereof,
and who has discretionary trading
authority or directs client accounts;
(B) Is an investment adviser who has
discretionary trading authority or
directs client accounts and satisfies the
criteria of § 4.7(a)(2)(v) of this chapter;
or
(C) Is a foreign person who performs
a similar role or function as the persons
described in paragraph (i)(6)(i)(A) or (B)
of this section and is subject as such to
foreign regulation;
(ii) The aggregated transaction is
reported pursuant to this part and part
45 of this chapter as a block trade or
large notional off-facility swap, as
applicable, subject to the cap size
thresholds;
(iii) The aggregated orders are
executed as one swap transaction; and
(iv) Aggregation occurs on a
designated contract market or swap
execution facility if the swap is listed
for trading by a designated contract
market or swap execution facility.
(j) Eligible block trade parties. (1)
Parties to a block trade shall be ‘‘eligible
contract participants,’’ as defined in
section 1a(18) of the Act and 17 CFR
chapter I. However, a designated
contract market may allow:
(i) A commodity trading advisor
registered pursuant to section 4n of the
Act, or exempt from registration under
the Act, or a principal thereof, and who
has discretionary trading authority or
directs client accounts,
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in the power of attorney or similar
document by which the customer
provides the person with discretionary
trading authority or the authority to
direct the trading in its account.
7. Amend § 43.7 by revising
paragraphs (a)(1) through (3) and adding
paragraph (a)(4) to read as follows:
■
§ 43.7
Delegation of authority.
(a) * * *
(1) To publish the technical
specification providing the form and
manner for reporting and publicly
disseminating the swap transaction and
pricing data elements in appendix A of
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this part as described in §§ 43.3(d)(1)
and 43.4(a);
(2) To determine cap sizes as
described in § 43.4(g) and (h);
(3) To determine whether swaps fall
within specific swap categories as
described in § 43.6(b) and (c); and
(4) To determine and publish postinitial appropriate minimum block sizes
as described in § 43.6(g).
*
*
*
*
*
■ 8. Revise appendix A to part 43 to
read as follows:
Appendix A to Part 43—Swap
Transaction and Pricing Data Elements
BILLING CODE 6351–01–P
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(ii) An investment adviser who has
discretionary trading authority or
directs client accounts and satisfies the
criteria of § 4.7(a)(2)(v) of this chapter,
or
(iii) A foreign person who performs a
similar role or function as the persons
described in paragraph (j)(1)(i) or (ii) of
this section and is subject as such to
foreign regulation, to transact block
trades for customers who are not eligible
contract participants.
(2) A person transacting a block trade
on behalf of a customer shall receive
prior written instruction or consent
from the customer to do so. Such
instruction or consent may be provided
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Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations
BILLING CODE 6351–01–C
9. Revise appendix C to part 43 to read
as follows:
■
Table C1. Block Trades Executed on or
Pursuant to the Rules of a Swap Execution
Facility or Designated Contract Market
(Illustrating § 43.5(d))
Appendix C to Part 43—Time Delays
for Public Dissemination
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Time delay for public dissemination
15 minutes.
Time delay for public dissemination
15 minutes.
Table C2. Large Notional Off-Facility Swaps
Subject to the Mandatory Clearing
Requirement With at Least One Swap Dealer
or Major Swap Participant Counterparty
(Illustrating § 43.5(e)(2))
Table C2 excludes off-facility swaps that
are excepted from the mandatory clearing
requirement pursuant to Section 2(h)(7) of
the Act and Commission regulations and
those off-facility swaps that are required to be
cleared under Section 2(h)(2) of the Act and
Commission regulations but are not cleared.
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Table C3. Large Notional Off-Facility Swaps
Subject to the Mandatory Clearing
Requirement in Which Neither Counterparty
Is a Swap Dealer or Major Swap Participant
(Illustrating § 43.5(e)(3))
Table C3 excludes off-facility swaps that
are excepted from the mandatory clearing
requirement pursuant to Section 2(h)(7) of
the Act and Commission regulations and
those swaps that are required to be cleared
under Section 2(h)(2) of the Act and
Commission regulations but are not cleared.
ALL ASSET CLASSES
Time delay for public dissemination
1 hour.
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18:27 Nov 24, 2020
ALL ASSET CLASSES
ALL ASSET CLASSES
The tables below provide clarification of
the time delays for public dissemination set
forth in § 43.5. The first row of each table
describes the asset classes to which each
chart applies. The column entitled ‘‘Time
Delay for Public Dissemination’’ indicates the
precise length of time delay, starting upon
execution, for the public dissemination of
such swap transaction and pricing data by a
swap data repository.
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Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations
Table C4. Large Notional Off-Facility Swaps
Not Subject to the Mandatory Clearing
Requirement With at Least One Swap Dealer
or Major Swap Participant Counterparty
(Illustrating § 43.5(f))
Table C4 includes large notional off-facility
swaps that are not subject to the mandatory
clearing requirement or are exempt from such
mandatory clearing requirement pursuant to
Section 2(h)(7) of the Act and Commission
regulations.
INTEREST RATES, CREDIT, FOREIGN
EXCHANGE, EQUITY ASSET CLASSES
11. Revise appendix E to part 43 to
read as follows:
■
Time delay for public dissemination
30 minutes.
Table C5. Large Notional Off-Facility Swaps
Not Subject to the Mandatory Clearing
Requirement With at Least One Swap Dealer
or Major Swap Participant Counterparty
(Illustrating § 43.5(g))
Table C5 includes large notional off-facility
swaps that are not subject to the mandatory
clearing requirement or are excepted from
such mandatory clearing requirement
pursuant to Section 2(h)(7) of the Act and
Commission regulations.
OTHER COMMODITY ASSET CLASS
Time delay for public dissemination
2 hours.
Table C6. Large Notional Off-Facility Swaps
Not Subject to the Mandatory Clearing
Requirement in Which Neither Counterparty
Is a Swap Dealer or Major Swap Participant
(Illustrating § 43.5(h))
Table C6 includes large notional off-facility
swaps that are not subject to the mandatory
clearing requirement or are exempt from such
mandatory clearing requirement pursuant to
Section 2(h)(7) of the Act and Commission
regulations.
ALL ASSET CLASSES
Time delay for public dissemination
24 business hours.
10. Revise appendix D to part 43 to
read as follows:
■
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Appendix D to Part 43—Other
Commodity Swap Categories
Commodity: Metals
Aluminum
Copper
Gold
Lead
Nickel
Silver
Virtual
Zinc
Commodity: Energy
Electricity
Fuel Oil
Gasoline—RBOB
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Heating Oil
Natural Gas
Oil
Commodity: Agricultural
Corn
Soybean
Coffee
Wheat
Cocoa
Sugar
Cotton
Soymeal
Soybean oil
Cattle
Hogs
Appendix E to Part 43—Other
Commodity Geographic Identification
for Public Dissemination Pursuant to
§ 43.4(c)(4)(iii)
Swap data repositories are required by
§ 43.4(c)(4)(iii) to publicly disseminate any
specific delivery point or pricing point
associated with publicly reportable swap
transactions in the ‘‘other commodity’’ asset
class pursuant to Tables E1 and E2 in this
appendix. If the underlying asset of a
publicly reportable swap transaction
described in § 43.4(c)(4)(iii) has a delivery or
pricing point that is located in the United
States, such information shall be publicly
disseminated pursuant to the regions
described in Table E1 in this appendix. If the
underlying asset of a publicly reportable
swap transaction described in § 43.4(c)(4)(iii)
has a delivery or pricing point that is not
located in the United States, such
information shall be publicly disseminated
pursuant to the countries or sub-regions, or
if no country or sub-region, by the other
commodity region, described in Table E2 in
this appendix.
Table E1. U.S. Delivery or Pricing Points
Other Commodity Group
Region
Natural Gas and Related Products
Midwest
Northeast
Gulf
Southeast
Western
Other—U.S.
Petroleum and Products
New England (PADD 1A)
Central Atlantic (PADD 1B)
Lower Atlantic (PADD 1C)
Midwest (PADD 2)
Gulf Coast (PADD 3)
Rocky Mountains (PADD 4)
West Coast (PADD 5)
Other—U.S.
Electricity and Sources
Florida Reliability Coordinating Council
(FRCC)
Midwest Reliability Organization (MRO)
Northeast Power Coordinating Council
(NPCC)
Reliability First Corporation (RFC)
SERC Reliability Corporation (SERC)
Southwest Power Pool, RE (SPP)
Texas Regional Entity (TRE)
Western Electricity Coordinating Council
(WECC)
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Other—U.S.
All Remaining Other Commodities (Publicly
disseminate the region. If pricing or
delivery point is not region-specific,
indicate ‘‘U.S.’’)
Region 1—(Includes Connecticut, Maine,
Massachusetts, New Hampshire, Rhode
Island, Vermont)
Region 2—(Includes New Jersey, New
York)
Region 3—(Includes Delaware, District of
Columbia, Maryland, Pennsylvania,
Virginia, West Virginia)
Region 4—(Includes Alabama, Florida,
Georgia, Kentucky, Mississippi, North
Carolina, South Carolina, Tennessee)
Region 5—(Includes Illinois, Indiana,
Michigan, Minnesota, Ohio, Wisconsin)
Region 6—(Includes Arkansas, Louisiana,
New Mexico, Oklahoma, Texas)
Region 7—(Includes Iowa, Kansas,
Missouri, Nebraska)
Region 8—(Includes Colorado, Montana,
North Dakota, South Dakota, Utah,
Wyoming)
Region 9—(Includes Arizona, California,
Hawaii, Nevada)
Region 10—(Includes Alaska, Idaho,
Oregon, Washington)
Table E2. Non-U.S. Delivery or Pricing Points
Other Commodity Regions
Country or Sub-Region
North America (Other than U.S.)
Canada
Mexico
Central America
South America
Brazil
Other South America
Europe
Western Europe
Northern Europe
Southern Europe
Eastern Europe (excluding Russia)
Russia
Africa
Northern Africa
Western Africa
Eastern Africa
Central Africa
Southern Africa
Asia-Pacific
Northern Asia (excluding Russia)
Central Asia
Eastern Asia
Western Asia
Southeast Asia
Australia/New Zealand/Pacific Islands
Issued in Washington, DC, on September
24, by the Commission.
Robert Sidman,
Deputy Secretary of the Commission.
Note: The following appendices will not
appear in the Code of Federal Regulations.
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Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations
Appendices to Real-Time Public
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
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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
1 Statement of Chairman Heath P. Tarbert in
Support of Proposed Rules on Swap Data Reporting
(Feb. 20, 2020), https://www.cftc.gov/PressRoom/
SpeechesTestimony/tabertstatement022020
(hereinafter, Tarbert, Proposal Statement).
2 See Heath P. Tarbert, Volatility Ain’t What it
Used to Be, Wall Street Journal (Mar. 23, 2020),
https://www.wsj.com/articles/volatility-aint-what-itused-to-be-11585004897?mod=searchresults&page=
1&pos=1 (hereinafter Tarbert, Volatility).
3 Id.
4 The final rule’s definition of ‘‘block trade’’ is
provided in regulation 43.2.
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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
5 See CFTC Core Values, https://www.cftc.gov/
About/Mission/index.htm.
6 Aesop, ‘‘The Dog and the Shadow,’’ The
Harvard Classics, https://www.bartleby.com/17/1/
3.html.
7 ABC News, One-on-One with Bills Gates (Feb.
21, 2008), https://abcnews.go.com/WNT/
CEOProfiles/story?id=506354&page=1.
8 See CFTC Strategic Plan 2020–2024, at 4
(discussing Strategic Goal 3), https://www.cftc.gov/
media/3871/CFTC2020_2024StrategicPlan/
download.
9 Tarbert, Proposal Statement, supra note 1.
10 See CFTC Vision Statement, available at
https://www.cftc.gov/About/AboutTheCommission#
:∼:text=CFTC%20Vision%20Statement,standard
%20for%20sound%20derivatives%20regulation.
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75497
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
11 See CFTC, Technical Specification Document,
https://www.cftc.gov/media/3496/DMO_Part43_
45TechnicalSpecification022020/download.
12 Since November 2014, the CFTC and regulators
in other jurisdictions have collaborated 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’’). The Harmonisation Group developed
global guidance for key OTC derivatives data
elements, including the Unique Transaction
Identifier, the Unique Product Identifier, and
critical data elements other than UTI and UPI.
13 See CFTC Strategic Plan, supra note 7, at 5.
14 Tarbert, Proposal Statement, supra note 1, note
2.
15 Hon. Louis D. Brandeis, Other People’s Money
62 (National Home Library Foundation ed. 1933).
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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.
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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 postpriced 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
19 Tarbert,
16 Tarbert,
Proposal Statement, supra note 1.
17 Tarbert, Proposal Statement, supra note 1, note
14.
18 Id.
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Proposal Statement, supra note 1.
Strategic Plan, supra note 7, at 7.
21 Tarbert, Proposal Statement, supra note 1.
22 Id.
23 See Tarbert, Proposal Statement, supra note 1.
20 CFTC
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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
24 See
id.
CFTC Vision Statement, https://
www.cftc.gov/About/AboutTheCommission#
:∼:text=CFTC%20Vision%
20Statement,standard%20for%
20sound%20derivatives%20regulation.
26 The CFTC also co-chaired the Financial
Stability Board’s working group on UTI and UPI
governance.
27 Limiting error correction to open swaps—
versus all swaps that a reporting counterparty may
have entered into at any point in time—is also a
sensible approach to addressing risk in the markets.
The final Part 49 rule limits error correction to
errors discovered prior to the expiration of the fiveyear recordkeeping period in regulation 45.2,
ensuring that market participants are not tasked
with addressing old or closed transactions that pose
no active risk.
25 See
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they are not working at all.28 While swaps are
often the purview of large financial
institutions, they also provide critical riskmanagement 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 enduser 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
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The Commodity Exchange Act (CEA)
specifically directs the Commission to ensure
that real-time public reporting requirements
for swap transactions (i) do not identify the
participants; (ii) specify the criteria for what
constitutes a block trade and the appropriate
time delay for reporting such block trades,
and (iii) take into account whether public
disclosure will materially reduce market
liquidity.1 The Commission has long
recognized the intrinsic tension between the
policy goals of enhanced transparency versus
market liquidity. In fact, in 2013, the
Commission noted that the optimal point in
this interplay between enhanced swap
transaction transparency and the potential
that, in certain circumstances, this enhanced
transparency could reduce market liquidity
‘‘defies precision.’’ 2 I agree with the
Commission that the ideal balance between
transparency and liquidity is difficult to
ascertain and necessarily requires not only
robust data but also the exercise of reasoned
judgement, particularly in the swaps
marketplace with a finite number of
institutional investors trading hundreds of
thousands of products, often by appointment.
Unfortunately, I fear the balance struck in
this rule misses that mark. The final rule
before us today clearly favors transparency
over market liquidity, with the sacrifice of
the latter being particularly more acute given
the nature of the swaps market. In this final
rule, the Commission asserts that the
increased transparency resulting from higher
block trade thresholds and cap sizes will lead
to increased competition, stimulate more
trading, and enhance liquidity and pricing.
28 Opening Statement of Chairman Heath P.
Tarbert Before the April 22 Agricultural Advisory
Committee Meeting (April 22, 2020), https://
www.cftc.gov/PressRoom/SpeechesTestimony/
tarbertstatement042220.
29 CFTC Strategic Plan, supra note 7, at 6.
1 CEA Section 2(a)(13)(E).
2 Procedures to Establish Appropriate Minimum
Block Sizes for Large Notional Off-Facility Swaps
and Block Trades, 78 FR 32866, 32917 (May 31,
2013).
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That is wishful thinking, which is no basis
upon which to predicate a final rule. As
numerous commenters pointed out, this
increased transparency comes directly at the
expense of market liquidity, competitive
pricing for end-users, and the ability of
dealers to efficiently hedge their large swap
transactions. While the Commission hopes
the 67% block calculation will bring about
the ample benefits it cites, I think the exact
opposite is the most probable outcome. I
remain unconvinced that the move from the
50% notional amount calculation for block
sizes to the 67% notional amount calculation
is necessary or appropriate. Unfortunately,
the decision to retain the 67% calculation,
which was adopted in 2013 but never
implemented, was not seriously reconsidered
in this rule.
Instead, in the final rule, the Commission
asserts that it ‘‘extensively analyzed the costs
and benefits of the 50-percent threshold and
67-percent threshold when it adopted the
phased-in approach’’ in 2013. Respectfully, I
believe that statement drastically inflates the
Commission’s prior analysis. I have no doubt
the Commission ‘‘analyzed’’ the costs and
benefits in 2013 to the best of its ability.
However, the reality is that in 2013, as the
Commission acknowledged in its own costbenefit analysis, ‘‘in a number of instances,
the Commission lacks the data and
information required to precisely estimate
costs, owing to the fact that these markets do
not yet exist or are not yet fully developed.’’ 3
In 2013, the Commission was just standing
up its SEF trading regime, had not yet
implemented its trade execution mandate,
and had adopted interim time delays for all
swaps—meaning that, in 2013 when it first
adopted this proposal, no swap transaction
data was publicly disseminated in real time.
Seven years later, the Commission has a
robust, competitive SEF trading framework
and a successful real-time reporting regime
that results in 87% of IRS trades and 82% of
CDS trades being reported in real time. In
light of the sea change that has occurred
since 2013, I believe the Commission should
have undertaken a comprehensive review of
whether the transition to a 67% block trade
threshold was appropriate.
In my opinion, the fact that currently 87%
of IRS and 82% of CDS trades are reported
in real time is evidence that the transparency
policy goals underlying the real-time
reporting requirements have already been
achieved. In 2013, the Commission, quoting
directly from the Congressional Record,
noted that when it considered the benefits
and effects of enhanced market transparency,
the ‘‘guiding principle in setting appropriate
block trade levels [is that] the vast majority
of swap transactions should be exposed to
the public market through exchange
trading.’’ 4 The current block sizes have
resulted in exactly that—the vast majority of
trades being reported in real time. The final
rule, acknowledging these impressively high
percentages, nevertheless concludes that
because less than half of total IRS and CDS
3 Id.
4 Id. at 32870 n.41 (quoting from the
Congressional Record—Senate, S5902, S5922 (July
15, 2010) (emphasis added)).
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notional amounts is reported in real time,
additional trades should be forced into realtime reporting. I reach the exact opposite
conclusion. By my logic, the 13% of IRS and
18% of CDS trades that currently receive a
time delay represent roughly half of notional
for those asset classes. In other words, these
trades are huge. In my view, these trades are
exactly the type of outsized transactions that
Congress appropriately decided should
receive a delay from real-time reporting.
Despite my reservations, I am voting for the
real-time reporting rule before the
Commission today for several reasons. First,
I worked hard to ensure that this final rule
contains many significant improvements
from the initial draft we were first presented,
as well as the original proposal which I
supported. For example, in order to make
sure the CDS swap categories are
representative, the Commission established
additional categories for CDS with
optionality. In addition, the Commission is
also providing guidance that certain riskreduction exercises, which are not arm’s
length transactions, are not publicly
reportable swap transactions, and therefore
should be excluded from the block size
calculations.
Second, while most of the changes to the
part 43 rules will have a compliance period
of 18 months, compliance with the new block
and cap sizes will not be not be required
until one year later, providing market
participants with a 30-month compliance
period and the Commission with an extra 12
months to revisit this issue with actual data
analysis, as good government and wellreasoned public policy demands. This means
that when any final block and cap sizes go
into effect for the amended swap categories,
it will be with the benefit of cleaner, more
precise data resulting from our part 43 final
rule improvements adopted today. It is my
firm expectation that DMO staff will review
the revised block trade sizes, in light of the
new data, at that time to ensure they are
appropriately calibrated for each swap
category. In addition, as required by the rule,
DMO will publish the revised block trade
and cap sizes the month before they go
effective. I am hopeful that with the benefit
of time, cleaner data and public comment,
the Commission can, if necessary, re-calibrate
the minimum block sizes to ensure they
strike the appropriate balance built into our
statute between the liquidity needs of the
market and transparency. To the extent
market participants also have concerns about
maintaining the current time delays for block
trades given the move to the 67% calculation,
I encourage them to reach out to DMO and
my fellow Commissioners during the
intervening 30-month window. That time
frame is more than enough to further refine
the reporting delays, as necessary, for the
new swap categories based on sound data.
Appendix 4—Concurring Statement of
Commissioner Rostin Behnam
I respectfully concur in the Commission’s
amendments to its regulations regarding realtime 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,
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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.5
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.6 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.7
In the aftermath of the financial crisis,
Congress enacted the Dodd-Frank Wall Street
Reform and Consumer Protection Act in 2010
(Dodd-Frank Act).8 The Dodd-Frank Act
largely incorporated the international
financial reform initiatives for over-thecounter derivatives laid out at the 2009 G20
Pittsburgh Summit, which sought to improve
transparency, mitigate systemic risk, and
protect against market abuse.9 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 overthe-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.’’ 10 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.’’ 11
As we amend these rules, I think it is
important that we keep in mind the DoddFrank Act’s emphasis on transparency, and
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5 Roadmap
to Achieve High Quality Swap Data,
available at https://www.cftc.gov/idc/groups/public/
@newsroom/documents/file/dmo_
swapdataplan071017.pdf.
6 See Commodity Futures Modernization Act of
2000, Public Law 106–554, 114 Stat. 2763 (2000).
7 See The Financial Crisis Inquiry Commission,
The Financial Crisis Inquiry Report: Final Report of
the National Commission on the Causes of the
Financial and Economic Crisis in the United States
(Official Government Edition), at 299, 352, 363–364,
386, 621 n. 56 (2011), available at https://
www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPOFCIC.pdf.
8 See Dodd-Frank Wall Street Reform and
Consumer Protection Act, Public Law 111–203, 124
Stat. 1376 (2010).
9 G20, Leaders’ Statement, The Pittsburgh Summit
(Sept. 24–25, 2009) at 9, available at https://
www.treasury.gov/resource-center/international/g7g20/Documents/pittsburgh_summit_leaders_
statement_250909.pdf.
10 7 U.S.C. 2(a)(13)(A).
11 Id.
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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.’’ 12 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.’’ 13 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
12 7
13 7
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U.S.C. 2(a)(13)(C)(ii–iv).
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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) 14 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.15 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 Dawn D. Stump
I have often referenced the need for a
review of policies as per the wishes of the G–
20 Leaders’ Statement from the Pittsburgh
14 7
U.S.C. 24a(c)(2).
staff has identified the lack of
these fields as limiting constraints on the usefulness
of SDR data to identify which swaps should be
counted towards a person’s de minimis threshold,
and the ability to precisely assess the current de
minimis threshold or the impact of potential
changes to current exclusions. See De Minimis
Exception to the Swap Dealer Definition, 83 FR
27444, 27449 (proposed June 12, 2018); Swap
Dealer De Minimis Exception Final Staff Report at
19 (Aug. 15, 2016); (Nov. 18, 2015), available at
https://www.cftc.gov/sites/default/files/idc/groups/
public/@swaps/documents/file/dfreport_
sddeminis081516.pdf; Swap Dealer De Minimis
Exception Preliminary Report at 15 (Nov. 18, 2015),
available at https://www.cftc.gov/sites/default/files/
idc/groups/public/@swaps/documents/file/
dfreport_sddeminis_1115.pdf.
15 Commission
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Summit in 2009, which included an
expectation that members would ‘‘assess
regularly implementation and whether it is
sufficient to improve transparency in the
derivatives markets, mitigate systemic risk,
and protect against market abuse.’’ 1 Today,
the Commission finds itself debating a
challenging issue with a robust history. In
order to properly assess whether we are
making the right choices, I prefer to consider
where we have come from. Luckily, the
history of prior Commissions’ deliberations
and transparency of regulatory rule-writing
efforts affords us such an opportunity for a
look back.
Prior to the Dodd-Frank Act 2 and
enactment of the CFTC’s swap data reporting
regulations, there was very limited, if any,
public transparency and price discovery in
swaps markets. Today, under the initial
calculation applied for block sizes,
Commission staff states that 87% of interest
rate swap transactions and 82% of credit
derivative swap transactions are reported in
real time.
The Commission previously decided 3 that
an initial calculation (50-percent threshold
notional) was appropriate to determine block
sizes, and that it would be followed by
implementation of a higher block size
threshold (67-percent threshold notional)
when one year of reliable data from SDRs
was available. That Commission was in the
unenviable position of making policy
determinations without the benefit of the
relevant market structures being operational.
The original block calculation and the
associated sizes were determined before both
the trading venues where swaps transact
(Swap Execution Facilities, or SEFs) and the
data warehouses that collect swaps market
information reported to the Commission
(Swap Data Repositories, or SDRs) were fully
operational.
In the Dodd-Frank Act, Congress amended
the Commodity Exchange Act (CEA) to
require the Commission to ‘‘take into account
whether the public disclosure will materially
reduce market liquidity.’’ 4 Whether the
Commission did (or was able to) make such
an assessment in 2013, when it finalized the
original process and treatment for block
transactions, is debatable. I cannot say for
certain whether the original calculation was
appropriate. It was based on limited available
data, such as public data that was not
applicable to our jurisdictional swaps
markets. It was constructed well before the
regulations it impacted, the SEF trading
mandate. And the data that it should have
relied on, from SDRs, was not available,
much less reliable. The Commission based its
determination of block size, and the resulting
SEF execution methods, on a calculation
1 See Leaders’ Statement from the 2009 G–20
Summit in Pittsburgh, Pa. at 9 (Sept. 24–25, 2009),
available at https://www.treasury.gov/resourcecenter/international/g7-g20/Documents/pittsburgh_
summit_leaders_s statement_250909.pdf.
2 Public Law 111–203, 124 Stat. 1376 (2010).
3 Procedures to Establish Appropriate Minimum
Block Sizes for Large Notional Off-Facility Swaps
and Block Trades, 78 FR 32866 (May 31, 2013).
4 CEA Section 2(a)(13)(E)(iv), 7 U.S.C.
2(a)(13)(E)(iv).
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contrived without the benefit of data from
SEFs or SDRs.
Despite many years of experience with
SEFs and SDRs since then, the Commission
is today choosing to continue down the
previously determined path of raising block
sizes instead of leveraging data. Commenters,
including entities responsible for providing
liquidity and entities utilizing swaps to
perform risk management, expressed
concerns that increasing the block size
thresholds would negatively impact the
swaps market and raise costs for end users.
Yet, we are moving forward to further limit
the number of transactions that can receive
block treatment under real time reporting,
and the resulting allowable methods of
execution if a swap is included in the SEF
mandate. That is, we are raising the threshold
largely because a previous Commission
decided to do so many years ago.
Though I may not be happy that this
Commission is left to grapple with an
arbitrary metric set by a former Commission
in 2013, even that Commission recognized
the importance of considering data before
proceeding. The original block rules spoke of
the Commission updating the threshold once
it had one year’s worth of reliable data. No
Commission has ever updated the calculation
to adopt higher block sizes, and one would
reasonably expect this is due to a lack of
reliable data. Today, the Commission is
rectifying data reliability challenges by
adopting a robust set of rule amendments to
improve the quality of swap data reporting,
but chooses not to re-assess the block size
thresholds with the improved data that will
result from those new rules. Perhaps that
data will show that we have gone too low or
too high in setting the thresholds. I would
prefer not to predetermine the outcome until
we can ascertain and evaluate the improved
data.
The Commission proposed an updated list
of categories and refreshed block sizes in
February 2020. In the interim period,
changes, some that I hope will yield positive
results, have been made to affect the
categories, calculations, and, as a result, the
actual block sizes. However, the lack of
transparency concerns me. I believe in this
case, it would benefit the Commission to hear
from market participants as to their views on
the changes to all of these parameters.
I believe that the driving force behind the
substantial rewrite of the swap data reporting
rule set we are adopting today is that the
Commission is not confident in the quality of
SDR data, and that an overhaul is needed to
provide the CFTC with complete and
accurate information for data-driven policy
decision making. I feel strongly that the vast
majority of the rule amendments before the
Commission today will improve the quality
of the data reported to SDRs and available for
our analysis. I am encouraged that after the
18-month compliance date, staff will be able
to better review reliable data and inform the
Commission of their analysis as it pertains to
block size. I believe the more prudent course
of action would be to finalize the remainder
of the rules before us today, but set aside any
Commission action on block size, thereby
preserving current block sizes until the
Commission and the public can consider
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these issues in light of the improved
reporting rules and with the new, more
reliable data that will result from those rules.
The Commission should incorporate
reliable swaps data and what it has learned
since the inception of SEFs to make a more
fully informed decision on this very
meaningful metric. The numbers established
in 2013 were arbitrary, and eight years later
a different Commission is now faced with
reconciling that, still without the availability
of reliable data. I believe it is equally unfair
to leave another Commission, 30 months
from now, with the same predicament. We
should not be finalizing a rule to transition
to the higher block size calculation today
while dictating that other Commissioners
implement our decision or have to deal with
the consequences of our decision making that
is based on contemporary, unreliable data.
It is unclear what, if any, Commission or
staff analysis might transpire between the
effective date of the swap data reporting rules
(18 months) and the block size threshold
compliance date (30 months). I intend to
ensure that any input received will be taken
seriously, notwithstanding its retrospective
nature and the fact that it is well beyond
many of our terms of office. I wish for the
Commission to soon hold a formal forum to
receive input from affected market
participants, especially end users in these
markets, such as those who manage teacher
retirement and college savings plans for
millions of Americans. It is that input, and
reliable data reported pursuant to the
enhanced reporting rules we are adopting
today, on which the Commission’s block
determinations should be based.
Appendix 6—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 realtime public reporting of swap transactions
1 See
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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-byswap 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 realtime 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.
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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
2 Dodd-Frank Wall Street Reform and Consumer
Protection Act, section 727, Public Law 111–203,
124 Stat. 1376 (2010) (the ‘‘Dodd-Frank Act’’),
available at https://www.gpo.gov/fdsys/pkg/PLAW111publ203/pdf/PLAW-111publ203.pdf.
3 Swap Data Recordkeeping and Reporting
Requirements, 77 FR 2136 (Jan. 13, 2012); and Swap
Data Repositories: Registration Standards, Duties
and Core Principles, 76 FR 54538 (Sept. 1, 2011).
4 CEA section 2(13)(B) (emphasis added).
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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 repropose the part 43 amendments for
additional public comments.
I do not believe it would be appropriate for
the Commission to withhold the issuance of
PO 00000
Frm 00082
Fmt 4701
Sfmt 4700
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
E:\FR\FM\25NOR2.SGM
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Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations
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 nonU.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.
jbell on DSKJLSW7X2PROD with RULES2
Part 45 (Swap Data Reporting), Part 46 (PreEnactment 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
5 In my dissenting statement on the Commission’s
recent revisions to it cross-border regulations, I
detailed a number of concerns with how those
revisions could provide legal avenues for U.S. swap
dealers to migrate swap trading activity currently
subject to CFTC trade execution requirements to
non-U.S. markets that would not be subject to those
CFTC requirements.
6 Swap creation data reports replace primary
economic terms (‘‘PET’’) and confirmation data
previously required in part 45. The final rules also
VerDate Sep<11>2014
18:27 Nov 24, 2020
Jkt 253001
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
eliminate optional ‘‘state data’’ reporting, which
resulted in extensive duplicative reports crowding
SDR databases, and often included no new
information.
7 The amended reporting deadlines are also
consistent with comparable swap data reporting
obligations under the Securities and Exchange
Commission’s and European Securities and Markets
Authority’s rules.
PO 00000
Frm 00083
Fmt 4701
Sfmt 4700
75503
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.
[FR Doc. 2020–21568 Filed 11–24–20; 8:45 am]
BILLING CODE 6351–01–P
COMMODITY FUTURES TRADING
COMMISSION
17 CFR Parts 45, 46, and 49
RIN 3038–AE31
Swap Data Recordkeeping and
Reporting Requirements
Commodity Futures Trading
Commission.
ACTION: Final rule.
AGENCY:
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 nonreporting 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,
SUMMARY:
E:\FR\FM\25NOR2.SGM
25NOR2
]]>Agencies
[Federal Register Volume 85, Number 228 (Wednesday, November 25, 2020)]
[Rules and Regulations]
[Pages 75422-75503]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-21568]
[[Page 75421]]
Vol. 85
Wednesday,
No. 228
November 25, 2020
Part II
Commodity Futures Trading Commission
-----------------------------------------------------------------------
17 CFR Parts 43, 45, 46, et al.
Real-Time Public Reporting Requirements; Swap Data Recordkeeping and
Reporting Requirements; Certain Swap Data Repository and Data Reporting
Requirements; Final Rules
Federal Register / Vol. 85 , No. 228 / Wednesday, November 25, 2020 /
Rules and Regulations
[[Page 75422]]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 43
RIN 3038-AE60
Real-Time Public Reporting Requirements
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (``Commission'' or
``CFTC'') is amending certain regulations setting forth the real-time
public swap reporting and dissemination requirements for swap data
repositories (``SDRs''), derivatives clearing organizations (``DCOs''),
swap execution facilities (``SEFs''), designated contract markets
(``DCMs''), swap dealers (``SDs''), major swap participants (``MSPs''),
and swap counterparties that are neither SDs nor MSPs. The amendments,
among other things, address certain issues related to reporting post-
priced swaps (``PPS'') and disseminating swaps associated with prime
brokerage arrangements. In addition, the Commission is adopting
technical amendments to certain provisions in other parts of its
regulations.
DATES:
Effective date: The effective date for this final rule is January
25, 2021.
Compliance Date: SDRs, SEFs, DCMs, and reporting counterparties
must comply with the amendments to the rules by May 25, 2022; provided,
however, that SDRs, SEFs, DCMs, and reporting counterparties must
comply with the amendments to Sec. Sec. 43.4(h) and 43.6 of this final
rule by May 25, 2023.
FOR FURTHER INFORMATION CONTACT: Thomas Guerin, Special Counsel, (202)
734-4194, [email protected]; Matthew Jones, Special Counsel, (202) 418-
6710, [email protected]; David E. Aron, Special Counsel, (202) 418-6621,
[email protected]; Meghan Tente, Acting Deputy Director, (202) 418-5785,
[email protected], each in the Division of Market Oversight; John
Roberts, Senior Research Analyst, (202) 418-5943, [email protected],
Office of the Chief Economist; in each case at the Commodity Futures
Trading Commission, Three Lafayette Centre, 1155 21st Street NW,
Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Background
II. Amendments to Part 43
A. Sec. 43.1--Purpose, Scope, and Rules of Construction
B. Sec. 43.2--Definitions
C. Sec. 43.3--Method and Timing for Real-Time Public Reporting
D. Sec. 43.4--Swap Transaction and Pricing Data to be Publicly
Disseminated in Real-Time
E. Sec. 43.5--Time Delays for Public Dissemination of Swap
Transaction and Pricing Data
F. Sec. 43.6--Block Trades and Large Notional Off-Facility
Swaps
G. Sec. 43.7--Delegation of Authority
III. Swap Transaction and Pricing Data Reported to and Publicly
Disseminated by Swap Data Repositories
A. Swap Transaction and Pricing Data Elements
IV. Compliance Date
A. General
B. Changes to the Appropriate Minimum Block Sizes and Cap Sizes
V. Related Matters
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Cost-Benefit Considerations
D. Antitrust Considerations
I. Background
Section 2(a)(13) of the Commodity Exchange Act (``CEA'') authorizes
and requires the Commission to promulgate regulations for the real-time
public reporting of swap transaction and pricing data. Section
2(a)(13)(A) defines ``real-time public reporting'' as reporting data
relating to a swap transaction, including price and volume, as soon as
technologically practicable after the time at which the swap
transaction has been executed. Section 2(a)(13)(B) authorizes the
Commission to make swap transaction and pricing data available to the
public in such form and at such times as the Commission determines
appropriate to enhance price discovery.
Section 2(a)(13) also imposes statutory requirements on the
Commission. First, section 2(a)(13)(E) requires the Commission to
prescribe regulations specifying what constitutes large notional swap
transactions and the appropriate time delays for reporting such
transactions to the public. Second, sections 2(a)(13)(E)(i) and
2(a)(13)(C)(iii) of the CEA require the Commission to protect the
identities of counterparties and certain business transactions. Third,
section 2(a)(13)(E)(iv) directs the Commission, in promulgating
regulations under section 2(a)(13), to take into account whether public
disclosure of swap transaction and pricing data will ``materially
reduce market liquidity.''
Part 43 of the Commission's regulations implements real-time public
reporting requirements.\1\ Part 43 requires swap counterparties, SEFs,
and DCMs to report publicly reportable swap transactions to SDRs.\2\
Subject to certain exceptions, SDRs are required to publicly
disseminate this swap transaction and pricing data in real-time.\3\
---------------------------------------------------------------------------
\1\ Commission regulations referred to herein are found at 17
CFR chapter I.
\2\ Real-Time Public Reporting of Swap Transaction Data, 77 FR
1182 (Jan. 9, 2012) (``2012 Real-Time Public Reporting Final
Rule''); Procedures to Establish Appropriate Minimum Block Sizes for
Large Notional Off-Facility Swaps and Block Trades, 78 FR 32866 (May
31, 2013) (``Block Trade Rule''). 17 CFR 43.3(a)(1) through (3) and
(b)(1).
\3\ See id.; 17 CFR 43.4.
---------------------------------------------------------------------------
Following the adoption of part 43, Commission staff has worked with
SDRs, SEFs, DCMs, and reporting counterparties to address questions
regarding interpretation and implementation of the regulatory
requirements. Several years ago, the Division of Market Oversight
(``DMO'') also reviewed the Commission's swap reporting rules. After
completing that review, DMO announced \4\ its Roadmap to Achieve High
Quality Swaps Data (``Roadmap''),\5\ consisting of a comprehensive
review to, among other things: ``[(i)] Evaluate real-time reporting
regulations in light of goals of liquidity, transparency, and price
discovery in the swaps market [; and (ii)] Address ongoing issues of
reporting packages, prime brokerage, allocations, risk mitigation
services/compressions, [exchange for related futures positions], and
[PPSs] by clarifying obligations and identifying those distinct types
of transactions to increase the utility of the real-time public tape.''
\6\
---------------------------------------------------------------------------
\4\ See Commission Letter 17-33, DMO Announces Review of Swap
Reporting Rules in Parts 43, 45, and 49 of Commission Regulations
(July 10, 2017), available at https://www.cftc.gov/idc/groups/public/@lrlettergeneral/documents/letter/17-33.pdf.
\5\ The Roadmap is available at https://www.cftc.gov/sites/default/files/idc/groups/public/@newsroom/documents/file/dmo_swapdataplan071017.pdf. Comment letters are available at https://comments.cftc.gov/PublicComments/CommentList.aspx?id=1824.
\6\ Roadmap at 11.
---------------------------------------------------------------------------
In February 2020, the Commission proposed certain changes to part
43 (``Proposal'') \7\ addressing the method and timing of real-time
reporting and public dissemination generally and for specific types of
swaps--the delay and anonymization of the public dissemination of block
trades and large notional trades; the standardization and validation of
real-time reporting data elements; the delegation of specific authority
to Commission staff; and the clarification of specific real-time
reporting questions and common issues.
---------------------------------------------------------------------------
\7\ See Real-Time Public Reporting Requirements, 85 FR 21516
(Apr. 17, 2020).
---------------------------------------------------------------------------
The Commission received 33 comment letters regarding the
[[Page 75423]]
Proposal.\8\ After considering the comments, the Commission is adopting
portions of the rules as proposed; revising other portions of the
proposed rules and adopting such portions as revised; and declining to
adopt the remainder of the proposed changes. The Commission believes
the rules adopted herein will increase transparency and price discovery
in the swaps markets; provide clarity regarding obligations to report
and disseminate swap transaction and pricing data; and lead to a more
effective real-time reporting regime.
---------------------------------------------------------------------------
\8\ The following entities submitted comment letters: American
Council of Life Insurers (``ACLI''); Better Markets; Carnegie
Mellon; Chatham Financial; Chris Barnard; CHS Inc. and CHS Hedging
LLC (``CHS''); Citadel; Clarus Financial Technology (``Clarus'');
CME Group, Inc. (``CME''); Credit Suisse; Depository Trust &
Clearing Corporation (``DTCC''); The Futures Industry Association
(``FIA''); FIA Principal Traders Group (``FIA PTG''); Foreign
Exchange Professionals Association (``FXPA''); The Global Foreign
Exchange Division of the Global Financial Markets Association
(``GFMA''); Healthy Markets; ICE Clear Credit and ICE Clear Europe
(``ICE DCOs''); ICE Trade Vault (``ICE SDR''); IHS Markit
(``Markit''); International Swaps and Derivatives Association, Inc.
and the Securities Industry and Financial Markets Association
(``SIFMA'') (collectively, ``ISDA-SIFMA (Blocks)''); ISDA and SIFMA
(collectively, ``ISDA-SIFMA''); Investment Company Institute
(``ICI''); Larry Harris and Kumar Venkataraman (``SMU''); Managed
Funds Association (``MFA''); Massachusetts Institute of Technology
(``MIT''); The National Rural Electric Cooperative Association and
American Public Power Association (``NFP Electric Associations'');
Navitech; Pacific Investment Management Company LLC (``PIMCO''); The
Asset Management Group of the Securities Industry and Financial
Markets Association (``SIFMA AMG''); T. Rowe Price (``TRP''); and
Vanguard.
---------------------------------------------------------------------------
II. Amendments to Part 43
A. Sec. 43.1--Purpose, Scope, and Rules of Construction
The Commission is adopting non-substantive changes to Sec. 43.1.
The Commission is removing Sec. 43.1(b). Existing Sec. 43.1(b)(1),
titled ``Scope,'' states that part 43 applies to all swaps, as defined
in CEA section 1a(47),\9\ and lists certain categories of swaps as
examples. Existing Sec. 43.1(b)(2) states that part 43 applies to
registered entities and parties to a swap, and lists certain categories
of swap parties. The Commission believes Sec. 43.1(b) is superfluous.
The scope of part 43 coverage is clear from various CEA sections and
the operative provisions of part 43.
---------------------------------------------------------------------------
\9\ 7 U.S.C. 1a(47).
---------------------------------------------------------------------------
The Commission is also re-designating existing Sec. 43.1(c),
entitled ``Rules of construction,'' as Sec. 43.1(b). The first
sentence of existing Sec. 43.1(c) states that the examples in this
part and in appendix A to this part are not exclusive. The Commission
is deleting the reference to ``appendix A'' because the Commission is
removing examples from appendix A.\10\ The Commission is only removing
this reference in case there are other places within part 43 in which
market participants would rely on examples.
---------------------------------------------------------------------------
\10\ The Commission discusses the changes to appendix A in
section III below.
---------------------------------------------------------------------------
The Commission is also deleting Sec. 43.1(d), entitled
``Severability.'' Existing Sec. 43.1(d) provides that if any provision
of part 43, or the application thereof to any person or circumstance,
is held invalid, such invalidity shall not affect other provisions or
application of such provision to other persons or circumstances which
can be given effect without the invalid provision or application. In
the event a court invalidates one or more provisions of part 43, it is
unclear that the Commission would interpret all related remaining
provisions as continuing to be effective in the absence of the invalid
provision(s). The Commission wishes to maintain the flexibility to make
that determination at the time, and in light, of any such ruling.
The Commission received no comments on the changes to Sec. 43.1.
For the reasons discussed above, the Commission is adopting the changes
thereto as proposed.
B. Sec. 43.2--Definitions
The paragraph of existing Sec. 43.2 is not lettered. The
Commission is lettering the existing paragraph as ``(a)'' and adding
paragraph (b) to Sec. 43.2. Paragraph (a) will contain all of the
definitions in existing Sec. 43.2, as the Commission is modifying
them. New paragraph (b) will clarify the terms not defined in part 43
have the meanings assigned to those terms in Sec. 1.3 of the
Commission's regulations, which was implied before but was not
explicit.
The Commission is also adding new definitions, amending certain
existing definitions, and removing certain definitions. Within each of
these categories of definitions, the Commission discusses the changes
in alphabetical order, except as otherwise noted.
1. New Definitions
The Commission is adding a definition of ``execution date'' to
Sec. 43.2. As proposed, ``execution date'' refers to the date,
determined by reference to Eastern Time, on which swap execution
occurred. The Commission believes the term is necessary for the new
regulations for PPSs.\11\ GFMA comments the proposed definition of
``execution date'' is ``suitable'' and should align with the definition
proposed in the part 45 regulations, but does not need to align with
other definitions.\12\
---------------------------------------------------------------------------
\11\ The Commission discusses the regulations for PPSs in
section II.C.2.
\12\ GFMA at 4.
---------------------------------------------------------------------------
The Commission received three comments opposing the definition's
reference to Eastern Time. Chatham believes the Commission should use
coordinated universal time (``UTC'') instead of Eastern Time to avoid
reporting counterparties incurring time and expense converting systems
to track in Eastern Time.\13\ The NFP Electric Associations and CME
both believe ``execution date'' should not reference to a time and note
that the reference to eastern time is inconsistent with the execution
data elements in appendix A that reference UTC.\14\
---------------------------------------------------------------------------
\13\ Chatham at 1. Chatham requested if the Commission decides
on eastern time, the Commission should have SDRs convert UTC to
eastern time when submitting to the Commission.
\14\ NFP Electric Associations at 7; CME at 2.
---------------------------------------------------------------------------
The Commission appreciates commenters raising the reference to
Eastern Time is inconsistent with the appendix A data elements
regarding execution that use UTC. The Commission believes removing the
reference to time from the definition of ``execution date'' best
addresses the issue, as the reference to time is unnecessary with time
covered by the data elements \15\ that will continue to reference UTC.
As such, the new definition of ``execution data'' will mean the date of
execution of a particular swap.
---------------------------------------------------------------------------
\15\ The Commission discusses the data elements in appendix A in
section III below.
---------------------------------------------------------------------------
The Commission is adding a definition of ``post-priced swap'' to
Sec. 43.2. A ``post-priced swap'' will mean an off-facility swap for
which the price is not determined as of the time of execution. The
Commission discusses the new regulations for PPSs in section II.C.2.
The Commission is adding a definition of ``reporting counterparty''
to Sec. 43.3. This definition is the same as the existing definition
of ``reporting party'' in Sec. 43.2, but uses the more-specific term
``counterparty'' instead of ``party.''
The Commission is adding a definition of ``swap execution
facility'' to Sec. 43.2. Parts 43 and 45 currently use the term, but
only part 45 defines it. ``Swap execution facility'' will mean a
trading system or platform that is a SEF as defined in CEA section
1a(50) and in 17 CFR 1.3, and that is registered with the Commission
pursuant to CEA section 5h and 17 CFR part 37.
The Commission is adding a definition of ``swap transaction and
[[Page 75424]]
pricing data'' to Sec. 43.2 with minor technical corrections for
clarity. ``Swap transaction and pricing data'' will mean all data
elements for a swap in appendix A \16\ of part 43 that are required to
be reported or publicly disseminated pursuant to part 43. The
Commission believes this definition will help distinguish between the
different types of data reported pursuant to the different reporting
regulations.
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\16\ The proposed definition of ``swap transaction and pricing
data'' referenced appendix C. The Commission is changing the
reference to appendix A to reflect the Commission is keeping data
elements in appendix A.
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The Commission proposed adding the following six definitions to
Sec. 43.2: ``mirror swap;'' \17\ ``pricing event;'' \18\ ``prime
broker;'' \19\ ``prime brokerage agency arrangement;'' \20\ ``prime
brokerage agent;'' \21\ and ``trigger swap.'' \22\ These definitions
are all related to swaps entered into by prime brokers (``PBs'').
Because all of these proposed definitions were used in the text of
proposed Sec. 43.3(a)(6) or in one or more of the proposed definitions
that were in turn used in proposed Sec. 43.3(a)(6), the Commission
discusses all of the six proposed definitions in section II.C.4.
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\17\ The Commission proposed to define mirror swap as a swap:
(1) To which a prime broker is a counterparty or both counterparties
are prime brokers; (2) that is executed contemporaneously with a
corresponding trigger swap; (3) that has identical terms and pricing
as the contemporaneously executed trigger swap (except that a mirror
swap, but not the corresponding trigger swap, may include any
associated prime brokerage service fees agreed to by the parties and
except as provided in the final sentence of this ``mirror swap''
definition); (4) with respect to which the sole price forming event
is the occurrence of the contemporaneously executed trigger swap;
and (5) the execution of which is contingent on, or is triggered by,
the execution of the contemporaneously executed trigger swap. The
notional amount of a mirror swap may differ from the notional amount
of the corresponding trigger swap, including, but not limited to, in
the case of a mirror swap that is part of a partial reverse give-up;
provided, however, that in such cases, (i) the aggregate notional
amount of all such mirror swaps to which the prime broker that is a
counterparty to the trigger swap is also a counterparty shall be
equal to the notional amount of the corresponding trigger swap and
(ii) the market risk and contractual cash flows of all such mirror
swaps to which a prime broker that is not a counterparty to the
corresponding trigger swap is a party will offset each other (and
the aggregate notional amount of all such mirror swaps on one side
of the market and with cash flows in one direction shall be equal to
the aggregate notional amount of all such mirror swaps on the other
side of the market and with cash flows in the opposite direction),
resulting in such prime broker having a flat market risk position.
\18\ The Commission proposed to define pricing event as the
completion of the negotiation of the material economic terms and
pricing of a trigger swap.
\19\ The Commission proposed to define prime broker as with
respect to a mirror swap and its related trigger swap, a SD acting
in the capacity of a prime broker with respect to such swaps.
\20\ The Commission proposed to define prime brokerage agency
arrangement as an arrangement pursuant to which a prime broker
authorizes one of its clients, acting as agent for such prime
broker, to cause the execution of a trigger swap.
\21\ The Commission proposed to define prime brokerage agent as
a client of a prime broker who causes the execution of a trigger
swap acting pursuant to a prime brokerage agency arrangement.
\22\ The Commission proposed to define trigger swap as a swap:
(1) That is executed pursuant to one or more prime brokerage agency
arrangements; (2) to which a prime broker is a counterparty or both
counterparties are prime brokers; (3) that serves as the contingency
for, or triggers, the execution of one or more corresponding mirror
swaps; and (4) that is a publicly reportable swap transaction that
is required to be reported to an SDR pursuant to parts 43 and 45.
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2. Changes to Existing Definitions \23\
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\23\ The Commission received one comment on the existing
definition of ``physical commodity swap.'' The NFP Electric
Associations oppose defining ``physical commodity swap'' by
reference to a swap ``based on a tangible commodity'' because such a
definition would be inconsistent with the language of CEA section
1a(47) as well as the Commission's interpretations of ``nonfinancial
commodity'' in the context of swaps. NFP Electric Associations at 7.
The Commission declines to adopt any changes to the definition of
``physical commodity swap.'' The Commission believes the current
definition is sufficient, and would want to provide adequate notice
and comment for all market participants on a change involving a swap
definition.
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The Commission is making non-substantive changes to the definitions
of: ``as soon as technologically practicable'' (``ASATP''); ``asset
class;'' ``novation;'' ``other commodity;'' and ``reference price.''
The Commission proposed changing the definitions of ``appropriate
minimum block size,'' ``large notional off-facility swap'' (LNOFS), and
``block trade'' in Sec. 43.2.\24\ The Commission discusses the three
definitions together, as the changes are inter-connected.
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\24\ Existing Sec. 43.2 defines ``appropriate minimum block
size'' to mean the minimum notional or principal amount for a
category of swaps that qualifies a swap within such category as a
block trade or LNOFS. Existing Sec. 43.2 defines ``block trade'' to
mean a publicly reportable swap transaction that: (1) Involves a
swap that is listed on a registered SEF or DCM; (2) occurs away from
the registered SEF's or DCM's trading system or platform and is
executed pursuant to the registered SEF's or DCM's rules and
procedures; (3) has a notional or principal amount at or above the
appropriate minimum block size applicable to such swap; and (4) is
reported subject to the rules and procedures of the registered SEF
or DCM and the rules described in part 43, including the appropriate
time delay requirements set forth in Sec. 43.5.
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The Commission first proposed changing the ``block trade''
definition in a November 2018 rule proposal.\25\ Then, in January 2020,
the Commission published a proposal to revise condition (2) of the
block trade definition in Sec. 43.2 to state that: Is executed on the
trading system or platform, that is not an order book as defined in
Sec. 37.3(a)(3), of a registered SEF or occurs away from a registered
SEF's or DCM's trading system or platform and is executed pursuant to
the registered SEF's or DCM's rules and procedures.\26\ The Proposal
incorporated the 2020 SEF NPRM's proposed changes to the definition of
``block trade'' in condition (2), which would apply to swaps that are
not ``off-facility swaps'' and have specified connections to a SEF or a
DCM.\27\ In the Proposal, the Commission also proposed to incorporate
condition (3) of the existing ``block trade'' definition \28\ into
condition (1), which would apply to ``off-facility swaps.'' \29\
Condition (1) would make the separate definition of ``large notional
off-facility swap'' unnecessary.
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\25\ See Swap Execution Facilities and Trade Execution
Requirement, 83 FR 61946 (Nov. 30, 2018) (``2018 SEF NPRM''). The
Commission continues to evaluate the 2018 SEF NPRM.
\26\ This proposal addressed certain outstanding block-trade no-
action relief SEFs and market participants have operated under for
several years, most recently under CFTC Staff Letter No. 17-60
(``NAL No. 17-60). See Swap Execution Facility Requirements and
Real-Time Reporting Requirements, 85 FR 9407 (Feb. 19, 2020) (``2020
SEF NPRM'').
\27\ As proposed, paragraph (2) of the ``block trade''
definition would read: (2) With respect to a swap that is not an
off-facility swap, a publicly reportable swap that: (a) Involves a
swap that is listed on a SEF or DCM; (b) Is executed on the trading
system or platform, that is not an order book as defined in Sec.
37.3(a)(3), of a SEF or occurs away from a SEF's or DCM's trading
system or platform and is executed pursuant to the SEF's or DCM's
rules and procedures; (c) Has a notional or principal amount at or
above the appropriate minimum block size applicable to such swap;
and (d) Is reported subject to the rules and procedures of the SEF
or DCM and the rules described in this part, including the
appropriate time delay requirements set forth in Sec. 43.5.
\28\ This paragraph currently reads: Has a notional or principal
amount at or above the appropriate minimum block size applicable to
such swap.
\29\ As proposed, paragraph (1) of the ``block trade''
definition would read: (1) With respect to an off-facility swap, a
publicly reportable swap that has a notional or principal amount at
or above the appropriate minimum block size applicable to such swap.
The Commission also proposed minor changes to the term ``off-
facility swap,'' as discussed below in this section.
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The Commission believes the change to condition (2) permitting
execution of block trades--intended to be cleared or not--on a SEF's
non-order book trading systems or platforms furthers the CEA goal of
promoting swap trading on SEFs.\30\ Moreover, for intended-to-be
cleared block trades executed on a SEF's non-Order Book trading system
or platform, the change would allow FCMs to conduct pre-execution
credit screenings in accordance with Sec. 1.73. The Commission
believes that having a single set of block trade rules for both
intended-to-be cleared and non-intended to-be-cleared swap block trades
will help to reduce operational
[[Page 75425]]
complexity for both SEFs and market participants.
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\30\ See 7 U.S.C. 7b-3(e).
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In addition, the Commission believes that new condition (2), in
allowing participants to use a SEF's non-Order Book functionalities to
execute swap block trades, is consistent with the Commission's
regulatory approach to mitigate risks of information leakage (i.e., a
``winner's curse'') as market participants can use the functionality of
the SEF to execute a block trade in a manner that will not disclose the
order to the entire market.\31\ SEFs currently provide various modes of
execution to enable market participants to execute block trades on the
SEF without providing disclosure of the block trade to the market or to
multiple market participants.\32\
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\31\ SEF Core Principles Final Rule, 78 FR at 33498, 33562, and
33563 (June 4, 2013).
\32\ For example, the Commission has observed that some SEFs
offer a ``RFQ-to-one'' functionality that allows counterparties to
bilaterally negotiate a block trade between two potential
counterparties, without requiring disclosure of the potential trade
to other market participants on a pre-trade basis.
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Finally, the Commission believes permitting block trades to be
executed on a SEF's non-Order Book trading platforms while also
allowing them to ``occur away'' from a SEF provides SEFs increased
flexibility. In particular, SEFs will be able to provide execution
methods for block trades that are most suitable, efficient, and cost-
effective for the product being traded, the SEF's market, and its
market participants.
Therefore, the Commission is adopting paragraph (2) of the ``block
trade'' definition as proposed with a minor non-substantive technical
edits for clarity and consistency. However, the Commission is not
adopting paragraph (1) of the proposed ``block trade'' definition and
is keeping the definition of ``large notional off-facility swap'' in
part 43.
The Proposal combined the definition of ``large notional off-
facility swap'' into the definition of ``block trade'' to conform to
proposed changes to Sec. 43.5. The changes to Sec. 43.5 would have
created a single block trade dissemination delay regardless of whether
the transaction was a ``block trade'' or a ``large notional off-
facility swap,'' thus obviating the need for separate definitions.\33\
However, since the Commission is not changing Sec. 43.5,\34\ it is
necessary to retain separate definitions for block trades and LNOFSs in
part 43. As a result, the Commission is keeping the definition of
``large notional off-facility swap'' in Sec. 43.2 and keeping the
reference to ``large notional off-facility swaps'' in the definition of
``appropriate minimum block size.'' \35\
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\33\ For example, under existing Sec. 43.5, block trades are
subject to a 15 minute dissemination delay, while LNOFS are subject
to a range of dissemination delays ranging from 15 minutes to 24
business hours depending upon the type of market participant and
asset class involved in the LNOFS transaction.
\34\ The Commission discusses Sec. 43.5 in section II.E below.
\35\ The Commission is making non-substantive edits to the
definition for clarity.
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In light of the above changes, Sec. 43.2 will define a ``block
trade'' as a publicly reportable swap transaction that: (1) Involves a
swap listed on a SEF or DCM; (2) is executed on a SEF's trading system
or platform that is not an order book as defined in Sec. 37.3(a)(3),
or occurs away from the SEF's or DCM's trading system or platform and
is executed pursuant to the SEF's or DCM's rules and procedures; (3)
has a notional or principal amount at or above the appropriate minimum
block size applicable to such swap; and (4) is reported subject to the
rules and procedures of the SEF or DCM and the rules described in part
43, including the appropriate time delay requirements set forth in
Sec. 43.5.
The Commission received two comments on the Proposal's definition
of ``block trade.'' ICI believes the proposed definition incorporating
``block trade'' and ``large notional off-facility swap'' would promote
clarity and consistency across Commission regulations.\36\ The
Commission is declining to adopt the proposal because, as described
above, separate definitions of ``block trade'' and ``large notional
off-facility swap'' remain necessary since the Commission is not
changing Sec. 43.5.
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\36\ ICI at 4.
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Conversely, the NFP Electric Associations believe ``[t]he concept
of a `block trade' is not well understood in the swap markets'' and
recommends that the Commission should continue ``to use the descriptive
term `large notional off-facility swap,' as drawn from the primary
language of CEA section 2a(13)(E), rather than use `block trade'. . .
.'' \37\ The Commission agrees and, for the reasons described above, is
retaining the separate definitions.
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\37\ NFP Electric Associations at 7.
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The Commission also received six comments on the 2020 SEF NPRM's
``block trade'' definition.\38\ Citadel, ISDA-SIFMA, IECA, and Chris
Barnard all generally support the 2020 SEF NPRM's changes.\39\
Similarly, FIA agrees with the Commission ``that block trades executed
on a SEF's non-[o]rder [b]ook trading system or platform would allow
FCMs to conduct pre-execution risk-based limit screenings in accordance
with [Sec. ] 1.73.'' \40\ Finally, the TP ICAP SEFs support the
proposed changes to the definition of ``block trade,'' but believe the
Commission should not limit the execution methods that may be utilized
by SEFs for block trades to avoid discouraging SEF trading and
inconsistencies with the CEA, ``which was clear that limiting modes of
SEF execution was not the intent of Congress.'' \41\
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\38\ The following entities submitted comment letters: Chris
Barnard; Citadel; FIA; International Energy Credit Association
(``IECA''); ISDA; and ICAP Global Derivatives Limited (``IGDL'') and
tpSEF, Inc. (``tpSEF'') (collectively, ``TP ICAP SEFs''). Since the
proposed Sec. 43.2 definition of ``block trade'' in the 2020 SEF
NPRM is consistent with the second part of the Sec. 43.2 ``block
trade'' definition in the Proposal, the Commission is considering
the comments in evaluating the proposed changes to the ``block
trade'' definition in this release.
\39\ Citadel at 1; ISDA-SIFMA at 1; IECA at 1-3; Chris Barnard
at 1.
\40\ FIA at 1; FIA at Appendix B. FIA separately requests the
Commission amend Sec. 1.73 to confirm clearing FCMs are not
required to conduct pre-execution risk-based limit screenings for
transactions executed bilaterally away from the SEF's non-order book
trading system or platform and then submitted for clearing. The
Commission declines to amend Sec. 1.73 in this rulemaking. For the
avoidance of doubt, if the parties purport to execute a block trade
away from the SEF without first obtaining a credit check, an FCM
clearing member that clears such trade and does not have knowledge
of such purported execution is not in violation of the pre-execution
credit check requirement under Sec. 1.73. The Commission
understands no mechanism exists to enable pre-execution credit
checks where blocks are executed away from a SEF; however, these
final rules do not preclude participants from developing and using
such a mechanism in the future.
\41\ TP ICAP SEFs at 4. Rather, the TP ICAP SEFs believe that
``SEFs have the greatest knowledge of the liquidity and market
characteristics to'' determine which execution methods to offer for
block trades and as such ``[t]he Commission should defer to the SEFs
in a manner consistent with principles-based regulation to determine
the methodology that they wish to offer for executing block
trades.''
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The Commission disagrees with the TP ICAP SEFs' assertion there
should be no limitation on the method execution that can be used for a
block trade.\42\ By exposing a swap transaction that is above the
appropriate minimum block size to the entire market through the use of
a SEF order book,\43\ the Commission believes that a market participant
has signaled that the risks of information leakage and a ``winner's
curse'' are not present to the same extent as they are in other block
trades. Therefore, such transactions should not be afforded flexible
execution and delayed public dissemination.
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\42\ The Commission notes that trades above the appropriate
minimum block size may still occur on a SEF's order book, as defined
in Sec. 37.3(a)(3), however such transactions will not receive
treatment as block trades and will not receive a dissemination
delay.
\43\ 17 CFR 37.3(a)(3) (``Order Books'').
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The Commission is changing the definition of ``embedded option'' in
Sec. 43.2 by removing the reference to
[[Page 75426]]
``confirmation'' at the end of the current definition \44\ to reflect
the Commission's removal of the definition of ``confirmation'' from
Sec. 43.2, discussed further below. As amended, ``embedded option''
will mean any right, but not an obligation, provided to one party of a
swap by the other party to the swap that provides the party holding the
option with the ability to change any one or more of the economic terms
of the swap.
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\44\ ``Embedded option'' is currently defined as any right, but
not an obligation, provided to one party of a swap by the other
party to the swap that provides the party holding the option with
the ability to change any one or more of the economic terms of the
swap as those terms previously were established at confirmation (or
were in effect on the start date).
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The Commission is changing the definition of ``execution'' in Sec.
43.2 \45\ by replacing the reference to execution occurring ``orally,
in writing, electronically, or otherwise'' with ``by any method'' to
shorten the definition without substantively altering it. The
Commission is also removing the phrase that execution occurs
simultaneous with or immediately following the affirmation of the swap
because the Commission is removing the term ``affirmation'' from Sec.
43.2 as well.\46\ As amended, ``execution'' will mean an agreement by
the parties, by any method, to the terms of a swap that legally binds
the parties to such swap terms under applicable law. The NFP Electric
Associations support the alignment of defined terms and concepts
between part 45 and part 43, such as the common definition of
``execution.'' \47\
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\45\ Existing Sec. 43.2 defines ``execution'' as an agreement
by the parties (whether orally, in writing, electronically, or
otherwise) to the terms of a swap that legally binds the parties to
such swap terms under applicable law. The existing definition
further provides that execution occurs simultaneous with or
immediately following the affirmation of the swap.
\46\ The Commission discusses the proposed removal of
``affirmation'' in section II.B.3.
\47\ NFP Electric Associations at 6.
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The Commission is amending the definition of ``off-facility swap''
in Sec. 43.2 by removing the reference to ``publicly reportable'' and
``registered.'' Existing Sec. 43.2 defines off-facility swap as any
publicly reportable swap transaction that is not executed on or
pursuant to the rules of a registered \48\ SEF or DCM. The Commission
is removing the requirement that the swap be ``publicly reportable''
because determining whether a swap transaction is an off-facility swap
depends only on whether a swap was executed on or pursuant to the rules
of a SEF or DCM; whether it is also a publicly reportable swap
transaction is irrelevant.
The Commission is changing the definition of ``public dissemination
and publicly disseminate'' in Sec. 43.2. Existing Sec. 43.2 defines
``public dissemination and publicly disseminate'' as to publish and
make available swap transaction and pricing data in a non-
discriminatory manner, through the internet or other electronic data
feed that is widely published and in machine-readable electronic
format. Separately, Sec. 43.3(d)(1) requires that SDRs ``publicly
disseminate'' swap transaction and pricing data in a consistent,
usable, and machine-readable electronic format that allows the data to
be downloaded, saved, and analyzed.
---------------------------------------------------------------------------
\48\ The Commission is also changing ``registered SEF'' to
``SEF'' throughout part 43. The Commission discusses this change in
section II.C.1.a.
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The definition of ``public dissemination and publicly disseminate''
varies enough from Sec. 43.3(d)(1) to create ambiguity for SDRs as to
the format they must use in publicly disseminating swap transaction and
pricing data. For instance, the definition of ``publicly disseminate''
requires that access be non-discriminatory, but Sec. 43.3(d)(1) does
not explicitly require access be non-discriminatory. Therefore, the
Commission is re-locating the qualification in Sec. 43.3(d)(1) that
SDRs publicly disseminate swap transaction and pricing data in a
consistent, usable, and machine-readable electronic format that allows
the data to be downloaded, saved, and analyzed to the definition of
``public dissemination and publicly disseminate'' in Sec. 43.2.\49\ As
amended, the definition of ``public dissemination and publicly
disseminate'' will mean to make freely available and readily accessible
to the public swap transaction and pricing data in a non-discriminatory
manner, through the internet or other electronic data feed that is
widely published. Such public dissemination shall be made in a
consistent, usable, and machine-readable electronic format that allows
the data to be downloaded, saved, and analyzed.\50\ The Commission did
not propose changing the definition of ``publicly reportable swap
transaction,'' but received six comments on the definition.
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\49\ As discussed below in section II.C.8, the Commission is
removing existing Sec. 43.3(d)(1) in conjunction with moving the
substance of the requirement to the definition of ``publicly
disseminate.''
\50\ The revised definition of ``public dissemination and
publicly disseminate'' is also discussed below in section II.C.7
with respect to the responsibilities of SDRs to make publicly
disseminated swap transaction and pricing data available to the
public.
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ISDA-SIFMA and ICE SDR both request the Commission clarify the list
of swaps that are not included in the definition.\51\ The Commission
believes, with one exception, the current definition and the original
part 43 adopting release adequately describe the swaps excluded from
the definition, which, as ISDA-SIFMA point out, include inter-affiliate
swaps and portfolio compression exercises. The Commission understands
that since 2012, different multi-party swap portfolio risk reduction
exercises have evolved to accomplish the same goals as portfolio
compression exercises. To the extent any such risk reduction exercises
serve the same purposes as portfolio compression exercises, the
Commission is of the view that the resulting new or amended swaps from
the exercise would not be deemed publicly reportable swaps. The purpose
of such risk reduction exercises, similar to portfolio compression
exercises, is to mitigate risk by replacing or changing swaps, which
have already been publicly reported if the original swaps were publicly
reportable swap transactions. Any new or amended swaps executed as a
result of these exercises would not be arm's-length transactions
resulting in a corresponding change in the market risk position between
the parties, but may not otherwise meet the Commission's portfolio
compression exercise definitions.\52\ To qualify, the sole purpose of
such risk reduction exercises, like portfolio compression exercises,
must be to mitigate risk by replacing or changing swaps that have
already been publicly reported, if the original swaps were publicly
reportable swap transactions. In addition, the resulting new or amended
swaps must be entered into between the same counterparties as the
original swap(s) that is amended or terminated, and the risk reduction
exercises must be market risk neutral and performed by automated
systems of third-party service providers. If these conditions are
satisfied, like portfolio compression exercises, the replacement or
amended swaps resulting directly from a risk reduction exercise would
not fall within the definition of publicly reportable swap
transaction.\53\
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\51\ ISDA-SIFMA at 49; ICE SDR at 7. ISDA-SIFMA note that the
list of swaps not included in the definition may include (i) inter-
affiliate swaps, (ii) portfolio compression exercises, and (iii)
post-allocation swaps. ICE SDR notes that it was unclear whether
cross-border transactions are exempt from the definition.
\52\ 77 FR 1182 at 1187 (Jan. 9, 2012).
\53\ For avoidance of doubt, the Commission makes clear that the
evaluation of whether a swap that results from a risk reduction
exercise does or does not fall within the definition of publicly
reportable swap transaction is separate and distinct from the
evaluation of whether or not the platform operating such risk
reduction exercises is subject to SEF registration requirements. See
Core Principles and Other Requirements for Swap Execution
Facilities, 78 FR 33476, 33482-33483 (Jun. 4, 2013).
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[[Page 75427]]
In response to ICE SDR's comment that it is unclear whether cross-
border transactions are exempt from the definition the ``publicly
reportable swap transaction,'' the Commission notes that its cross-
border guidance covers cross-border reporting requirements. The
Commission does not want to reassess the existing definition or its
cross-border guidance without providing adequate notice for all market
participants to comment on.
The NFP Electric Associations believe the Commission should exclude
a subset of off-facility non-financial commodity swaps from the
definition because few, if any, of such swaps enhance discovery.\54\
Similarly, Clarus believes providers of portfolio compressions should
report trade level details to SDRs for public dissemination.\55\ The
Commission disagrees and is keeping compressions on the list of
transactions excluded from the publicly reportable swap definition or
excluding non-financial commodity swaps. The Commission believes its
determination that compression swaps do not contribute to price
discovery,\56\ and that the CEA requires the public dissemination of
all swaps,\57\ still holds true.
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\54\ NFP Electric Associations at 6.
\55\ Clarus at 2.
\56\ 2012 Real-Time Public Reporting Final Rule at 77 FR 1187
(Jan. 9, 2012).
\57\ Id. at 1223.
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ICE DCOs and CME believe if the Commission finalizes Sec.
43.3(a)(5), it should also change the definition of publicly reportable
swap transaction to exclude swaps created through DCO default
management processes.\58\ The Commission agrees with CME and ICE DCOs,
and is amending the definition to exclude ``swaps entered into by a
[DCO] as part of managing the default of a clearing member.'' However,
the Commission discusses this change in section II.C.3 below.
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\58\ ICE DCOs at 2; CME at 7-8. The commenters believe including
such swaps could result in front-running as the default management
processes may span multiple days. ICE DCOs believe DCO default
management swaps may be impractical for part 43 reporting because
they can be executed at the portfolio level.
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The Commission is changing the definition of ``trimmed data set''
in Sec. 43.2 by changing the standard deviation used in the
calculation of the trimmed data set from four to two for the ``other
commodity'' asset class, and from four to three for all other asset
classes. The Commission discusses the reasoning behind these changes in
section II.F.2.
3. Removed Definitions
The Commission is removing the definition of ``Act'' from Sec.
43.2 because the term is defined in Sec. 1.3.
The Commission proposed removing the definition of ``business day''
from Sec. 43.2 because the term is defined in Sec. 1.3. Further, the
Commission proposed removing the definition of ``business hours''
because the term would have been unnecessary as a result of the
Commission's proposal to remove references to ``business hours'' in the
Sec. 43.5 regulations for the timing delays for block trades.
The Commission received one comment on removing the definition of
``business day.'' DTCC notes Sec. 43.2 does not include Saturdays
while Sec. 1.3 includes Saturdays; thus, replacing Sec. 43.2 with
Sec. 1.3 would impact SDR operations as well as the currency
conversion requirements in proposed Sec. 43.6(g)(4).\59\ Further, DTCC
believes it is unclear whether the term ``holiday'' as used in the
``business day'' definition in Sec. 1.3 has an identical meaning as
existing Sec. 43.2.\60\
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\59\ DTCC at 2.
\60\ Id.
---------------------------------------------------------------------------
The Commission agrees with DTCC that removing the definition of
business day from Sec. 43.2 would create a discrepancy in the
regulations that would impact operations for all market participants.
Therefore, the Commission is not adopting the proposal to remove the
definition of business day from Sec. 43.2. Similarly, the Commission
is not adopting the proposal to remove the term ``business hours'' from
Sec. 43.2 because, as the Commission discusses in section II.E.2,
Sec. 43.5(c) will continue to reference ``business hours.''
The Commission is removing the definition of ``confirmation'' from
Sec. 43.2, along with the following related definitions:
``affirmation'' and ``confirmation by affirmation.'' These definitions
are unnecessary in part 43, as they are not used in any of the
regulations.
The Commission is removing the definition of ``executed'' from
Sec. 43.2. The current definition is vague and the definition of
``execution date'' will provide the specificity that the current
``executed'' definition lacks.
The Commission is removing the definition of ``real-time public
reporting'' from Sec. 43.2. Existing Sec. 43.2 defines ``real-time
public reporting'' as the reporting of data relating to a swap
transaction, including price and volume, ASATP after the time at which
the swap transaction has been executed. The CEA currently already
defines ``real-time public reporting'' as to report data relating to a
swap transaction, including price and volume, ASATP after the time at
which the swap transaction has been executed.\61\ To avoid creating
confusion between the two definitions, the Commission is removing the
definition in part 43.
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\61\ 7 U.S.C. 2(a)(13)(A).
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The Commission is removing the definition of ``reporting party''
from Sec. 43.2 because it is adding the more-precise definition of
``reporting counterparty'' to Sec. 43.2, as discussed above.
The Commission proposed removing the following definitions from
Sec. 43.2 as a result of proposed changes to Sec. Sec. 43.5 and 43.6
for block trades and LNOFSs: ``futures-related swap,'' ``major
currencies,'' ``non-major currencies,'' and ``super-major currencies.''
The Commission declines to adopt the proposal to remove these
definitions from Sec. 43.2.
The Commission is also removing the following definitions from
Sec. 43.2 as a result of changes simplifying the definition of
``novation:'' ``remaining party,'' ``transferee,'' and ``transferor.''
The Commission is removing the ``unique product identifier''
(``UPI'') definition from Sec. 43.2. ``Unique product identifier'' is
currently only used in Sec. 43.4(e). The Commission is deleting
existing Sec. 43.4(e), as discussed below in section II.D.1.
Therefore, the definition of UPI in Sec. 43.2 is unnecessary.
The Commission is removing the definition of ``widely published''
from Sec. 43.2. ``Widely published'' means to publish and make
available through electronic means in a manner that is freely available
and readily accessible to the public. ``Widely published'' is currently
referenced in the definition for ``public dissemination and publicly
disseminate'' as the standard by which SDRs must publish data.\62\ The
Commission believes that the plain meaning of the term ``widely
published'' is clear and that the definition is unnecessary and may
cause confusion.
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\62\ The term ``widely published'' is also used in existing
Sec. 43.6(g)(4) for currency conversions.
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C. Sec. 43.3--Method and Timing for Real-Time Public Reporting
1. Sec. 43.3(a)(1) Through (3)--Method and Timing for Reporting Off-
Facility Swaps and Swaps Executed on or Pursuant to the Rules of a SEF
or a DCM
a. Sec. 43.3(a)(1)--General Rule
The Commission is adopting changes to Sec. 43.3(a)(1). Existing
Sec. 43.3(a)(1): (i)
[[Page 75428]]
Requires a ``reporting party'' to report publicly reportable swap
transactions to SDRs ASATP after execution; and (ii) states that for
purposes of part 43, a registered SDR includes any SDR provisionally
registered with the Commission pursuant to part 49.
The Commission is changing the reference to a ``reporting party''
to reference the persons that, depending on the circumstances, have the
reporting obligation for a publicly reportable swap transaction: A
reporting counterparty; a SEF; or a DCM to be more precise. The
Commission is also rewording Sec. 43.3(a)(1) for brevity and adding a
cross-reference to proposed Sec. 43.3(a)(2) through (6), which address
matters such as who must report publicly reportable swap transactions
and the timing thereof. Consequently, the Commission is adding language
to Sec. 43.3(a)(1) stating that it would be ``subject to'' proposed
Sec. 43.3(a)(2) through (6) to reflect that, with respect to the
transactions and persons covered by proposed Sec. 43.3(a)(2) through
(6), the provisions thereof apply instead of the general ASATP
requirement of proposed Sec. 43.3(a)(1). The Commission is also adding
a requirement that the publicly reportable swap transaction reporting
required pursuant to proposed Sec. 43.3(a)(1) through (6) be done in
the manner set forth in proposed Sec. 43.3(d).\63\
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\63\ The Commission discusses Sec. 43.3(d) in section II.C.8
below.
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Finally, the Commission is deleting the sentence in Sec.
43.3(a)(1) stating that for purposes of part 43, a registered SDR
includes any SDR provisionally registered with the Commission pursuant
to part 49. The Commission is replacing all references to registered
SDRs with references to SDRs in Sec. 43.3(a) specifically and
throughout part 43.\64\ The Commission is removing the reference to
``registered'' because registered and provisionally registered SDRs are
subject to the same Commission regulations, but the existing
regulations only referenced ``registered'' SDRs.
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\64\ To limit repetition, the Commission will not discuss this
change repeatedly throughout this release.
---------------------------------------------------------------------------
The Commission did not receive any comments on the non-substantive
changes to Sec. 43.3(a)(1). For the reasons discussed above, the
Commission is adopting the changes to Sec. 43.3(a)(1) as proposed with
non-substantive edits for clarity. Amended Sec. 43.3(a)(1) will
require reporting counterparties, SEFs, or DCMs responsible for
reporting a swap to report the publicly reportable swap transaction to
an SDR ASATP after execution subject to Sec. 43.3(a)(2) through (6)
and in the manner set forth in Sec. 43.3(d).
b. Sec. 43.3(a)(2)--Swaps Executed on or Pursuant to the Rules of a
SEF or a DCM
The Commission is adopting non-substantive changes to Sec.
43.3(a)(2). Existing Sec. 43.3(a)(2) states that a party to a publicly
reportable swap transaction can satisfy its part 43 real-time public
reporting obligations by executing publicly reportable swap
transactions on or pursuant to the rules of a SEF or DCM. Existing
Sec. 43.3(b)(1) states that SEFs and DCMs satisfy their real-time
public reporting obligations by transmitting swap transaction and
pricing data to SDRs ASATP after the publicly reportable swap
transaction was executed on or pursuant to the rules of the trading
platform or facility.
The Commission is replacing Sec. 43.3(a)(2) with the existing
requirement in Sec. 43.3(b)(1). New Sec. 43.3(a)(2) will state that
SEFs or DCMs must report publicly reportable swap transactions executed
on or pursuant to the rules of a SEF or DCM ASATP after execution. As a
result, Sec. 43.3(a)(2), instead of Sec. 43.3(b)(1), will contain
SEFs' and DCMs' part 43 reporting obligations. In revising Sec.
43.3(a)(2), the Commission is replacing the reference to a ``registered
[SEF]'' with a reference to SEFs because the term ``registered'' is
unnecessary with the Commission defining ``SEFs'' in Sec. 43.2 as
registered SEFs.\65\
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\65\ To limit repetition, the Commission will not discuss this
change throughout this release.
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The Commission did not receive any comments on the structural and
non-substantive changes to Sec. 43.3(a)(2). For the reasons discussed
above, the Commission is adopting the changes as proposed. Amended
Sec. 43.3(a)(2) will require that for each swap executed on or
pursuant to the rules of a SEF or DCM, the SEF or DCM shall report swap
transaction and pricing data to an SDR ASATP after execution.
c. Sec. 43.3(a)(3)--Off-Facility Swaps
The Commission proposed non-substantive changes to Sec.
43.3(a)(3). Existing Sec. 43.3(a)(3) requires reporting parties to
report all off-facility swaps to an SDR for the appropriate asset class
in accordance with the rules set forth in part 43 ASATP following
execution, and sets out the reporting hierarchy for these publicly
reportable swap transactions.\66\
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\66\ The Commission did not propose substantive amendments to
the reporting hierarchy.
---------------------------------------------------------------------------
The Commission is clarifying in Sec. 43.3(a)(3)(iii) through (v)
that, in situations where the parties to an off-facility publicly
reportable swap transaction must designate which of them is the
reporting counterparty, they must make such designation prior to the
execution of the off-facility publicly reportable swap transaction so
that there is no delay in reporting the off-facility publicly
reportable swap transaction pursuant to part 43. The Commission
believes it will prevent a delay if the parties do not make such
designation until after the off-facility publicly reportable swap
transaction is executed or cannot agree on such designation.
Because the Commission is adding part 43 reporting requirements
specific to PPSs, clearing swaps, and mirror swaps, respectively, in
new Sec. 43.3(a)(4) through (6), the Commission is introducing
proposed Sec. 43.3(a)(3) with ``except as otherwise provided in
paragraphs (a)(4) through (6) of this section.''
The Commission did not receive any comments on the changes to Sec.
43.3(a)(3). For the reasons discussed above, the Commission is adopting
the changes to Sec. 43.3(a)(3) as proposed with non-substantive edits
for clarity. Amended Sec. 43.3(a)(3) will require that, except as
otherwise provided in Sec. 43.3(a)(4) through (6), a reporting
counterparty report all publicly reportable swap transactions that are
off-facility swaps to an SDR for the appropriate asset class in
accordance with the rules set forth in part 43 ASATP after execution.
Unless otherwise agreed to by the parties prior to execution, the
reporting hierarchy will remain the same as it is in existing Sec.
43.3(a)(3).\67\
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\67\ The hierarchy will remain: (i) If only one party is a SD or
MSP, then the SD or MSP shall be the reporting counterparty; (ii) if
one party is an SD and the other party is a MSP, then the SD shall
be the reporting counterparty; (iii) if both parties are SDs, then
prior to execution of a publicly reportable swap transaction that is
an off-facility swap, the SDs shall designate which party shall be
the reporting counterparty; (iv) if both parties are MSPs, then
prior to execution of a publicly reportable swap transaction that is
an off-facility swap, the MSPs shall designate which party shall be
the reporting counterparty; and (v) if neither party is an SD or
MSP, then prior to execution of a publicly reportable swap
transaction that is an off-facility swap, the parties shall
designate which party shall be the reporting counterparty.
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2. Sec. 43.3(a)(4)--Post-Priced Swaps
a. Proposal
The Commission proposed new Sec. 43.3(a)(4) to address issues
market participants face in reporting PPSs. ``Post-priced swap'' is a
newly defined term in Sec. 43.2 that means an off-facility swap for
which the price has not been determined at the time of execution.
Existing Sec. 43.3(a) generally requires the reporting party for each
publicly reportable swap transaction to report
[[Page 75429]]
certain swap terms to an SDR ASATP after execution of the transaction.
Market participants raised concerns with complying with the ASATP
requirement for a category of swaps with respect to which one or more
terms are unknown at the time the swap is executed.\68\
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\68\ See, e.g., ISDA Request for No-action Relief for Post-
priced Swaps (Mar. 26, 2013), available at https://www.isda.org/2013/03/26/no-action-relief-request-post-price-swaps-under-parts-43-and-45/.
---------------------------------------------------------------------------
In the Proposal, the Commission proposed a longer deadline for
reporting swap transaction and pricing data for PPSs. Proposed Sec.
43.3(a)(4)(i) would permit the reporting counterparty to delay
reporting a PPS to an SDR until the earlier of the price being
determined and 11:59:59 p.m. eastern time on the execution date.
Proposed Sec. 43.3(a)(4)(i) would further provide that, if the price
of a publicly reportable swap transaction that is a PPS is not
determined by 11:59:59 p.m. eastern time on the execution date, the
reporting counterparty shall: (i) Report all swap transaction and
pricing data for such PPS other than the price and any other then-
undetermined variable term, and (ii) report each such item of
previously undetermined swap transaction and pricing data ASATP after
such item is determined.\69\ Proposed Sec. 43.3(a)(4)(ii) would
provide that the more lenient proposed reporting deadline in Sec.
43.3(a)(4)(i) would not apply to publicly reportable swap transactions
with respect to which the price is known at execution but one or more
other variable terms are not yet known at the time of execution.\70\
---------------------------------------------------------------------------
\69\ While the proposed definition of ``post-priced swap'' would
be a swap for which the price has not been determined at the time of
execution, such a swap with additional terms that are also not
determined at the time of execution would also fall within the
proposed ``post-priced swap'' definition. Consequently, if a PPS
also has non-price terms that are not determined at the time of
execution, a value for such non-price terms must be reported ASATP
after it is determined. If a placeholder value that satisfies the
allowable values parameters for an unknown variable term was
previously reported for such undetermined swap transaction and
pricing data, then such swap transaction and pricing data must be
corrected ASATP after it is determined.
\70\ The Commission notes that when the price is known at
execution but one or more variable terms are not yet known, the
reporting counterparty must report the swap ASATP and then report
the variable terms later ASATP after each item is determined.
---------------------------------------------------------------------------
b. Comments on the Proposal
The Commission received two comments opposing a delay from real-
time reporting for PPSs. Citadel comments that instead of reducing the
amount of information publicly reported in real-time, the Commission
should enhance the reported data by implementing a separate flag to
specifically identify PPSs.\71\ Further, Citadel believes the proposal
seems overly broad because it includes swaps where key economic terms
are fully agreed at the time of execution (e.g., where a spread above
or below a reference index price is the key economic term, but the
reference index price is not published until later in the day).\72\
DTCC recommends minimizing carve-outs for strict validation rules
wherever possible to avoid deviating from standardization and creating
additional complexities.\73\
---------------------------------------------------------------------------
\71\ Citadel at 10.
\72\ Id.
\73\ DTCC at 2.
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Better Markets comments that any delay in public reporting would
advantage certain market participants but reporting on the date of
execution would be achievable for the vast majority of PPSs contingent
on an independent market measure.\74\ In addition, Better Markets
believes delayed reporting for supposed ``hedging needs'' should not be
accommodated until the Commission publishes additional information
necessary to examine the implications of such a proposal.\75\
---------------------------------------------------------------------------
\74\ Better Markets at 8.
\75\ Id.
---------------------------------------------------------------------------
The Commission received six comments supporting a delay from real-
time reporting for PPSs. AMG supports permitting a reporting
counterparty to report PPSs at the earlier of the price being
determined or 11:59:59 p.m. eastern time on the execution date.\76\
---------------------------------------------------------------------------
\76\ SIFMA AMG at 6.
---------------------------------------------------------------------------
ICI comments that the proposal would provide clarity and
consistency so market participants can understand when their trading
information will be publicly disseminated to the market.\77\ Further,
ICI believes funds may enter into PPSs in the form of swaps on various
well-known indices and these swaps are priced based on the relevant
index, which typically is published an hour or two after the close of
the relevant markets.\78\ ICI states that existing SDs have
inconsistent practices regarding when they report these swaps and the
Commission's proposal will in most cases prevent a fund's trading
information from being prematurely disseminated and used to front run
the fund's trades.\79\
---------------------------------------------------------------------------
\77\ ICI at 8.
\78\ Id.
\79\ Id.
---------------------------------------------------------------------------
ISDA-SIFMA strongly agree with the proposal.\80\ GFMA supports the
ISDA-SIFMA response.\81\
---------------------------------------------------------------------------
\80\ ISDA-SIFMA at 50.
\81\ GFMA at 14.
---------------------------------------------------------------------------
CME believes that PPSs and other swaps with variable term(s) that
are not known at the time of execution should not be reported or
disseminated until such time that the price(s) and all other variable
term(s) are known.\82\ CME believes the proposed requirement to have
PPSs reported no later than 11:59:59 p.m. eastern time on the day of
execution is misplaced as it would not further price transparency
without a price.\83\ CME also believes the proposal to require the
immediate reporting of swap transactions with respect to which the
price is known at execution but one or more other variable terms are
not yet known is similarly misplaced.\84\
---------------------------------------------------------------------------
\82\ CME at 3-4.
\83\ Id.
\84\ Id.
---------------------------------------------------------------------------
FIA suggests the Commission amend the Proposal to require the
reporting of a PPS only after the price is determined, regardless of
whether the price is determined on or after the execution date. FIA
believes there is no value in reporting swap data without a price
element and that reporting only after the price has been determined
should reduce the risk of front-running.\85\
---------------------------------------------------------------------------
\85\ FIA at 11.
---------------------------------------------------------------------------
The Commission received one comment maintaining that the proposal
lacked needed explanation. Better Markets comments that the
Commission's general description is undoubtedly accurate, but it does
not sufficiently describe the use of PPSs for the public to determine
the value, if any, of such transactions that would justify codifying a
delayed public reporting timeline.\86\ Further, Better Markets believes
the proposal relied too heavily on only a few market participants and
the Commission should instead look at common fact patterns, the
identified asset classes using PPS practices, and the volume of PPSs
within each asset class.\87\
---------------------------------------------------------------------------
\86\ Better Markets at 8.
\87\ Id.
---------------------------------------------------------------------------
The Commission received one comment regarding an alternative
proposal of reporting PPSs ASATP and then updating the report after the
price is determined (in response to the Commission's request for
comment 2). ISDA-SIFMA oppose the alternative proposal and comment that
PPSs should have a reporting delay before being publicly disseminated
by the SDR.\88\ ISDA-SIFMA believe the reporting of PPSs before the
price is determined does not serve any price discovery function and may
increase the costs of hedging by signaling to other participants that a
SD will be hedging a
[[Page 75430]]
particular large notional trade the following day.\89\ Further, ISDA-
SIFMA believe reporting counterparties should be able to submit data to
the SDR as soon as available, and that the SDR should be permitted to
delay public dissemination (similar to the process for block
trades).\90\
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\88\ ISDA-SIFMA at 50.
\89\ Id.
\90\ Id.
---------------------------------------------------------------------------
The Commission received one comment related to the alternative of
an indefinite delay for PPSs (in response to the Commission's request
for comment 3). ISDA-SIFMA comments that PPS reporting under part 43
should be delayed until (a) the price is determined, or (b) 11:59:59
p.m. eastern time on the next business day following the execution
date. If the price is still not yet known at 11:59:59 p.m. eastern time
on the next business day following the execution date, ISDA-SIFMA
comments that the reporting counterparty should then report the data
elements that are known. Further, ISDA-SIFMA believe that the majority
of PPSs would have the price determined prior to T+1. ISDA-SIFMA
believe the reporting of PPSs before the price is determined may
increase the costs of hedging by signaling to other participants that a
SD will be hedging a particular large notional trade the following
day.\91\ As such, ISDA-SIFMA believe a T+1 cutoff will significantly
reduce potential unnecessary hedging costs by reducing the number of
PPSs reported without a price.\92\
---------------------------------------------------------------------------
\91\ Id.
\92\ Id.
---------------------------------------------------------------------------
The Commission received one comment regarding whether the
definition of PPS should be amended to exclude swaps for which the
price is not known at execution because it is contingent upon the
outcome of SD hedging (in response to the Commission's request for
comment 4). ISDA-SIFMA comments that swaps for which a price is not
known at execution because it is contingent upon the outcome of SD
hedging should benefit from a reporting delay. ISDA-SIFMA do not
believe permitting such swaps to receive the reporting delay in
proposed Sec. 43.3(a)(4) would change trading behavior.\93\
---------------------------------------------------------------------------
\93\ Id. at 51.
---------------------------------------------------------------------------
The Commission received three comments addressing indicators for
PPSs. ISDA-SIFMA do not support an additional indicator to identify
whether the price for a PPS is not known because it is contingent on SD
hedging. ISDA-SIFMA believe that an identifier that specifies the
reason the price is not known for a PPS would exacerbate the potential
for other market participants to trade ahead of SD hedging.\94\ ISDA-
SIFMA believe the Commission should not modify its proposed post-priced
swap indicator and anything more granular could exacerbate the issues
(e.g., front running) that the PPS proposal intends to remedy.\95\ CME
opposes additional data elements related to PPSs as they are of no
value to market participants.\96\ In contrast to CME, ICI supports an
additional indicator to identify whether the price for a PPS is not
known because it is contingent on SD hedging, and notes that such an
indicator would provide the CFTC with additional information regarding
each PPS.\97\
---------------------------------------------------------------------------
\94\ Id.
\95\ Id.
\96\ CME at 4.
\97\ Id.
---------------------------------------------------------------------------
The Commission received one comment regarding costs and benefits.
ISDA-SIFMA recommend that reporting for PPSs be delayed at least until
11:59:59 p.m. eastern time on the next business day following the
execution date because of the potential cost to customers that results
from the proposed 11:59:59 p.m. eastern time cutoff for PPSs,
particularly in the context of global equity index trades.\98\ ISDA-
SIFMA give a cross-border example showing that a post-priced swap
indicator could indicate to other market participants that an SD will
continue hedging a large notional trade on T+1, which could hurt the
client's execution.\99\
---------------------------------------------------------------------------
\98\ ISDA-SIFMA at 56-57.
\99\ Id.
---------------------------------------------------------------------------
The Commission received one comment addressing an inconsistency
with proposed validations. CME comments that the proposed PPS reporting
process is inconsistent with the validations proposed in the
Proposal.\100\ Further, CME believes since the Commission did not
specifically identify which data elements constitute ``other economic
or other terms'' in proposed Sec. 43.3(a)(4)(ii), it is not clear if
the proposed validations would allow for the reporting of all these
data elements.\101\ However, CME states it is clear from the variable
term ``quantity'' that is referenced in the Proposal that Sec.
43.3(a)(4)(ii) is not consistent with the proposed validations.\102\
CME notes that many proposed data elements relate to quantity (notional
quantity, etc.), and some of these data elements, such as quantity unit
of measure and total notional quantity, are mandatory data elements
that would need to be populated to pass proposed validations.\103\ CME
states that while the proposed quantity unit of measure data element
allows for submission of a dummy value, the allowable values and
validations for the other proposed quantity data elements would require
the reporting party to submit an inaccurate value to comply with
proposed Sec. 43.3(a)(4)(ii) and the proposed validations.\104\ CME
suggests that the Commission identity all data elements that comprise
the variable terms and elements for any swap and either (1) open up the
proposed validations to permit submission of such transactions with one
or more blank data elements; (2) establish dummy variables as necessary
for each of the variable terms such that the dummy variables could be
submitted to pass validations; or (3) open all validations for all data
elements for such swaps covered by Sec. 43.3(a)(4)(ii).\105\
---------------------------------------------------------------------------
\100\ CME at 4.
\101\ Id.
\102\ Id.
\103\ Id.
\104\ Id.
\105\ Id.
---------------------------------------------------------------------------
c. Final Rule
For reasons discussed in the Proposal and as more fully considered
in light of comments, discussed below, the Commission is adopting Sec.
43.3(a)(4) as proposed with a minor ministerial change for clarity. The
Commission is modifying the swap data technical specification in
response to a comment from CME that Sec. 43.3(a)(4) was inconsistent
with the swap data technical specification.
The Commission agrees with commenters that believe the reporting
and public dissemination of PPSs ASATP after execution, but before the
price is determined, generally does not serve a significant price
discovery function. However, the Commission disagrees with CME's
comment that the public dissemination of a PPS prior to the price being
determined never provides any value to the market. The Commission
believes the public dissemination of a PPS ASATP after execution with a
blank price, or with a placeholder price that reflects the reporting
counterparty's expectation of the future event on which pricing is
contingent, would not enhance price discovery and may confuse the
market. The Commission also believes, and thus agrees with Citadel,
that when the price of a PPS is set as a spread above or below a
referenced index that is to be published later in the day, the
publishing of such spread and the reference index would serve a price
[[Page 75431]]
discovery function. Specifically, publishing the spread above or below
a referenced index that is not published until a later time would
inform market participants of the current pricing formula at which
specific products are being traded. Market participants could use such
information for intra-day price discovery even though the referenced
index is not published until later in the day.
The Commission also agrees with FIA and ICI that the publishing of
swap transaction and pricing data for PPSs ASATP after execution
presents unique and heightened risks of front running. Public reporting
of PPSs before their prices are determined would allow market
participants to transact in swaps ahead of the event on which the price
is contingent, potentially disadvantaging a counterparty to the PPS and
increasing its costs. The Commission believes the increase in costs
could be expected to lead market participants to forego the use of such
swaps, thereby materially reducing swap market liquidity.
The Commission believes proposed Sec. 43.3(a)(4) strikes an
appropriate balance between public transparency and price discovery,
and concerns that immediate publication of PPSs would materially reduce
market liquidity.
In permitting the delayed reporting of PPSs until the earlier of
the price being determined or the end of the execution day, the
Commission expects that the majority of PPSs will be publicly
disseminated only after their price has been determined. This will
allow market participants to transact those PPSs without the risk that
public dissemination will negatively affect the determination of the
price, and thus address the Commission's concern regarding a potential
material reduction in market liquidity.
The Commission also expects the end of the day reporting deadline
in Sec. 43.3(a)(4) will result in some PPSs being publicly
disseminated prior to their price being determined. The Commission,
balancing the delayed reporting of PPSs with the potential harms to
transparency that would accrue if counterparties were incentivized to
structure swaps as PPSs to take advantage of a longer reporting delay,
believes an end of day reporting deadline is appropriate. The
Commission believes an end of day reporting deadline for PPSs is
necessary to ensure that the regulation does not inappropriately
restrict public transparency and price discovery by encouraging or
permitting the indefinitely delayed reporting of PPSs.
Additionally, the Commission is modifying the technical
specification in response to a comment by CME. The Commission agrees
with CME that the validations in the draft specification needed to be
revised to ensure that swaps required to be reported pursuant to Sec.
43.3(a)(4) would be consistent with the validations proposed in the
specification. The validations in the technical specification have been
revised accordingly.
The Commission agrees with DTCC that adding exceptions to the
proposed validations in the technical specification, as the Commission
is doing to facilitate the reporting of swaps with variable terms,
should generally be avoided because it creates complexities and impedes
the standardization of reporting brought about by strict validation
rules. However, the Commission is cognizant of its statutory directive
to make swap transaction and pricing data available as appropriate to
enhance price discovery while taking into account whether the public
dissemination will materially reduce market liquidity. Accordingly, the
Commission does not view the benefits of simplicity and standardization
available under the alternative approach of providing an indefinite
delay in reporting PPSs until all variable terms are determined as
sufficient reason to justify deviation from the more balanced approach
that the Commission believes best suited to effectuate this statutory
directive.
3. Sec. 43.3(a)(5)--Clearing Swaps
The Commission is amending Sec. 43.3(a) by adding DCOs to the
reporting counterparty hierarchy for clearing swaps that are publicly
reportable swap transactions to address the limited circumstances in
which DCOs may execute clearing swaps that meet the definition of a
publicly reportable swap transaction in part 43. Proposed Sec.
43.3(a)(5) stated that notwithstanding the provisions of Sec.
43.3(a)(1) through (3), if a clearing swap, as defined in Sec. 45.1,
is a publicly reportable swap transaction, the DCO that is a party to
such swap shall be the reporting counterparty and shall fulfill all
reporting counterparty obligations for such swap ASATP after execution.
The Commission received two comments on the proposed amendments to
Sec. 43.3(a)(5). ICE DCOs and CME believe that if the Commission
finalizes proposed Sec. 43.3(a)(5), the Commission should amend the
definition of ``publicly reportable swap transaction'' in Sec. 43.2 to
exclude swaps created through DCO default management processes to avoid
frustrating the default management process by allowing front-running if
the processes span multiple days.\106\ They also believe it would be
impractical as the default management process may be achieved through
the sale at the portfolio (not individual swap) level, which ``does not
lend itself'' to part 43 reporting.\107\ Also, they believe the prices
disseminated with default management related swaps would not be
relevant to market participants as the prices are affected by the
clearing house's priority to take timely action, so mistaken reliance
on these prices may lead to price dislocations and market
disruption.\108\
---------------------------------------------------------------------------
\106\ ICE DCOs at 2; CME at 7-8.
\107\ Id.
\108\ Id.
---------------------------------------------------------------------------
The Commission agrees with ICE DCOs and CME that the Commission
should amend the definition of publicly reportable swap transaction to
exclude swaps created through DCO default management processes because
of Sec. 43.3(a)(5). The Commission is concerned that the new
requirement could impede the efficacy or ability of DCOs to proceed
with default management exercises.
As such, the Commission is adopting Sec. 43.3(a)(5) as proposed,
but as discussed above in section II.B.2, is amending the definition of
``publicly reportable swap transaction'' in Sec. 43.2(a) to exclude
swaps entered into by a DCO as part of managing the default of a
clearing member. New Sec. 43.3(a)(5) will require that notwithstanding
the provisions of Sec. 43.3(a)(1) through (3), if a clearing swap, as
defined in Sec. 45.1(a), is a publicly reportable swap transaction,
the DCO that is a party to such swap shall be the reporting
counterparty and shall fulfill all reporting counterparty obligations
for such swap ASATP after execution.
4. Sec. 43.3(a)(6)--PB Swaps
The Commission understands that prime brokerage swaps begin with a
counterparty opening an account with a PB that grants limited agency
powers to the counterparty. These limited powers enable the
counterparty, as an agent for the PB, to enter into swaps with approved
executing dealers (``ED''), subject to specific limits and parameters,
such as credit limits and collateral requirements. The PB also enters
into ``give-up'' arrangements with approved EDs in which the EDs agree
to negotiate swaps with the counterparty, acting as an agent for the
PB, within the specified parameters and to face the PB as counterparty
for the resulting ED-PB swap (``ED-PB Swap'').
[[Page 75432]]
The Commission understands that in a prime brokerage swap, the
counterparty seeks bids for the desired swap from one or more of the
approved EDs, within the parameters established by the PB. Once the
counterparty and ED agree on the terms, the Commission believes that
both the counterparty and ED provide a notice of the terms to the PB,
and those terms constitute the ED-PB Swap, which the PB must accept if:
The swap is with an approved ED; the counterparty and ED have committed
to the material terms; and the terms are within the parameters
established by the PB. Once the ED-PB Swap is accepted by the PB, the
PB enters into a mirror swap (``Mirror Swap'') with the counterparty
with identical economic terms and pricing, subject to adjustment, as a
result of the prime brokerage servicing fee.
a. Proposal
The CEA authorizes the Commission to make swap transaction and
pricing data available to the public in such form and at such times as
the Commission determines appropriate to enhance price discovery.\109\
In 2017, DMO announced its intention to review the reporting
regulations addressing ongoing issues of reporting prime brokerage
transactions.\110\ In response to concerns that publicly disseminating
all legs of a prime brokerage transaction incorrectly suggests the
presence of more trading activity and price discovery than actually
exists, the Commission proposed to define and exempt certain legs of
prime brokerage transactions, defined as ``mirror swaps,'' from public
dissemination.
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\109\ 7 U.S.C. 2(a)(13)(B).
\110\ Roadmap at 11. DMO has previously provided no-action
relief from the real-time public reporting requirements for swaps
executed pursuant to prime brokerage arrangements in response to
concerns that reporting both legs of prime brokerage transactions
would incorrectly suggest the presence of more trading activity and
price discovery in the market than actually exists. See Commission
Letter No. 12-53, Time-Limited No-Action Relief from (i) Parts 43
and 45 Reporting for Prime Brokerage Transactions, and (ii)
Reporting Unique Swap Identifiers in Related Trades under Part 45 by
Prime Brokers (Dec. 17, 2012), available at https://www.cftc.gov/sites/default/files/idc/groups/public/@lrlettergeneral/documents/letter/12-53.pdf (``NAL No. 12-53'').
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i. Proposed New Sec. 43.2 Definitions Related to Mirror Swaps
As noted above at section II.C, the Commission proposed adding the
following six definitions to Sec. 43.2: ``mirror swap;'' ``pricing
event;'' ``prime broker;'' ``prime brokerage agency arrangement;''
``prime brokerage agent;'' and ``trigger swap.'' Since these six
proposed definitions are related to the Commission's proposal to exempt
mirror swaps from public dissemination, the Commission discusses these
definitions in this section.
The Commission proposed adding the term ``prime brokerage agency
arrangement'' to Sec. 43.2(a). ``Prime brokerage agency arrangement''
would mean an arrangement pursuant to which a PB authorizes one of its
clients, acting as agent for such PB, to cause the execution of a
particular leg of a prime brokerage transaction. The Commission's goal
in proposing the ``prime brokerage agency arrangement'' definition and
using this defined term in other definitions in proposed Sec. 43.2(a)
was to help ensure that the scope of unreported mirror swaps is limited
to swaps that are, among other things, integrally related to the other
leg(s) of a prime brokerage transaction that will always be required to
be reported.
The Commission proposed adding the term ``prime brokerage agent''
to Sec. 43.2(a) as a new definition that would mean a client of a PB
who causes the execution of a particular leg(s) of a prime brokerage
transaction acting pursuant to a prime brokerage agency arrangement.
The Commission also proposed adding the term ``prime broker'' to
Sec. 43.2(a). ``Prime broker'' would mean with respect to a mirror
swap and the related leg(s) of a PB transaction that will not be
required to be reported, a SD acting in the capacity of a PB with
respect to such swaps. The Commission proposed to use the term ``prime
broker'' in the proposed definitions of ``prime brokerage agency
arrangement,'' ``prime brokerage agent,'' and ``trigger swap'' in
proposed Sec. 43.2(a), and in proposed Sec. 43.3(a)(6), to establish
the parameters of when a ``mirror swap'' would not be reportable under
part 43 if it satisfied the terms of proposed Sec. 43.3(a)(6)(i).
The Commission proposed adding the term ``trigger swap'' to Sec.
43.2(a) as a new definition that would mean a swap: (1) That is
executed pursuant to one or more prime brokerage agency arrangements;
\111\ (2) to which one counterparty or both counterparties are PBs; (3)
that serves as the contingency for, or triggers the execution of, one
or more corresponding mirror swaps; and (4) that is a publicly
reportable swap transaction that is required to be reported to an SDR
pursuant to parts 43 and 45. The Commission proposed to use the term
``trigger swap'' as an element of a ``mirror swap,'' which the
Commission proposed to make not reportable.
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\111\ The Commission understands that some pricing events that
result in trigger swaps are negotiated by persons that are acting
pursuant to a prime brokerage agency arrangement with more than one
prime broker. The Commission understands that some pricing events
that lead to trigger swaps are negotiated by two persons that are
each acting pursuant to a prime brokerage agency arrangement with
its respective prime broker.
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The Commission proposed adding the term ``pricing event'' to Sec.
43.2(a) as a new definition that would mean the completion of the
negotiation of the material economic terms and pricing of a trigger
swap. The Commission proposed using the term ``pricing event'' in
proposed Sec. 43.3(a)(6)(i) to make it clear when execution of a
trigger swap, which would be required to be reported under proposed
Sec. 43.3(a)(6)(iv) (discussed below in section II.C.4.b), occurs.
The Commission proposed adding the term ``mirror swap'' to Sec.
43.2(a) to mean a swap: (1) To which a PB is a counterparty or both
counterparties are PBs; (2) that is executed contemporaneously with a
corresponding trigger swap; (3) that has identical terms and pricing as
the contemporaneously executed trigger swap (except that a mirror swap,
but not the corresponding trigger swap, may include any associated
prime brokerage service fees agreed to by the parties and except as
provided in the final sentence of this ``mirror swap'' definition); (4)
with respect to which the sole price forming event is the occurrence of
the contemporaneously executed trigger swap; and (5) the execution of
which is contingent on, or is triggered by, the execution of the
contemporaneously executed trigger swap. As further proposed, the
notional amount of a mirror swap may differ from the notional amount of
the corresponding trigger swap, including, but not limited to, in the
case of a mirror swap that is part of a partial reverse give-up; \112\
provided, however, that in such cases, (i) the aggregate notional
amount of all such mirror swaps to which the PB that is a counterparty
to the trigger swap is also a counterparty shall be equal to the
notional amount of the corresponding trigger swap and (ii) the market
risk and contractual cash flows of all such mirror swaps to which a PB
that is not a counterparty to the corresponding trigger swap is a party
will offset each other (and the aggregate notional amount of all such
mirror swaps on one side of the market and with cash flows in one
direction shall be equal to the aggregate notional amount of all such
[[Page 75433]]
mirror swaps on the other side of the market and with cash flows in the
opposite direction), resulting in each PB having a flat market risk
position.
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\112\ A ``partial reverse give-up'' is described below in
section II.C.4.b.
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The Commission proposed defining the term ``mirror swap'' to
delineate a group of swaps that do not have to be reported under part
43 if the related conditions set forth in proposed Sec. 43.3(a)(6) are
satisfied. The Commission believed that because the terms and pricing
of a trigger swap and its related mirror swaps are similar, part 43
reporting of both a trigger swap and the related mirror swaps could
falsely indicate the occurrence of two or more pricing events and
incorrectly suggest the presence of more trading activity and price
discovery than actually exist.
The Commission proposed using the word ``contemporaneously'' in
clause (2) of the ``mirror swap'' definition rather than
``simultaneously'' to reflect the fact that it may take time for
potential parties to a mirror swap to receive the terms of such mirror
swap and to verify that the terms are within the parameters established
by the governing prime brokerage arrangement.
The Commission proposed the language regarding associated prime
brokerage service fees in clause (3) of the proposed ``mirror swap''
definition to reflect that a mirror swap may contain fees that a PB
that is a counterparty to a mirror swap may charge as a fee for serving
as a PB in such swap. The Commission understands that PBs typically
charge their clients a service fee for the swap intermediation service
that PBs provide. The PB service fee is meant to reflect PBs' credit
intermediation costs as well as PBs' back-office and middle-office
administrative services costs related to trigger swaps and mirror swaps
(e.g., booking, reconciling, settling, and maintaining such trigger
swaps and mirror swaps). The PB service fee is typically agreed upon by
a PB and its client before a pricing event. To be considered prime
brokerage service fees for purposes of clause (3) of the proposed
``mirror swap'' definition, such fees must be limited to the foregoing
purpose and cannot contain any other elements.\113\
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\113\ For example, the Commission would not consider a purported
prime brokerage service fee providing the prime broker or its
counterparty exposure to a commodity to be a prime brokerage service
fee within the meaning of clause (3) of the proposed ``mirror swap''
definition, as a result of which the related ``mirror swap'' would
not be a mirror swap, and thus would not be within the scope of
proposed Sec. 43.3(a)(6) (discussed below in section II.C.4.b), and
therefore would be reportable under Sec. 43.3(a)(1) through (3), as
applicable, depending on the facts and circumstances.
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ii. Proposed Regulations
Proposed new Sec. 43.3(a)(6)(i) would provide that a mirror swap,
which the Commission proposed to define in Sec. 43.2(a), as discussed
above in section II.B.1, is not a publicly reportable swap transaction.
Proposed new Sec. 43.3(a)(6)(i) would also state that, for purposes of
determining when execution occurs under Sec. 43.3(a)(1) through (3),
execution of a trigger swap shall be deemed to occur at the time of the
pricing event for such trigger swap.
Proposed new Sec. 43.3(a)(6)(ii) would provide parameters for
determining which counterparty is the reporting counterparty for a
given trigger swap in situations where it is unclear, with respect to a
given set of swaps, which are mirror swaps and which is the related
trigger swap. More specifically, proposed new Sec. 43.3(a)(6)(ii)
would state that if, with respect to a given set of swaps, it is
unclear which are mirror swaps and which is the related trigger swap,
the PBs would be required to determine which swap is the trigger swap
and which are mirror swaps. Proposed new Sec. 43.3(a)(6)(ii) would
also specify that, with respect to the trigger swap to which a PB is a
party, the reporting counterparty shall be determined pursuant to Sec.
43.3(a)(3). Proposed new Sec. 43.3(a)(6)(ii) would add that,
notwithstanding the foregoing, if the counterparty to a trigger swap
that is not a PB is an SD, then that counterparty will be the reporting
counterparty for the trigger swap.
Proposed new Sec. 43.3(a)(6)(iii) would provide that, if, with
respect to a given set of swaps, it is clear which are mirror swaps and
which is the related trigger swap, the reporting counterparty for the
trigger swap shall be determined pursuant to Sec. 43.3(a)(3).
Proposed new Sec. 43.3(a)(6)(iv) would provide that trigger swaps
described in proposed Sec. 43.3(a)(6)(ii) and (iii) shall be reported
pursuant to the requirements set out in Sec. 43.3(a)(2) or (a)(3), as
applicable, except that the provisions of proposed Sec.
43.3(a)(6)(ii), rather than of proposed Sec. 43.3(a)(3), shall govern
the determination of the reporting counterparty for purposes of the
trigger swaps described in proposed Sec. 43.3(a)(6)(ii).
The goal of proposed Sec. 43.3(a)(6)(ii) is to have each trigger
swap be reported ASATP after its pricing event. The Commission
understands that one counterparty to a trigger swap often will have
participated in negotiating the related pricing event, so should be
well-placed to report the trigger swap pursuant to part 43 in such
circumstances, particularly if that counterparty is an SD, given that
most SDs are experienced with part 43 reporting. If the PB is an SD,
but its counterparty is not, the PB would be the reporting counterparty
for the trigger swap even though the PB may not learn of the pricing
event for some time. However, pursuant to proposed Sec. 43.3(a)(7),
discussed below in section II.C.5, the PB could contract with a third-
party service provider (which could include a party to the pricing
event (e.g., an executing broker)) to handle such reporting if it
believes reporting such publicly reportable swap transaction in a
timely manner (i.e., ASATP after the pricing event, per proposed Sec.
43.3(a)(6)(i)) would be problematic, while remaining fully responsible
for such reporting. Similarly, even in circumstances in which neither
counterparty to a trigger swap participated in negotiating the related
pricing event (e.g., a double give-up prime brokerage swap structure),
such counterparties can contract with a third-party service provider to
handle such reporting if they believe that reporting such trigger swap
in a timely manner (i.e., ASATP after the pricing event, per proposed
Sec. 43.3(a)(6)(i)) would be problematic for them, while remaining
fully responsible for such reporting.
b. Comments on the Proposal
The Commission received one comment opposing the proposal to
provide an exemption from real-time reporting for mirror swaps. Citadel
comments the Commission should instead enhance swap transaction and
pricing data by implementing a separate flag to specifically identify
mirror swaps.\114\
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\114\ Citadel at 10.
---------------------------------------------------------------------------
The Commission received two comments supporting the proposal to
provide an exemption from real-time reporting for mirror swaps. CME
comments that publishing information regarding mirror swaps would not
provide any information of value to market participants.\115\ FXPA
similarly notes their agreement with Commissioner Berkowitz's
assessment that ``duplicated reporting can create a false signal of
swap trading volume and potentially obscure price discovery by giving
the price reported for a single prime brokerage swap twice as much
weight relative to other non-prime brokerage swaps.'' \116\
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\115\ CME at 5.
\116\ FXPA at 4.
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The Commission received an additional two comments that support the
proposal but also suggest
[[Page 75434]]
modifications. ISDA-SIFMA support the proposed treatment of mirror
swaps as non-publicly reportable swap transactions.\117\ ISDA-SIFMA
note that even though mirror swaps resemble hedging swaps, the key
difference is that hedges occur in the market while mirror swaps are
solely entered into as a function of a PB acting as a credit
intermediary between parties that agreed to the terms of the relevant
swap.\118\
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\117\ ISDA-SIFMA at 51-53, 64-66.
\118\ Id.
---------------------------------------------------------------------------
ISDA-SIFMA also believe the current proposal could be improved by
modifying obligations to report trigger swaps where the reporting
obligation may fall on a prime broker. ISDA-SIFMA suggest that when an
off-facility trigger swap is entered into with a SD that is not a PB
with respect to such trigger swap, that SD should always report such
trigger swap ASATP after such pricing event.\119\ However, ISDA-SIFMA
believe that when a pricing event occurs between two non-SDs, the
related trigger swap should be reported ASATP upon acceptance of the
prime broker.\120\
---------------------------------------------------------------------------
\119\ Id.
\120\ Id.
---------------------------------------------------------------------------
ISDA-SIFMA also note that non-SDs generally do not have the
necessary systems to effectuate reporting and PBs would thus be
reluctant to delegate reporting responsibility to a non-SD.\121\ ISDA-
SIFMA believe a PB would therefore report a trigger swap when the
pricing event occurred between two non-SDs, which could only occur
after the PB has accepted the trigger swap. ISDA-SIFMA believe that
requiring the PB to report a trigger swap sooner than acceptance is
impractical and would have the negative effect of limiting PB client
access to non-SD liquidity.\122\ ISDA-SIFMA believe that PB client
access to non-SD liquidity would be limited under the Proposal because
PBs would be concerned with their ability to comply with the reporting
requirement and may restrict their PB clients from transacting with
non-SDs.\123\
---------------------------------------------------------------------------
\121\ ISDA-SIFMA at 64.
\122\ Id.
\123\ ISDA-SIFMA at 51-53, 64-66.
---------------------------------------------------------------------------
ISDA-SIFMA acknowledge that the suggestion that PBs be required to
report trigger swaps after the PB has accepted the trigger swap may
lead to a delay in the reporting of the trigger swap.\124\ ISDA-SIFMA
state that the extent of the delay would vary based on factors that
include the sophistication of the non-SD's operational and systems
capability, but that they assume reporting would be feasible within a
T+1 timeline.\125\ ISDA-SIFMA suggest using the proposed prime broker
transaction indicator exclusively for such non-SD trigger swaps to
assist in indicating to market participants that such trigger swaps may
be reported later than the occurrence of the pricing event.\126\
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\124\ ISDA-SIFMA at 52.
\125\ ISDA-SIFMA at 66.
\126\ ISDA-SIFMA at 52-53.
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ISDA-SIFMA do not believe additional indicators for trigger swaps
are necessary because pricing data that is of interest to the public
are already included in the swap transaction and pricing data for the
trigger swap.\127\ ISDA-SIFMA believe it is not practicable to require
the potential additional reporting data elements on which the
Commission sought comment because the relevant reporting counterparty
may not have access to such information.\128\
---------------------------------------------------------------------------
\127\ ISDA-SIFMA at 51-53.
\128\ Id.
---------------------------------------------------------------------------
GFMA supports ISDA-SIFMA's response and similarly believes that the
above modifications to the proposal are necessary.\129\
---------------------------------------------------------------------------
\129\ GFMA at 1, 5-6.
---------------------------------------------------------------------------
The Commission received one comment addressing definitions. ISDA-
SIFMA do not believe the proposed definitions need to be modified to
reflect that prime brokerage fees might not be included in all mirror
swaps. ISDA-SIFMA comments that clause (3) of the proposed ``Mirror
Swap'' definition appears to adequately address such a
possibility.\130\
---------------------------------------------------------------------------
\130\ ISDA-SIFMA at 53.
---------------------------------------------------------------------------
ISDA-SIFMA support the Commission's proposed definition for ``prime
broker'' and believes it accurately describes the term as understood in
common industry practice.\131\ However, ISDA-SIFMA anticipate that the
related definitions for ``mirror swap'' and ``trigger swap'' would
create unintended challenges and suggests revisions to those
definitions that reference a newly defined term, ``prime broker swap.''
\132\ ISDA-SIFMA suggest revisions to clarify that the defined terms
apply across asset classes and were not intended to imply that a prime
brokerage agency arrangement is limited to the execution of the trigger
swap.\133\ ISDA-SIFMA also suggest a revision to the definition of
trigger swap that would not, in conjunction with proposed Sec.
43.3(a)(6)(i), require the public dissemination of a mirror swap if the
associated trigger swap was exempt from public dissemination for any
reason.\134\
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\131\ ISDA-SIFMA at 53-54.
\132\ Id.
\133\ Id.
\134\ ISDA-SIFMA at 65.
---------------------------------------------------------------------------
The Commission received one comment specifically regarding costs
and benefits. ISDA-SIFMA comments that adding an additional reporting
data element identifying if a swap was a mirror swap or a trigger swap
would only result in added costs and complexity to PB reporting,
without commensurate benefit to regulatory oversight.\135\ ISDA-SIFMA
believe that the real-time reporting of mirror swaps would neither
enhance price transparency nor serve any price discovery purpose given
that there would be no new or additional pricing information released
to the market and publicly disseminating mirror swaps with a mirror
swap flag would only create noise on the public tape.\136\ With respect
to the prevalence of mirror swaps, ISDA-SIFMA note that all PB
intermediated transactions have at least one mirror swap, but ISDA-
SIFMA cannot speak to percentages because firms have strict internal
policies on what sort of information can be shared with or amongst
other firms.\137\
---------------------------------------------------------------------------
\135\ ISDA-SIFMA at 57.
\136\ Id.
\137\ Id. at 58.
---------------------------------------------------------------------------
c. Final Rule
The Commission is adopting the proposal and the proposed new Sec.
43.2 definitions related to mirror swaps with some modifications
suggested by commenters, as discussed further below.\138\
---------------------------------------------------------------------------
\138\ In addition, the Commission made minor non-substantive
technical edits for clarity.
---------------------------------------------------------------------------
The CEA authorizes the Commission to make swap transaction and
pricing data available to the public in such form and at such times as
the Commission determines appropriate to enhance price discovery.\139\
The Commission concludes, as informed by commenters, that price
discovery will be enhanced by excluding mirror swaps from public
dissemination. The Commission believes that price discovery will not be
enhanced because the terms and pricing of a trigger swap and its
related mirror swap(s) are the same and the current requirement to
report both trigger and mirror swaps may be falsely indicating the
occurrence of two or more pricing events. The Commission understands
that such potentially false indications may also incorrectly suggest
the presence of more trading activity and price discovery in the market
than actually exists. The Commission is therefore finalizing the
portions of the proposed amendments that clarify that
[[Page 75435]]
mirror swaps are not publicly reportable swap transactions.
---------------------------------------------------------------------------
\139\ 7 U.S.C. 2(a)(13)(B) (emphasis added).
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The Commission disagrees with the comment that mirror swaps should
continue to be publicly disseminated. The commenter suggests that the
Commission address concerns that mirror swaps may create false signals
of swap trading volume by requiring the reporting of a new indicator
for mirror swaps, but the Commission notes that none of the other
commenters assert that the public reporting of mirror swaps enhances
price discovery. The Commission believes that it would be inconsistent
with section 2(a)(13) of the CEA for the Commission to continue to
require the public dissemination of swap transaction and pricing data
that does not enhance price discovery.\140\
---------------------------------------------------------------------------
\140\ 7 U.S.C. 2(a)(13)(B).
---------------------------------------------------------------------------
The Commission is also finalizing as proposed those portions of the
proposal that provide that the execution of a trigger swap, for
purposes of determining when execution occurs under Sec. 43.3(a)(1)
through (3), shall be deemed to occur at the time of the pricing event
for such trigger swap. Since all of the material terms of trigger swaps
are determined at the time of its related pricing event, the Commission
believes it would enhance price discovery for swap transaction and
pricing data associated with trigger swaps to be reported in real time
and disseminated, subject to any applicable time delay described in
Sec. 43.5, ASATP after the occurrence of the pricing event.
The Commission disagrees with the comment that a PB should be
required to report a trigger swap after the trigger swap has been
accepted by the PB in circumstances where the counterparty to the
trigger swap is not an SD. The commenter acknowledges that conditioning
the requirement to report a trigger swap upon the acceptance of the
trigger swap by a PB would permit an indefinite delay in the reporting
of some trigger swaps. The Commission believes that the proposed
indefinite delay is generally inconsistent with the section 2(a)(13) of
the CEA and would have negative impacts on transparency, price
discovery, and liquidity. Since all of the material terms of trigger
swaps are determined at the time of its related pricing event, the
Commission believes it would enhance price discovery for swap
transaction and pricing data associated with trigger swaps to be
reported in real time and disseminated, subject to any applicable time
delay described in Sec. 43.5, ASATP after the occurrence of the
pricing event.
The Commission is also finalizing the proposed definition of mirror
swap and trigger swap with modifications suggested by commenters.\141\
The Commission believes it is necessary to define a mirror swap and
trigger swap with specificity to ensure that Sec. 43.3(a)(6) only
exempts from public reporting those legs of a prime brokerage
transaction that might incorrectly suggest the presence of more trading
activity and price discovery than actually exist.
---------------------------------------------------------------------------
\141\ In addition, the Commission made minor non-substantive
technical edits for clarity.
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The Commission agrees with comments suggesting clarifying revisions
to the proposed definitions of mirror swap and trigger swap, and the
creation of a newly defined term ``prime broker swap.'' These
modifications seek to clarify that such terms apply across asset
classes and were not intended to imply that a prime brokerage agency
arrangement is limited to the execution of the trigger swap. The
Commission did not intend to imply otherwise and believes such
clarifications may help market participants better understand their
obligations. Accordingly, the Commission is amending proposed Sec.
43.2(a) to define the term ``Prime broker swap'' as ``any swap to which
a SD acting in the capacity as PB is a party.'' Under this definition,
both the trigger swap and mirror swap would be prime broker swaps. The
Commission is similarly amending the proposed definitions of ``Prime
brokerage agency arrangement'' and ``Prime brokerage agent'' to
reference PB swaps instead of trigger swaps.
The Commission is amending the proposed definition of ``Trigger
swap'' to clarify that a PB swap executed on or pursuant to the rules
of a SEF or DCM shall be treated as the trigger swap for purposes of
part 43. The Proposal did not directly address the potential fact
pattern where a leg of a prime brokerage transaction is executed on a
facility. In such instances, the Commission believes that it is
preferable for that leg to be deemed the trigger swap so that it can be
reported in real-time by the SEF or DCM.
The Commission is amending the proposed definition of ``Mirror
swap'' to replace references to ``notional'' with a broader reference
to ``contractually agreed payment and delivery amounts.'' The
Commission believes that use of the broader term ``contractually agreed
payment and delivery amounts'' clarifies that the term mirror swap may
apply to swaps in all asset classes, including swaps for which the term
``notional'' may not generally be used by market participants. The
Commission is also amending the proposed definition of ``Mirror swap''
to remove the phrase: Including, but not limited to, in the case of a
mirror swap that is part of a partial reverse give-up. While the
Commission understands that the definition of ``Mirror swap'' may apply
to swaps associated with partial reverse give-ups, as described in the
Proposal, the Commission believes such specific reference in the text
of the regulation is unnecessary.
The Commission is otherwise finalizing the proposed definitions of
mirror swap and trigger swap as proposed. The Commission believes the
definitions are necessary to ensure that Sec. 43.3(a)(6) only exempts
from public reporting those legs of a prime brokerage transaction that
might incorrectly suggest the presence of more trading activity and
price discovery than actually exist.
The Commission is therefore defining a mirror swap to mean a swap:
(1) To which (i) a PB is a counterparty or (ii) both counterparties are
prime brokers; (2) that is executed contemporaneously with a
corresponding trigger swap; (3) That has identical terms and pricing as
the contemporaneously executed trigger swap (except (i) that a mirror
swap, but not the corresponding trigger swap, may include any
associated prime brokerage service fees agreed to by the parties and
(ii) as provided in paragraph (5) of this ``mirror swap'' definition);
(4) With respect to which the sole price forming event is the
occurrence of the contemporaneously executed trigger swap; and (5) The
execution of which is contingent on, or is triggered by, the execution
of the contemporaneously executed trigger swap. The contractually
agreed payments and delivery amounts under a mirror swap may differ
from those amounts of the corresponding trigger swap if: (i) Under all
such mirror swaps to which the PB that is a counterparty to the trigger
swap is also a counterparty, the aggregate contractually agreed
payments and delivery amounts shall be equal to the aggregate of the
contractually agreed payments and delivery amounts under the
corresponding trigger swap; and (ii) the market risk and contractually
agreed payments and delivery amounts of all such mirror swaps to which
a PB that is not a counterparty to the corresponding trigger swap is a
party will offset each other, resulting in such PB having a flat market
risk position at the execution of such mirror swaps.
The Commission is similarly defining a trigger swap to mean a swap:
(1) That is executed pursuant to one or more prime brokerage agency
arrangements; (2) to which one counterparty or both counterparties are
prime brokers; (3)
[[Page 75436]]
that serves as the contingency for, or triggers, the execution of one
or more corresponding mirror swaps; and (4) that is a publicly
reportable swap transaction that is required to be reported to an SDR
pursuant to parts 43 and 45. A PB swap executed on or pursuant to the
rules of a SEF or DCM shall be treated as the trigger swap for purposes
of part 43.
The Commission expects the parties to a trigger swap to promptly
convey those terms to the relevant prime broker(s) that would be a
party or parties to related mirror swaps. Any delay in conveying such
terms should not be used as an opportunity to find additional
counterparties to take part in unreported mirror swaps.\142\ The
Commission may construe any purported mirror swaps resulting from such
activity as not executed contemporaneously with the related trigger
swap, and thus not within the scope of the proposed mirror swap
definition or, as a result, Sec. 43.3(a)(6), and therefore reportable
under Sec. 43.3(a)(1) through (3), as applicable, depending on the
facts and circumstances.
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\142\ This could include, but would not be limited to, a
potential party to a mirror swap receiving the terms of a related
trigger swap from one party to the trigger swap and seeking
additional counterparties to a mirror swap while waiting to receive
the matching terms of the trigger swap from the other party thereto.
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The Commission disagrees with comments suggesting the proposed
definition of trigger swap be amended to allow an exception to the
requirement that such swap be a publicly reportable swap transaction
reported to an SDR, where the trigger swap is otherwise exempt from
public reporting. The Commission is excluding mirror swaps from public
dissemination because of its concern that the public dissemination of
both trigger and mirror swaps may falsely indicate the occurrence of
two or more pricing events. The Commission's concern that the
publication of a mirror swap may mislead the market is premised on the
publication of the associated trigger swap. If the trigger swap is not
publicly disseminated, this concern is moot. The Commission is
therefore not amending the definition of trigger swap to allow for an
exception to the requirement that a trigger swap be a publicly
reportable swap transaction that is reported to an SDR.
The Commission agrees with the comment suggesting revisions to
clarify and simplify reporting obligations for trigger swaps. The
Commission is changing the title of Sec. 43.6(a)(6) from ``Mirror
swaps'' to the more general ``Prime Broker swaps'' as the paragraph
contains reporting obligations related to trigger swaps. The Commission
is modifying proposed Sec. 43.6(a)(6)(ii) to clarify that the
obligation for PBs to determine which swaps are mirror swaps and which
are trigger swaps applies when the trigger swap would occur between two
PBs under a prime brokerage agency arrangement. The Commission is also
removing the distinction in proposed Sec. Sec. 43.6(a)(6)(ii) and
43.6(a)(6)(iii) that would have created slight differences in the
process for determining the reporting counterparty for certain off-
facility trigger swaps.
5. Sec. 43.3(a)(7)--Third-Party Facilitation of Data Reporting
The Commission is adding new Sec. 43.3(a)(7) to provide for the
third-party facilitation of data reporting. New Sec. 43.3(a)(7) states
that any person required by part 43 to report swap transaction and
pricing data, while remaining fully responsible for reporting as
required by part 43, may contract with a third-party service provider
to facilitate reporting. Regulation 45.9 provides for third-party
facilitation of data reporting, and the Commission believes a parallel
requirement in part 43 will provide regulatory certainty by expressly
permitting the same opportunity for part 43 reporting.
The Commission received one comment on the proposal. Markit
comments the proposed explicit acknowledgement that third-party
reporting services may be used to meet part 43 reporting requirements
will encourage more firms to provide such services and will
consequently result in reduced compliance costs.\143\ The Commission
agrees with Markit, and for the reasons discussed above, is adopting
Sec. 43.3(a)(7) as proposed.
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\143\ Markit at 8.
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6. Sec. 43.3(b)--Public Dissemination of Swap Transaction and Pricing
Data
The Commission is adopting changes to Sec. 43.3(b). Existing Sec.
43.3(b)(2) \144\ states that registered SDRs shall ensure that swap
transaction and pricing data is publicly disseminated ASATP after such
data is received from a SEF, DCM, or reporting party, unless such
publicly reportable swap transaction is subject to a time delay
described in Sec. 43.5, in which case the publicly reportable swap
transaction shall be publicly disseminated in the manner described in
Sec. 43.5.
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\144\ As the Commission discussed above in section II.C.1, the
Commission is moving the substance of existing Sec. 43.3(b)(1) to
revised Sec. 43.3(a)(2).
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The Commission is re-locating existing Sec. 43.3(b)(2) to Sec.
43.3(b)(1). The Commission is replacing the language in existing Sec.
43.3(b)(2) stating that SDRs ``shall ensure'' swap transaction and
pricing data is publicly disseminated with an SDR ``shall publicly
disseminate'' swap transaction and pricing data ASATP to clarify that
SDRs must disseminate the data, rather than ensure it is done. The
Commission is also correcting two references to ``publicly reportable
swap transaction'' to reference ``swap transaction and pricing data.''
The Commission is re-locating Sec. 43.3(c)(1) to Sec. 43.3(b)(2)
in conjunction with the above relocation of Sec. 43.3(b)(2) to Sec.
43.3(b)(1). Existing Sec. 43.3(c)(1) states that any SDR that accepts
and publicly disseminates swap transaction and pricing data in real-
time shall comply with part 49 and shall publicly disseminate swap
transaction and pricing data in accordance with part 43 ASATP upon
receipt of such data, except as otherwise provided in part 43. Because
existing Sec. 43.3(c)(1) is an SDR obligation regarding the public
dissemination of swap transaction and pricing data, the Commission is
re-locating it to revised Sec. 43.3(b).
The Commission is also removing the last phrase of existing Sec.
43.3(c)(1), which states that SDRs must publicly disseminate swap
transaction and pricing data in accordance with part 43 ASATP upon
receipt of such data, except as otherwise provided in part 43. The
language is unnecessary given the similar, but more precise, reference
to Sec. 43.5 in existing Sec. 43.3(b)(2) and in proposed Sec.
43.3(b)(1).\145\ Finally, the Commission is re-designating existing
Sec. 43.3(c)(2) and (3) as Sec. 43.3(b)(4) and (5), respectively.
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\145\ The reference in Sec. 43.3(c)(1) to ``except as otherwise
provided in part 43'' rather than solely to Sec. 43.5 is
unnecessarily broad, given that Sec. 43.5 currently is the only
regulation in part 43 containing a delay to public dissemination.
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The Commission did not receive any comments on the non-substantive
or structural changes to Sec. 43.3(b). For the reasons discussed
above, the Commission is adopting the changes to Sec. 43.3(b) as
proposed. Separately, DTCC recommends deleting the annual independent
review requirements for SDRs in existing Sec. 43.3(c)(3), re-
designated Sec. 43.3(b)(5), because SDRs are subject to the system
safeguards requirements in Sec. 49.24, so the requirements in Sec.
43.3(b)(5) create unnecessary compliance costs and burdens for
SDRs.\146\ To the extent the requirements overlap, the Commission
clarifies SDRs can apply the controls
[[Page 75437]]
testing provisions in Sec. 49.24 by their internal audit departments
to satisfy Sec. 43.3(b)(5), but the Commission is not removing Sec.
43.3(b)(5) from its regulations.
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\146\ DTCC at 3.
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7. Sec. 43.3(c)--Availability of Swap Transaction and Pricing Data to
the Public
The Commission is relocating the requirements to make swap
transaction and pricing data available to the public from existing
Sec. 43.3(d)(1) and (2) to Sec. 43.3(c)(1) and (2).\147\ Existing
Sec. 43.3(d)(2) specifies that SDRs must make ``publicly
disseminated'' \148\ swap transaction and pricing data ``freely
available and readily accessible'' to the public.
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\147\ As discussed above in section II.C.6, the Commission is
re-locating the text of existing Sec. 43.3(c)(1), as the Commission
is modifying it, to Sec. 43.3(b)(2), and existing Sec. 43.3(c)(2)
and (3) as Sec. 43.3(b)(4) and (5), respectively.
\148\ Existing Sec. 43.2 defines ``publicly disseminated'' to
mean to publish and make available swap transaction and pricing data
in a non-discriminatory manner, through the internet or other
electronic data feed that is widely published and in machine
readable electronic format.
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The Commission is also changing existing Sec. 43.3(d)(1) and (2),
re-designated as Sec. 43.3(c)(1) and (2) to establish requirements for
SDRs to make swap transaction and pricing data available to the public
on their websites. First, the Commission is specifying that SDRs must
make swap transaction and pricing data available on their websites for
a period of a least one year after the initial ``public dissemination''
of such data. Second, the Commission is moving the format requirements
for SDRs in making this swap transaction and pricing data available to
the revised definition of ``public dissemination.''
The Commission believes publishing historical data supports the
fairness and efficiency of markets and increases transparency, which in
turn improves price discovery and decreases risk.\149\ Most SDRs
currently make historical swap transaction and pricing data available
on their websites for market participants to download, save, and
analyze.\150\ However, without clear requirements on how long SDRs must
make this data available, or make instructions available, a situation
could arise where swap transaction and pricing data is reported,
publicly disseminated, and then quickly or unreasonably made
unavailable to the public. Removing data in this fashion would deny the
public a sufficient opportunity to review the data and ultimately
impede the goals of increasing market transparency, improving price
discovery, and mitigating risk.
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\149\ See Real-Time Public Reporting of Swap Transaction Data,
77 FR 1182, 1183.
\150\ DTCC-SDR's historical swap transaction and pricing data is
available at https://rtdata.dtcc.com/gtr/; CME SDR's historical swap
transaction and pricing data is available at https://www.cmegroup.com/market-data/repository/data.html; and ICE Trade
Vault's historical swap transaction and pricing data is available at
https://www.icetradevault.com/tvus-ticker/#.
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The Commission received three comments supporting the proposal to
require SDR's to make public data available on their websites free for
one year.\151\ In particular, Citadel believes SDRs should be required
to make available at least one year of historical data free of
charge.\152\ The Commission agrees with commenters and is adopting the
changes to Sec. 43.3(c) as proposed, with one modification described
below.
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\151\ Citadel at 11; CME at 8; DTCC at 3.
\152\ Citadel at 11.
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DTCC recommends clarifying the connection between the fee
requirement in proposed Sec. 43.3(c)(2) and the one-year period set
forth in Sec. 43.3(c)(1) by either (i) combining the requirements in a
single paragraph or (ii) changing the language under Sec. 43.3(c)(2)
from ``pursuant to this part'' to ``pursuant to this paragraph (c).''
\153\ The Commission agrees with DTCC and is changing ``this part'' in
Sec. 43.3(c)(2) to ``this paragraph'' to clarify the connection.
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\153\ DTCC at 3. DTCC is concerned interpreting Sec.
43.3(c)(2)'s fee requirement without any time limitation would mean
any such previously publicly disseminated data held by an SDR must
be offered free of charge in perpetuity, which could unnecessarily
limit the services SDRs could provide to market participants.
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Therefore, Sec. 43.3(c) will state that SDRs shall make: Swap
transaction and pricing data available on their websites for a period
of time that is at least one year after the initial public
dissemination thereof; instructions freely available on their websites
on how to download, save, and search such swap transaction and pricing
data; and swap transaction and pricing data that is publicly
disseminated pursuant to this paragraph available free of charge.
8. Sec. 43.3(d)--Data Reported to SDRs
The Commission is adopting new Sec. 43.3(d)(1) to require
reporting counterparties, SEFs, and DCMs to report the swap transaction
and pricing data as described in the elements in appendix A. The
Commission provides guidance with respect to the form and manner of
reporting such elements in the technical specification published by the
Commission in place of existing Sec. 43.3(d)(1).\154\ The Commission
is also adding Sec. 43.3(d)(2) to require reporting counterparties,
SEFs, and DCMs to satisfy SDR validation procedures when reporting swap
transaction and pricing data to SDRs in place of existing Sec.
43.3(d)(2).\155\
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\154\ The Commission is relocating the requirement in existing
Sec. 43.3(d)(1) to the definition of ``publicly disseminate'' in
Sec. 43.2.
\155\ The Commission is relocating the requirement in existing
Sec. 43.3(d)(2) to Sec. 43.3(c)(1) and (2).
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The Commission is also removing existing Sec. 43.3(d)(3). In its
place, the Commission is requiring reporting counterparties, SEFs, and
DCMs to use the facilities, methods, or data standards provided or
required by the SDR to which the reporting counterparty, SEF, or DCM,
reports the data.
The Commission believes reporting counterparties will benefit from
distinct regulatory requirements in part 43 for reporting the swap
transaction and pricing data as described in the data elements in
appendix A in the form and manner provided in the technical
specification published by the Commission. In addition, the Commission
believes the SDR validation procedures the Commission is adopting in
Sec. 43.3(f) will help improve the timeliness and accuracy of data
SDRs publicly disseminate. However, the Commission believes a companion
requirement to Sec. 43.3(f) for reporting counterparties, SEFs, and
DCMs to satisfy SDR validation procedures in Sec. 43.3(d)(2) is
necessary. Without a companion requirement, ambiguity could arise as to
the responsibilities of reporting counterparties, SEFs, and DCMs to
actually satisfy the validation requirements in Sec. 43.3(f).
The Commission received one comment \156\ on the changes to Sec.
43.3(d). DTCC believes the revisions would benefit market participants
by having publicly disseminated swap transaction and pricing data
standardized across SDRs via the requirements of the technical
specifications published by the Commission pursuant to Sec. 43.7.\157\
The Commission agrees with DTCC. For the reasons discussed above, the
Commission is adopting the changes to existing Sec. 43.3(d) as
proposed, with a non-substantive technical change to proposed Sec.
43.3(d)(1) for clarity.
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\156\ NFP Electric Associations also comment they read CEA
section 2(a)(13)(D) as only authorizing the Commission to require
registered entities to disseminate data on swaps. As such, after a
non-SD/MSP/DCO reports an off-facility swap pursuant to part 43,
their reporting obligations should be satisfied as there is no
separate ``public dissemination'' requirement in the CEA that falls
on such non-registered entities. The Commission agrees nothing in
existing or amended Sec. 43.3(d) imposes a public dissemination
requirement on a non-registered entity, and as such, the Commission
considers NFP Electric Associations' concern misplaced.
\157\ DTCC at 4.
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[[Page 75438]]
9. Sec. 43.3(f)--Data Validation Acceptance Message
The Commission is adopting new regulations for SDRs to validate
swap transaction and pricing data in Sec. 43.3(f). New Sec. 43.3(f)
will require that, in addition to validating each swap transaction and
pricing data report submitted to it, the SDR also shall notify the
reporting counterparty, SEF, or DCM submitting the report whether the
report satisfied the data validation procedures of the SDR. The SDR
will have to provide such notice ASATP after accepting the swap
transaction and pricing data report. New Sec. 43.3(f)(1) will provide
that an SDR may satisfy the validation requirements by transmitting
data validation acceptance messages as required by Sec. 49.10.\158\
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\158\ The Commission is adopting new regulations for SDRs to
validate swap transaction and pricing data in a separate release
amending parts 45, 46, and 49.
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New Sec. 43.3(f)(2) will provide that if a swap transaction and
pricing data report submitted to an SDR does not satisfy the data
validation procedures of the SDR, the reporting counterparty, SEF, or
DCM required to submit the report has not satisfied its obligation to
report swap transaction and pricing data in the manner provided by
Sec. 43.3(d). The reporting counterparty, SEF, or DCM will not have
satisfied its obligation until it submits the swap transaction and
pricing data report in the manner provided by Sec. 43.3(d), which
includes the requirement to satisfy the data validation procedures of
the SDR.
The Commission is making one change to the proposal in response to
a comment from DTCC. DTCC believes the Commission should replace the
word ``transmitting'' with ``making available'' to give market
participants flexibility in using the best available means to achieve
proposed Sec. 43.3(f)(1)'s purpose.\159\ The Commission agrees
``transmitting'' could limit SDRs in providing information to their
customers. As a result, the Commission is changing ``transmitting'' in
Sec. 43.3(f)(1) to ``making available.''
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\159\ DTCC at 4. DTCC is concerned proposed Sec. 43.3(f)(1) is
silent regarding other means by which an SDR can satisfy the
validation requirements and is concerned that the proposed language
unnecessarily limits the means by which SDRs and their members may
arrange for access to such information.
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The Commission believes rules for validations in Sec. 43.3(f) are
critical for ensuring accurate, high-quality swap transaction and
pricing data reaches the public. The Commission's regulations do not
currently require that SDRs validate swap transaction and pricing data.
The Commission understands, however, that SDRs have implemented
validations as a best practice. As a result, each SDR runs a number of
checks, or validations, on each message prior to publicly disseminating
it. A failed validation can cause an SDR to reject the message without
disseminating it to the public.
The Commission is concerned that the lack of validation
requirements has resulted in reporting counterparties, SEFs, and DCMs
being unaware of, or unfamiliar with, the existence of such
validations. The Commission is concerned that the lack of awareness may
be resulting in reporting counterparties, SEFs, and DCMs being unclear
about their responsibilities to monitor their submissions to SDRs for
errors that may result in validation failures that ultimately result in
non-dissemination. As a result, the Commission is adopting Sec.
43.3(d)(2) to require reporting counterparties, SEFs, and DCMs to
satisfy SDR validation procedures when reporting swap transaction and
pricing data to SDRs. The Commission is also adopting Sec. 43.3(f) to
make clear the requirement for each SDR to notify submitting parties of
their failure to meet the SDR's validation procedures and that an
entity's reporting obligation is not satisfied until the SDR's
validation procedures have been satisfied.
The Commission received one comment opposing validations. NFP
Electric Associations believe they will impose a significant additional
burden on non-SD/MSP/DCO counterparties to off-facility non-financial
commodity swaps and believe the Commission has not proved the
validations will achieve a specific regulatory benefit to offset these
burdens.\160\ The Commission acknowledges the concerns raised by NFP
Electric Associations, but believes that as SDRs currently validate
data, the new regulations should not impose significant additional
burdens on all reporting counterparties, including non-SD/MSP/DCO
counterparties.
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\160\ NFP Electric Associations at 6-7.
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10. Sec. 43.3(h)--Timestamp Requirements
The Commission is removing the timestamp requirements in existing
Sec. 43.3(h)(1) through (4).\161\ Existing Sec. 43.3(h)(1) through
(4) sets forth timestamp requirements for registered entities, SDs, and
MSPs for all publicly reportable swap transactions.\162\ Separately,
existing Sec. 43.3(h)(4)(i) contains regulations regarding SDR fees.
The Commission is not substantively amending Sec. 43.3(h)(4)(i), but
is re-locating the requirement to Sec. 43.3(g) in light of the changes
to Sec. 43.3(h).
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\161\ The Commission proposed moving the Sec. 43.3(g)
regulations for SDR hours of operation to Sec. 49.28 and reserving
Sec. 43.3(g). See 84 FR at 21064 (May 13, 2019).
\162\ SEFs and DCMs must timestamp swap transaction and pricing
data relating to a publicly reportable swap transaction with the
date and time, to the nearest second, of when such SEF or DCM
receives data from a swap counterparty (if applicable), and
transmits such data to an SDR for public dissemination. 17 CFR
43.3(h)(1). SDRs must timestamp swap transaction and pricing data
relating to a publicly reportable swap transaction with the date and
time, to the nearest second when such SDR receives data from a SEF,
DCM, or reporting party, and publicly disseminates such data. 17 CFR
43.3(h)(2). SDs or MSPs must timestamp swap transaction and pricing
data for off-facility swaps with the date and time, to the nearest
second when such SD or MSP transmits such data to an SDR for public
dissemination. 17 CFR 43.3(h)(3). Records of all timestamps required
by Sec. 43.3(h) must be maintained for a period of at least five
years from the execution of the publicly reportable swap
transaction. 17 CFR 43.3(h)(4).
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The updated list of data elements in appendix A will cover the
timestamps described in Sec. 43.3(h).\163\ Therefore, Sec. 43.3(h)(1)
through (3) requiring SEFs, DCMs, SDs, MSPs, and SDRs to timestamp swap
transaction and pricing data is now redundant. In addition, the
separate recordkeeping requirement for timestamps duplicates other
recordkeeping requirements for SEFs, DCMs, SDs, MSPs, and SDRs. SDRs
must already keep swap data for five years following the final
termination of the swap and for an additional ten years in archival
storage.\164\ In a separate release, the Commission is adding part 43
swap transaction and pricing data to the recordkeeping requirement in
Sec. 49.12(b)(1) for SDRs.\165\ SEFs, DCMs, SDs, and MSPs have similar
recordkeeping requirements for swaps.\166\ As a result, SEFs, DCMs,
SDs, MSPs, and SDRs have to maintain timestamps they disseminate as
part of recordkeeping requirements separate
[[Page 75439]]
from Sec. 43.3(h)(4), making the requirement redundant as well.
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\163\ The Commission discusses appendix A in section III below.
\164\ See Sec. 45.2(f) and (g) (containing recordkeeping
requirements for SDRs); see also Sec. 49.12(a) (referencing part 45
recordkeeping requirements). In the May 2019 notice of proposed
rulemaking relating to the Commission's SDR regulations in parts 23,
43, 45, and 49, the Commission proposed to move the requirements in
Sec. 45.2(f) and (g) to Sec. 49.12. See Certain Swap Data
Repository and Data Reporting Requirements, 84 FR 21044, 21103-04
(May 13, 2019).
\165\ The Commission is doing so by replacing the term ``swap
data'' with ``SDR data,'' which the Commission proposes to define as
data required to be reported pursuant to two or more of parts 43,
45, 46, or 49 of the Commission's regulations. See Certain Swap Data
Repository and Data Reporting Requirements, 84 FR 21044, 21103-04
(May 13, 2019).
\166\ Existing Sec. 45.2(c) requires SDs, MSPs, SEFs, and DCMs
to maintain records for each swap throughout the life of the swap
for a period of at least five years following the final termination
of the swap.
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The Commission did not receive any comments on the changes to Sec.
43.3(h)(1)-(4). For the reasons discussed above, the Commission is
adopting the changes as proposed.
D. Sec. 43.4--Swap Transaction and Pricing Data To Be Publicly
Disseminated in Real-Time
1. Sec. 43.4(a) Through (e)--Public Dissemination, Additional Swap
Information, Anonymity, and Unique Product Identifiers
The Commission is adopting several changes to Sec. 43.4(a) through
(e). Existing Sec. 43.4(a) generally requires that swap transaction
and pricing data be reported to an SDR so that the SDR can publicly
disseminate the data in real-time, including according to the manner
described in Sec. 43.4 and appendix A. Existing Sec. 43.4(b) requires
that any SDR that accepts and publicly disseminates swap transaction
and pricing data in real-time publicly disseminate the information
described in appendix A, as applicable, for any publicly reportable
swap transaction. Existing Sec. 43.4(c) states that SDRs that accept
and publicly disseminate swap transaction and pricing data in real-time
may require reporting parties, SEFs, and DCMs to report to the SDR
information necessary to compare the swap transaction and pricing data
that was publicly disseminated in real-time to the data reported to an
SDR pursuant to section 2(a)(13)(G) of the CEA or to confirm that
parties to a swap have reported in a timely manner pursuant to Sec.
43.3.\167\ Existing Sec. 43.4(d) contains regulations for maintaining
the anonymity of the parties to a publicly reportable swap transaction.
Existing Sec. 43.4(e) permits SDRs to disseminate UPIs for certain
data fields once a UPI is available.
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\167\ The real-time reporting requirements pursuant to section
2(a)(13) of the CEA are separate and apart from the requirements to
report swap transaction information to a registered SDR pursuant to
section 2(a)(13)(G).
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The Commission is deleting existing Sec. 43.4(a) as it is overly
general. As a result, the Commission is re-designating Sec. 43.4(b)
through (d) as Sec. 43.4(a) through (c) and making minor non-
substantive changes. The Commission is also removing existing Sec.
43.4(e), which gives SDRs discretion regarding what fields to publicly
disseminate after a UPI exists.\168\ As discussed below in section III,
the UPI will be addressed in the swap transaction and pricing data
elements in appendix A.\169\
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\168\ The Commission has not yet designated a UPI and product
classification system to be used in recordkeeping and swap data
reporting pursuant to Sec. 45.7.
\169\ In addition, the Commission is making technical non-
substantive edits to Sec. 43.4(a) for clarity.
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The Commission is adopting its proposed changes to Sec. 43.4(d)(4)
with modifications. The Commission proposed removing Sec.
43.4(d)(4)(i) through (iii); re-designating Sec. 43.4(d)(4) as Sec.
43.4(c)(4); consolidating the substance of Sec. 43.4(d)(4)(i) and
(iii) in proposed Sec. 43.4(c)(4); and eliminating the requirement in
existing Sec. 43.4(d)(4)(ii) that SDRs publicly disseminate the actual
assets underlying certain swaps in the other commodity asset class that
either reference one of the contracts described in appendix B to part
43 \170\ or that are economically related to such contracts.\171\
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\170\ See existing Sec. 43.4(d)(4)(ii)(A).
\171\ See existing Sec. 43.4(d)(4)(ii)(B).
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In proposing the changes to Sec. 43.4(d)(4), the Commission
believed other commodity swaps referencing, or economically related to,
the contracts in appendix B could still be sufficiently bespoke to
warrant additional masking. Consequently, the Commission proposed
eliminating the requirement in existing Sec. 43.4(d)(4)(ii) that
registered SDRs publicly disseminate the actual assets underlying other
commodity swaps that either reference one of the contracts described in
appendix B to part 43 or that are economically related to such
contracts. Because the Commission proposed removing that requirement
from existing Sec. 43.4(d)(4)(ii), the Commission also proposed
removing appendix B to part 43 and re-designating existing appendix E
as appendix B.
The Commission is keeping the masking requirements in existing
Sec. 43.4(d)(4), but re-locating the requirement to Sec. 43.4(c)(4)
and making minor technical edits. The Commission has reconsidered
whether expanding masking outweighs reducing transparency, and believes
the analysis that formed the basis for adopting existing Sec.
43.4(d)(4) remains operative. As a result, the Commission is keeping
appendix B as well, as Sec. 43.4(d)(4) references it. The Commission
is leaving appendices B and E in their current locations and making
minor technical edits to appendix E to reflect the relocation of Sec.
43.4(d)(4) to Sec. 43.4(c)(4).
The Commission received two comments on geographic masking of
commodities swap transactions. NFP Electric Associations strongly
support the proposed additional masking of swap transactions as it will
help ensure that business transactions and market positions of
counterparties are not disclosed.\172\ CME, conversely, raised issues
with proposed Sec. 43.4(c)(4). CME notes Sec. 43.3(c)(4) would
require an SDR to identify ``. . . any specific delivery point or
pricing point associated with the underlying asset of such other
commodity swap . . .'' and publicly disseminate it pursuant to appendix
B to part 43.\173\ CME, however, cannot identify any data element(s)
that would be populated with delivery or pricing points and believes
that this would render proposed Sec. 43.4(c)(4) unnecessary unless the
Commission anticipates those data elements being part of a uniform
product identifier.\174\ CME claims requiring CME to implement such
masking would require the introduction of an additional data element
that would identify the regions in proposed appendix B to which the
delivery or pricing point map, since the reporting party, not the SDR,
would have that information.\175\ For reasons discussed above, the
Commission is not adopting the proposed substantive changes to Sec.
43.4(c)(4).
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\172\ NFP Electric Associations at 7.
\173\ CME at 10.
\174\ Id.
\175\ Id.
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2. Sec. 43.4(f)--Process To Determine Appropriate Rounded Notional or
Principal Amounts
The Commission is adopting non-substantive changes to existing
Sec. 43.4(f). Existing Sec. 43.4(f) requires reporting parties, SEFs,
and DCMs to report the actual notional or principal amount of any swap,
including block trades, to an SDR that accepts and publicly
disseminates such data pursuant to part 43.\176\ The Commission is re-
designating Sec. 43.4(f) as Sec. 43.4(d) \177\ and making minor non-
substantive changes. The Commission received no comments on the
changes.
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\176\ See existing Sec. 43.4(f)(1)-(2).
\177\ This is due to removing Sec. 43.4(a) and (e), and re-
designating Sec. 43.4(b) through (d) as Sec. 43.4(a) through (c).
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3. Sec. 43.4(g)--Public Dissemination of Rounded Notional or Principal
Amounts
The Commission is re-designating existing Sec. 43.4(g) as Sec.
43.4(e).\178\ The Commission is also changing existing Sec. 43.4(g),
titled ``Public dissemination of rounded notional or principal
amounts,'' which states that the notional or principal amount of a
publicly reportable swap transaction, as described in appendix A to
this part, shall be rounded and publicly disseminated by a registered
SDR, and
[[Page 75440]]
then sets out the rules for rounding. The Commission is rephrasing
Sec. 43.4(g), re-designated as Sec. 43.4(e), to state that the
notional or principal amount of a publicly reportable swap transaction
shall be publicly disseminated by a swap data repository subject to
rounding as set forth in Sec. 43.4(f) and the cap size as set forth in
Sec. 43.4(g).
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\178\ This is a result of re-designating Sec. 43.4(f) as Sec.
43.4(d).
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The rounding rules in existing Sec. 43.4(g) will be in Sec.
43.4(f), titled ``Process to determine appropriate rounded notional or
principal amounts.'' New Sec. 43.4(f) will contain the rounding rules
set forth in existing Sec. 43.4(g), subject to two substantive changes
explained below, among other non-substantive changes.
The Commission is changing Sec. 43.4(g)(8) and (9), re-designated
as Sec. 43.4(f)(8) and (9). Existing Sec. 43.4(g)(8) requires an SDR
to round the notional or principal amount of a publicly reportable swap
transaction to the nearest one billion if it is less than 100 billion
but equal to or greater than one billion. The Commission is changing
Sec. 43.4(f)(8) to require rounding to the nearest 100 million instead
of one billion. Existing Sec. 43.4(g)(9) requires an SDR to round the
notional or principal amount of a publicly reportable swap transaction
to the nearest 50 billion if it is greater than 100 billion. The
Commission is changing existing Sec. 43.4(f)(9) to require rounding to
the nearest 10 billion and adding the words ``equal to or'' before
``greater than 100 billion'' to include swaps with notional or
principal amounts that are exactly 100 billion, the omission of which
from the 2012 reporting rules appears to have been an oversight.\179\
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\179\ The omission of swaps with notional or principal amounts
of exactly 100 billion did not change the rounding result. Although
such swaps are not presently subject to rounding due to their
omission from Sec. 43.4(g)(9), even if they were included therein,
because their notional or principal amount is a round number
already, they would not have been rounded, and would not be rounded
as a result of proposed Sec. 43.4(f)(9). However, because all swaps
with notional or principal amounts of greater than 100 billion will
be rounded to the nearest 10 billion if Sec. 43.4(f)(9) is adopted
as proposed, such swaps would still obtain the anonymizing benefits
of Sec. 43.4(f)(8) and (9) when 100 billion is the nearest number
to round to pursuant to Sec. 43.4(f)(8) or (9), as applicable.
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The Commission is concerned that broadly rounded notional or
principal amounts could undermine the price discovery purpose of real-
time reporting. The Commission is particularly concerned about swaps
with notional or principal amounts over 1 billion because there tend to
be fewer swaps of such size relative to swaps with smaller notional or
principal amounts. The Commission believes smaller rounding increments
for the notional or principal amount of swaps covered by proposed Sec.
43.4(f)(8) and (9) will improve price discovery for such swaps.
Rounding the notional or principal amounts in smaller increments in
Sec. 43.4(f)(8) and (9) also would be consistent with the rounding
increments prescribed in Sec. 43.4(g)(1) through (7) (i.e., Sec.
43.4(f)(1) through (7)) on a percentage basis. The Commission did not
receive any comments on the proposal. For the reasons discussed above,
the Commission is adopting the changes as proposed.
4. Sec. 43.4(h)--Process To Determine Cap Sizes
In the Proposal, the Commission proposed removing the regulations
for initial cap sizes and replacing them with new regulations for cap
sizes. To avoid removing regulations that still need to be effective
during the compliance period for the changes to Sec. 43.4(h) (which
the Commission is still re-designating Sec. 43.4(g) as proposed), the
Commission has decided to leave the existing regulations for the
initial cap sizes as Sec. 43.4(g), while adding the new updated
regulations for cap sizes during the post-initial period that were
proposed in the Proposal to new Sec. 43.4(h). The Commission discusses
the new regulations in this section.
First, the Commission is re-designating existing Sec. 43.4(h)(1)
(regulations for initial cap sizes) as Sec. 43.4(g).\180\ Existing
Sec. 43.4(h) requires the Commission to establish initial cap sizes
\181\ and post-initial cap sizes.\182\ Existing Sec. 43.4(h)(2)
requires the Commission to establish post-initial cap sizes, according
to the process in Sec. 43.6(f)(1) using a one-year window of reliable
SDR data for each relevant swap category, recalculated no less than
once each calendar year and using the 75-percent notional amount
calculation described in Sec. 43.6(c)(3).\183\ The Commission was to
publish post-initial cap sizes on its website at https://www.cftc.gov,\184\ and the caps were to be effective on the first day
of the second month following the date of publication.\185\
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\180\ This is a result of re-designating existing Sec. 43.4(g)
as Sec. 43.4(e) and creating a separate section for rounding in
Sec. 43.4(f).
\181\ Initial cap sizes for each swap category are the greater
of the initial appropriate minimum block size for the respective
swap category in existing appendix F of part 43 or the respective
cap sizes in Sec. 43.4(h)(1)(i) through (v). 17 CFR 43.4(h)(1). If
appendix F did not provide an initial appropriate minimum block size
for a particular swap category, the initial cap size for such swap
category was equal to the appropriate cap size as set forth in Sec.
43.4(h)(1)(i) through (v). Existing Sec. 43.4(h)(1) also requires
SDRs, when publicly disseminating the notional or principal amounts
for each such category, to disseminate the cap size specified for a
particular category rather than the actual notional or principal
amount in those cases where the actual notional or principal amount
of a swap is above the cap size for its category. Existing Sec.
43.4(h) does not explicitly state that an SDR must publicly
disseminate swap data subject to the cap size limit, but the
Commission clarified this requirement in the preamble to the 2012
Real-Time Public Reporting Final Rule. See 2012 Real-Time Public
Reporting Final Rule, 77 FR 1182, 1214 (Jan. 9, 2012).
\182\ Before the Proposal, the Commission had not yet
established post-initial cap sizes.
\183\ 17 CFR 43.4(h)(2).
\184\ 17 CFR 43.4(h)(3).
\185\ 17 CFR 43.4(h)(4).
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The Commission is keeping the substance of existing Sec.
43.4(h)(1), while also publishing post-initial cap sizes using the 75-
percent notional calculation as required by existing Sec. 43.4(h)(2)
through (4). As discussed above, to avoid removing regulations needed
during the compliance period until market participants need to comply
with the regulations for post-initial cap sizes, the Commission is
retaining the substance of Sec. 43.4(h)(1) in new Sec. 43.4(g)
(titled ``Initial cap sizes'') in its regulations.
Second, the Commission is establishing cap sizes for each of the
proposed new swap categories set forth in proposed Sec. 43.6(c)(1)(i)
(interest rate (``IRS'')), (c)(2)(i) through (xii) (credit (``CDS'')),
(c)(4)(i) (foreign exchange (``FX'')), and (c)(5)(i) (other commodity)
using the 75-percent notional amount calculation.\186\ The Commission
is setting the cap sizes for those swap categories containing swaps
with limited trading activity in the IRS, CDS, FX, and other commodity
asset class at United States dollar (``USD'') 100 million, USD 400
million, USD 150 million, and USD 100 million, respectively.\187\ The
Commission is also setting the cap size for all swaps in the equity
asset class at USD 250 million. As indicated by the proposed cap size
tables published by the Commission, the 75-percent notional amount
calculation does not result in a cap size for certain IRS categories
set forth in proposed Sec. 43.6(c)(1)(i).\188\ The Commission is
[[Page 75441]]
setting the cap sizes for such IRS categories at USD 100 million, the
cap size being assigned to other IRS with limited trading activity.
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\186\ See section II.F.4 below for a discussion of the process
to determine appropriate minimum block size. As mentioned above,
using the 75% notional amount calculation would be consistent with
what the Commission had intended when it adopted the Block Trade
Rule. See 17 CFR 43.4(h)(2).
\187\ New Sec. 43.4(h) would reference the regulations
containing the categories for swaps with limited trading activity:
Sec. 43.6(c)(1)(ii) (IRS); Sec. 43.6(c)(2)(xiii) (CDS); Sec.
43.6(c)(4)(iii) (FX); Sec. 43.6(b)(5)(ii) (other commodity). The
Commission's process for determining these categories is discussed
in section II.F.2 below.
\188\ The proposed cap size tables indicated that the 75-percent
notional amount calculation did not result in a cap size for 15 IRS
categories. There was insufficient swap transaction and pricing data
for the Commission to determine a cap size for such swap categories.
---------------------------------------------------------------------------
The Commission received several comments on its proposal to
implement post-initial cap sizes using the 75-percent notional
calculation. Most commenters combined their comments on raising cap
sizes with the Commission's proposal to raise the block threshold in
Sec. 43.6. As such, the Commission discusses these comments together,
along with the Commission's decision to raise the cap sizes and block
thresholds, in section II.F.4 below.
Existing Sec. 43.4(h)(2)(i) requires the Commission to recalculate
cap sizes no less than once each calendar year. The Commission proposed
replacing existing Sec. 43.4(h)(2)(i), re-designated as Sec.
43.4(g)(2)(i), with a flexible approach permitting the Commission to
recalculate cap sizes when it determined necessary. The Commission is
not adopting these changes. Most commenters combined their comments on
the flexible approach for determining cap sizes with the Commission's
proposal to adopt a flexible approach for determining block thresholds.
The Commission discusses these comments together, along with the
Commission's decision to keep the substance of the current requirements
in re-designated Sec. 43.4(h)(9) and (10), in section II.F.1 below.
Separately, the Commission requested comment on whether it should
require SDRs to remove any caps applied pursuant to Sec. 43.4(h) after
six months to reveal the actual notional amount after six months of
anonymity and whether six months was long enough to mitigate anonymity
concerns. The Commission received two general comments on the topic.
DTCC suggests the Commission carefully consider the costs and burdens
associated with removing cap sizes as it would deviate from current
market practice and would likely lead to significant operational
complexity for implementation.\189\ MFA supports the public
dissemination of the full, uncapped notional amount of block trades and
believes a shorter delay than six months could be appropriate, but
notes that a six-month delay would harmonize the Commission's rules
with similar reporting in the fixed income market on the Financial
Industry Regulatory Authority's (``FINRA'') Trade Reporting and
Compliance Engine.\190\
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\189\ DTCC at 4.
\190\ MFA at 3.
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The Commission received two comments requesting faster removal.
Citadel recommends the Commission consider publishing full, uncapped
notionals of block trades three months after execution.\191\ Clarus
believes SDRs should remove caps by T+1, as SEFs already publish part
16 data T+1, to introduce consistency for on-SEF and off-SEF
transactions and promote SEF execution.\192\
---------------------------------------------------------------------------
\191\ Citadel at 8.
\192\ Clarus at 2.
---------------------------------------------------------------------------
The Commission received one comment opposing SDR removal of caps.
GFMA believes caps protect the ability of liquidity providers to manage
and hedge any risk exposure without compromising anonymity.\193\ GFMA
notes large trades, such as those facilitating merger and acquisition
transactions, are illiquid and potentially sensitive in nature, and the
ability to successfully manage risk could be compromised if a cap is
removed, even after time.\194\
---------------------------------------------------------------------------
\193\ GFMA at 8.
\194\ Id.
---------------------------------------------------------------------------
Despite some commenters supporting such a proposal, the Commission
is concerned about revealing information that could enable market
participants to identify trading patterns or open positions of swap
counterparties. The CEA requires the Commission ensure swap transaction
and pricing data disseminated by SDRs does not identify the
transaction's participants.\195\ The Commission is concerned removing
the caps from this data after six months could comprise the required
anonymity by allowing the public to associate certain pricing and
quantity data with trading patterns. In addition, the Commission shares
GFMA's concerns about revealing information about certain large trades
that could be sensitive given certain circumstances, like corporate
events like mergers and acquisitions. Therefore, the Commission is
declining to adopt new rules requiring SDRs remove cap sizes at this
time.
---------------------------------------------------------------------------
\195\ 7 U.S.C. 2(a)(13)(E)(i).
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E. Sec. 43.5--Time Delays for Public Dissemination of Swap Transaction
and Pricing Data
1. Sec. 43.5(a) and (b)--General Rule and Public Dissemination of
Publicly Reportable Swap Transactions Subject to a Time Delay
The Commission proposed many technical changes to Sec. 43.5(a) and
(b). The Commission proposed one substantive change to remove
references to LNOFS transactions in Sec. 43.5(a), and throughout part
43, to reflect proposed changes to Sec. 43.5(c) for a single time
delay for block trade delays.\196\
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\196\ The Commission discusses the definition of ``large
notional off-facility swap'' in section II.B.2 above.
---------------------------------------------------------------------------
The Commission proposed removing the requirements of Sec.
43.5(b)(1) and (2) that SDRs must disseminate the specified swap
transaction and pricing data no sooner than, and no later than the
prescribed time delay period and to retain the requirement of Sec.
43.5(b)(3) that SDRs must disseminate the specified swap transaction
and pricing data precisely upon the expiration of the time delay
period. The Commission also proposed ministerial rephrasing amendments
to Sec. 43.5(b). The Commission believed that together, the proposed
amendments to Sec. 43.5(b) would improve the clarity of the provision.
The Commission is keeping Sec. 45.3(a) and (b) without any changes
because the Commission is not adopting a single time delay for public
dissemination of block trades. The Commission discusses the decision to
keep different time delays in Sec. 43.5 in the following section.
Since the changes to Sec. 43.5(a) and (b) would have conformed to
changes the Commission is not adopting, adopting the changes would make
Sec. 43.5(a) and (b) inconsistent with the rest of part 43. As a
result, the Commission is not adopting any of the changes to Sec.
43.5(a) and (b).
2. Sec. 43.5(c) Through (h)--Removal of Certain Regulations Related to
Time Delays
a. Proposal
The Commission proposed removing existing Sec. 43.5(c) through (h)
and adding a new Sec. 43.5(c) that would require SDRs to implement a
time delay of 48 hours for disseminating swap transaction and pricing
data for each applicable swap transaction with a notional or principal
amount above the corresponding appropriate minimum block size, if the
parties to the swap have elected block treatment. Because the time
delays in proposed Sec. 43.5(c) would replace the time delays in
existing appendix C, the Commission also proposed removing appendix C.
Existing Sec. 43.5(c) provides interim time delays for each
publicly reportable swap transaction, not just block trades and LNOFSs,
until an appropriate minimum block size is established for such
publicly reportable swap transaction. The Commission adopted Sec.
43.5(c) in case compliance with part 43 was required before the
establishment of appropriate minimum
[[Page 75442]]
block sizes.\197\ Because the Commission has now established
appropriate minimum block sizes by swap category,\198\ existing Sec.
43.5(c) is technically no longer applicable.
---------------------------------------------------------------------------
\197\ See Real-Time Public Reporting of Swap Transaction Data,
77 FR 1182, 1217 (Jan. 9, 2012) (stating ``it is possible that
compliance with part 43 may be required before the establishment of
appropriate minimum block sizes for certain asset classes and/or
groupings of swaps within an asset class'').
\198\ See Sec. 43.6 (setting forth the block sizes for various
swap categories).
---------------------------------------------------------------------------
Existing Sec. 43.5(d) through (h) phased in the various time
delays for the dissemination of swap block trades and LNOFSs over a
one- to two-year period. The Commission believed when it adopted those
regulations that providing longer time delays for public dissemination
during the first year or years of real-time reporting would enable
market participants to perfect and develop technology and to adjust
hedging and trading strategies in connection with the introduction of
post-trade transparency.\199\ Since the phasing in of the time delays
in existing Sec. 43.5(d) through (h) is complete, the Commission
proposed to remove the text remaining from the phase-in concept.
---------------------------------------------------------------------------
\199\ Real-Time Public Reporting of Swap Transaction Data, 77 FR
1182, 1217 (Jan. 9, 2012).
---------------------------------------------------------------------------
Existing Sec. 43.5(d) through (h) provides specific time delays
for the public dissemination of swap transaction and pricing data by an
SDR. As background, CEA section 2(a)(13)(E)(iv) directs the Commission
to take into account whether public disclosure of swap transaction and
pricing data ``will materially reduce market liquidity.'' When the
Commission adopted the Block Trade Rule in 2013, the Commission
understood that the publication of detailed information regarding
``outsize swap transactions'' (i.e., block trades and LNOFSs) could
expose swap counterparties to higher trading costs.\200\ In this
regard, the publication of detailed information about an outsize swap
transaction could alert the market to the possibility that the original
liquidity provider to the outsize swap transaction will be re-entering
the market to offset that transaction. Other market participants,
alerted to the liquidity provider's large unhedged position, would have
a strong incentive to exact a premium from the liquidity provider when
the liquidity provider seeks to enter into offsetting trades to hedge
this risk. As a result, liquidity providers may be deterred from
becoming counterparties to outsize swap transactions if swap
transaction and pricing data is publicly disseminated before liquidity
providers can adequately offset their positions.
---------------------------------------------------------------------------
\200\ See Block Trade Rule at 32871 n.44 (stating that an
``outsize swap transaction'' is a transaction that, as a function of
its size and the depth of the liquidity of the relevant market (and
equivalent markets), leaves one or both parties to such transaction
unlikely to transact at a competitive price).
---------------------------------------------------------------------------
If a liquidity provider agrees to execute an outsize swap
transaction, it likely will charge the counterparty the additional cost
associated with hedging this transaction. In consideration of these
potential outcomes, the Commission established the time delays for
block trades and LNOFSs to balance public transparency and the concerns
that post-trade reporting would reduce market liquidity.\201\ The
Commission did so in furtherance of its stated policy goal to provide
maximum public transparency, while taking into account the concerns of
liquidity providers regarding possible reductions in market
liquidity.\202\ The time delays established by the Commission currently
range from 15 minutes to 24 business hours, depending upon the type of
market participant, method of execution, and asset class.
---------------------------------------------------------------------------
\201\ Cf. Federal Reserve Bank of New York Staff Reports, An
Analysis of OTC Interest Rate Derivatives Transactions: Implications
for Public Reporting (Mar. 2012, revised Oct. 2012) at 3 (explaining
that most post-trade reporting regimes allow for reduced reporting
requirements for large transactions since immediate reporting of
trade sizes has the potential to disrupt market functioning, deter
market-making activity, and increase trading costs).
\202\ 78 FR 32870 (May 31, 2013).
---------------------------------------------------------------------------
When the Commission adopted the time delays for block trades and
LNOFSs in 2012, it noted that commenters to the proposal recommended a
range of time delays for public dissemination of block trades and
LNOFSs, including end-of-day, 24 hours, T+1, T+2, a minimum of four
hours, and 180 days.\203\ In the Roadmap, DMO stated an intention to
evaluate real-time reporting regulations in light of goals of
liquidity, transparency, and price discovery in the swaps market.\204\
In response, the Commission received comments on the time delays for
block trades and LNOFSs.
---------------------------------------------------------------------------
\203\ See Real-Time Public Reporting of Swap Transaction Data,
77 FR 1182, 1216 (Jan. 9, 2012).
\204\ Roadmap at 11.
---------------------------------------------------------------------------
In response to the Roadmap comments, the Commission proposed
significant changes to the time delays for block trades and LNOFSs. In
place of the current time delays ranging between 15 minutes to 24
business hours, depending upon the type of market participant, method
of execution and asset class, the Commission proposed a single 48 hour
time delay for all block trades and LNOFSs. The Commission sought
comment on whether a single 48 hour time delay was necessary to account
for potential situations when a market participant requires additional
time to place a hedge position without significant unfavorable price
movement and to create some consistency with the disclosure
requirements of other authorities for non-liquid swaps.
b. Comments on the Proposal
The Commission received three comments supporting, and 15 comments
opposing, the proposed 48 hour time delay for block trades and LNOFSs.
FXPA and GFMA support the proposed delay for FX swaps because it
would assist market participants conducting hedging activities.\205\
ACLI similarly supports the proposed 48 hour delay, but comments that
it can take days or weeks to execute large hedging programs.\206\ ACLI
believes the need for price transparency in the swaps market is not as
compelling as it is in other markets and that public dissemination
sooner than the time it takes to execute hedging programs causes costs
to end-users that outweigh any benefits to the market.\207\
---------------------------------------------------------------------------
\205\ FXPA at 2-3; GFMA at 1,8-9.
\206\ ACLI at 2.
\207\ Id. at 2-3.
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Other commenters express concern that the proposed delay would have
negative impacts on transparency, price discovery, and liquidity.\208\
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\208\ Better Markets, Carnegie Mellon, Chris Barnard, CHS,
Citadel, Clarus, FIA PTG, Healthy Markets, ICI, MFA, MIT, SIFMA AMG,
SMU, TRP, and Vanguard.
---------------------------------------------------------------------------
Citadel expresses concern that counterparties to a block trade or
LNOFS would have significantly more information regarding the fair
value of a particular instrument than the rest of the market, which
could advantage them when negotiating additional transactions in both
that and similar instruments during the 48 hour period.\209\ FIA PTG
similarly believes this information asymmetry created by the proposal
would be significant and impact related futures, options, and cash
products.\210\ Healthy Markets, SMU, and TRP believe the information
asymmetry would benefit large liquidity providers at the expense of
other market participants.\211\ Citadel believes the information
asymmetry also benefits current liquidity providers by increasing
barriers to entry for potential new liquidity providers.\212\
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\209\ Citadel at 6.
\210\ FIA at 2.
\211\ Healthy Markets at 2,7; SMU at 3; TRP at 2-3.
\212\ Citadel at 7-8.
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[[Page 75443]]
CHS, Citadel, and FIA PTG contrast the proposed 48-hour time delay
to time delays in futures markets. Citadel notes the five-minute
deferral for block trades in U.S. Treasury futures, a primary hedging
tool for the USD IRS.\213\ FIA PTG notes the same.\214\ CHS believes
the difference between block futures reporting deferrals and the
proposed time delay would impact futures market participants and
potentially result in regulatory arbitrage.\215\
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\213\ Citadel at 3.
\214\ FIA PTG at 2-3.
\215\ CHS at 2.
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Better Markets, Carnegie Mellon, Citadel, MIT, and SMU comment that
the Proposal is inconsistent with research indicating that post-trade
transparency improves liquidity while reducing transaction costs in
financial markets, including the swaps market.\216\ These commenters,
as well as FIA PTG and Healthy Markets, note that such information was
recently submitted to FINRA as it considered a similar
proposal.217 218 Carnegie Mellon notes the lack of academic
studies or evidence to support substantial dissemination delays.\219\
SMU similarly notes the lack of research indicating that SDs lose
significant sums to frontrunners and their belief that SDs regularly
oppose timely reporting of blocks across financial markets because it
reduces their pricing power.\220\
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\216\ Better Markets at 5; Carnegie Mellon at 2-4; Citadel at 5;
MIT at 1-2; SMU at 4-5.
\217\ Better Markets at 5; Carnegie Mellon at 2-4; Citadel at 3;
FIA PTG at 1; Healthy Markets at 7.
\218\ As background, FINRA requested comment on a proposed pilot
program to study changes to corporate bond block trade dissemination
based on recommendations of the Securities and Exchange Commission's
Fixed Income Market Structure Advisory Committee. Specifically, the
proposed pilot was designed to study: An increase to the current
dissemination caps for corporate bond trades, and delayed
dissemination of any information about trades above the proposed
dissemination caps for 48 hours. See FINRA Regulatory Notice 19-12,
available at https://www.finra.org/rules-guidance/notices/19-12.
FINRA's comment period closed in June 2019.
\219\ Carnegie Mellon at 3.
\220\ SMU at 4-7.
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Commenters urge the Commission to not adopt the proposal and to
retain the current reporting delays because the current reporting
delays have been effective in supporting liquidity and risk
transfer.\221\ Other commenters urge the Commission to not change the
current delays until the necessity of such changes are more clearly
supported by a data analysis of market liquidity conditions.\222\
Vanguard believes a 48-hour delay is unwarranted based upon current
market liquidity, at least for IRS in the most liquid currencies.\223\
ICI similarly comments that a ``one size fits all'' delay does not
reflect differences in liquidity among different types of swaps.\224\
TRP does not think an additional delay is necessary because indicators
of a well-functioning market, especially on SEFs, have constantly
increased since the implementation of the current reporting deferrals
for block trades.\225\ FIA PTG believes any perceived difficulty in
hedging large swap transactions is more likely due to other elements of
market structure, like an incomplete transition to electronic trading
(including all-to-all platforms) and limited competition among
liquidity providers.\226\
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\221\ Clarus at 2; MFA at 2; TRP at 3.
\222\ Citadel at 4; ICI at 7; Vanguard at 5-6.
\223\ Vanguard at 6.
\224\ ICI at 7.
\225\ TRP at 2.
\226\ FIA PTG at 2.
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Clarus presents a methodology for measuring liquidity using data
publicly disseminated by SDRs and comments that because liquidity is
currently identical for swaps above and below the appropriate minimum
block size, it does not appear that the proposed substantial delay is
necessary.\227\ Better Markets and Citadel cite swaps data maintained
by Clarus for their assertions that all market risks are adequately
hedged within current deferral periods.\228\ TRP similarly comments
that there is no indication that liquidity providers are unwilling to
make markets because the current reporting delays are too short.\229\
TRP notes studies indicating that market liquidity, especially for on-
SEF transactions, has been consistently improving.\230\ Citadel and
Clarus further note that more block trades were executed in March 2020
than any prior month.\231\ Citadel believes current liquidity levels
support reducing the current 15 minute deferral for block trades in
standardized and liquid instruments subject to mandatory clearing and
on-venue trading requirements.\232\
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\227\ Clarus at 6.
\228\ Better Markets at 6; Citadel at 4.
\229\ TRP at 2.
\230\ Id.
\231\ Citadel at 4; Clarus at 6.
\232\ Citadel at 8.
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The Commission also received comments asserting that a 48-hour
delay would impair risk management functions. Commenters note that the
Proposal would restrict access to current prices, which would make it
more difficult for market participants to correctly value transactions
to support end-of-day valuations and margin calculations. Commenters
believe such difficulties would be particularly pronounced during
periods of market volatility.\233\ Healthy Markets comments the
proposed delay would similarly hamper efforts to comply with best
execution obligations.\234\
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\233\ Better Markets at 2; Citadel at 6, 7; Healthy Markets at
4; MFA at 2.
\234\ Healthy Markets at 4.
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CME did not comment on whether 48 hours is an appropriate delay,
but supports the simplified approach of a single time delay set forth
in the Proposal because it would be less costly for SDRs to
implement.\235\
---------------------------------------------------------------------------
\235\ CME at 11.
---------------------------------------------------------------------------
The Commission received six comments regarding the Commission's
stated goal of harmonization. Better Markets comments that
harmonization should not be used as pretext for deregulatory
initiatives contravening statutory objectives, but acknowledged
harmonization of an appropriately balanced regulatory framework that is
consistent with Congress' instructions and intent would be sensible and
statutorily commanded.\236\ Chris Barnard comments that harmonization
should be reversed, with other authorities shortening their public
reporting delays.\237\
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\236\ Better Markets at 7.
\237\ Chris Barnard at 2.
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FXPA comments that a 48-hour delay would better align with MiFID II
requirements.\238\ In contrast, Citadel comments that almost all
European (``EU'') swaps transactions receiving a deferral are deferred
four weeks and that a 48 hour delay with capped notionals would not
increase harmonization with an EU regime that provides a four-week
delay and does not cap notionals.\239\ Citadel and Clarus comment that
there is insufficient post-trade transparency in Europe, and thus
harmonization with European regulations regarding transparency is not
desirable.\240\ SIFMA AMG comments that the European Securities and
Markets Authority (``ESMA'') recently both (i) adopted regulations
requiring certain products be reported in 15 minutes or less and (ii)
released a consultation paper questioning whether prior ESMA reporting
requirements achieved greater market transparency.\241\
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\238\ FXPA at 2-3.
\239\ Citadel at 6-7.
\240\ Citadel at 6-7; Clarus at 8.
\241\ SIFMA AMG at 5.
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The Commission also received three comments asserting that the
Commission did not put forward legally sufficient support for the
proposed 48-hour delay. Healthy Markets comments that the proposed
reporting delay is insufficiently supported to fulfill the Commission's
obligations under the
[[Page 75444]]
APA.\242\ TRP comments that the Commission did not allege any
``material reduction in market liquidity,'' as required by the CEA, to
justify the proposed 19,200% increase in the time delay for SEF-
executed block trades.\243\ Better Markets comments that the proposal
should be withdrawn in the absence of data to reasonably support the
conclusion that a uniform 48-hour block trade reporting delay is
necessary across markets and asset classes.\244\
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\242\ Healthy Markets at 6.
\243\ TRP at 2.
\244\ Better Markets at 3.
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c. Final Rule
For reasons discussed below, the Commission is not adopting
proposed Sec. 43.5(c), which would have required SDRs to implement a
time delay of 48 hours for disseminating swap transaction and pricing
data for each block trade or LNOFS, if the parties to those swaps
elected such treatment. The Commission is also not removing the
existing regulatory text in Sec. 43.5(d)-(h) and appendix C that
provides for potential block and LNOFS time delays ranging between 15
minutes to 24 business hours, depending upon the type of market
participant, method of execution and asset class. The Commission is
removing and reserving existing Sec. 43.5(c) and paragraphs within
Sec. Sec. 43.5(d), 43.5(e), 43.5(f), 43.5(g), and 43.5(h) as described
further below. The regulatory text being removed is technically no
longer applicable. The Commission is also making non-substantive
ministerial and conforming edits to align the text with other changes
being made throughout this part.
The majority of commenters oppose the proposed 48-hour delay and
expressed concern that such a delay would have negative impacts on
transparency, price discovery, and liquidity. Several commenters
believe that, particularly for the most liquid products that are
currently eligible for a 15-minute delay, there is no evidence that
current post-trade reporting requirements have reduced market
liquidity. The Commission recognizes the merit in those concerns.
Taking into account the comments and data submitted by commenters
regarding the liquidity of, and necessary time to hedge, U.S. dollar
IRS swaps, the Commission concludes that a 48 hour delay would be
particularly inappropriate for those products and would unnecessarily
restrict transparency and price discovery.
Existing Sec. 43.5(d) through (h) establish time delays for block
trades and LNOFSs that vary based upon the type of market participant,
method of execution, and asset class, an approach the Commission saw as
appropriate to balance public transparency and price discovery against
the concerns that post-trade reporting would reduce market liquidity.
Several commenters reference and support this prior determination by
the Commission. These commenters believe that the current varying time
delays are preferable to the proposed 48-hour delay that did not
distinguish transactions according to the type of market participant,
method of execution, and asset class. Informed by commenters, the
Commission agrees.
The Commission reiterates its stated policy goal ``to provide
maximum public transparency, while taking into account the concerns of
liquidity providers regarding possible reductions in market
liquidity.'' \245\ The Commission does not believe that this policy
goal is furthered by a universal 48 hour delay for all block and
LNOFSs. The Commission concludes, as informed by comments opposing the
proposal, that this policy goal is better served by the current,
transaction specific reporting delays that make block and LNOFS swap
transaction and pricing data available quickly for more liquid markets,
with longer time delays for less liquid markets.
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\245\ 78 FR 32870 (May 31, 2013).
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The Commission believes the transparency currently provided by the
dissemination of swap transaction data promotes confidence in the
fairness and integrity of swaps markets. This transparency increases
participation in the swaps markets and provides enhanced price
discovery that is of particular value to buy-side participants and end-
users.
The Commission agrees with one commenter that the proposed
simplified approach of a 48-hour time delay for all block and LNOFSs
may have reduced operational costs compared to the current approach of
varying time delays. However, the Commission is cognizant of its
statutory directive to make swap transaction and pricing data available
as appropriate to enhance price discovery while taking into account
whether the public dissemination will materially reduce market
liquidity. Accordingly, the Commission does not view operational cost
savings potentially available under an alternative simplified time-
delay regime sufficient reason to justify deviation from the current
varied-time delay approach that the Commission believes best suited to
effectuate this statutory directive.
The Commission also agrees with commenters that EU and CFTC
regulations requiring the public dissemination of swap transaction and
pricing data differ significantly, particularly with respect to the
duration of deferrals from public dissemination. Since the Commission
is not changing the dissemination delays available to block trades or
LNOFSs, differences with respect to the duration of deferrals are not
being harmonized at this time. The Commission understands that EU
authorities are currently examining potential changes to their public
dissemination rules, leading the Commission to conclude that it is
premature to attempt harmonization with respect to the duration of
deferrals at this time.
The Commission is removing and reserving existing Sec. 43.5(c).
Existing Sec. 43.5(c) provides interim time delays for each publicly
reportable swap transaction, not just block trades and LNOFSs, until an
appropriate minimum block size is established for such publicly
reportable swap transaction. The Commission adopted Sec. 43.5(c) in
case compliance with part 43 was required before the establishment of
appropriate minimum block sizes.\246\ Because the Commission has now
established appropriate minimum block sizes by swap category,\247\
existing Sec. 43.5(c) is technically no longer applicable.
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\246\ See Real-Time Public Reporting of Swap Transaction Data,
77 FR 1182, 1217 (Jan. 9, 2012) (stating ``it is possible that
compliance with part 43 may be required before the establishment of
appropriate minimum block sizes for certain asset classes and/or
groupings of swaps within an asset class'').
\247\ See Sec. 43.6 (setting forth the appropriate minimum
block sizes for various swap categories).
---------------------------------------------------------------------------
The Commission is also removing and reserving existing Sec. Sec.
43.5(d)(1), 43.5(e)(2)(i), 43.5(e)(3)(i), 43.5(e)(3)(ii), 43.5(f)(1),
43.5(f)(2), 43.5(g)(1), 43.5(g)(2), 43.5(h)(1), and 43.5(h)(2). These
sections phased in the various time delays for the dissemination of
swap block trades and LNOFSs after the existing rules came into effect.
Since the phasing in of the time delays in existing Sec. 43.5(d)
through (h) is complete, the Commission is removing the text remaining
from the phase-in concept.
F. Sec. 43.6--Block Trades and Large Notional Off-Facility Swaps \248\
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\248\ Existing Sec. 43.6 was adopted in the Block Trade Rule.
---------------------------------------------------------------------------
In the Proposal, the Commission proposed removing the regulations
for initial appropriate minimum block sizes and replacing them with new
regulations for appropriate minimum block sizes. To avoid removing
[[Page 75445]]
regulations that still need to be effective during the compliance
period for the changes to Sec. 43.6, the Commission has decided to
leave the existing regulations for the initial appropriate minimum
block sizes, including the existing swap categories, while adding the
new updated regulations for appropriate minimum block sizes during the
post-initial period that were proposed in the Proposal, including the
new swap categories. The Commission discusses the new regulations in
this section.
1. Sec. 43.6(a)
Existing Sec. 43.6(a) states that the Commission shall establish
the appropriate minimum block size for publicly reportable swap
transactions based on the swap categories in existing Sec. 43.6(b) in
accordance with the provisions set forth in paragraphs (c), (d), (e),
(f) or (h) of Sec. 43.6, as applicable. Existing Sec. 43.6(f)
contains requirements for the Commission to update the block thresholds
annually. Existing Sec. 43.6(f)(1) through (3) requires the Commission
to establish post-initial appropriate minimum block size using a one-
year window of reliable SDR data recalculated no less than once each
calendar year using the 67-percent notional amount calculation for most
swap categories. Existing Sec. 43.6(f)(4) requires the Commission to
publish post-initial appropriate minimum block size on its website.
Existing Sec. 43.6(f)(5) specifies that unless otherwise indicated on
the Commission's website, the post-initial appropriate minimum block
size shall be effective on the first day of the second month following
the date of publication.
Similarly, Sec. 43.4(h) contains analogous requirements for the
Commission to update the cap sizes annually. Existing Sec. 43.4(h)(2)
requires the Commission to establish post-initial cap sizes using a
one-year window of reliable SDR data recalculated no less than once
each calendar year using the 75-percent notional amount calculation.
Existing Sec. 43.4(h)(3) requires the Commission to publish post-
initial cap sizes on its website. Existing Sec. 43.4(h)(4) specifies
that unless otherwise indicated on the Commission's website, the post-
initial cap sizes shall be effective on the first day of the second
month following the date of publication.
To implement a more flexible approach than this current regime
provides, the Commission proposed amending existing Sec. 43.6(a) to
instead provide that the Commission would establish appropriate minimum
block size at such times the Commission determines necessary. Since the
processes for updating cap sizes and block thresholds are analogous,
the Commission discusses these changes together in this section.
The Commission only proposed changing the requirement to
recalculate the block thresholds and cap sizes annually. The Commission
proposed keeping the requirement to post new cap sizes and block
thresholds on its website in new Sec. 43.4(g)(9) and Sec. 43.6(e)(5),
respectively. The Commission also proposed keeping the requirement for
revised cap sizes to be effective on the first day of the second month
following publication, unless otherwise indicated by the Commission, in
new Sec. 43.4(g)(10), but omitted the effective date of any
appropriate minimum block size in error.
The Commission received two general comments on the proposed
flexible approach. GFMA believes the flexible approach to updating cap
sizes and block thresholds will create operational burdens with limited
benefits.\249\ GFMA believes the flexible approach will be difficult to
implement and operationalize and suggests the Commission assess cap
sizes annually but not look to change the cap sizes more than once per
year.\250\ CME, alternatively, supports no longer requiring the
Commission to update cap sizes and block thresholds annually as
frequent changes to cap sizes will require frequent SDR system updates
at unnecessary costs.\251\
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\249\ GFMA at 7, 10.
\250\ Id. GFMA also believes if an FX product is considered for
a future MAT determination, the Commission should revisit the block
thresholds to ensure any determinations do not have a detrimental
impact on FX markets. The Commission is unaware of any FX MAT
determinations and notes that any determinations would follow the
MAT process, which is separate from part 43 reporting.
\251\ CME at 9-10.
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As it expressed in the Proposal, the Commission believed the
flexible approach would avoid frequent updates to SDR systems without a
clear benefit to the real-time public tape.\252\ However, the
Commission explained it instead expected to evaluate the cap sizes and
block thresholds on an ongoing basis to update cap sizes and block
thresholds when doing so would benefit the public tape.\253\ The
Commission recognizes the tension that creates, as it suggests the
Commission would review the data more frequently than once each
calendar year, with market participants unable to anticipate updates.
---------------------------------------------------------------------------
\252\ Proposal at 85 FR 21532 (Apr. 17, 2020).
\253\ See id.
---------------------------------------------------------------------------
As a result, the Commission finds GFMA's point that the proposal
would be difficult to implement and operationalize persuasive and
significant enough to reconsider the proposed flexible approach. While
CME supports the Commission's expectation that the flexible approach
would avoid frequent updates, the Commission's concerns about creating
uncertainty override the anticipated benefits of the proposal and the
Commission is declining to adopt the proposal to amend Sec. 43.6(a).
Instead, the Commission is maintaining the current requirement to
establish cap sizes using a one-year window of reliable SDR data
according to the 75-percent notional amount calculation recalculated no
less than once each calendar year in Sec. 43.4(h)(2). Similarly, the
Commission is maintaining the current requirement to establish
appropriate minimum block size using a one-year window of reliable SDR
data according to the 67-percent notional amount calculation no less
than once each calendar year in Sec. 43.6(g)(2).\254\
---------------------------------------------------------------------------
\254\ The Commission discusses the renumbering changes to Sec.
43.6 throughout the following sections.
---------------------------------------------------------------------------
The Commission received two comments on the effective date
requirements. CME believes the effective date should instead be the
date determined by the Commission in consultation with the SDRs.\255\
The Commission is declining to adopt this approach as it would create
uncertainty for market participants outside of SDRs. Similarly, DTCC
believes the effective date should instead be not less than 90 days
following publication, given the highly technical nature of the
changes, that appropriate minimum block size is delegated to Commission
staff, and that implementation could require a longer amount of
time.\256\ The Commission is declining to adopt this change because the
regulations the Commission is keeping give the Commission discretion to
determine a different effective date if necessary. The Commission
expects to work with SDRs to help ensure appropriate effective dates to
accommodate any technological changes.
---------------------------------------------------------------------------
\255\ Id. CME notes if the implementation date fell on a weekday
rather than a weekend when CME implements changes, CME would need to
develop a new process, which would be a complex undertaking and
reduce the amount of testing that could occur.
\256\ DTCC at 5-6.
---------------------------------------------------------------------------
The Commission received three comments on the publication
requirement. CME requests the Commission explain whether the cap
thresholds or the actual methodology or swap categories will change on
an ongoing basis without a rulemaking, and how the Commission would
notify the public about changes to cap sizes so SDRs do not have to
establish programs
[[Page 75446]]
to monitor the Commission's website.\257\ ISDA-SIFMA (Blocks) believe
block and cap threshold changes should go through notice and comment,
regardless of changes to the categories or methodologies.\258\ SIFMA
AMG requests the Commission adopt a 30-day notice and public comment
period and a three month implementation period following any
appropriate minimum block size or cap size changes.\259\
---------------------------------------------------------------------------
\257\ Id.
\258\ ISDA-SIFMA (Blocks) at 7-8.
\259\ SIFMA AMG at 4.
---------------------------------------------------------------------------
As the existing rules provide, the Commission updates the cap sizes
and block thresholds on its website, but modifies the categories and
methodologies through rulemaking.\260\ The Commission did not propose
any changes to the current process as the Commission believes
notification on the Commission's website provides sufficient notice to
market participants. The Commission will continue calculating block
thresholds and cap sizes for swap categories set forth in the Final
Rules using methodologies set forth in the rules, but the application
of regulations does not require additional notice and comment. The
Commission is concerned opening the results of applying the
methodologies to data would suggest the methodologies are open to
public comment annually, when opening the rules for public comment each
year would be an inefficient use of Commission resources.
---------------------------------------------------------------------------
\260\ See also Block Trade Rule at 78 FR 32903 (May 31, 2013).
---------------------------------------------------------------------------
The Commission received one comment on temporary changes to the
block thresholds and cap sizes. Citing March 2020 volatility, ISDA-
SIFMA (Blocks) suggest the Commission create a formal adjustment
mechanism to allow market participants to petition the Commission to
temporarily change block and cap thresholds based on observed market
conditions, or enable the Commission to do so subject to a public
comment process.\261\ The Commission considered comments raising this
issue in the Block Trade Rule, and ultimately decided the requirement
to analyze the thresholds no less than once each calendar year gives
the Commission the authority to update appropriate minimum block size
when warranted and as necessary to respond to such circumstances.\262\
In light of the Commission's observations and oversight of the markets
during periods of high volatility, including March 2020, the Commission
believes this authority continues to give the Commission sufficient
authority to respond to changing conditions. As a result, the
Commission is declining to adopt ISDA-SIFMA's suggestion for a
mechanism beyond the current rule.
---------------------------------------------------------------------------
\261\ ISDA-SIFMA (Blocks) at 7-8.
\262\ Block Trade Rule at 78 FR 32903 (May 31, 2013).
---------------------------------------------------------------------------
2. Sec. 43.6(b)--Swap Categories
Existing Sec. 43.6(b) delineates the swap categories referenced in
Sec. 43.6(a) by five asset classes: IRS, CDS, equity, FX, and other
commodity. It then subdivides these asset classes into various swap
categories. The categories group together swaps with similar
quantitative or qualitative characteristics that warrant being subject
to the same appropriate minimum block size.\263\
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\263\ See Block Trade Rule at 78 FR 32872 (May 31, 2013).
---------------------------------------------------------------------------
The Commission is concerned the existing swap categories
disparately impact different swap transaction types. For instance, the
existing swap categories group together economically distinct swaps,
such as IRS denominated in U.S. dollars (``USD IRS'') and IRS
denominated in Japanese yen (``JPY IRS''). Because the notional amounts
of USD IRS transactions are, on average, higher than the notional
amounts of JPY IRS transactions, the current IRS appropriate minimum
block size, which includes transactions from a group of currencies, is
too high for some products, like JPY IRS, and too low for others, like
USD IRS. In other words, USD IRSs are eligible for a dissemination
delay, even though a delay may be unnecessary for a counterparty to
hedge the trade at minimal additional cost due to the trade size, and
JPY IRS are ineligible for a dissemination delay even though a delay
may be necessary for a counterparty to hedge the trade without
incurring material costs due to the trade size.
The Commission analyzed 2018-2019 part 43 SDR data for each asset
class to evaluate the sufficiency of the existing swap categories. The
Commission reviewed all products within each asset class, but removed
certain swaps from the data sets: Duplicate swap reports, indicated by
swaps having the same unique swap identifier (``USI''); terminated
swaps; cancelled swap reports; modifications to existing swap reports;
and swaps with notional values of zero. The Commission removed FX swaps
with blank currency fields.
In addition, the Commission removed CDS trades around the time the
index rolls twice a year. As new CDS indexes are introduced each March
and September, many market participants ``roll'' their positions from
the old ``off-the-run'' index into the new ``on-the-run'' index. These
trades are often done as spread trades, similar to how futures
positions are rolled using calendar spread trades during the expiration
cycle. As discussed below, commenters raised including CDS roll days in
the CDS data set would result in significantly larger thresholds for
non-roll swaps. For almost all indices, the Commission found there was
a substantial increase in daily notional on those days in a way that
could skew the block thresholds.\264\ For example, on September 27,
2018, CDXHY showed a notional amount over 11 times the annual daily
sample average. The Commission removed these swaps to avoid
significantly larger thresholds for non-roll swaps.
---------------------------------------------------------------------------
\264\ The analysis did not show similar patterns in the option
swap categories, and the Commission is not adjusting options
thresholds for roll periods.
---------------------------------------------------------------------------
The Commission proposed new swap categories in Sec. 43.6(c) \265\
for swaps in the IRS, CDS, FX, and other commodity asset classes. The
Commission discusses comments on the specific swap categories in the
sections below. The Commission received one comment generally
supporting new swap categories. ICI believes the new categories will be
better calibrated to the relative liquidity of the swap categories in
each asset class.\266\ The Commission agrees with ICI and, for the
reasons the Commission discusses generally above and specifically below
for each asset class, is adopting the new swap categories, with some
modifications.
---------------------------------------------------------------------------
\265\ In the Proposal, the Commission proposed removing the
existing swap categories in Sec. 43.6(b) and replacing them with
new swap categories. As explained above, the Commission has decided
to leave the existing regulation for initial appropriate minimum
block sizes, including the existing swap categories, in Sec. 43.6
to avoid removing regulations that are still needed during the
compliance period for any changes to Sec. 43.6. As a result, the
Commission is leaving the existing swap categories as Sec. 43.6(b)
and renaming them ``Initial swap categories,'' and adding the new
swap categories for the post-initial appropriate minimum block sizes
in Sec. 43.6(c) (titled ``Post-initial swap categories'').
\266\ ICI at 4-5.
---------------------------------------------------------------------------
The Commission received one comment generally opposing the new swap
categories. Citadel believes the new categories significantly increase
operational complexity for market participants and trading venues, as
each threshold must be separately implemented, monitored, and
surveilled.\267\ Citadel further believes new categories would reduce
market transparency as the Commission proposed setting the block
threshold at zero for certain newly-created categories that have
smaller trading volumes, including instruments subject to mandatory
clearing, which would result
[[Page 75447]]
in a reporting delay for swaps that are currently reported in real
time.\268\
---------------------------------------------------------------------------
\267\ Citadel at 9.
\268\ Id.
---------------------------------------------------------------------------
As explained above, the Commission believes the new swap categories
are better calibrated and will result in more reliable appropriate
minimum block sizes. As explained below, the Commission believes
setting the appropriate minimum block size to zero is appropriate for
swaps with a low level of trading activity for which the Commission
cannot determine a robust and reliable appropriate minimum block size.
In response to Citadel's comment that the rule could reduce
transparency for certain newly-created categories that have smaller
trading volumes, the Commission has assessed the impact that the new
categories could have on transparency as part of its review of the
2018-2019 data but nonetheless found that block treatment was
appropriate given low liquidity. The Commission finds that the
appropriate minimum block sizes for certain swaps will increase thus
leading to real-time reporting for swaps that had previously received
block treatment and thereby increased transparency. For these reasons,
the Commission is adopting the new swap categories subject to the
modifications to the categories the Commission describes below.
In addition, as mentioned above, in the Proposal, the Commission
proposed removing the regulations for initial appropriate minimum block
sizes and replacing them with new regulations for appropriate minimum
block sizes. As part of this, the Commission proposed removing the
existing swap categories. To avoid removing regulations that still need
to be effective during the compliance period for the changes to Sec.
43.6, the Commission has decided to leave the existing swap categories
in Sec. 43.6(b), while adding the new updated swap categories for
appropriate minimum block sizes during the post-initial period that
were proposed in the Proposal in Sec. 43.6(c). The Commission
discusses the new regulations in this section.
a. Interest Rate Asset Class
Existing Sec. 43.6(b)(1) sets forth the IRS categories. The
Commission based the existing IRS categories on a unique combination of
three currency groups and nine tenor ranges, for a total of 27
categories.
The Commission proposed new swap categories for each combination of
the top 15 different currencies \269\ and nine tenor ranges,\270\ for a
total of 135 swap categories. The proposed nine tenor ranges were the
same nine tenor ranges in existing Sec. 43.6(b)(1)(ii)(A) through (I).
The proposed top 15 currencies added the currencies of Brazil, Chile,
the Czech Republic, India and Mexico and removed the currencies of
Switzerland and Norway from the currencies in existing Sec.
43.6(b)(1)(i)(A). The Commission proposed a 136th swap category in
Sec. 43.6(b)(1)(ii) for IRS other than those of the top 15 currencies
and the nine tenors. The Commission proposed grouping these swaps with
low activity together and setting the appropriate minimum block size to
zero to make each transaction eligible for delayed dissemination.\271\
---------------------------------------------------------------------------
\269\ See proposed Sec. 43.6(b)(1)(i)(A)(1) through (15). These
15 currencies are the currencies of Australia, Brazil, Canada,
Chile, Czech Republic, the European Union, Great Britain, India,
Japan, Mexico, New Zealand, South Africa, South Korea, Sweden, or
the United States.
\270\ See proposed Sec. 43.6(b)(1)(i)(B)(1) through (9).
\271\ See proposed Sec. 43.6(e)(4), discussed below in section
II.F.4.
---------------------------------------------------------------------------
The Commission is adopting the new IRS categories as proposed, but
numbered as Sec. 43.6(c) in the regulations. For IRS, the Commission
believes new swap categories referencing the top 15 currencies, which
make up 96% of the total population of IRS trades, will have
appropriate minimum block sizes that better fit these swaps by grouping
IRS into more discrete categories. A 136th category for swaps in
currencies outside of the top 15 currencies that will have an
appropriate minimum block size of zero will address the swaps for which
there is not enough activity for the Commission to compute a reliable
and robust appropriate minimum block size.
The Commission received three comments on the new IRS categories.
SIFMA AMG believes the 135 new IRS categories will burden market
participants with complicated reporting that may not provide meaningful
transparency or price discovery for numerous IRS categories.\272\ ISDA-
SIFMA (Blocks) are concerned the scope of data was overly inclusive and
not representative of all swaps in a particular swap category,
especially with CDS and IRS.\273\ ACLI requests that interest rate
products with a tenor of 10 years and greater be made into a separate
category because they have a different sensitivity to risks than
shorter-dated interest rate products.\274\
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\272\ SIFMA AMG at 6.
\273\ ISDA-SIFMA (Blocks) at 6-7. The Commission discusses the
ISDA-SIFMA (Blocks) comment with respect to CDS in the following
section.
\274\ ACLI at 3-4.
---------------------------------------------------------------------------
When the Commission formulated the proposed categories it
recognized, as SIFMA AMG comments, that increasing the number of
categories could increase operational and reporting costs. The
Commission also recognized the concern expressed by ISDA-SIFMA (Blocks)
that there must be enough categories so that the categories are not
overly inclusive. The Commission believes the new IRS categories
balance these concerns. As described in the Proposal, the new swap
categories address the following two policy objectives: (1)
Categorizing together swaps with similar quantitative or qualitative
characteristics that warrant being subject to the same appropriate
minimum block size; and (2) minimizing the number of swap categories
within an asset class in order to avoid unnecessary complexity in the
determination process.\275\ The Commission has determined that
increasing the number of categories from the current level is necessary
to group swaps with a similar economic impact and better ensure that
the appropriate minimum block size for each swap is appropriate.
---------------------------------------------------------------------------
\275\ Proposal at 85 FR 21534 (Apr. 17, 2020).
---------------------------------------------------------------------------
The Commission is not persuaded by ACLI's recommendation. To be
consistent, the Commission could not just create a new interest rate
category based on risk sensitivity. The Commission would have to adopt
an entirely new block regime based on risk--it would have to establish
new categories and develop new appropriate minimum block sizes on the
basis of risk. As explained fully in its Sec. 43.6(e) discussion, the
Commission believes its approach is superior to a risk-based approach
as the ultimate goal in establishing thresholds is to focus on
liquidity differences across swap categories, not risk-transfer per se.
b. Credit Asset Class
Existing Sec. 43.6(b)(2) sets forth the CDS swap categories. The
Commission based the current CDS swap categories on combinations of
three conventional spread levels and six tenor ranges, for a total of
18 swap categories. The Commission proposed replacing the current
spreads and tenor ranges in Sec. 43.6(b)(2)(i) and (ii) with seven
product types and four to six year tenor ranges. The Commission
proposed setting the new CDS categories in Sec. 43.6(b)(2) as: (i)
Based on the CDXHY product type and a tenor greater than 1,477 days and
less than or equal to 2,207 days; (ii) based on the iTraxx Europe
product type and a tenor greater than 1,477 days and less than or equal
to 2,207 days; (iii) based on the iTraxx Crossover product type and a
tenor greater than 1,477 days and less than or
[[Page 75448]]
equal to 2,207 days; (iv) based on the iTraxx Senior Financials product
type and a tenor greater than 1,477 days and less than or equal to
2,207 days; (v) based on the CDXIG product type and a tenor greater
than 1,477 days and less than or equal to 2,207 days; (vi) based on the
CDXEmergingMarkets product type and a tenor greater than 1,477 days and
less than or equal to 2,207 days; and (vii) based on the CMBX product
type. The Commission proposed a new swap category in Sec.
43.6(b)(2)(viii) for CDS with low activity and setting the appropriate
minimum block size to zero to make them eligible for delayed
dissemination.\276\
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\276\ See proposed Sec. 43.6(e)(4), discussed below in section
II.F.4.
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The Commission is adopting the new CDS categories with
modifications. For CDS, the Commission believes spreads may not be a
consistent measure for the swap categories. Specifically, the
Commission is concerned products with similar spreads are not
necessarily economically similar because all market participants may
not calculate the same spread for a given product. In addition, a
product's spread range can change, making it difficult for parties to
be certain that they are eligible for block treatment. Instead, the
Commission finds most market participants trade specific credit
products within specific tenor ranges. The Commission finds the most-
traded CDS products are: (i) The CDXHY; (ii) iTraxx Europe, Crossover,
and Senior Financials indexes; (iii) CDXIG; (iv) CDXEmergingMarkets;
and (v) CMBX.\277\ For each CDS product except for CMBX, the Commission
finds the four to six year tenors, or greater than 1,477 days and less
than or equal to 2,207 days, make up around 90% of all CDS trades. The
Commission believes a separate category for CDS outside the products
and/or tenor ranges above that will have an appropriate minimum block
size of zero will address these swaps for which there is not enough
activity for the Commission to compute a reliable and robust
appropriate minimum block size.
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\277\ The Markit CDX family of indices is the standard North
American CDS family of indices, with the primary corporate indices
being the CDX North American Investment Grade (consisting of 125
investment grade corporate reference entities) (CDX.NA.IG) and the
CDX North American High Yield (consisting of 100 high yield
corporate reference entities) (CDX.NA.HY). The Markit CDX Emerging
Markets Index (CDX.EM) is composed of 15 sovereign reference
entities that trade in the CDS market. The Markit CMBX index is a
synthetic tradable index referencing a basket of 25 commercial
mortgage-backed securities. Markit iTraxx indices are a family of
European, Asian and Emerging Market tradable CDS indices.
---------------------------------------------------------------------------
The Commission received one comment on the scope of data used to
create the CDS categories. In response, the Commission is adopting
Sec. 43.6(c)(2) with additional swap categories for CDS with
optionality. ISDA-SIFMA (Blocks) are concerned the scope of data was
overly inclusive and not representative of all swaps in a particular
swap category, especially with CDS.\278\ First, ISDA-SIFMA (Blocks)
believe including swaps with optionality skewed block and cap sizes
because non-delta-1 products \279\ trade in higher notional amounts
than delta-1 products and do not represent the underlying products
(i.e., the delta-1 products) that make up the rest of the swap
category.\280\ ISDA-SIFMA (Blocks) believe this is shown by, for
example, the proposed appropriate minimum block size for CDXIG being
$550 million notional, while the proposed appropriate minimum block
size for CDXEM, whose markets have very little option activity, as $51
million notional.\281\ ISDA-SIFMA (Blocks) also believe the data set
inappropriately included CDS rolls.\282\ Separately, ISDA-SIFMA
(Blocks) believe the data sets should capture calm and stressed market
conditions. ISDA-SIFMA (Blocks) recommend the Commission either: (1)
Recalibrate the proposed appropriate minimum block sizes by excluding
such products from its data sets; or (2) create new categories that
would distinguish between these products.\283\
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\278\ ISDA-SIFMA (Blocks) at 6-7.
\279\ Delta-1 products refer to derivatives that have no
optionality (i.e., for a given instantaneous move in the price of
the underlying asset there is expected to be an identical move in
the price of the derivative).
\280\ ISDA-SIFMA (Blocks) at 6-7.
\281\ Id.
\282\ Id.
\283\ Id. at 7.
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In response to the ISDA-SIFMA (Blocks) comment that it may be
inappropriate when determining the block and cap thresholds to include
swap products with optionality in particular swap categories, the
Commission examined non-option and option products separately. The
Commission determined there is a substantial difference in the
distribution of trade sizes between non-option and option CDS
products.\284\ During 2018 to 2019 the notional values of swaps with
optionality were approximately three to six larger than non-option
swaps. As a consequence, for many swaps categories, excluding options
had an economically meaningful effect on the calculated block and cap
thresholds. Accordingly, the Commission is separating the option
activity into distinct swap categories for some indices, and there will
now be a swap category for CDXIG and one for CDXIG-options.
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\284\ Similar analysis of IRS and FX trading shows that the
differences between the size distributions of option and non-option
swaps was sufficiently small that the Commission concluded block and
cap sizes in IRS and FX should be the same for option and non-option
swaps.
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In response to the ISDA-SIFMA (Blocks) comment that the data sets
used to determine appropriate minimum block sizes should capture calm
and stressed market conditions, the Commission notes the current data
set includes data from the fourth quarter of 2018 when markets were
stressed and data from the third quarter of 2018 and the first quarter
of 2019 when the markets were calm. The Commission understands that
basing appropriate minimum block sizes primarily on periods of high or
low volatility would lead to appropriate minimum block sizes that are
inappropriate under most market conditions; thus, the adopted
appropriate minimum block sizes are based on a sample that is
representative of market activity in a range of market conditions.
The Commission also has determined that it will not establish
appropriate minimum block sizes for stressed market conditions. By
their nature, markets may be stressed for different reasons and to
different levels, and thus, the appropriate minimum block sizes cannot
be determined in advance.
c. Equity Asset Class
Existing Sec. 43.6(b)(3) specifies that there shall be one swap
category consisting of all swaps in the equity asset class. The
Commission did not propose changing the equity asset class in Sec.
43.6(b)(3).\285\
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\285\ As explained above, due to renumbering issues, the
regulations for post-initial appropriate minimum block sizes in the
equity asset class will be found at Sec. 43.6(c)(3), even though
the Commission proposed leaving them in Sec. 43.6(b)(3).
---------------------------------------------------------------------------
The Commission received one comment on the equity asset class. ICI
requests the Commission consider whether to include appropriate minimum
block size for equity swaps because the assumption that a highly liquid
underlying cash market negates the need for an appropriate minimum
block size does not hold true.\286\ The Commission considered whether
equity swaps should be eligible for block treatment but continues to
believe that there is a highly liquid underlying cash market for
equities and that the equity index swaps market is not small relative
to the futures, options, and cash equity index markets. The Commission
declines to adopt ICI's suggestion at this time, but will continue to
assess the
[[Page 75449]]
equity asset class when it recalculates the block levels every year.
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\286\ ICI at 5.
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d. Foreign Exchange Asset Class
Existing Sec. 43.6(b)(4) sets forth the FX swap categories. The
Commission grouped the existing FX swap categories by: (i) The unique
currency combinations of one super-major currency \287\ paired with
another super major currency, a major currency,\288\ or a currency of
Brazil, China, Czech Republic, Hungary, Israel, Mexico, Poland, Russia,
and Turkey; or (ii) unique currency combinations not included in Sec.
43.6(b)(4)(i).\289\
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\287\ Sec. 43.2 defines ``Super-major currencies'' as the
currencies of the European Monetary Union (i.e., the euro), Japan
(i.e., the yen), the United Kingdom (i.e., the pound sterling), and
the United States (i.e., the U.S. dollar).
\288\ Sec. 43.2 defines ``Major currencies'' as the currencies,
and the cross-rates between the currencies, of Australia (i.e., the
Australian dollar), Canada (i.e., the Canadian dollar), Denmark
(i.e., the Danish krone), New Zealand (i.e., the New Zealand
dollar), Norway (i.e., the Norwegian krone), South Africa (i.e., the
South African rand), South Korea (i.e., the South Korean won),
Sweden (i.e., the Swedish krona), and Switzerland (i.e., the Swiss
franc).
\289\ See 17 CFR 43.6(b)(4).
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The Commission proposed replacing the FX swap categories in Sec.
43.6(b)(4) with new swap categories by currency pair. The new FX
categories would be comprised of FX swaps with one currency of the
currency pair being USD, paired with another currency from one of the
following: Argentina, Australia, Brazil, Canada, Chile, China,
Colombia, the European Union, Great Britain, India, Indonesia, Japan,
Malaysia, Mexico, New Zealand, Peru, Philippines, Russia, South Korea,
or Taiwan.
The Commission proposed creating a new category for FX swaps in
Sec. 43.6(b)(4)(ii) (re-designated as Sec. 43.6(c)(4)(ii)) where
neither currency in the currency pair is USD. Proposed Sec.
43.6(c)(4)(ii) would be comprised of swaps with currencies from
Argentina, Australia, Brazil, Canada, Chile, China, Colombia, the
European Union, Great Britain, India, Indonesia, Japan, Malaysia,
Mexico, New Zealand, Peru, Philippines, Russia, South Korea, or Taiwan.
Parties to these FX swaps could elect block treatment if the notional
amount of either currency in the currency exchange is greater than the
appropriate minimum block size for a FX swap between the respective
currencies, in the same amount, and USD described in Sec.
43.6(c)(4)(i). The Commission proposed adding a swap category in Sec.
43.6(b)(4)(iii) (re-designated as Sec. 43.6(c)(4)(iii)) for FX swaps
that trade with relatively low activity and setting the appropriate
minimum block size to zero to make these swaps eligible for delayed
dissemination.\290\
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\290\ See proposed Sec. 43.6(e)(4) (re-designated as Sec.
43.6(g)(4)), discussed below in section II.F.4.
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The Commission is adopting the new FX swap categories as proposed,
with technical modifications to re-designate/re-number certain
requirements, as discussed above. For FX, the Commission finds that
almost 94% of the over 7 million FX swaps included USD as one currency
in each swap's currency pair. Of these swaps, the top-20 currencies
paired with USD were currencies from Argentina, Australia, Brazil,
Canada, Chile, China, Colombia, the European Union, Great Britain,
India, Indonesia, Japan, Malaysia, Mexico, New Zealand, Peru,
Philippines, Russia, South Korea, or Taiwan. The Commission believes a
separate category for FX swaps outside the above currency pairs that
will have an appropriate minimum block size of zero will address these
swaps for which there is not enough activity for the Commission to
compute a reliable and robust appropriate minimum block size.
The Commission received two comments on the new FX swap categories.
The FXPA believes the Commission's reliance on market data has led to
an appropriate outcome and the Commission's empirical analysis supports
the conclusions set forth in the proposal and encourages the Commission
to commit to periodic reviews of FX asset class categories on a regular
basis.\291\
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\291\ FXPA at 2.
---------------------------------------------------------------------------
GFMA, conversely, believes significant changes have occurred to the
FX market and the Commission should consider the impact of changes in
FX market conditions, including changes to the number and size of
transactions, since the 2018-2019 time period for which data was
analyzed.\292\ GFMA also believes notional may not be a good proxy for
liquidity of some products and suggests the Commission not aggregate
notionals for non-deliverable forwards and FX options and instead
consider them as distinct categories.\293\ GFMA notes that several
currencies--such as Swiss francs (``CHF'')--that are currently in the
block/cap tables are not in the proposed tables and these currencies
would now fall into the ``limited trading activity'' bucket, which GFMA
believes is surprising.\294\ GFMA also notes that the proposed block
and cap tables have added several new currencies, some of which are
emerging market currencies that are more volatile.\295\
---------------------------------------------------------------------------
\292\ GFMA at 9.
\293\ GFMA at 7, 10.
\294\ Id.
\295\ Id.
---------------------------------------------------------------------------
The Commission acknowledges GFMA's comment that market conditions
may have changed since the proposed categories were created, creating
potential that the categories may be a looser fit today than when
designed. However, the Commission believes that the swap categories are
appropriately based on an analysis of SDR swap data, discussions with
market participants, as well as information from commenters, including
FXPA which concurs with the outcome. The Commission does not agree that
the block and cap sizes of certain currencies are too high. The
appropriate minimum block size of an FX product is determined by the FX
category to which the FX product belongs. The Commission utilized 2018-
2019 part 43 SDR data to construct the FX categories. The Commission
believes the FX categories are appropriate as they advance the
Commission's policy objectives of (1) categorizing swaps with similar
quantitative or qualitative characteristics that warrant being subject
to the same appropriate minimum block size and (2) minimizing the
number of swap categories within an asset class in order to avoid
unnecessary complexity in the determination process.\296\
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\296\ See Block Trade Rule at 32872.
---------------------------------------------------------------------------
Per GFMA's comment, the Commission reviewed whether FX non-
deliverable forwards and FX options should be aggregated. The
Commission determined that aggregating the two types of swaps is
appropriate for achieving its policy goals, and is concerned treating
them separately would complicate the categories without a commensurate
benefit to transparency.
e. Other Commodity Asset Class
Existing Sec. 43.6(b)(5) sets forth the other commodity swap
categories. The Commission grouped the existing other commodity swap
categories by either (1) the relevant contract referenced in existing
appendix B of part 43 \297\ for swaps that are economically related to
a contract in appendix B, or (2) futures-related swaps for swaps that
are not economically related to contracts in appendix B.\298\ Swaps
outside of
[[Page 75450]]
Sec. 43.6(b)(5)(i) and Sec. 43.6(b)(5)(ii) are categorized according
to the relevant product type referenced in appendix D of part 43.\299\
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\297\ Appendix B to part 43 lists 42 swap categories based on
such contracts.
\298\ These swaps are: CME Cheese; CBOT Distillers' Dried Grain;
CBOT Dow Jones-UBS Commodity Index; CBOT Ethanol; CME Frost Index;
CME Goldman Sachs Commodity Index (GSCI), (GSCI Excess Return
Index); NYMEX Gulf Coast Sour Crude Oil; CME Hurricane Index; CME
Rainfall Index; CME Snowfall Index; CME Temperature Index; or CME
U.S. Dollar Cash Settled Crude Palm Oil. The 18 swap categories in
Sec. 43.6(b)(5)(ii) are based on futures contracts to which swaps
in these categories are economically related.
\299\ See Sec. 43.6(b)(5)(iii). Appendix D establishes
``other'' commodity groups and individual other commodities within
these groups for swaps that are not economically related to any of
the contracts listed in appendix B or any of the contracts listed in
Sec. 43.6(b)(5)(ii). If there is an individual other commodity
listed, the Commission would deem it a separate swap category, and
thereafter set an appropriate minimum block size for each such swap
category. If a swap is unrelated to a specific other commodity
listed in the other commodity group in appendix D, the Commission
would categorize such swap as falling under the relevant other swap
category. See Block Trade Rule at 78 FR 32888 (May 31, 2013).
---------------------------------------------------------------------------
The Commission proposed new swap categories for the other commodity
asset class based on the list of underliers in existing appendix D to
part 43. The Commission also proposed modifying the list of underliers
in existing appendix D and re-designating it as appendix A.\300\ For
swaps with a physical commodity underlier listed in appendix A,
proposed Sec. 43.6(b)(5)(i) would group swaps in the other commodity
asset class by the relevant physical commodity underlier. The proposed
list of underliers in appendix A would be based on broad commodity
categories the Commission has identified from its review of the swap
data from SDRs, rather than references to specific futures contracts.
---------------------------------------------------------------------------
\300\ This was a structural change to reflect the proposed
removal of existing appendices A through C.
---------------------------------------------------------------------------
For other commodity swaps outside of those based on the underliers
in proposed appendix A, the Commission found the trade count was not
high enough to compute a robust and reliable appropriate minimum block
size. The Commission proposed adding a swap category in Sec.
43.6(b)(5)(ii) for relatively illiquid other commodity swaps and
setting the appropriate minimum block size for these swaps at
zero.\301\
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\301\ See proposed Sec. 43.6(e)(4), discussed below in section
II.F.4.
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The Commission is adopting the new other commodity swap categories
as proposed in Sec. 43.6(c).\302\ The Commission believes the new
other commodity swap categories advance the Commission's policy
objectives of (1) categorizing swaps with similar quantitative or
qualitative characteristics that warrant being subject to the same
appropriate minimum block size and (2) minimizing the number of swap
categories within an asset class in order to avoid unnecessary
complexity in the determination process.\303\ However, the Commission
is not adopting the proposal to re-designate appendix D to appendix A.
The Commission had proposed to re-designate the appendix as a result of
the proposed removal of other appendices. As the Commission is not
removing all of the other appendices as proposed, appendix D will
remain where it is.
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\302\ Due to the re-numbering described throughout this section,
the post-initial appropriate minimum block sizes will be re-numbered
as Sec. 43.6(c) instead of Sec. 43.6(b) as the Commission proposed
in the Proposal.
\303\ See Block Trade Rule at 78 FR 32872 (May 31, 2013).
---------------------------------------------------------------------------
The Commission received one comment on the commodity asset class.
ICE SDR recommends the Commission provide additional clarity on the
appropriate minimum block sizes in the other commodity asset class
table, as, for example, electricity and natural gas references do not
specify whether they apply to North America only or apply to all global
gas and electricity products.\304\ ICE SDR notes commodity index trades
are not referenced and oil should be clarified as to whether it only
applies to crude oil only or other refined products.\305\
---------------------------------------------------------------------------
\304\ ICE SDR at 8.
\305\ Id.
---------------------------------------------------------------------------
Based on the reasons above concerning the Commission's policy
objectives to maintain a reasonable number of categories with adequate
breadth, the Commission declines to create additional categories. Thus,
the categories will continue to cover all products with the referenced
underlier regardless of geographic location. Similarly, commodity index
swaps comprised of underliers that span multiple categories will
continue to be in the other commodity swaps category under Sec.
43.6(c)(5)(ii) and other refined oil products without their own
category will continue to be the broad oil category.
3. Sec. 43.6(c)--Methodologies To Determine Appropriate Minimum Block
Sizes and Cap Sizes
Existing Sec. 43.6(c) sets forth the methodologies the Commission
must use to determine appropriate minimum block sizes and cap sizes in
the Sec. 43.6(b) swap categories. These methodologies are: A 50-
percent notional amount calculation; a 67-percent notional amount
calculation; and a 75-percent notional amount calculation.\306\
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\306\ See Sec. 43.6(c)(1), (2), and (3), respectively. Each
methodology ensures that within a swap category, the stated
percentage of the sum of the notional amounts of all swap
transactions in that category are disseminated on a real-time basis.
The instructions for each of the calculations require the Commission
to select all reliable publicly reportable swap transactions within
a swap category using one year's worth of data, converting them to
the same currency and, using a trimmed data set, determine the sum
of the notional amounts of swaps in the trimmed data set, multiply
the sum of the notional amounts by 50, 67, or 75 percent, rank the
results from least to greatest, calculate the cumulative sum of the
observations until it is equal to or greater than the 50, 67, or 75-
percent notional amount, select and round the notional amount, and
set the appropriate minimum block size equal to that amount.
---------------------------------------------------------------------------
For the initial period,\307\ the Commission has used the 50-percent
notional amount calculation to determine the appropriate minimum block
size.\308\ For the post-initial period, existing Sec. 43.6(f)(2)
required the Commission to use the 67-percent notional amount
calculation.\309\ For the initial period, the Commission set the
initial cap sizes as the greater of the interim cap sizes (the time
before the initial period) in all five asset classes and the
appropriate minimum block size calculated using the 50-percent notional
amount calculation.\310\ For post-initial cap sizes, existing Sec.
43.4(h) required the Commission to use the 75-percent notional amount
calculation for all swap categories.\311\
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\307\ The initial period refers to the period of no less than
one year after an SDR started collecting reliable data for a
particular asset class as determined by the Commission and prior to
the effective date of a Commission determination to establish
applicable post-initial cap sizes.
\308\ See Sec. 43.6(e).
\309\ See Sec. 43.6(f)(2).
\310\ See Sec. 43.4(h)(1).
\311\ See Sec. 43.4(h)(2)(ii). As discussed above in section
II.D.4, the Commission is adopting some changes to the process to
determine cap sizes in Sec. 43.4(h), but will use the 75-percent
notional amount calculation for cap sizes.
---------------------------------------------------------------------------
Prior to the Proposal the Commission had not calculated the post-
initial block sizes or cap sizes, although the condition specified in
Sec. 43.6(f)(1) for moving to the post-initial period had been met,
i.e., SDR collection of at least one year's worth of reliable data for
the particular asset classes. As a result, the appropriate minimum
block size and cap sizes have remained at lower thresholds than the
Commission intended when it adopted the Block Trade Rule. In practice,
this results in more swaps qualifying for block treatment and capping,
at the expense of more swaps being available to the public without a
delay or fewer swaps capped to mask their notional value.
In the Proposal, the Commission proposed removing the 50-percent
notional amount calculation in Sec. 43.6(c)(1) and re-designating
Sec. 43.6(c)(2) and (3) as Sec. 43.6(c)(1) and (2), respectively.
However, as discussed above, to avoid removing regulations that still
need to be effective during the
[[Page 75451]]
compliance period for the changes to Sec. 43.6, the Commission has
decided to leave the existing regulations for the 50-percent notional
amount calculation, while adding the new updated regulations for
appropriate minimum block sizes during the post-initial period that
were proposed in the Proposal. Therefore, the Commission is not
removing the reference to the 50-percent notional calculation, but is
moving it to Sec. 43.6(d)(3). In addition, due to retaining the
existing swap categories in Sec. 43.6(b), the Commission is
renumbering Sec. 43.6(c) as Sec. 43.6(d).
The Commission is also adopting minor changes to the 50-percent,
67-percent and 75-percent notional amount calculations. The Commission
is updating certain steps of the statistical calculations set forth in
existing Sec. 43.6(c)(2)(i) through (ix) to improve clarity and
sharpen their application. Existing Sec. 43.6(c)(2)(i) requires the
Commission to select all publicly reportable swap transactions within a
specific swap category using a one-year window of data. As re-
designated, Sec. 43.6(d)(1)(i) will require the Commission to select
all reliable SDR data for at least a one-year period for each relevant
swap category to simplify the language and clarify that the Commission
would be using SDR data in its calculations.
Existing Sec. 43.6(c)(2)(ii) requires the Commission to convert to
the same currency or units and use a trimmed data set, but does not
specify what is being converted. As re-designated, Sec. 43.6(d)(1)(ii)
will clarify the Commission will convert the notional amount to the
same currency or units and use a trimmed data set to improve
readability.
The Commission is updating the definition of ``trimmed data set''
in Sec. 43.2 to mean a data set that has had extraordinarily large
notional transactions removed by transforming the data into a logarithm
with a base of 10, computing the mean, and excluding transactions that
are beyond two standard deviations above the mean for the other
commodity asset class and three standard deviations above the mean for
all other asset classes. The Commission explains the change in this
section because the trimmed data set is used in Sec. 43.6(d)(2)(ii).
Trimming the data set avoids having outliers skew the data set,
which could lead to inappropriately high appropriate minimum block
sizes.\312\ In applying the existing methodologies to update to the
block thresholds and cap sizes, Commission staff found that excluding
commodity transactions beyond four standard deviations above the mean
led to including extraordinarily large notional transactions that could
skew results. With commodity swaps in particular, the Commission is
concerned that the wide variation in how reporting counterparties
report notional amounts led to more outliers that should be excluded
from the trimmed data set. Commission staff has found a similar issue
with four standard deviations for the other asset classes, but to a
lesser extent than commodities, that the Commission believes will be
addressed by moving from four standard deviations to three.
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\312\ See Block Trade Rule at 78 FR 32895 (May 31, 2013).
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The Commission is also changing the rounding rules in the
methodology. Existing Sec. 43.6(d)(2)(viii) directs the Commission to
round the notional amount of the observation discussed in Sec.
43.6(d)(2)(vii) ``to'' two significant digits,\313\ or if the notional
amount is already significant ``to'' two digits, increase the notional
amount to the next highest rounding point of two significant
digits.\314\ The Commission is revising Sec. 43.6(d)(2)(viii) to
specify that the Commission rounds the notional amount of the
observation ``up to'' two significant digits, or if it is already
significant ``to only'' two digits, increase the notional amount to the
next highest rounding point of two significant digits. The Commission
believes changing ``to'' to ``up to'' and ``to only,'' respectively, in
Sec. 43.6(d)(2)(viii) clarifies the Commission's intent consistent
with the above example.
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\313\ Significant digits means the number of digits in a figure
that express the precision of a measurement instead of its
magnitude. In a measurement, commonly the in-between or embedded
zeros are included but leading and trailing zeros are ignored. Non-
zero digits, and leading zeros to the right of a decimal point, are
always significant.
\314\ See Block Trade Rule at 78 FR 32892 (May 31, 2013), n.
241, which provided the following example to explain the rounding
instructions in Sec. 43.6(c)(2)(viii): ``if the observed notional
amount is $1,250,000, the amount should be increased to $1,300,000.
This adjustment is made to assure that at least 67 percent of the
total notional amount of transactions in a trimmed data set is
publicly disseminated in real time.''
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Finally, the Commission is replacing the individual instructions
for the 75-percent and 50-percent notional amount calculations
contained in existing Sec. 43.6(c)(1) and (3) with a cross-reference
to the procedures set out in Sec. 43.6(d)(1). Since the steps for the
calculations are the same, cross-referencing the procedures in proposed
Sec. 43.6(d)(1) will reflect the calculation steps are the same.
The Commission did not receive any comments on the changes to Sec.
43.6(d). For the reasons discussed above, the Commission is adopting
the changes as proposed.
4. Sec. 43.6(e)--Process To Determine Appropriate Minimum Block Sizes
Existing Sec. 43.6(e) and (f) set forth the processes for the
Commission to set appropriate minimum block size in the initial \315\
and post-initial period. Existing Sec. 43.6(f) directs the Commission
to establish the post-initial appropriate minimum block size by swap
categories.\316\ The regulation directs the Commission to update those
appropriate minimum block sizes no less than once each calendar year
thereafter.\317\ For the swap categories listed in existing Sec.
43.6(e)(1), Sec. 43.6(f)(2) requires the Commission to apply the 67-
percent notional amount calculation.\318\ Swaps in the FX category in
existing Sec. 43.6(b)(4)(ii) are to be eligible for block trade or
LNOFS treatment, as applicable.\319\ Existing Sec. 43.6(f)(4) directs
the Commission to publish the post-initial appropriate minimum block
sizes on its website and states the appropriate minimum block sizes
will be effective on the first day of the second month following the
date of publication.\320\
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\315\ The initial period ended April 10, 2014 when SDRs had
collected one year's worth of reliable data.
\316\ See Sec. 43.6(f)(1).
\317\ Id.
\318\ See Sec. 43.6(f)(2).
\319\ See Sec. 43.6(f)(3).
\320\ See Sec. 43.6(f)(5).
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Prior to the Proposal, the Commission had not published any post-
initial appropriate minimum block sizes. As the condition specified in
Sec. 43.6(f)(1) has been met, i.e., more than one year's worth of
reliable SDR data has been collected for the particular asset classes,
the Commission is moving to the post-initial period and raising the
block threshold to 67% and the cap sizes to 75%.
However, in the Proposal, the Commission proposed removing the
regulations for initial appropriate minimum block sizes in Sec.
43.6(e) and replacing them with new regulations for appropriate minimum
block sizes in the post-initial period. To avoid removing regulations
that still need to be effective during the compliance period for the
changes to Sec. 43.6, the Commission has decided to leave the
substance of the existing regulations for the initial appropriate
minimum block sizes in Sec. 43.6(e) but move it to Sec. 43.6(f),\321\
[[Page 75452]]
while updating the regulations for appropriate minimum block sizes
during the post-initial period that were proposed in the Proposal in
renumbered Sec. 43.6(g). The Commission discusses the new regulations
in Sec. 43.6(g) in this section.
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\321\ In place of existing Sec. 43.6(e), the Commission is
adding the regulations that specify there are no appropriate minimum
block sizes for swaps in the equity asset class. This means the
Commission has to move existing Sec. 43.6(e) and (f) to Sec.
43.6(f) and (g).
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Renumbered Sec. 43.6(g)(1) will state the Commission shall
establish appropriate minimum block size, by swap categories, as
described in Sec. 43.6(g)(2) through (6). Renumbered Sec. 43.6(g)(2)
states the Commission shall determine the appropriate minimum block
size for the swap categories described in Sec. 43.6(c)(1)(i),
(c)(2)(i) through (xii), (c)(4)(i), and (c)(5)(i) by applying the 67-
percent notional amount methodology in proposed Sec. 43.6(d)(1). Re-
designated Sec. 43.6(g)(2) also clarifies that if the Commission is
unable to determine an appropriate minimum block size for any swap
category described in Sec. 43.6(c)(1)(i), the Commission shall assign
an appropriate minimum block size of zero to such category.\322\ The
Commission is keeping the requirement for the Commission to recalculate
the cap size no less than once each calendar year in re-designated
Sec. 43.6(g)(1).\323\
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\322\ The proposed appropriate minimum block size tables
published by the Commission indicated that the 67-percent notional
amount calculation does not result in an appropriate minimum block
size for 15 IRS categories. There was insufficient swap transaction
and pricing data for the Commission to determine an appropriate
minimum block size for those 15 IRS categories. The Commission is
setting the appropriate minimum block size for such IRS categories
at zero, the same appropriate minimum block size being assigned to
other IRS with limited trading activity.
\323\ The Commission discusses this decision in section II.F.1
above.
---------------------------------------------------------------------------
New Sec. 43.6(g)(3) sets forth the method for determining
appropriate minimum block sizes for FX swaps. New Sec. 43.6(g)(3)
specifies that the parties to an FX swap described in Sec.
43.6(c)(4)(ii) may elect to receive block treatment if the notional
amount of either currency would receive block treatment if the currency
were paired with USD. In other words, for each currency underlying the
FX swap, the counterparties will determine whether the notional amount
of either currency will be above the block threshold if paired with
USD, as described in Sec. 43.6(c)(4)(i). If either notional amount
paired with USD is greater than the block threshold, the swap described
in Sec. 43.6(c)(4)(ii) will qualify for block treatment.
As discussed above in section II.F.2, the Commission is setting the
appropriate minimum block size of all swaps in certain swap categories
\324\ at zero and treating them as block trades in proposed Sec.
43.6(g)(4). Finally, the Commission is keeping existing Sec.
43.6(f)(5), renumbered as Sec. 43.6(g)(6), which provides the
effective date of post-initial appropriate minimum block sizes.
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\324\ These categories of swaps are in Sec. 43.6(c)(1)(ii),
(c)(2)(xiii), (c)(4)(iii), and (c)(5)(ii).
---------------------------------------------------------------------------
Aside from the new swap categories, the substantive import of Sec.
43.6(g) is the Commission's move to the post-initial block threshold
prescribed in the Block Trade Rule; raising thresholds is not
implementing novel thresholds. More specifically, the Commission is
implementing thresholds adopted in 2013 after notice and comment and
that, by regulation, were to be implemented after an SDR had collected
data for a year, a threshold that has been met and surpassed since
April 2014.
These amendments thus reflect a policy continuation that
effectuates the essential substance of what the Commission deemed
appropriate in originally promulgating Sec. 43.6. As supported by a
refreshed analysis described below--including information not available
to the Commission in 2013--the Commission continues to view the
fundamental policy judgments that supported its 2013 decision to
prescribe a 67-percent notional amount calculation after an initial
introductory phase in period (now elapsed) as sound. For reasons
discussed below, the Commission does not find comments to the contrary
to be persuasive.
When it promulgated the requirement in 2013 that the notional
amount calculation be raised from 50-percent to 67-percent, the
Commission's goal was to increase market transparency by decreasing the
portion of swaps within a category that qualified for block treatment
and thus increasing the number of trades reported in real time.\325\
The Commission anticipated that this enhanced transparency would
improve market integrity and price discovery, while reducing
information asymmetries enjoyed by market makers in predominately
opaque swap markets.\326\ The Commission also anticipated that enhanced
price transparency would encourage market participants to provide
liquidity (e.g., through the posting of bids and offers), particularly
when transaction prices move away from the competitive price.\327\ In
the Commission's view, using the 67-percent notional amount calculation
in the post-initial period also would minimize the potential impact of
real time public reporting on liquidity risk.\328\
---------------------------------------------------------------------------
\325\ 78 FR 32893, 32894 (May 31, 2013).
\326\ Id. at 32894.
\327\ Id.
\328\ Id.
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The Commission continues to believe that transparency will increase
liquidity, improve market integrity and price discovery, while reducing
information asymmetries enjoyed by market makers. As explained in
section V.C. below, this belief is supported by an extensive review of
the academic literature. In addition, the Commission received a number
of comments noting the importance of transparency in regard to lowering
trading costs and pointing to a significant body of academic literature
that empirically demonstrated this effect.\329\
---------------------------------------------------------------------------
\329\ See, e.g., MIT at 1-2; Carnegie Mellon at 2-4; SMU at 4-5;
and Citadel at 5.
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When the Commission promulgated existing Sec. 43.6(f)(2), it
recognized that increasing the appropriate minimum block size notional
amount calculation from 50-percent to 67-percent could make it more
difficult for SDs to hedge the exposure created by trading a large swap
because real-time reporting and public dissemination will be
required.\330\ Without a 15-minute pause before a large trade is
revealed, other market participants could potentially anticipate the
trades of the SD trying to hedge its position and act accordingly to
their own advantage, and this could increase costs to SDs and other
market participants. However, the Commission finalized existing Sec.
43.6(f)(2) given the significant benefits of market transparency.
---------------------------------------------------------------------------
\330\ 78 FR 32919-20 (May 31, 2013).
---------------------------------------------------------------------------
Notably, when Sec. 43.6(f)(2) was finalized, the Commission
determined that the 67-percent was appropriate.\331\ However, in
response to comments advocating for a gradual phase-in for attaining
that threshold, the Commission adopted the 50-percent threshold as a
temporary bridge measure.\332\ The Commission believed this allowed for
a more gradual phase-in of the 67 percent notional amount calculation
for determining block thresholds in the post-initial period than what
had been proposed.\333\
---------------------------------------------------------------------------
\331\ Id. at 32920.
\332\ Id.
\333\ Id.
---------------------------------------------------------------------------
The Commission continues to believe that raising the notional
amount calculation from 50-percent to 67-percent strikes an appropriate
balance between the benefits of transparency and the costs to SDs and
other market participants. Further, the Commission believes that the
cost of raising the threshold is more limited today than it
[[Page 75453]]
was in 2013. The ability of traders to profitably anticipate the
hedging demands resulting from LNOFSs (which in turn, discourages
market making) is inversely related to market liquidity. The 67-percent
calculation will be applied to categories of swaps which the Commission
has determined are relatively liquid. As noted above, the Commission
has moved some illiquid swaps from the categories that were established
in 2013 into more appropriate categories.
However, as discussed in the Compliance section, the Commission
recognizes it would be challenging for market participants to come into
compliance with the post-initial appropriate minimum block size at the
same time they have to come into compliance with significant aspects of
some of the additional changes to Sec. 43.6, including the new swap
categories. As a result, the Commission is providing a compliance
period of 18-months for the changes to the part 43 rules except for
Sec. 43.4(g) and Sec. 43.6. In the Proposal, the Commission proposed
removing the regulations for initial appropriate minimum block sizes
and replacing them with new regulations for appropriate minimum block
sizes. To avoid removing regulations that still need to be effective
during the compliance period for the changes to Sec. 43.4(g) and Sec.
43.6, the Commission has decided to leave the existing regulations for
the initial appropriate minimum block sizes in Sec. 43.6, while adding
the new updated regulations for appropriate minimum block sizes during
the post-initial period that were proposed in the Proposal.
As shown below, the Commission carefully reviewed the comments
opposed to the higher notional amount calculations and does not find
them to be persuasive. The Commission discusses the comments received
on the changes to Sec. 43.6(g) thematically in the following sections.
a. Increase in Block Trade Thresholds
The Commission received four comments supporting raising the block
threshold to 67%. Better Markets believes the proposed increase is
overdue and should be adopted.\334\ Chris Barnard supports raising the
thresholds from 50% notional to a minimum of 67% notional based on
updated analysis.\335\ Citadel supports the move from 50% to 67% to
balance market transparency and information leakage risks, unlike the
current approach, where one-half of trading activity (by notional) is
eligible for a public reporting deferral.\336\ Citadel further notes
this approach is more consistent with the European approach.\337\
Clarus believes the proposal will remove information asymmetries from
the markets.\338\
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\334\ Better Markets at 2.
\335\ Chris Barnard at 1.
\336\ Citadel at 9.
\337\ Id.
\338\ Clarus at 2.
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Two commenters raised concerns about the March 2020 volatility as a
basis for their opposition to raising the block thresholds. PIMCO
believes their counterparties were simply unable to quote markets for
block trades in otherwise liquid products, in part, based on their own
inability to efficiently manage the risks associated with transacting
in larger sizes in a volatile market.\339\ In other cases, the bid-ask
spreads grew sufficiently large so as to render the block trades
economically unfavorable and PIMCO believes the dissemination of pre-
trade information in this manner further exacerbated the winning
counterparty's ability to efficiently hedge its risk in an illiquid
market.\340\ SIFMA AMG believes the 67% block test and the 75% cap test
are each substantially too high and would adversely affect markets
during periods of high volatility or lower liquidity and respectfully
requests the Commission to include data from the recent COVID-19
downturn in their review and analysis to determine whether the higher
limits are indeed advisable.\341\
---------------------------------------------------------------------------
\339\ PIMCO at 3-4.
\340\ Id.
\341\ SIFMA AMG at 2-4.
---------------------------------------------------------------------------
The Commission is not persuaded by PIMCO's and SIFMA AMG's comments
that the threshold should not be raised because it would be
inappropriate in periods of extreme volatility, such as those
experienced in March 2020. The block trade levels are not designed to
address periods of extreme volatility. Moreover, in March 2020,
Commission staff heard opposing views from market participants, some of
whom believed the block thresholds did not need to be lowered during
the period of volatility.\342\ As noted above, the Commission also
determined that it will not establish appropriate minimum block sizes
for stressed market conditions. By their nature, markets may be
stressed for different reasons and to different levels, and thus, the
appropriate minimum block sizes cannot be determined in advance.
---------------------------------------------------------------------------
\342\ The Commission notes there were also public reports about
transparency helping during the March volatility. See, e.g., Chris
Barnes, Is transparency helping markets function?, Clarus Financial
Technology Blog, (Mar. 2020), available at https://www.clarusft.com/is-transparency-helping-markets-function/.
---------------------------------------------------------------------------
Three commenters raised concerns about the Commission's analysis as
a basis for their opposition. Vanguard believes changing the thresholds
needs to be supported by data to confirm that a change in the
appropriate minimum block size is now justified, or, if justified, what
percentage change is justified.\343\ ISDA-SIFMA (Blocks) have
previously stated the 67% calculation is arbitrary because it focuses
on sorting swaps in a particular market by their notional amount and
determining (without providing any economic analysis) that a certain
percentage of the largest notional trades should be blocks.\344\ ICI
believes the Commission should have done a fresh evaluation of the 67%
and 75% calculations, given the passage of time since 2013, and the
Commission does not quantify the costs and benefits associated with the
trading impacts.\345\
---------------------------------------------------------------------------
\343\ Vanguard at 3.
\344\ ISDA-SIFMA (Blocks) at 3-4.
\345\ ICI at 6-7.
---------------------------------------------------------------------------
The Commission does not believe that the threshold is arbitrary and
is not based on a data-driven analysis. Under the current 50-percent
threshold, while the number of swap reported in real-time is large (87
and 82 percent for IRS and CDS, respectively), this accounts for less
than half of total notional traded (46 and 39 percent for IRS and CDS,
respectively).\346\ For IRS, under the 67% threshold, the Commission
estimates 94% of trades, or 65% of IRS notional, would be reported in
real-time. For CDS, under the 67% threshold, the Commission estimates
95% of trades, or 62% of CDS notional, would be reported in real-time.
The Commission is implementing the 67-percent threshold, as required by
existing Sec. 43.6(f)(2), based on its determination that the higher
threshold properly balances the benefits of increased transparency with
costs to SDs and their customers. The threshold is applied to
categories that comprise liquid swaps as determined by an analysis
based on recent data.
---------------------------------------------------------------------------
\346\ Percentages computed using the set of transactions for IRS
and CDS from May 1, 2018 to April 30, 2019. This is the same
information used to study the swap categories and compute block and
cap thresholds.
---------------------------------------------------------------------------
Four commenters raised concerns about SEF execution methods as a
basis for their opposition. SIFMA AMG and ISDA-SIFMA (Blocks) are
concerned that large trades that fall between the current block trade
thresholds and the newer, larger proposed block trade thresholds may
now be subject to the risk of information leakage as such trades, to
the extent they are subject to
[[Page 75454]]
the trade execution requirement, will now be subject to the RFQ-to-
three process.\347\ Vanguard contends that for most product types, the
magnitude of the proposed increase in appropriate minimum block size
would have an adverse impact on liquidity with respect to existing
block trades, which would no longer benefit from RFQ-to-one \348\ and
delayed reporting.\349\ ICI believes subjecting more large transactions
to a higher level of transparency through the RFQ-to-three requirement
may significantly impair liquidity for funds and other buy-side
participants in stressed market conditions and may increase the risk of
pre-trade leakage of valuable information about a fund's holdings and
trading strategy.\350\
---------------------------------------------------------------------------
\347\ SIFMA AMG at 3 and ISDA-SIFMA (Blocks) at 5. RFQ-to-three
is the requirement for a market participant to transmit a request
for a bid or offer to no less than three market participants who are
not affiliates of, or controlled by, the requester or each other.
See 17 CFR 37.9(a)(2)(B) and (3).
\348\ RFQ-to-one allows counterparties to bilaterally negotiate
a block trade between two potential counterparties, without
requiring disclosure of the potential trade to other market
participants on a pre-trade basis.
\349\ Vanguard at 3-4.
\350\ ICI at 7.
---------------------------------------------------------------------------
The Commission recognizes the potential that some degree of
information leakage and liquidity impairment could result from market
participants now being required to execute some large-notional MAT swap
transactions--i.e., transactions that fall within the window between
the prior and now-implemented thresholds (50 percent to 67 percent)
that could previously be executed as blocks and through non-competitive
means of execution--on a SEF or DCM through competitive means of
execution. However, more compelling in the Commission's view is the
likelihood that the bids and offers associated with these large-
notional MAT swap transactions could, through increased transparency
and competition, stimulate more trading and thereby enhance liquidity
and pricing. Further, the Commission expects that commenters' concern
regarding information leakage and liquidity impairment resulting from
being required to execute some large-notional MAT swap transactions on
a SEF or DCM through competitive means of execution will be mitigated
by the fact that the appropriate minimum block size is being raised for
relatively liquid products.
One commenter raised concerns about putting SEFs at a competitive
disadvantage as a basis for their opposition. ISDA-SIFMA (Blocks)
believe unattainably high block thresholds will put SEFs at a
competitive disadvantage with non-U.S. trading platforms and shift
execution (and trading business) away from the U.S.\351\ Further, ISDA-
SIFMA (Blocks) believe the Commission could calculate separate and
distinct block sizes for the SEF requirements, using only MAT
instruments where the impacts of high thresholds are particularly
detrimental.\352\
---------------------------------------------------------------------------
\351\ ISDA-SIFMA (Blocks) at 5.
\352\ Id.
---------------------------------------------------------------------------
In response to the ISDA-SIFMA (Blocks) comment that higher block
sizes will put SEFs at a competitive disadvantage with non-U.S. trading
platforms,\353\ the Commission recognizes that there is a possibility
that some SDs could choose to execute MAT swap transactions that will
no longer receive block treatment on a European trading facility
through a non-competitive means of execution in order to avoid
executing the swap on a SEF or DCM through a competitive means of
execution. However, the prospect of transaction migration from the U.S.
to Europe is entirely speculative, and one for which ISDA-SIFMA provide
no estimate or data (e.g., the number of transactions likely to migrate
offshore) to gauge its likelihood or severity. The Commission believes
that most SDs will continue to utilize U.S. markets which have
substantial liquidity and other benefits that outweigh the information
leakage cost of executing a swap RFQ-to-3 as opposed to RFQ-to-1. The
Commission does not intend to create opportunities for regulatory
arbitrage that could impair liquidity or transparency in U.S. markets
or competitively disadvantage U.S. SEFs. The Commission will monitor
trading in the markets affected by the final rule for any such
migration or arbitrage.
---------------------------------------------------------------------------
\353\ Id.
---------------------------------------------------------------------------
Four commenters raised concerns about using risk metrics for
appropriate minimum block sizes as a basis for their opposition. ISDA-
SIFMA (Blocks) believe the proposed thresholds do not properly account
for risk sensitivity and if the Commission needs to pursue a notional-
based framework, the levels should be established through a risk-based
approach by using risk metrics such as DV01 to account for the fact
that they are only proxies for true risk.\354\ SIFMA AMG states that
rather than adopting a 67% test for all products, the Commission should
analyze whether a dollar value change test (a ``DV01 Test'') would be a
more appropriate standard for interest rate products.\355\ ISDA-SIFMA
(Blocks) believe the number of true block trades in a given swap
category should depend on the relevant level of liquidity and
risk.\356\ Credit Suisse supports ISDA-SIFMA (Block)'s concerns around
changes to the block thresholds, including relying on notional amounts
may not sufficiently account for risk sensitivity.\357\ ALCI recommends
that the Commission apply a risk-based analysis to interest rate
products with a tenor of 10 years and greater and, based on this
analysis, reduce the appropriate minimum block size for such
swaps.\358\
---------------------------------------------------------------------------
\354\ Id. at 4.
\355\ SIFMA AMG at 4.
\356\ ISDA-SIFMA (Blocks) at 4.
\357\ Credit Suisse at 3.
\358\ ACLI at 3-4.
---------------------------------------------------------------------------
The Commission is neither persuaded by comments that appropriate
minimum block sizes should be linked to risk by metrics such as DV01,
nor suggestions that the number of true block trades in a given swap
category should depend on the relevant level of liquidity and risk.
Although basing appropriate minimum block size on DV01 theoretically
might be appropriate, the commenters have not explained how this could
be accomplished in practice, nor are the means for doing so apparent to
the Commission. For example, the commenters have not explained whether
DV01 would be the only criteria, or if other factors would be utilized.
In addition, DV01 changes daily and there is no guidance on how often
thresholds should be adjusted. Most significantly, the commenters have
not demonstrated that the appropriate minimum block sizes that would
result from their risk-based approach would be more appropriate than
those that result from the Commission's approach, nor that their
approach would be less costly to implement. Rather, as explained in
section V.C., the Commission believes its approach is superior as the
ultimate goal in establishing thresholds is to focus on liquidity
differences across swap categories, not risk-transfer per se.
One commenter raised concerns specifically about FX swaps as a
basis for their opposition. GFMA was not expecting such significant
changes between existing and proposed FX block and cap sizes.\359\ For
the ``other currency bucket,'' GFMA believes that the $150 million cap
size, which is higher than the cap for more liquid currencies, listed
in the table will result in the illogical outcome of more transparency
for less liquid currency pairs.\360\ GFMA believes more transparency
for these less liquid currencies will create challenges for
[[Page 75455]]
market participants to hedge in these currencies.\361\
---------------------------------------------------------------------------
\359\ GFMA at 7, 10.
\360\ GFMA at 7-8.
\361\ Id.
---------------------------------------------------------------------------
The Commission disagrees with GFMA's comment because the category
includes less liquid currency pairs.\362\ Categories of swaps will
necessarily combine more and less liquid swaps. As discussed above in
II.F, the Commission arrived at the number of swap categories by
balancing the increased cost of additional categories with the more
finely tuned block and cap sizes. Further, simply comparing the cap
sizes for different currency pairs, as GFMA does, may be inappropriate
as the underlying distribution of currency pairs may be different.
---------------------------------------------------------------------------
\362\ GFMA at 7-8.
---------------------------------------------------------------------------
One commenter raised concerns the block threshold should be higher
than 67% as a basis for their opposition. Clarus believes the
appropriate minimum block size levels should be set at 75%-90% and that
the current 50% level confers an unfair information asymmetry to large
SD banks who act as liquidity providers for these large swaps.\363\
Clarus states that, given that there is strong evidence that block
trades have had no more market impact in 2020 than smaller trades, it
seems to provide an unfair advantage to large liquidity providers.\364\
Clarus also believes that adding extra transparency for large trades
would provide market participants with clearer signs of liquidity and
reduce information asymmetry, which, during crisis times, provides even
greater reassurance that markets are not ``seizing up.'' \365\
---------------------------------------------------------------------------
\363\ Clarus at 8-9.
\364\ Id.
\365\ Id.
---------------------------------------------------------------------------
At this time, given the data available to it, the Commission
disagrees with Clarus that the appropriate minimum block size levels
should be set at 75% to 90%. The Commission agrees that adding extra
transparency for large trades would provide market participants with
clearer signs of liquidity and reduce information asymmetry, which,
during crisis times, provides even greater reassurance that markets are
not ``seizing up.'' However, the Commission believes that the adverse
impact on SDs and their customers of setting the threshold at 75 to 90%
may be too significant to justify setting the threshold at this level.
PIMCO is concerned the premature dissemination of block trade
details transmits sensitive proprietary information to short-term
speculators before SDs are able to hedge and otherwise manage their
risk and could lead to market liquidity decreases, bid-ask spreads
widening, and costs to PIMCO's clients.\366\
---------------------------------------------------------------------------
\366\ PIMCO at 2.
---------------------------------------------------------------------------
As explained above in the introduction to the Sec. 43.6(e)
discussion, the Commission specifically considered PIMCO's concerns
that raising the notional amount calculation from 50-percent to 67-
percent could adversely impact SDs and their clients because the swaps
would no longer benefit from delayed reporting both in the 2013
rulemaking and in the current rulemaking. The Commission has determined
to raise the notional amount calculation to obtain the benefits of
increased transparency.
b. Block Size of Zero
The Commission received three comments related to appropriate
minimum block sizes of zero. Clarus strongly opposes the Commission's
proposal to set the block threshold at zero for any instrument that the
Commission currently considers ``relatively illiquid.'' \367\ Clarus
believes that price discovery is just as important for minor currencies
as for major currencies--possibly more so given the fragmented nature
of less liquid markets--for example, IRS denominated in CHF, on the
grounds that instruments must be closely monitored during the planned
transition away from London Interbank Offered Rate (``LIBOR'') to risk-
free rates.\368\ GFMA believes the proposed zero appropriate minimum
block size for the other currency bucket is ``not unwelcome.'' \369\
FXPA supports the creation of a category for relatively low liquidity
FX swaps that will benefit from an appropriate minimum block size of
zero.\370\
---------------------------------------------------------------------------
\367\ Clarus at 9.
\368\ Id.
\369\ GFMA at 7.
\370\ FXPA at 2.
---------------------------------------------------------------------------
With respect to the proposed zero appropriate minimum block sizes,
the Commission agrees with Clarus that price discovery is important for
illiquid products. However, the Commission must weigh the goal of
public transparency against the concern that post-trade reporting would
reduce market liquidity. In illiquid markets, transactions occur
infrequently and the benefit of real-time information is limited. For
example, if transactions occur throughout the day and less than every
ten minutes on average, knowing the price of a swap immediately after
execution will provide little additional benefit than knowing the price
of a swap fifteen minutes after execution. However, other market
participants could potentially anticipate the trades of the SD trying
to hedge its position and act accordingly to their own advantage, and
this could increase costs to SDs and other market participants.
Accordingly, the Commission has determined that zero appropriate
minimum block sizes are appropriate for the swap categories with
illiquid swaps.
c. Cross-Border Concerns
The Commission received one comment addressing cross-border
concerns. GFMA believes the Commission needs to coordinate with its
foreign regulator peers regarding block and cap thresholds.\371\ GFMA
notes data that may be deemed market-sensitive in one jurisdiction
should not be made public in another, especially for FX, which is a
global market.\372\
---------------------------------------------------------------------------
\371\ GFMA at 9.
\372\ Id.
---------------------------------------------------------------------------
In response to cross-border concerns raised by GFMA, the Commission
anticipates that it will address the cross-border application of the
reporting rules in a separate rulemaking.
5. Sec. 43.6(f)--Required Notification
The Commission is re-designating existing Sec. 43.6(g) as Sec.
43.6(h) to reflect the Commission's decision to retain Sec. 43.6(e)
and (f) but add new Sec. 43.6(c). Existing Sec. 43.6(g) sets forth
the requirements for parties to notify their execution venue (i.e., SEF
or DCM) of the parties' block trade election or notify their SDR of the
parties' LNOFS election.
Existing Sec. 43.6(g)(1)(i) requires the parties to a publicly
reportable swap transaction with a notional amount at or above the
appropriate minimum block size to notify the SEF or DCM of their
election to have the publicly reportable swap transaction treated as a
block trade. The current phrasing suggests parties must elect to have a
qualifying publicly reportable swap transaction treated as a block
trade, instead of letting parties choose. The Commission believes
having the option is important, as some counterparties may not object
to having their block trade disseminated in real-time. To give them the
option, the Commission is changing Sec. 43.6(h)(1)(i) to state if the
parties make such an election, the reporting counterparty must notify
the SEF or DCM.\373\
---------------------------------------------------------------------------
\373\ The Commission is also making minor non-substantive
technical edits for clarity.
---------------------------------------------------------------------------
Existing Sec. 43.6(g)(1)(ii) requires the SEF or DCM to notify the
SDR of a block trade election when transmitting swap transaction and
pricing data to the SDR in accordance with Sec. 43.3(b)(1). The
Commission is retaining the substance of existing Sec. 43.6(g)(1)(ii)
in re-
[[Page 75456]]
designated Sec. 43.6(h)(1)(ii), but is removing the specific reference
to Sec. 43.3(b)(1) and streamlining the language to state the SEF or
DCM, as applicable, shall notify the SDR of a block trade election when
reporting the swap transaction and pricing data to such SDR in
accordance with part 43.
The Commission is adding new Sec. 43.6(h)(1)(iii) to clarify that
SEFs and DCMs may not disclose block trades prior to the expiration of
the applicable dissemination delay in Sec. 43.5(c) to avoid ambiguity.
Existing Sec. 43.6(g)(2) states that reporting parties executing
an off-facility swap with a notional amount at or above the appropriate
minimum block size shall notify the applicable registered SDR that such
swap transaction qualifies as an LNOFS concurrently with the
transmission of swap transaction and pricing data in accordance with
part 43. The Commission is clarifying in Sec. 43.6(g)(2), re-
designated as Sec. 43.6(h)(2), that the parties to a publicly
reportable swap transaction that is an off-facility swap with a
notional at or above the appropriate minimum block size can elect to
have the publicly reportable swap transaction treated as a LNOFS. If
the parties make such an election, the reporting counterparty will
notify the SDR. However, because the Commission is keeping the term
``large notional off-facility swap'' in Sec. 43.2, the Commission is
keeping the reference to ``large notional off-facility swap'' in the
rule.
The Commission received one comment on the proposed amendments to
block trade notifications. Chatham believes they provide more clarity
to reporting counterparties for how such trades should be reported.
Chatham believes confusion currently exists regarding whether the SDR
may make the calculation or whether the reporting counterparty must do
so. If the Commission does not adopt this change, Chatham encourages
the Commission to further clarify the SDRs also make the block trade
calculations.\374\ The Commission agrees with Chatham that the
amendments will address ambiguity around electing block treatment.
---------------------------------------------------------------------------
\374\ Chatham at 2.
---------------------------------------------------------------------------
6. Sec. 43.6(h)--Special Provisions Relating to Appropriate Minimum
Block Sizes and Cap Sizes
The Commission is re-designating existing Sec. 43.6(h) as Sec.
43.6(i) in response to retaining Sec. 43.6(e) and (f).\375\ The
Commission is also not adopting the proposal to remove existing Sec.
43.6(h)(5) (which will now be in renumbered Sec. 43.6(i)(5)), which
contains a provision for determining the appropriate currency
classification for currencies that succeed super-major currencies.
Existing Sec. 43.6(h)(5) is still necessary due to the need to retain
Sec. 43.6(b) during the compliance period. As a result of keeping
Sec. 43.6(h)(5), the Commission is keeping existing Sec. 43.6(h)(6)
as Sec. 43.6(h)(6) and making substantive changes.
---------------------------------------------------------------------------
\375\ In the Proposal, the Commission proposed a related
conforming change in Sec. 43.6(a). Currently, that paragraph cross-
references Sec. 43.6(h). The Commission is updating that provision
so it cross-references Sec. 43.6(i) to reflect the re-designation.
---------------------------------------------------------------------------
Existing Sec. 43.6(h)(6) generally prohibits the aggregation of
orders for different accounts to satisfy minimum block trade size or
cap size requirements but contains an exception for orders on SEFs and
DCMs by certain commodity trading advisors (``CTAs''), investment
advisers, and foreign persons performing a similar role or function.
The Commission believed such a prohibition was necessary to ensure the
integrity of block trade principles and preserve the basis for the
anonymity associated with establishing cap sizes.\376\
---------------------------------------------------------------------------
\376\ See Block Trade Rule at 32904.
---------------------------------------------------------------------------
While the aggregation prohibition in existing Sec. 43.6(h)(6) is
intended to incentivize trading on SEFs and DCMs, this incentive is
nonexistent for swaps that are not listed or offered for trading on a
SEF or DCM.\377\ The Commission is therefore amending the aggregation
prohibition to provide for swaps not listed or offered for trading on a
SEF or DCM.
---------------------------------------------------------------------------
\377\ In 2013, DMO granted indefinite no-action relief extending
the exception to swaps that are not listed or offered for trading on
a SEF or a DCM. See No-Action Relief For Certain Commodity Trading
Advisors and Investment Advisors From the Prohibition of Aggregation
Under Regulation 43.6(h)(6) for Large Notional Off-Facility Swaps,
Commission Staff Letter No. 13-48 (Amended), (Aug. 6, 2013),
available at https://www.cftc.gov/sites/default/files/idc/groups/public/@lrlettergeneral/documents/letter/13-48.pdf (``NAL No. 13-
48''). The Commission is incorporating this no-action relief, along
with its related conditions (with one exception discussed below),
into Sec. 43.6(g)(5).
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Existing Sec. 43.6(h)(6)(ii) conditions the exception from the
aggregation prohibition on a CTA, investment adviser, or foreign person
having more than $25 million in assets under management. In adopting
this condition, the Commission explained that the $25 million threshold
would help ensure that persons allowed to aggregate orders were
appropriately sophisticated, while at the same time not excluding an
unreasonable number of CTAs, investment advisers, and similar foreign
persons.\378\
---------------------------------------------------------------------------
\378\ Block Trade Rule at 78 FR 32905 (May 31, 2013).
---------------------------------------------------------------------------
However, the Commission has come to believe the $25 million
threshold may be excluding more participants from taking advantage of
the exception than initially expected.\379\ Therefore, the Commission
is removing the $25 million threshold in existing Sec. 43.6(h)(6)(ii),
even though the threshold was a condition of DMO relief in NAL No. 13-
48.
---------------------------------------------------------------------------
\379\ Proposal at 85 FR 21540 (Apr. 17, 2020).
---------------------------------------------------------------------------
Finally, the Commission is making several non-substantive changes
throughout Sec. 43.6(i)(6) for clarity, updating cross-references, and
specifying the aggregated transaction is reported as a block trade or
LNOFS, as applicable, and the aggregated orders are executed as one
swap transaction.
The Commission received one comment on the proposed amendments to
Sec. 43.6(h), which will be adopted in Sec. 43.6(i). ICI agrees with
the Commission's policy goal behind removing the aggregation
prohibition in Sec. 43.6(h)(6), because the exception to the
prohibition does not exist for swaps that are not listed or offered for
trading on a SEF or DCM.\380\ In addition, ICI strongly supports
removing the $25 million aggregation threshold as advisers with less
than $25 million in assets under management have a valid need to engage
in block trades on behalf of the funds they manage.\381\
---------------------------------------------------------------------------
\380\ ICI at 9.
\381\ Id.
---------------------------------------------------------------------------
The Commission has determined removing the $25 million aggregation
threshold is appropriate because the existing rule excludes
appropriately sophisticated CTAs, investment advisers, or foreign
persons from aggregating trades and is adopting Sec. 43.6(h) as
proposed in renumbered Sec. 43.6(i). As noted above, the Commission
intended to change existing Sec. 43.6(h) to permit aggregation for
swaps not listed on a SEF or DCM, but continue to require aggregation
on a SEF or DCM if the swap is listed on a SEF or DCM. The Proposal
inadvertently eliminated the existing requirement aggregation occur on
a SEF or DCM if the swap is listed on a SEF or DCM. Accordingly, the
Commission is adding a condition to final Sec. 43.6(i)(6) to clarify
aggregation must occur on a SEF or DCM if the swap is listed on a SEF
or DCM.
7. Sec. 43.6(i)--Eligible Block Trade Parties
The Commission is renumbering Sec. 43.6(i) as Sec. 43.6(j) in
response to the changes above related to retaining certain existing
regulations. In addition, to conform to the proposed revisions to Sec.
43.6(i)--specifically the removal of the
[[Page 75457]]
$25 million threshold in existing Sec. 43.6(i)(6)(ii)--the Commission
is removing the $25 million threshold in existing Sec. 43.6(i)(1)(iii)
(i.e., Sec. 43.6(j)(1)(iii), as re-designated). The Commission is also
making several non-substantive ministerial changes, such as correcting
cross-references and capitalization.
As discussed above, ICI supports removing the $25 million threshold
requirement to engage in block trades and removing the condition
requiring that orders be on SEFs and DCMs.\382\ The Commission agrees
with ICI and for above-described reasons discussed in the Proposal, the
Commission is adopting Sec. 43.6(j) as proposed.
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\382\ See id.
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G. Sec. 43.7--Delegation of Authority
The Commission is adopting several changes to Sec. 43.7, which
governs Commission delegation of certain authority to the DMO Director
or such other employee or employees as the DMO Director may designate
from time to time (``DMO staff''). The Commission is adding new (a)(1)
to delegate the authority to publish the technical specification
providing the form and manner for reporting and publicly disseminating
the swap transaction and pricing data elements in appendix A as
described in Sec. Sec. 43.3(d)(1) and 43.4(a). If it chooses to, the
Commission may, pursuant to Sec. 43.7(c), which the Commission did not
propose to amend, exercise any authority delegated pursuant to proposed
Sec. 43.7(a)(1) (or any other authority delegated pursuant to Sec.
43.7(a)) rather than permit the DMO Director or DMO staff to exercise
such authority.
Because there currently is a Sec. 43.7(a)(1), the Commission is
renumbering existing Sec. 43.7(a)(1) as Sec. 43.7(a)(3). The
Commission is further renumbering existing Sec. 43.7(a)(2) as Sec.
43.7(a)(4) and replacing the reference to Sec. 43.6(f) with a
reference to Sec. 43.6(e).\383\ However, the Commission is retaining
the references to the initial and post-initial periods, to avoid
removing regulations in effect during the compliance period.
Additionally, the Commission is renumbering existing Sec. 43.7(a)(3)
as Sec. 43.7(a)(2).\384\
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\383\ The Commission discusses the changes to post-initial
appropriate minimum block sizes above in section II.F.3.
\384\ The Commission discusses the changes to post-initial cap
sizes above in section II.D.4.
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The Commission did not receive any comments on the changes to Sec.
43.7. For reasons discussed above, the Commission is adopting the
changes as proposed.
III. Swap Transaction and Pricing Data Reported to and Publicly
Disseminated by Swap Data Repositories
The Commission is revising the list of swap transaction and pricing
data elements in appendix A to update it \385\ to further standardize
the swap transaction and pricing data being reported to, and publicly
disseminated by, SDRs. The swap transaction and pricing data elements
are currently found in appendix A, which states that, among other
things, SDRs must publicly disseminate the information in appendix A in
a ``consistent form and manner'' for swaps within the same asset class.
---------------------------------------------------------------------------
\385\ The Commission proposed deleting appendix C and updating
the list of swap transaction and pricing data elements in existing
appendix A and moving them to appendix C. The Commission is not
adopting that proposal. Instead, the Commission is revising the list
of swap transaction and pricing data elements in appendix A, and
leaving appendix C as it is.
---------------------------------------------------------------------------
Existing appendix A includes a description of each field, in most
cases phrased in terms of ``an indication'' of the data that must be
reported and disseminated and an example illustrating how the field
could be populated. For example, the description of the ``Asset class''
field in table A1 of appendix A calls for an indication of one of the
broad categories as described in Sec. 43.2(e), and the example
provided states IR (e.g., IRS asset class).
In adopting appendix A, the Commission believed consistency could
be achieved in the data, but intentionally avoided prescriptive
requirements in favor of flexibility in reporting the various types of
swaps.\386\ The Commission recognizes that over the years each SDR has
increasingly standardized the swap transaction and pricing data
reported and disseminated. However, SDRs have implemented the field
list in appendix A in different ways, causing publicly disseminated
messages to appear differently depending on the SDR. As such, the
Commission believes a significant effort must be made to standardize
swap transaction and pricing data across SDRs.
---------------------------------------------------------------------------
\386\ See Real-Time Public Reporting of Swap Transaction Data,
77 FR 1182, 1224 (Jan. 9, 2012).
---------------------------------------------------------------------------
The Commission has reviewed the data fields in appendix A to update
the existing list and provide further specifications on reporting and
public dissemination. This assessment was part of a larger review of
the parts 43 and 45 data the Commission requires to be reported to, and
publicly disseminated by, SDRs. The Commission reviewed the swap
transaction and pricing data data fields in appendix A and the swap
data elements in appendix 1 to part 45 to determine if any currently
required data elements should be eliminated and if any data elements
should be added. As part of this process, the Commission also reviewed
the part 45 swap data elements to determine whether any differences
could be reconciled across parts 45 and 43.\387\ The Commission
proposed the swap transaction and pricing data elements to be publicly
disseminated would be a subset of the part 45 swap data elements
required to be reported in appendix 1 to part 45.
---------------------------------------------------------------------------
\387\ The Commission had intended that the data elements in
appendix A would be harmonized with the data elements required to be
reported to an SDR for regulatory purposes pursuant to part 45. See
Real-Time Public Reporting of Swap Transaction Data, 77 FR 1182,
1226 (Jan. 9, 2012) (noting that it is important that the data
fields for both the real-time and regulatory reporting requirements
work together). However, the Commission did not require linking the
two sets of data elements.
---------------------------------------------------------------------------
After determining the set of swap data and swap transaction and
pricing data elements, the Commission reviewed the CDE Technical
Guidance to determine which data elements the Commission could adopt
according to the CDE Technical Guidance.\388\ From there, the
Commission set out to establish definitions, formats, standards,
allowable values, and conditions. After completing this assessment, the
Commission proposed to list the swap transaction and pricing data
elements required to be publicly disseminated by SDRs pursuant to part
43 in appendix C. In a separate proposal for part 45, the Commission
proposed to list the swap data elements required to be reported to SDRs
pursuant to part 45 in appendix 1 to part 45.
---------------------------------------------------------------------------
\388\ See Committee on Payments and Market Infrastructures
(``CPMI'') and the International Organization of Securities
Commissions (``IOSCO''), Technical Guidance, Harmonization of
Critical OTC Derivatives Data Elements (other than UTI and UPI)
(Apr. 2018) (``CDE Technical Guidance''). The Commission discusses
the CDE Technical Guidance, and the Commission's role in its
development, in the February 2020 notice of proposed rulemaking
relating to the Commission's regulations in parts 45, 46, and 49.
See Swap Data Recordkeeping and Reporting Requirements, 85 FR 21578
(Apr. 17, 2020).
---------------------------------------------------------------------------
DMO also published a draft technical specification, along with
validation conditions, on the Commission's website at www.cftc.gov
contemporaneously with the publication of the Proposal so market
participants could comment on the Proposal and technical specification
at the same time.
The Commission proposed appendix C would contain the list of swap
transaction and pricing data elements required to be publicly
disseminated by SDRs, but the Commission recognized that SDRs would
need additional part
[[Page 75458]]
45 swap data elements reported along with these swap transaction and
pricing data elements. These swap data elements include identifying
information like the identity of the reporting counterparty, the USI or
unique transaction identifier (``UTI''), and the submitter. However,
DMO noted these swap data elements separately in the technical
specification published on https://www.cftc.gov to simplify the list of
publicly disseminated swap transaction and pricing data elements in
appendix A.
The Commission discusses comments received on the swap transaction
and pricing data elements in appendix A \389\ required to be publicly
disseminated by SDRs below. As the part 43 swap transaction and pricing
data elements will be a subset of the part 45 swap data elements, most
of these data elements are discussed in more depth in the related part
45 adopting release.
---------------------------------------------------------------------------
\389\ The Commission is not adopting the proposal to move the
part 43 swap transaction and pricing data elements to appendix C.
Instead, the Commission is updating the data elements in existing
appendix A. The Commission will only reference appendix A in the
rest of this discussion.
---------------------------------------------------------------------------
A. Swap Transaction and Pricing Data Elements
As a preliminary matter, the swap transaction and pricing data
elements in appendix A do not include swap transaction and pricing data
elements specific to swap product terms. The Commission is heavily
involved in separate international efforts to introduce UPIs.\390\ The
Commission expects UPIs will be available within the next two
years.\391\ Until the Commission designates a UPI pursuant to Sec.
45.7, the Commission proposed SDRs continue to accept and disseminate,
and reporting counterparties continue to report, the product-related
data elements unique to each SDR. The Commission believes this
temporary solution would have SDRs change their systems only once when
UPI becomes available, instead of twice if the Commission adopted
standardized product data elements before UPIs are available.
---------------------------------------------------------------------------
\390\ See FSB, Governance arrangements for the UPI: Conclusions,
implementation plan and next steps to establish the International
Governance Body (Oct. 9, 2019), available at https://www.fsb.org/2019/10/governance-arrangements-for-the-upi/.
\391\ See id. The FSB recommends that jurisdictions undertake
necessary actions to implement the UPI Technical Guidance and that
these take effect no later than the third quarter of 2022.
---------------------------------------------------------------------------
In addition, the Commission notes that it has adopted the CDE
Technical Guidance data elements as closely as possible. 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 has placed footnotes in the technical
specification to explain these differences in at least four terms as
well as provide examples and jurisdiction-specific requirements.
However, the Commission is not including these footnotes in appendix A.
In addition, the definitions from CDE Technical Guidance data elements
included in appendix A sometimes reference allowable values in the CDE
Technical Guidance, which may not be included in appendix A but can be
found in DMO's 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 have set out governance arrangements for CDE data
elements (``CDE Governance Arrangements'').\392\ 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 and Quantity unit of measure).
---------------------------------------------------------------------------
\392\ CPMI and IOSCO, Governance Arrangements for critical OTC
derivatives data elements (other than UTI and UPI), (Oct. 2019),
available at: https://www.iosco.org/library/pubdocs/pdf/IOSCOPD642.pdf.
---------------------------------------------------------------------------
The Commission invited comment on all of the swap transaction and
pricing data elements proposed in appendix A. The Commission discusses
the swap transaction and pricing data elements below by category to
simplify the organization of comments received. To the extent any
comment involved data elements adopted according to the CDE Technical
Guidance, however, the Commission anticipates raising issues according
to the CDE Governance Arrangements procedures 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.
1. Category: Clearing
The Commission proposed requiring SDRs to publicly disseminate one
data element related to clearing: Cleared (1). This data element is
currently being publicly disseminated by SDRs according to the field in
existing appendix A ``Cleared or uncleared.''
The Commission received four comments on clearing data elements.
Clarus and Citadel believe the name of the DCO (or exempt DCO) where
the transaction is cleared should be publicly disclosed given that this
is a key data element that affects transaction pricing.\393\ CME is
unaware of any challenges market participants would face in reporting
additional clearing data elements like the identity of the DCO but
believes it is unclear how any additional clearing data elements would
enhance transparency and price discovery.\394\ ISDA-SIFMA comments that
reporting terminated alpha swaps on the public tape would create a
certain level of ``noise'' on the public tape with little incremental
value.\395\
---------------------------------------------------------------------------
\393\ Citadel at 10; Clarus at 10.
\394\ CME at 11.
\395\ ISDA-SIFMA at 54.
---------------------------------------------------------------------------
The Commission is adopting the clearing data element in appendix A
as proposed. The Commission is not adopting an additional data element
identifying the DCO at which the swap would be cleared. Most publicly
reportable swap transactions are original swaps, which means they are
swaps that the counterparties or exchange will submit for clearing. In
many instances, the counterparties may not yet know the DCO to which
they will submit the original swap for clearing. As a result, the
Commission is concerned this ambiguity could either encourage
counterparties to report unreliable data or generally inconsistent
reporting.
2. Category: Custom Baskets
The Commission proposed requiring SDRs to publicly disseminate a
custom basket indicator.\396\ The Commission believes this data element
would help market participants identify that a disseminated price is
associated with a custom basket. The Commission clarified that this
data element is not a field to indicate an otherwise exotic swap.
---------------------------------------------------------------------------
\396\ This data element is Custom basket indicator (25) in
appendix A.
---------------------------------------------------------------------------
The Commission did not receive any comments on the custom basket
indicator data element in appendix A and for reasons articulated in the
Proposal and reiterated above, is adopting the data element as
proposed.
[[Page 75459]]
3. Category: Events
The Commission proposed requiring SDRs to publicly disseminate four
data elements related to events.\397\ Reporting counterparties
currently report this information to SDRs, but the Commission proposed
further standardizing how this information is reported across SDRs. The
existing event fields in appendix A include cancellation and
correction. The Commission believes more specific event information
would help market participants understand why certain swap changes to
publicly reportable swap transactions are being publicly disseminated.
---------------------------------------------------------------------------
\397\ In appendix A, these data elements are: Action type (26);
Event type (27); Event identifier (29); and Event timestamp (30).
---------------------------------------------------------------------------
The Commission received two comments on the events data elements.
Citadel supports the Commission adding a flag to identify swaps that
result from risk reduction services, given that these may be publicly
reported with off-market prices.\398\ Clarus believes providers of any
compression-type activity should report trade level details to SDRs and
mark them on the public tape as compressions or risk-reduction
exercises.\399\ As explained in section II.B.2, the Commission is
clarifying swaps resulting from post-trade, risk reduction exercises
performed by automated systems that are market risk neutral are not
publicly reportable swap transactions. As these swaps will no longer
appear on the public tape, a flag to identify such swaps is not
necessary.
---------------------------------------------------------------------------
\398\ Id.
\399\ Clarus at 2.
---------------------------------------------------------------------------
The Commission is adopting the events data elements in appendix A
as proposed, with a modification. The Commission is adding an amendment
indicator data element to flag changes to a previously submitted
transaction.
4. Category: Notional Amounts and Quantities
The Commission proposed requiring SDRs publicly disseminate eleven
data elements related to notional amounts and quantities.\400\ SDRs are
currently publicly disseminating information related to notional
amounts, but the Commission proposed standardizing how this information
is reported across SDRs. The notional data elements in existing
appendix A include notional currency and rounded notional. SDRs would
continue to cap and round the notional amounts as required by Sec.
43.4.
---------------------------------------------------------------------------
\400\ In appendix A, these data elements are: Notional amount
(31); Notional currency (32); Call amount (36); Call currency (37);
Put amount (38); Put currency (39); Notional quantity (40); Quantity
frequency (41); Quantity frequency multiplier (42); Quantity unit of
measure (43); and Total notional quantity (44).
---------------------------------------------------------------------------
The Commission did not receive any comments on adding or removing
notional amounts and quantities data elements in appendix A and for
reasons articulated in the Proposal and reiterated above, is adopting
the notional amounts and quantities data elements in appendix A as
proposed, with the addition of three notional amount schedule data
elements to appendix A.\401\
---------------------------------------------------------------------------
\401\ Notional amount schedule is three data elements in the CDE
Technical Guidance.
---------------------------------------------------------------------------
5. Category: Packages
The Commission proposed requiring SDRs to publicly disseminate four
data elements related to package transactions.\402\ The Commission
received four comments related to package transactions. Citadel
supports the ``package identifier'' data element, but recommends the
Commission clarify that the definition of a package includes
transactions that are executed using ``list'' functionality offered by
a SEF, where several transactions are grouped together for pricing and
execution purposes.\403\
---------------------------------------------------------------------------
\402\ In appendix A, these data elements are: Package identifier
(46); Package transaction price (47); Package transaction price
currency (48); and Package transaction price notation (49).
\403\ Citadel at 10.
---------------------------------------------------------------------------
ISDA-SIFMA do not support additional package related data elements
being disseminated on the public tape because they are exceptionally
complex.\404\ Further, ISDA-SIFMA believe reporting package
transactions to the tape can result in fingerprinting since definitions
of ``package'' vary across firms and there is no consistent approach
for industry participants.\405\ CME also does not support additional
package related data elements because although they would not create
implementation challenges for SDRs, it is unclear how doing so would
enhance transparency and price discovery.\406\ FXPA encourages the
Commission to provide examples with respect to package data elements to
facilitate compliance, including a particular example for reporting
data element Package transaction price notation.\407\
---------------------------------------------------------------------------
\404\ ISDA-SIFMA at 55.
\405\ Id.
\406\ CME at 11.
\407\ FXPA at 3.
---------------------------------------------------------------------------
The Commission is adopting the package data elements in appendix A
as proposed, but is declining to require the package identifier for
part 43 reporting. Further, the Commission is adding three package
transaction swap data elements to appendix A from the CDE Technical
Guidance: Package transaction spread; Package transaction spread
currency; and Package transaction spread notation. The Commission will
also add a package indicator data element to appendix A.
The Commission believes Citadel's recommendation should be
addressed through the CDE governance process to ensure jurisdictions
adopt the data element consistently. Finally, the Commission does not
believe the package data elements require examples, but DMO will
monitor their implementation and add examples to the technical
specification if they would be beneficial in the future.
6. Category: Payments
The Commission proposed requiring SDRs to publicly disseminate
eight data elements related to payments.\408\ SDRs are currently
publicly disseminating information related to payments, but the
Commission proposed further standardizing how this information is
reported across SDRs. The payment fields in existing appendix A include
payment frequency and reset frequency, and day count convention.
---------------------------------------------------------------------------
\408\ In appendix A, these data elements are: Day count
convention (53); Floating rate reset frequency period (55); Floating
rate reset frequency period multiplier (56); Other payment type
(57); Other payment amount (58); Other payment currency (59);
Payment frequency period (63); and Payment frequency period
multiplier (64).
---------------------------------------------------------------------------
The Commission did not receive any comments on the payments data
elements in appendix A and for reasons articulated in the Proposal and
reiterated above, is adopting the data elements as proposed.
7. Category: Prices
The Commission proposed requiring reporting counterparties to
report seventeen data elements related to swap prices for SDRs to
publicly disseminate.\409\ SDRs are currently publicly disseminating
information related to prices, but the Commission proposed further
standardizing how this information is reported across SDRs. The payment
fields in existing appendix A include payment price, price notation,
and additional price notation.
---------------------------------------------------------------------------
\409\ In appendix A, these data elements are: Exchange rate
(65); Exchange rate basis (66); Fixed rate (67); Post-priced swap
indicator (68); Price (69); Price currency (70); Price notation
(71); Price unit of measure (72); Spread (73); Spread currency (74);
Spread notation (75); Strike price (76); Strike price currency/
currency pair (77); Strike price notation (78); Option premium
amount (79); Option premium currency (80); and First exercise date
(82).
---------------------------------------------------------------------------
In the price category, the Commission proposed a Post-priced swap
indicator (68), in connection with the proposed
[[Page 75460]]
rules permitting a delay for reporting PPS.\410\
---------------------------------------------------------------------------
\410\ The Commission discusses PPS, including the indicator, in
section II.C.2 above.
---------------------------------------------------------------------------
The Commission did not receive any comments on the price data
elements in appendix A and for reasons articulated in the Proposal and
reiterated above, is adopting the data elements as proposed.
8. Category: Product
The Commission proposed requiring SDRs publicly disseminate two
data elements relating to products, and has included a placeholder data
element for the UPI.\411\ As discussed above, the Commission believed
that SDRs should continue publicly disseminating any product fields
they are currently publicly disseminating until the Commission
designates a UPI according to Sec. 45.7. Existing appendix A includes
a similar placeholder field for UPI.
---------------------------------------------------------------------------
\411\ In appendix A, these data elements are: Index factor (85);
Embedded option type (86); and Unique product identifier (87).
---------------------------------------------------------------------------
The Commission received one comment on the UPI. FXPA believes the
Commission should carefully review, or consider guidance with respect
to, the unique product identifier data element (87) as there are
several related product taxonomies in use today.\412\
---------------------------------------------------------------------------
\412\ FXPA at 3.
---------------------------------------------------------------------------
The Commission is adopting the products data elements in appendix A
as proposed. As explained above, the placeholder reflects the
Commission's decision for reporting counterparties to continue to
report product-related data elements as they currently do until the
Commission designates a UPI in the next two years.
9. Category: Settlement
The Commission proposed requiring SDRs to publicly disseminate one
data element related to settlement: Settlement currency (89). Existing
appendix A contains a field for settlement currency.
The Commission did not receive any comments on the settlement data
element in appendix A and for reasons articulated in the Proposal and
reiterated above, is adopting the data element as proposed, with the
addition of the CDE Technical Guidance data element for Settlement
location to appendix A. This would help the Commission collect
information on trades involving offshore currencies.
10. Category: Transaction-Related
The Commission proposed requiring SDRs to publicly disseminate
seven transaction-related data elements.\413\ The transaction-related
fields in existing appendix A include execution timestamp, indication
of other price affecting term, block trade indicator, execution venue,
and start and end date. The Commission proposed one new indicator,
Prime brokerage transaction indicator, in connection with the proposed
rules for reporting mirror swaps.\414\
---------------------------------------------------------------------------
\413\ In appendix A, these data elements are: Non-standardized
term indicator (92); Block trade election indicator (93); Effective
date (94); Expiration date (95); Execution timestamp (96); Platform
identifier (98); and Prime brokerage transaction indicator (99).
\414\ The Commission discusses mirror swaps in section II.C.4
above.
---------------------------------------------------------------------------
The Commission received one comment on the Prime broker transaction
indicator data element. ISDA-SIFMA believe the prime broker transaction
indicator should not be subject to public dissemination if a trigger
swap is reported upon the occurrence of the pricing event because the
public receives the pricing data in real time like for any other part
43 reportable trade.\415\
---------------------------------------------------------------------------
\415\ ISDA-SIFMA at 54.
---------------------------------------------------------------------------
The Commission received one comment related to Platform identifier.
Citadel believes the MIC code of the venue should be publicly disclosed
to assist market participants in understanding current market dynamics
and locating active liquidity pools.\416\ Further, Citadel believes
transactions on EU MTFs and OTFs that the Commission has deemed
equivalent should not be considered ``off-facility transactions'' since
it would allow CFTC and market participants to assess the impact of
equivalence assessments.\417\
---------------------------------------------------------------------------
\416\ Citadel at 11.
\417\ Id.
---------------------------------------------------------------------------
The Commission is adopting the transaction-related date elements in
appendix A as proposed. With respect to ISDA-SIFMA's comment on Prime
brokerage indicator, the Commission believes that the data element
provides appropriate notice to the public about transactions that may
not be reported because they are part of a prime brokerage arrangement.
With respect to Citadel's comment, the Commission notes that it
adopting Platform identifier according to the CDE Technical Guidance.
Any comments on the data element should be addressed through the CDE
governance process.
IV. Compliance Date
A. General
In the Proposal, the Commission suggested that the compliance date
would be at least one year from the date that the last one of such
final Roadmap rulemakings was published in the Federal Register.
The Commission received two comments regarding the compliance date.
ICE DCOs believes the Commission should adopt a ``realistic compliance
implementation period that allows for industry-wide coordination and
roll-out.'' \418\ GFMA believes twelve months from publication of the
Final Rules should be the minimum implementation period and changes to
part 43 technical specification should be implemented for some period
of time before validations on such fields are implemented.\419\
---------------------------------------------------------------------------
\418\ ICE DCOs at 1-2.
\419\ GFMA at 12.
---------------------------------------------------------------------------
The Commission also received many comments related to the
compliance date in response to the other Roadmap proposals. Those
comments are discussed in the Federal Register releases for the Roadmap
proposals as they were received, but the Commission considered the
comments for all three Roadmap proposals together. The Commission
discusses the compliance date comments at greater length in the Federal
Register release for the part 45 rules.
The Commission appreciates the comments received on the compliance
date for the Proposal and for all of the Roadmap proposals. Based on
the many comments that requested one compliance date for all aspects of
the Roadmap proposals and the many comments that requested a compliance
date that is more than one year from the date the Roadmap proposals are
finalized, the Commission will, except as discussed below, extend a
unified compliance date for this Final Rule that is 18 months from the
date of publication in the Federal Register, which matches the
compliance date for all three Roadmap proposals. To accommodate an
extended compliance date for changes to the block thresholds and cap
sizes in Sec. 43.4(h) and Sec. 43.6 discussed in the next section,
the Commission encourages market participants to comply with the
existing part 43 rules until the end of the 18-month compliance period.
B. Changes to the Appropriate Minimum Block Sizes and Cap Sizes
The Commission will extend the compliance date for the post-initial
block thresholds and cap sizes in Sec. 43.4(h) and Sec. 43.6 separate
from those of the rest of the part 43 rules for an additional twelve
months. In this instance, the Commission believes market participants
should have the chance to adapt to the changes to part 43, including
the new swap categories and capping and rounding rules, before
[[Page 75461]]
having to comply with new block and cap sizes.
In addition, the Commission recognizes the changes to its part 43
rules in this release, along with the changes to the part 45 rules in a
separate release, will provide the Commission with an enhanced,
standardized data set that will help the Commission best calibrate the
appropriate minimum block sizes when applying the 67-percent and 75-
percent thresholds. Given the robust improvements to swap data the
Commission expects to realize from the part 45 reforms and the
intervening period in which market participants will need to update
their systems to comply with aspects such as the new swap categories,
the Commission expects to use the new and improved data to analyze the
best way to apply the thresholds and make any adjustments as
appropriate.
Since the Commission has to recalculate the appropriate minimum
block sizes and cap sizes no less than once each calendar year, the
additional twelve months will give the Commission the opportunity to
recalculate the appropriate minimum block sizes and cap sizes using the
publicly reportable swap transactions in the new part 45 data to help
ensure the levels are appropriately calibrated. The Commission intends
to take action, as necessary, to ensure the appropriate minimum block
sizes and cap sizes are appropriately tailored. Moreover, the
additional time avoids creating additional operational or compliance
challenges at the end of the 18-month compliance period when market
participants begin compliance with the updated part 43 rules.
Therefore, while the changes to the rest of part 43 rules will have
a compliance period of 18 months, Sec. Sec. 43.4(h) and 43.6 and the
new, post-initial block and cap sizes, calculated according to the 67-
percent and 75-percent notional amount calculations, will have a
compliance date of one year after the 18-month compliance period (for a
total of 30 months) for the rest of the part 43 rule changes.
V. 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.\420\ 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 in accordance with
the RFA.\421\ The changes to part 43 adopted herein will have had a
direct effect on the operations of DCMs, DCOs, MSPs, PBs,\422\
reporting counterparties, SDs, SDRs, and SEFs. The Commission has
previously certified that DCMs,\423\ DCOs,\424\ MSPs,\425\ SDs,\426\
SDRs \427\, and SEFs \428\ are not small entities for purpose of the
RFA.
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\420\ See 5 U.S.C. 601 et seq.
\421\ See Policy Statement and Establishment of ``Small
Entities'' for Purposes of the Regulatory Flexibility Act, 47 FR
18618 (Apr. 30, 1982) (``1982 RFA Release'').
\422\ The Commission understands that all PBs currently acting
as such in connection with swaps are SDs. Consequently, the RFA
analysis applicable to SDs applies equally to PBs.
\423\ See 1982 RFA Release.
\424\ The Commission has previously certified that DCOs are not
small entities for purposes of the RFA. See DCO General Provisions
and Core Principles, 76 FR 69334, 69428 (Nov. 8, 2011).
\425\ See SD and MSP Recordkeeping, Reporting, and Duties Rules,
77 FR 20128, 20194 (Apr. 3, 2012) (basing determination in part on
minimum capital requirements).
\426\ See id.
\427\ See Swap Data Repositories, 75 FR 80898, 80926 (Dec. 23,
2010) (basing determination in part on the central role of SDRs in
swaps reporting regime, and on the financial resource obligations
imposed on SDRs).
\428\ See Core Principles and Other Requirements for SEFs, 78 FR
33476, 33548 (June 4, 2013).
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Various changes to part 43 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 that section 2I of the CEA prohibits a
person from entering into a swap unless the person is an eligible
contract participant (``ECP''), except for swaps executed on or
pursuant to the rules of a DCM.\429\ The Commission has previously
certified that ECPs are not small entities for purposes of the
RFA.\430\
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\429\ See 7 U.S.C. 2(e).
\430\ See Opting Out of Segregation, 66 FR 20740, 20743 (Apr.
25, 2001). The Commission also notes that this determination was
based on the definition of ECP as provided in the Commodity Futures
Modernization Act of 2000. The Dodd-Frank Wall Street Reform and
Consumer Protection Act (the ``Dodd-Frank Act'') amended the
definition of ECP by modifying the threshold for individuals to
qualify as ECPs, changing an individual who has total assets in an
amount in excess of to an individual who has amounts invested on a
discretionary basis, the aggregate of which is in excess of.
Therefore, the threshold for ECP status is currently more
restrictive than it was when the Commission certified that ECPs are
not small entities for RFA purposes, meaning that there are likely
fewer entities that could qualify as ECPs today than could qualify
when the Commission first made the determination.
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The Commission has analyzed swap data reported to each SDR \431\
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 pursuant to 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 that
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 Final Rule will affect a substantial number of small
entities.
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\431\ The sample data sets varied across SDRs and asset classes
based on relative trade volumes. The sample represents data
available to the Commission for swaps executed over a period of one
month. These sample data sets captured 2,551,907 FX swaps, 603,864
equity swaps, 357,851 other commodity swaps, 276,052 IRS, and 98,145
CDS.
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Based on the above analysis, the Commission does not believe that
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 Rules will not have a significant economic impact on a
substantial number of small entities.
B. Paperwork Reduction Act
The PRA of 1995 \432\ 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 would result in the revision of a
collection of information for which the Commission has previously
received a control number from the Office of Management and Budget
(``OMB''): OMB Control Number 3038-0070 (relating to real-time swap
transaction and pricing data).
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\432\ See 44 U.S.C. 3501.
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The Commission did not receive any comments regarding its PRA
burden analysis in the preamble to the Proposal. The Commission is
revising the information collection to reflect the adoption of
amendments to part 43, 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 PRA). In the Proposal, the Commission
omitted the aggregate reporting burden for proposed Sec. 43.3 and
Sec. 43.4 in the preamble and instead provided PRA
[[Page 75462]]
estimates for all of part 43. The Commission is now including PRA
estimates for final Sec. 43.3 and Sec. 43.4 below.\433\ In addition,
the Commission is revising the information collection to include burden
estimates for one-time costs that SDRs, SEFs, DCMs, and reporting
counterparties could incur to modify their systems to adopt the changes
to part 43, as well as burden estimates for these entities to perform
any annual maintenance or adjustments to reporting systems related to
the changes. The Commission does not believe the rule amendments as
adopted impose any other new collections of information that require
approval of OMB under the PRA.
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\433\ PRA estimates for all of part 43 are included in the
supporting statement being filed with OMB. The Commission is not
including PRA estimates for all of part 43 below as the Final Rule
affects PRA estimates for Sec. 43.3 and Sec. 43.4.
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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 43 that were not included in the Proposal.
1. Swap Transaction and Pricing Data Reports to SDRs--Sec. 43.3
Existing Sec. 43.3 requires reporting counterparties, SEFs, and
DCMs to send swap reports to SDRs ASATP after execution of a publicly
reportable swap transaction. The Commission is adopting changes that
would add new Sec. 43.3(a)(4) to give reporting counterparties more
time to report PPS to SDRs. Currently, some entities report PPS using a
placeholder price, and then send a swap report later amending the
price. Those entities would experience a reduction in the number of
swap reports they are required to send pursuant to Sec. 43.3 under the
Final Rules. The Commission estimates 50 SD/MSP reporting
counterparties would reduce the number of PPS reports they report to
SDRs by 100 reports per respondent annually or 5,000 reports in the
aggregate.
The Commission is also amending Sec. 43.3 to establish new
requirements for reporting prime brokerage swaps in Sec. 43.3(a)(6).
New Sec. 43.3(a)(6) will not require SDRs to publicly disseminate
``mirror swaps.'' Reporting counterparties will continue to report
mirror swaps to SDRs pursuant to part 45, but the amendment to Sec.
43.3 will reduce the number of reports SDRs are required to publicly
disseminate pursuant to Sec. 43.4. The amendment to the requirement
for SDRs in Sec. 43.4 is discussed in the next section below.
The Commission is also adding a new requirement in new Sec.
43.3(a)(5) for DCOs to report swap transaction and pricing data for
clearing swaps that are publicly reportable swap transactions.
Currently, Sec. 43.3 does not account for DCOs in the hierarchy of
entities required to report to SDRs. This would be a new requirement
for DCOs to send swap transaction and pricing data reports to SDRs, to
the extent they are not currently required to do so. DCOs would only be
required to do so when reporting swaps associated with clearing member
defaults. However, the Commission, recognizing the importance of the
DCO clearing member default process, decided to exempt these swaps from
the definition of ``publicly reportable swap transaction,'' with the
result being there will be no reporting requirement for DCOs. As such,
there is now no PRA burden.
Existing Sec. 43.3(h) requires timestamping by multiple
entities.\434\ The Commission is removing Sec. 43.3(h). Removing Sec.
43.3(h)(1) would reduce the amount of time SDs, MSPs, and registered
entities spend reporting swap reports to SDRs, but would not amend the
number of reports they send. Removing Sec. 43.3(h)(2) would reduce the
amount of time SDRs spend publicly disseminating swap reports, but
would not amend the number of reports they send. Removing Sec.
43.3(h)(3) would reduce the amount of time SDs and MSPs spend reporting
off-facility swaps to SDRs, but would not reduce the amount of reports
they send. Finally, removing Sec. 43.3(h)(4) would remove the
recordkeeping burden for these entities.
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\434\ Existing Sec. 43.4(h)(1) requires registered entities,
SDs, and MSPs to timestamp real-time swap reports with the time they
receive the data from counterparties, as applicable, and the time at
which they transmit the report to an SDR. Registered entities, SDs,
and MSPs then send these timestamps to the SDR. Existing Sec.
43.3(h)(2) requires SDRs to timestamp the swap reports they receive
from SEFs, DCMs, and reporting parties, and then timestamp the
report with the time they publicly disseminate it. SDRs then place
these timestamps on the reports they publicly disseminate. Existing
Sec. 43.3(h)(3) requires SDs and MSPs to timestamp all off-facility
swaps they report to SDRs. SDs and MSPs then report these timestamps
to SDRs. Existing Sec. 43.3(h)(4) requires that records of all
timestamps required by Sec. 43.3(h) be maintained for a period of
at least five years from the execution of the publicly reportable
swap transaction. The Commission is adopting changes to eliminate
the recordkeeping requirements in Sec. 43.3(h)(4). This would
result in the removal of the recordkeeping burden from collection
3038-0070, which is currently 5,854 hours in the aggregate.
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As a result of the removal of Sec. 43.3(h), the Commission is
removing the current recordkeeping burden of 5,854 hours from the
collection. The estimated aggregate reporting burden for Sec. 43.3 is
as follows:
Estimated number of respondents: 1,729 SEFs, DCMs, and reporting
counterparties.
Estimated number of reports per respondent: 2,998.
Average number of hours per report: .067.
Estimated gross annual reporting burden: 725,696.
The Commission did not include any burden estimates in the Proposal
related to the modification or maintenance of systems in order to be in
compliance with the proposed amendments to Sec. 43.3. The Commission
estimates that the cost for a reporting entity, including DCMs, DCOs,
MSPs, non-SD/MSPs, SDs, and SEFs, to modify their systems and maintain
those modifications going forward to adopt the Final Rule could range
from $24,000 to $74,000. There are an estimated 1,732 reporting
entities, for a total estimated cost of $84,868,000. The estimated cost
range is based on a number of assumptions that cover tasks required to
design, test, and implement an updated data system based on the new
swap data elements contained in part 43. The Commission estimates it
would take a reporting entity an estimated total of 500 to 725 hours
per reporting to perform the necessary tasks. The Commission estimates
that the cost for an SDR to modify their systems, including their data
reporting, ingestion, and validation systems, and maintain those
modifications going forward may range from $144,000 to $510,000 per
SDR. There are currently three SDRs, for an estimated total cost of
$981,000. The estimated cost range is based on assumptions that cover
the set of tasks required for the SDR to design, test, and implement a
data system based on the list of swap data elements contained in part
43. These numbers assume that each SDR will spend approximately 3,000-
5,000 hours to establish a relational database to handle such tasks. As
noted above, the Commission is soliciting comments on the revised
burden estimates for part 43, including the estimated costs related to
the modification or maintenance of systems
[[Page 75463]]
in order to be in compliance with the amendments to Sec. 43.3 that are
being adopted in the Final Rule.
2. Swap Transaction and Pricing Data Reports Disseminated to the Public
by SDRs
As discussed above, existing Sec. 43.3 requires reporting
counterparties to send swap reports to SDRs ASATP after execution. The
Commission is adopting changes to Sec. 43.3 to establish new
requirements for reporting prime brokerage swaps in Sec. 43.3(a)(6).
The amended rules would establish that ``mirror swaps'' would not need
to be publicly disseminated by SDRs. Reporting counterparties would
continue to report mirror swaps to SDRs pursuant to part 45, but the
amendment to Sec. 43.3 would reduce the number of reports SDRs would
be required to publicly disseminate according to Sec. 43.4.
The Commission estimates that the amendments would reduce the
number of mirror swaps SDRs would need to publicly disseminate by 100
reports per each SDR, for an aggregate burden hour reduction of 20.10
hours.
The estimated aggregate reporting burden total for Sec. 43.4, as
adjusted for the reduction in reporting by SDRs of mirror swaps, is as
follows:
Estimated number of respondents: 3.
Estimated number of reports per respondent: 1,499,900.
Average number of hours per report: .009.
Estimated gross annual reporting burden: 40,497.
The Commission did not include any burden estimates in the Proposal
related to the modification or maintenance of systems in order to be in
compliance with the proposed amendments to Sec. 43.4. To avoid double-
counting, the Commission included the costs associated with updates to
Sec. 43.3, discussed above, as they would be captured in the costs of
updating systems based on the list of swap data elements in part 43. As
noted above, the Commission is soliciting comments on the revised
burden estimates for part 43 that are being adopted in the Final Rule.
C. Cost-Benefit Considerations
1. Statutory and Regulatory Background
Section 15(a) \435\ of the CEA requires the Commission to consider
the costs and benefits of its actions before promulgating a regulation
under the CEA or issuing certain orders. Section 15(a) further
specifies that the costs and benefits shall be evaluated in light of
five broad areas of market and public concern: (1) Protection of market
participants and the public; (2) efficiency, competitiveness, and
financial integrity of markets; (3) price discovery; (4) sound risk
management practices; and (5) other public interest considerations. The
Commission considers the costs and benefits resulting from its
discretionary determinations with respect to the section 15(a) factors.
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\435\ 7 U.S.C. 19(a).
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Generally, the Commission expects that, taken together, the
revisions and additions to part 43 will improve the real-time public
reporting regime for reporting counterparties, SEFs, DCMs, SDRs, and
market participants that use real-time public data, with some attendant
costs. The discussion below considers the costs and benefits the
Commission--informed by commenters--foresees resulting from the
particular substantive amendments it is adopting.\436\ Specifically,
these are the amendments to: Sec. 43.3(a)(4) (post-priced swaps);
Sec. 43.3(a)(5) (clearing swaps); Sec. 43.3(a)(6) (prime broker
swaps); Sec. 43.3(c) (availability of swap transaction and pricing
data to the public); Sec. 43.3(a)(4); Sec. 43.3(f) (data validation
acceptance message); Sec. 43.4(f) (process to determine appropriate
rounded notional or principal amounts); and Sec. Sec. 43.4(h) and 43.6
(cap sizes and block trades). The Commission considers these costs and
benefits relative to the baseline established by the requirements of
its existing regulations, or, where there are none, relative to the
baseline of current industry practice.
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\436\ Because the Commission does not foresee material cost-
benefit impact resulting from the non-substantive amendments it is
also adopting, these amendments are not discussed. Also, the
proposed, but not adopted, changes to the block delays provided in
Sec. 43.5 are not discussed, since there is no resultant change
relative to the status quo baseline.
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The Commission lacks precise cost data to quantify the costs and
benefits considered below.\437\ The Commission provides a range
estimate where feasible, including programming costs associated with
the rule changes, for instance. The Commission requested comments to
help refine its estimates for quantifiable costs and benefits, but
received no comments providing specific data or information regarding
how to quantify costs. Regarding changes requiring technical updates to
reporting systems, where significant, Commission staff estimated the
hourly wages market participants will likely pay software developers to
implement each change to be between $48 and $101 per hour.\438\
Relevant amendments below will list a low-to-high range of potential
costs as determined by the number of developer hours estimated by
technical subject matter experts (``SMEs'') in the Commission's Office
of Data and Technology (``ODT''). Quantifying other costs and benefits,
such as liquidity impacts and price spread variances resulting from
changes in price transparency from a rule change, are inherently harder
to measure, rendering quantification infeasible in many cases. In
addition, quantification of effects relative to current market practice
may not fully represent future activity if participants change their
trading behavior in response to rule changes. Again, while the
Commission requested comments to help it quantify these impacts, it did
not receive any responsive comments. Accordingly, the Commission
discusses costs and benefits qualitatively when quantification remains
infeasible, after taking into account relevant input of commenters, or
the lack thereof.
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\437\ As explained in the Proposal, many of the rule changes
will likely affect a wide variety of proprietary reporting systems
developed by SDRs and reporting entities, putting SDRs and industry
participants in the best position to estimate computer programming
costs of changing the reporting requirements.
\438\ The Commission estimated hourly wage rates from the
Software Developers and Programmers category of the May 2019
National Occupational Employment and Wage Estimates Report produced
by the U.S. Bureau of Labor Statistics, available at https://www.bls.gov/oes/current/oes_nat.htm. The 25th percentile was used
for the low range and the 90th percentile was used for the upper
range ($36.89 and $78.06, respectively). Each number was multiplied
by an adjustment factor of 1.3 for overhead and benefits (rounded to
the nearest whole dollar) which is in line with adjustment factors
the Commission has used for similar purposes in other final rules.
See, e.g., 77 FR at 2173 (Jan. 13, 2012) (using an adjustment factor
of 1.3 for overhead and other benefits). These estimates are
intended to reflect U.S. developer hourly rates market participants
are likely to pay when complying with the adopted changes.
Individual entities may, based on their circumstances, incur costs
substantially greater or less than the estimated averages.
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The discussion in this section is based on the understanding that
swap markets often extend across geographical regions. Many swap
transactions involving U.S. firms occur across international borders.
Some Commission registrants are headquartered outside of the U.S., with
the most active participants often conducting operations both within
and outside the U.S. Where the Commission does not specifically refer
to matters of 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
[[Page 75464]]
with or effect on U.S. commerce under CEA section 2(i).\439\
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\439\ See 7 U.S.C. 2(i). CEA section 2(i) limits the
applicability of the CEA provisions enacted by the Dodd-Frank Act,
and Commission regulations promulgated under those provisions, to
activities within the U.S., unless the activities have a direct and
significant connection with activities in, or effect on, commerce of
the U.S.; or contravene such rules or regulations as the Commission
may prescribe or promulgate as are necessary or appropriate to
prevent the evasion of any provision of the CEA enacted by the Dodd-
Frank Act. Application of section 2(i)(1) to the existing part 43
regulations with respect to SDs/MSPs and non-SD/MSP counterparties
is discussed in the Commission's Interpretive Guidance and Policy
Statement Regarding Compliance With Certain Swap Regulations, 78 FR
45292 (July 26, 2013).
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2. Costs and Benefits
a. Sec. 43.3--Method and Timing for Real-Time Public Reporting
i. Sec. 43.3(a)(4)--Post-Priced Swaps
New Sec. 43.3(a)(4) establishes requirements for reporting PPSs,
which the Commission defines as off-facility swaps for which the price
has not been determined at the time of execution.\440\ New Sec.
43.3(a)(4)(i) permits reporting counterparties to delay reporting
trades identified as PPSs to SDRs until the earlier of: (i) The price
being determined; and (ii) 11:59:59 p.m. eastern time on the execution
date.\441\ For swaps for which the price is known at execution but some
other term is left for future determination (e.g., quantity), reporting
parties remain obligated to report the swap ASATP after execution, even
absent the as-yet undetermined terms.
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\440\ The Commission discusses PPSs further in section II.C.2
above.
\441\ The Commission understands that PPSs can arise in a
variety of settings. One such setting is where the price of the swap
is tied to a reference price that is not yet determined at the time
of the trade. Examples of this could include the daily settlement
price of a stock index or crude oil futures or a benchmark such as
the Argus WTI Midland price.
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The new requirements help address a challenge reporting
counterparties face, and, in doing so, remedy an impediment to the
quality of the real-time tape. Under existing regulations, reporting
parties must report all trades ASATP after execution. Existing rules do
not address how reporting parties represent unknown trade terms in swap
reports to SDRs or whether SDRs must accept trade reports missing
values or with zero values in fields. SDRs often reject these trades,
which means reporting counterparties cannot accurately report PPSs in
real time. The current lack of specific requirements creates
inconsistencies in how and when reporting counterparties report PPSs.
As expressed in the Proposal--and undisputed by commenters--the
Commission believes that while some variable term swaps, including PPS,
are reported shortly after execution, these swaps also account for a
significant but unknown percentage of swaps not reported to SDRs in a
timely manner.\442\ While the Commission understands anecdotally that
untimely PPS reporting is occurring, it cannot clearly identify which
swaps reported to date would be classified as PPSs under the current
regulations.\443\ Consequently, the Commission cannot reliably estimate
the magnitude of the new requirements' impact with a reasonable degree
of certainty. However, under the updated list of data elements in
appendix A, reporting parties will have to indicate that a swap is a
PPS, which will give the Commission and the public a clearer view of
PPS activity.\444\
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\442\ 85 FR at 21522 (Apr. 17, 2020).
\443\ It may be possible to identify PPSs by searching part 43
data to determine how many swaps are reported with a missing price
with a reporting time close to execution time. However, the
Commission understands not all reporting counterparties report PPSs
close to execution and instead wait until determining a price. It
may also be possible to assume swaps with a price but a large
difference between reporting time and execution time are PPSs, but
this may include swaps with other non-price varying terms, such as
quantity. Finally, it may be possible to check parts 43 and 45 data
for differences in the reported price. Since all of these options
are potentially over- or under-inclusive, the Commission is
currently unable to reliably identify PPSs.
\444\ The Commission discusses the data element for ``post-
priced swap indicator'' in section III.
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As discussed in section II.D.2, above, and incorporated by
reference for purposes of the Commission's consideration of costs and
benefits here, the Commission received a number of comments concerning
new Sec. 43.3(a)(4). Some commenters oppose delaying PPS reporting.
For example, Citadel suggests the Commission instead require real-time
reporting and dissemination of PPSs with an identifier for PPSs on the
public tape.\445\ Citadel believes an identifier would address the
concern that the real-time publication of PPSs confuses market
participants.\446\
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\445\ Citadel at 10.
\446\ Id.
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Other commenters believe the Commission should delay PPS reporting
by a day or more. For example, ISDA-SIFMA suggest delaying PPS
reporting until the earlier of (a) the price being determined, or (b)
11:59:59 p.m. eastern time on the next business day following the
execution date.\447\ ISDA-SIFMA believe reporting PPSs earlier may
increase the costs of hedging by signaling to other participants that a
SD will be hedging a particular large notional trade the following
day.\448\ ISDA-SIFMA believe a T+1 cutoff will significantly reduce
potential unnecessary hedging costs by reducing the number of PPSs
reported without a price.\449\
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\447\ ISDA-SIFMA at 50.
\448\ Id.
\449\ Id.
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The Commission considered the costs and benefits of delaying PPS
reporting. The Commission agrees that dissemination of swap transaction
and pricing data immediately after execution increases price
transparency. But this benefit is limited where the price of a swap is
not known.
The Commission also believes that, because the PPS price is
determined after execution, SDs face unique risks hedging a PPS. For
example, the price of some PPSs is tied to a reference price that is
not determined until the end of the trading day. Publishing swap
transaction data before the price is determined presents unique and
heightened risks of front running, as market participants will be able
to transact in swaps ahead of the event on which the price is
contingent. This could increase hedging costs, disadvantaging the SD
and the counterparty to the PPS, and potentially cause market
participants to forego the use of such swaps, thereby materially
reducing swap market liquidity. Thus, there is significant benefit
delaying reporting until after price has been determined.
The Commission has determined that the final rules provide an
appropriate balance. Citadel's faster reporting could have a
significant impact on the ability of SDs to hedge their position, while
ISDA-SIFMA's delayed reporting would have a significant negative effect
on price transparency.
CME and FIA opposed reporting and disseminating PPSs until all
terms are known, not only price.\450\ CME believes there is no value in
reporting swap transaction and pricing data prior to all variable terms
being determined.\451\ While the Commission recognizes the merit in
these alternatives, the Commission is concerned the delays suggested by
CME and FIA would be long enough to impede the Commission's price
transparency goals. As a result, the Commission does not believe that
PPS reporting should be delayed after price is known.
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\450\ CME at 3-4, FIA at 11.
\451\ CME at 3-4.
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Baseline: The current regulations require reporting parties to
report all swaps ASATP after execution; this baseline does not contain
an exception for swaps with terms that have not been determined at the
time of execution, a category of swaps which includes PPSs.
[[Page 75465]]
As noted above, this potentially conflicts with SDR standards, which
often mandate values in certain fields, such as fields related to
prices. Perhaps reflecting this conflict, it appears many PPSs and
other swaps with terms that have not been determined at the time of
execution are not reported until all terms have been determined.
Benefits: This rule will establish a bright-line standard for when
PPSs and other swaps with terms that have not been determined at the
time of execution need to be reported for public dissemination. By
explicitly defining obligations for PPSs and other swaps with terms
that have not been determined at the time of execution, the rule
creates consistency in reporting and reduces uncertainty. This would
strengthen market participant's confidence in the real-time public
data.
Another benefit to the final regulations it that the final
requirements would permit parties to hedge the positions they acquire
in a more cost-effective way. For example, if a client asks an SD to
take the long side of a large swap, the SD may be able to hedge that
position with less price impact if other traders are unaware of the
SD's hedging need. This ability to hedge while mitigating price impact
can often translate to better pricing for the client. Thus, the
Commission anticipates final Sec. 43.3(a)(4) would decrease SDs'
hedging costs, especially for large or non-standardized trades, improve
customer pricing, and increase market participants' willingness to take
positions.\452\
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\452\ The Commission estimates for PRA purposes that there would
be a moderate decrease in the burden incurred by market
participants, as discussed in the PRA section.
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Costs: Delayed reporting of PPSs may reduce the amount of
information available to market participants and, as a result,
frustrate the goal of price transparency. In particular, other market
participants would have a less-precise estimate of intraday trading
volume in real-time, which can introduce information asymmetry. For
example, a SD may be willing to make markets in equity PPSs and non-PPS
on a similar underlying equity index. Access to real-time information
on activity in both markets would be equally important and potentially
allow for cross-market arbitrage. With the delay in PPS, the SD could
be disadvantaged by a lack of information related to PPS activity.
However, the realities of the market and the reporting of PPSs today
reduce the cost burden linked to the reporting delay.\453\ Further, the
benefits of reporting swap data immediately after execution is limited
where price is not known.
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\453\ For example, PPSs are not standardized in how they are
reported. If, for example, all PPSs traded at a specified
differential from the daily settlement price, this would allow for
more useful real-time data. The data limitations ultimately reduce
the usefulness of PPS information, thus reducing the cost of delays
related to this swap transaction and pricing data.
---------------------------------------------------------------------------
Another potential cost is that Sec. 43.3(a)(4) might encourage
traders to trade more PPSs and fewer swaps for which the price is known
at execution. For example, if choosing between two swaps with
comparable terms except one has a price determined at the end of the
day, if the size is large relative to the rest of the market, the delay
could encourage the counterparties to select the swap with an unknown
price. The incentive to choose PPSs for a delay would reduce
transparency with fewer trades reported ASATP after execution.
The Commission is adopting Sec. 43.3(a)(4) to specify the
requirements for reporting PPSs. Notwithstanding the potential costs
identified above, the Commission believes this change is warranted in
light of the anticipated benefits.
ii. Sec. 43.3(a)(5)--Clearing Swaps
Final Sec. 43.3(a)(5) adds DCOs to the reporting counterparty
hierarchy for clearing swaps that are publicly reportable swap
transactions. DCOs do not typically report swap transaction and pricing
data under part 43, because cleared swaps have already been reported at
execution: SEFs, DCMs, and reporting counterparties report the
original, market-facing swap to SDRs for public dissemination while
sending the swap to a DCO for clearing. Final Sec. 43.3(a)(5) covers
the limited cases where a DCO executes a publicly reportable swap
transaction that has not already been reported under part 43. However,
the Commission is adopting an alternative to Sec. 43.3(a)(5) raised by
commenters that would lead to maintaining the status quo. ICE DCOs and
CME believe the Commission should also amend the definition of
``publicly reportable swap transaction'' in Sec. 43.2 to exclude swaps
created through DCO default management processes to avoid allowing
front-running if the processes span multiple days.\454\ These
commenters believe Sec. 43.3(a)(5) would be impractical as the default
management process may be achieved through the sale at the portfolio
(not individual swap) level, which ``does not lend itself'' to part 43
reporting.\455\ Also, these commenters believe the prices disseminated
for default management swaps would be irrelevant as the prices are
affected by the DCO's priority to take timely action.\456\
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\454\ ICE DCOs at 2; CME at 7-8.
\455\ Id.
\456\ Id.
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While the Commission is adopting final Sec. 43.3(a)(5), the
Commission is also adopting the alternative proposed by ICE DCOs and
CME because the Commission shares these commenters' concerns that the
new requirement could impede the efficacy or ability of DCOs to
complete default management exercises.
Baseline: The existing rules do not expressly require DCOs to
submit swap transaction and pricing data to SDRs for public
dissemination.
Benefits: Final Sec. 43.3(a)(5) will clarify that, while DCOs have
an obligation to report swaps meeting the definition of publicly
reportable swap transactions, they are not required to report swaps
resulting from default management processes, based on the important
role these processes play for DCOs in managing risk.
Costs: New Sec. 43.3(a)(5) would have imposed minor costs for DCOs
as the reporting counterparties for publicly reportable swap
transactions. However, with the Commission's decision to exempt swaps
related to default management processes from public reporting, DCOs and
SDRs should incur no additional costs from the new requirements.\457\
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\457\ The Commission estimates for PRA purposes that there would
be no burden incurred by market participants, as discussed in the
PRA section.
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iii. Sec. 43.3(a)(6)--Prime Broker Swaps
Final Sec. 43.3(a)(6) establishes rules for publicly reporting PB
swaps.\458\ The new rule distinguishes between two types of PB swap
transactions for the purposes of publicly reportable swap transactions
subject to real-time public reporting: Mirror swaps, which are not
publicly reportable swap transactions, and trigger swaps, which are.
Further, the Commission is adding a data element to appendix A to
require an indicator flagging a swap as part of a prime brokerage
transaction. These changes are explained in more detail in sections
II.C.4 and III.A above.
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\458\ As newly defined in Sec. 43.2 a ``prime broker swap'' is
any swap to which a swap dealer acting in the capacity as prime
broker--a separate, specifically defined term--is a party.
---------------------------------------------------------------------------
Banks typically offer prime brokerage services to large,
sophisticated customers. Customers that avail themselves of this
service enter into an agency agreement with their PB by which the PB
agrees to serve as the counterparty for at least two off-setting swaps:
A trigger swap with its customer,
[[Page 75466]]
and a flip-side mirror swap with a third party, often referred to as an
executing broker; \459\ although it will not be a direct counterparty
to the mirror swap, the customer negotiates its terms (which must fall
within acceptable parameters set forth in the agency agreement) with
the executing broker.\460\ This arrangement facilitates an end-user's
ability to lay off risk through swaps that it directly negotiates with
third-party executing brokers, while foregoing the need to have a
separate ISDA agreement (a necessity for direct-facing counterparties
to uncleared swaps) with each executing brokers against which it
executes a swap.\461\ Instead, the PB essentially stands in the middle
of the exchange negotiated between its customer and the executing
broker. Because the PB is counterparty to both a trigger swap and a
mirror swap, it has two offsetting exposures that should leave it
market risk neutral. The PB does, however, take on counterparty credit
risk from both its customer and the executing broker.
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\459\ It is possible to observe a difference in the reported
price between the mirror and trigger swaps as the mirror swap may
include an adjustment resulting from the prime brokerage servicing
fees. If so, it provides further support for SDRs only disseminating
trigger swaps to the public.
\460\ As ISDA-SIFMA notes, these arrangements may involve
multiple mirror swaps associated with a trigger swap. See ISDA-SIFMA
at 58.
\461\ Executing an underlying ISDA agreement can be costly, and
most end users will have an ISDA agreement with few, if any, banks
other than their PB. The PB, however, already will have an ISDA
agreement with a large number of SDs. Further, because the PB will
be the counterparty to the negotiated mirror swap, the executing
broker will quote a price based on the PB's credit rating, not the
customer's, which can result in more favorable pricing than the
customer would receive if transacting directly.
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Existing part 43 does not expressly address mirror swaps or trigger
swaps, and, as a result, both are currently required to be reported to
an SDR and publicly disseminated ASATP as a publicly reportable swap
transaction.\462\ Existing part 43 also contains no data elements to
identify if a swap is related to a prime brokerage agreement and, if
so, distinguish between the mirror and trigger swaps. To the extent
that both mirror and trigger swaps are being currently reported, the
Commission is concerned this creates a false sense of market depth on
the public tape and therefore harms price discovery. A simple example
illustrates how reporting both mirror and trigger swaps can adversely
affect price discovery: If both swaps are reported, the public sees
double the trade count and double the notional amount. Furthermore, as
these prices are expected to be similar, the market may appear more
liquid and efficient than it actually is. If, on the other hand, only
one swap is reported, the public tape accurately reflects the trade
count and notional size following the negotiated terms of trade.
---------------------------------------------------------------------------
\462\ Sec. 43.3(a)(1) and (b)(2).
---------------------------------------------------------------------------
Compounding the Commission's transparency concerns under existing
part 43 is its understanding, based on anecdotal information, that PB
swaps are reported, to an unclear degree, inconsistently. In
particular, the Commission is concerned mirror swaps are currently
under-reported because some market participants, believing that
reporting mirror swap terms is duplicative of the corresponding trigger
swap and would distort price discovery.\463\ Because there is no data
element indicating which swaps represent trigger or mirror swaps in the
public reporting requirements, the Commission cannot reliably identify
how common these swaps may be. As such, potential non-reporting of
mirror swaps under the existing regulations makes it difficult to
quantify how many swap trades and open positions result from PB
activity.\464\ This creates challenges for anyone seeking to use swap
transaction and pricing data for analysis or historical studies of
market activity.
---------------------------------------------------------------------------
\463\ This would be the case if all the primary economic terms
are the same for, for instance, a trigger swap and a single mirror
swap. By reporting both the mirror and the trigger swap, market
participants may assume that the volume of price-forming trade
activity is higher than it actually is.
\464\ The swap transaction and pricing data elements in appendix
A would include a new data element ``Prime brokerage transaction
indicator.''
---------------------------------------------------------------------------
Pursuant to new Sec. 43.3(a)(6)(i), a mirror swap would fall
outside the obligations for ASATP reporting and SDR public
dissemination,\465\ though it would still be reported to an SDR
pursuant to part 45. In contrast, the trigger swap would remain subject
to both ASATP reporting and SDR public dissemination under part 43 as
well as reporting under part 45.
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\465\ See Sec. 43.3(a)(1) and (b)(2).
---------------------------------------------------------------------------
As discussed in sections II.C.4 and III above, and incorporated by
reference for purposes of the Commission's consideration of costs and
benefits herein, the Commission received several comments concerning
new Sec. 43.3(a)(6), including its associated definitions and new
prime broker transaction indicator in appendix A.\466\ To the extent
these comments expressly address the Proposal's cost-benefit assessment
or otherwise raised issues with material cost-benefit implications,
they are considered below in the discussions of benefits and costs.
Comments also addressed significant alternatives--including Citadel's
recommendation to require both mirror and trigger swap reporting with
an indicator to identify that a swap was a mirror swap,\467\ and ISDA-
SIFMA's recommendation to relax trigger swap reporting requirements--
are discussed separately below as well. The Commission did not receive
any comments that estimate the number of mirror swaps or provide
information to quantify the swaps resulting from prime brokerage
activity, or more generally, the rule's costs or benefits. ISDA-SIFMA
expressly notes that ``strict internal policies'' on information-
sharing among firms preclude it from speaking to mirror swap
percentages and that it is ``difficult to quantifying the cost or
benefit in monetary terms.'' \468\
---------------------------------------------------------------------------
\466\ Citadel at 10; CME at 5; FXPA at 4; ISDA-SIFMA at 51-53,
64-66; GFMA at 1, 5-6.
\467\ Citadel at 10.
\468\ ISDA-SIFMA at 58.
---------------------------------------------------------------------------
Baseline: Existing part 43 provides the baseline for assessing the
costs and benefits of new Sec. 43.3(a)(6) and its attendant
definitions and new prime brokerage transaction indicator data element
in appendix A. Existing part 43 contains no express provision for
mirror swaps, trigger swaps, or PB transactions generally. Rather,
because both trigger and mirror swaps fall within the current
definition of publicly reportable swap transactions, real-time public
reporting of both swaps is required. As described above, this is true
even though there is no way to determine from reported data if and when
swaps may be associated with each other as trigger and mirror swaps, or
even the degree to which mirror swaps are not reported. As also
discussed above, this undermines price transparency and complicates the
ability of both market participants and the Commission to assess, and
draw conclusions from, the real-time data.
Benefits: The Commission believes that by excluding mirror swaps
from real-time reporting while requiring real-time reporting for
trigger swaps, final Sec. 43.3(a)(6) will enhance price discovery for
market participants who monitor the public tape by preventing the
duplicative reporting of mirror swaps that reflect the same economic
terms as trigger swaps. Generally speaking, the Commission does not
believe mirror swaps, as they are currently reported, improve price
discovery. Several comments support this conclusion.\469\
[[Page 75467]]
Rather, inclusion of such duplicative records can distort price
discovery by creating a false impression of market volume at a
particular price.\470\
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\469\ ISDA-SIFMA at 52, 57 (mirror swaps ``do not represent new
pricing events'' that enhance price discovery; ``real-time reporting
of mirror swaps would not enhance price transparency nor serve any
price discovery purpose given that there would be no new or
additional pricing information released to the market''); GFXD at 6
(supporting ISDA-SIFMA response); CME at 5 (it ``does not believe
that publishing information regarding mirror swaps would provide any
information of value to market participants'').
\470\ See FXPA at 4 (agreeing ``with Commissioner Berkowitz's
assessment that `[d]uplicate reporting can create a false signal of
swap trading volume and potentially obscure price discovery by
giving the price reported for a single prime brokerage swap twice as
much weight relative to other non-prime brokerage swaps.' '').
---------------------------------------------------------------------------
In reaching this conclusion, the Commission acknowledges marginal
transparency imperfections due to PB swaps will remain. As discussed
below in the cost context, there are aspects of mirror swap reporting
that could theoretically inform price discovery to some degree
regarding market participant credit risk, total price (including PB
fees that reflect credit intermediation costs), and that, in some
cases, a single trigger swap's notional value may be offset by multiple
mirror swaps. However, relative to distortion from mirror swap double
counting, the Commission views these potentially beneficial aspects of
mirror swap reporting as less impactful to the integrity of the public
tape. Further, since mirror swaps are currently required to be reported
without any flag indicative of their status or association with a
trigger swap, whatever information they now convey on the public tape
is likely more akin to distortive ``noise'' than helpful to inform
market participants. Accordingly, the Commission believes that,
overall, excluding mirror swaps from real-time reporting will improve
the quality of the real-time tape, thereby enhancing price discovery
relative to the status quo.
The Commission also foresees benefits from establishing clear rules
for PB swap reporting to alleviate reporting ambiguity, but the price
discovery value of mirror swaps remaining unclear. Uncertainty as to
how market participants are reporting PB swaps can challenge the public
tape's quality, as well as undermine its price discovery utility.
Further, to the extent some market participants may not be fully
reporting PB swaps, while others may be fully reporting these swaps,
Sec. 43.3(a)(6) should level the playing field. Finally, as one
commenter notes, to the extent some market participants are now
reluctant to engage in PB swaps because of regulatory uncertainty,
Sec. 43.3(a)(6) ``should bring increased liquidity to OTC swaps
markets'' by countering this uncertainty.\471\
---------------------------------------------------------------------------
\471\ FXPA at 4.
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Costs: Mirror swaps may have information value in the following
areas: (i) Credit risk, because the PB establishes open positions
between itself and the executing broker, with offsetting economic terms
facing the client; \472\ (ii) total price, because the price may
reflect PB fees that reflect PBs' credit intermediation costs paid by
PBs' clients; and (iii) mirror swap multiplicity, because some mirror
swaps may not contain the same economic terms as the trigger swap.
---------------------------------------------------------------------------
\472\ Although the execution of the trigger swap results in a
change in the market risk position between the PB and the executing
broker, and the execution of the mirror swap results in a change in
the market risk position between the PB and its customer, the PB
does not have any net market exposure (because its market position
is flat). However, because the market risk position between the PB
and each of its counterparties changed, the trigger swap and mirror
swap both are currently publicly reportable swap transactions.
---------------------------------------------------------------------------
The informative value of each of the above, however, is largely
dependent on a market participant's ability to recognize whether a
reported swap is a mirror swap. This is currently impossible to
determine because part 43 does not require mirror swaps to be reported
with any indicator. Accordingly, relative to the status quo baseline,
the Commission views any lost-transparency cost from not requiring
mirror swap reporting as largely theoretical.\473\
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\473\ The Commission estimates for PRA purposes that there would
be a moderate decrease in the burden incurred by market
participants, as discussed in the PRA section.
---------------------------------------------------------------------------
Separately, eliminating mirror swap dissemination could incentivize
the use of more complex mirror swaps to avoid public reporting,
increasing the possibility of more complicated, risky swaps being
created. But the Commission expects such risk to be minimal, given that
all trigger swaps associated with prime brokerage transactions will
still be reported to SDRs pursuant to part 45. Further, with the
benefit of part 45 data, the Commission is well-positioned to monitor,
and respond as appropriate, should PB swap activity appear to be
evolving as a real-time reporting avoidance strategy.
Alternatives: The Commission considered two significant
alternatives to the approach reflected in Sec. 43.3(a)(6), neither of
which it finds preferable on cost-benefit grounds for the reasons
discussed below.
Citadel advocates for the first alternative approach, i.e., to
retain the current requirement for reporting both trigger and mirror
swaps while adding a required indicator to flag mirror swaps.\474\ This
alternative would provide market participants with real-time visibility
into mirror swap activity. It, however, would not correct the double-
counting problem--a problem that Citadel does not dispute in its
comment--but rather would tolerate it in exchange for some potential
incremental added insight deducible from knowledge of whether a
particular swap is a mirror swap. Moreover, the Commission sees merit
in ISDA-SIFMA's concern that the public dissemination of mirror swaps
with an associated flag is more likely to ``create noise on the tape''
than meaningfully improve price transparency, and is unlikely to result
in a regulatory oversight benefit commensurate with its ``added costs
and complexity to prime broker reporting.'' \475\
---------------------------------------------------------------------------
\474\ Citadel at 10.
\475\ ISDA-SIFMA at 57.
---------------------------------------------------------------------------
ISDA-SIFMA's preferred alternative would relax the ASATP timeframe
for reporting trigger swaps if the reporting obligation falls on the
PB, i.e., where the trigger swap counterparty is not an SD. Rather than
require a PB to report a trigger swap ASATP after the pricing event for
a trigger swap--the point at which its material terms are determined
and reporting is most impactful for price discovery--ISDA-SIFMA instead
advocates for requiring ASATP reporting based off of a later,
indeterminate point when the PB accepts the trigger swap.\476\ Trigger
swap acceptance can happen in a variable timeframe that ISDA-SIFMA
believes should not exceed T + 1 relative to the pricing event.\477\
ISDA-SIFMA justifies this alternative on grounds that reporting the
pricing event ASATP in circumstances where the PB is the reporting
counterparty will sacrifice liquidity because it is not practicable for
PBs to meet the requirement.\478\ The Commission is unconvinced that
any liquidity cost that might result if PBs find it impractical to
report certain trigger swaps ASATP after the pricing event--a technical
problem that Sec. 43.3(a)(6) could incentive PBs and their customers
to work to remedy--is more compelling than the negative impacts to
price transparency and discovery that will likely result if trigger
swap reporting is delayed for some indeterminate, variable time beyond
the pricing event.
---------------------------------------------------------------------------
\476\ Id. at 52.
\477\ Id. at 52, 66 n.113.
\478\ Id. at 52.
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Notwithstanding potential costs, the Commission believes new Sec.
43.3(a)(6) is warranted in light of the anticipated benefits.
[[Page 75468]]
iv. Sec. 43.3(c)--Availability of Swap Transaction and Pricing Data to
the Public
Existing Sec. 43.3(d)(1) and (2) specify the format in which SDRs
make swap transaction and pricing data available to the public and
require that disseminated data must be made ``freely available and
readily accessible'' to the public. Substantively, amended Sec.
43.3(c) changes these requirements to specify that SDRs shall make such
data publicly available on their websites for at least one year after
dissemination, and provide instructions on how to download, save, and
search the data. As noted above in section II.C.7, the Commission
understands a one-year data availability time-frame is current practice
for at least a majority of SDRs. However, in that this is not a current
requirement, potential remains for an SDR to elect to remove the data
at some point in the future, thereby depriving market participants of
extended data access that may be useful as a tool to assess market
conditions.
The Commission received several comments, all generally supportive
of amended Sec. 43.3(c). None raised cost-benefit issues, advocated an
alternative, or disputed the Proposal's assessment that costs will
likely be negligible because SDRs already make the public reports
available for more than one year.
Baseline: Current Sec. 43.3(d)(1) and (2), and the market
conditions attendant to them as described above, provide the baseline
for assessing the costs and benefits of amended Sec. 43.3(c).
Benefits: In that the Commission believes SDRs are now for the most
part voluntarily doing what amended Sec. 43.3(c) will now require, the
provision will provide a small incremental benefit. That is, it will
help assure that, going forward, the status quo market conditions that
the Commission considers a positive for price transparency are not
reversed.
Costs: In that the Commission believes that SDRs are now for the
most part voluntarily doing what amended Sec. 43.3(c) will now
require, it does not foresee material costs resulting from the
amendment.
v. Sec. 43.3(d)--Data Reported to SDRs
The Commission is adopting revisions to Sec. 43.3(d), including on
how reporting counterparties, SEFs, and DCMs report data to SDRs for
public dissemination, as well as respond to SDR notifications of
missing or incomplete data.\479\ These requirements should help improve
the quality of data on the public tape. Specifically, the rules require
reporting counterparties, SEFs, and DCMs, when reporting swap
transaction and pricing data to an SDR, to: (i) Report data as
described in the elements in appendix A in Sec. 43.3(d)(1); (ii)
satisfy SDR validation procedures in Sec. 43.3(d)(2); and (iii) use
the facilities, methods, or data standards provided or required by the
SDR in Sec. 43.3(d)(3). New Sec. 43.3(d)(1) will require reporting
entities to adjust their reporting systems to comply with the new list
of data elements in appendix A. As discussed in a separate release,
these data elements in appendix A will be a subset of the data elements
reported to SDRs pursuant to part 45. The Commission believes a
separate regulatory requirement in part 43 avoids confusion by having
overlapping parts 43 and 45 requirements only in part 45. However, for
cost-benefit purposes, this means most of the costs and benefits
associated with this change in part 43 have been analyzed by the
Commission in a separate part 45 release being adopted at the same
time. This cost-benefit analysis will consider the costs to SDRs for
disseminating the updated appendix A data elements, keeping in mind the
majority of the costs have been accounted for in the part 45 release.
---------------------------------------------------------------------------
\479\ Current Sec. 43.3(d)(1) only requires SDRs disseminate
``data in a consistent, usable, and machine-readable electronic
format that allows the data to be downloaded, saved and analyzed.''
The remaining text is how the data is made available to the public
and is being moved in the new final rule text.
---------------------------------------------------------------------------
New Sec. 43.3(d)(2) will require the reporting counterparty, SEF,
or DCM to satisfy the data validation procedures of the SDR for each
required data element listed in appendix A. Since Sec. 43.3(d)(2) is
closely related to new data validation requirements in Sec. 43.3(f)(1)
and the cost considerations to validate overlap significantly with
initial design costs, most, if not all, of the costs discussion here
will overlap with new Sec. 43.3(f).
Baseline: Current Sec. 43.3(d)(1) specifies that SDRs disseminate
data ``in a consistent, usable, and machine-readable electronic format
that allows the data to be downloaded, saved and analyzed.'' Regarding
required data elements, existing appendix A, entitled ``Data Fields for
Public Dissemination,'' describes the data fields reporting
counterparties are required to report and provides guidance for such
reporting. For each data field, there is a corresponding description,
example, and, where applicable, an enumerated list of allowable values.
Furthermore, under existing regulations, SDRs are not required to apply
any data validations on the reports they receive. In addition, the
Commission understands that at least some SDRs have flexible
application programming interfaces (``APIs'') that allow reporting
counterparties to report data for part 43 purposes in many ways, making
standardization difficult, especially across SDRs.\480\
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\480\ The Commission believes the lack of specificity in
reporting has encouraged using flexible APIs.
---------------------------------------------------------------------------
Benefits: As mentioned above, the Commission discusses the benefits
of updated and standardized data elements in a separate release
adopting changes to part 45, as the part 43 data elements in appendix A
will be a subset of the part 45 data elements in appendix 1. For the
public, increased consistency will afford market participants a more
easily-accessible, accurate view of activity across all Commission-
regulated swaps markets. The Commission expects the general public
would also benefit when the standardized information is more easily
combined across SDRs.
Along with the expected benefits that will arise from the
standardization and uniformity of information reported in real-time,
the Commission expects additional benefits related to the new swap
transaction and pricing data elements in appendix A. For example, there
is a new data element allowing users to identify whether a swap is a
PPS or if the swap is considered a bespoke swap. This additional
information will allow for additional options in processing and
studying market information.
Costs: The Commission expects reporting entities and SDRs to incur
some initial costs to incorporate new reporting guidance into their
reporting infrastructure (e.g., programming costs). The Commission is
adopting the changes to part 43 concurrently with a release adopting
changes to part 45; meaning the changes to parts 43 and 45 would
largely require technological changes that could merge two different
data streams into one. For example, SDRs will have to make adjustments
to their extraction, transformation, and loading (``ETL'') process in
order to accept feeds that conform to the new technical specification
and validation conditions.
The Commission expects many of the changes related to part 43 will
be planned and developed in accordance with changes required under new
regulations in part 45. While the Commission cannot apportion shares of
the aggregate total between these two rules, the costs attributable to
part 43 would be some smaller proportional share of the indicated
aggregate total since the list of data elements subject to real-time
reporting is a small subset of
[[Page 75469]]
the full set reported under part 45. For this reason, the costs
described below may most accurately represent the full technological
cost of satisfying the requirements for both rules, with the majority
of the costs being allocated to compliance with the part 45 rules.
ODT SMEs, using experience designing data reporting, ingestion, and
validation systems, estimates the cost per SDR range from $144,000 to
$510,000.\481\ ODT SMEs based this estimate on assumptions that cover
the set of tasks required for the SDR to design, test, and implement a
data system based on the list of swap data elements in appendix A and
any related guidebooks.\482\ These numbers assume that each SDR will
spend approximately 3,000-5,000 hours to establish ETL into a
relational database on such a data stream.\483\
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\481\ To generate the included estimates, ODT SMEs used a
bottom-up estimation method based on internal Commission expertise.
In brief, ODT SMEs anticipate the task for the SDRs will be
significantly more complex than it is for reporters. On several
occasions, the Commission has developed an ETL data stream similar
to the anticipated parts 43 and 45 data streams. These data sets
consist of 100-200 fields, similar to the number of fields in
appendix 1.
\482\ These assumptions include: (1) At a minimum, the SDRs will
be required to establish an ETL process. This implies that either
the SDR will use a sophisticated ETL tool, or will be implementing a
data staging process from which the transformation can be
implemented. (2) It is assumed that the SDR would require the
implementation of a new database or other data storage vehicle from
which their business processes can be executed. (3) While the record
structure is straight forward, the implementation of a database
representing the different asset classes may be complex. (4) It is
assumed that the SDR would need to implement a data validation
regime typical of data sets of this size and magnitude. (5) It is
reasonable to expect that the cost to operate the stream would be
lower due to the standardization of incoming data, and the
opportunity to automatically validate the data may make it less
labor intensive.
\483\ The lower estimate of $144,000 represents 3,000 working
hours at the $48 rate. The higher estimate of $510,000 represents
5,000 working hours at the $102 rate.
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For reporting entities, ODT SMEs estimate the cost per reporting
entity to range from $24,000 to $74,000.\484\ ODT SMEs base this
estimate on a number of assumptions that cover tasks required to
design, test, and implement an updated data system based on the new
swap data elements, any guidebooks, and validation conditions.\485\
These tasks include defining requirements, developing an extraction
query, developing of an interim extraction format (e.g., 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 formatting conversions would add another 300 to 400
hours, resulting in an estimated total of 500 to 725 hours per
reporting entity.\486\
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\484\ To generate the included estimates, a bottom-up estimation
method was used based on internal Commission expertise. On several
occasions, the Commission has created data sets that are transmitted
to outside organizations. These data sets consist of 100-200 fields,
similar to the number of fields in the appendix A.
\485\ These assumptions include: (1) The data that will be
provided to the SDRs from this group of reporters largely exists in
their environment, as the back-end data is currently available. (2)
The data transmission connection from the firms that provide the
data to the SDR currently exists. The assumption for the purposes of
this estimate is that reporting firms do not need to set up
infrastructure components such as FTP servers, routers, switches, or
other hardware because these are already in place. (3) Implementing
the requirement does not cause reporting firms to create back-end
systems to collect their data in preparation for submission. It is
assumed that firms that submit this information have the data
available on a query-able environment today. (4) Reporting firms are
provided with clear direction and guidance regarding form and manner
of submission. A lack of clear guidance will significantly increase
costs for each reporter. (5) There is no cost to disable reporting
streams that will be made for obsolete by the change in part 43.
\486\ The lower estimate of $24,000 represents 500 working hours
at the $48 rate. The higher estimate of $74,000 represent 725
working hours at the $102 rate.
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However, the Commission reiterates that these costs have been
accounted for in the separate part 45 adopting release. The Commission
repeats the analysis here, but cautions the cost to SDRs in updating
their systems to disseminate the updated data elements in appendix A,
most of which the SDRs are already disseminating, would be a smaller
portion of the costs just described.
In summary, new Sec. 43.3(d) places regulations on the reporting
counterparty, SEF, or DCM related to how data is reported to SDRs along
with requirements to satisfy the data validation procedures of the SDR.
Taking into account the anticipated costs, the Commission believes the
rules are warranted in light of the anticipated benefits.
vi. Sec. 43.3(f)--Data Validation Acceptance Message
New Sec. 43.3(f) establishes requirements for SDRs to validate
real-time public data by sending SEFs, DCMs, and reporting
counterparties data validation acceptance or rejection messages.
Validation requirements, for each data element required under part 43,
will be fully described in a guidebook published by DMO. The Commission
expects SDRs to implement these validations while designing their
reporting systems to reflect the newly required data elements discussed
above in Sec. 43.3(d).
Currently, the Commission does not require validations by SDRs, and
therefore has not provided any guidance on either the content or format
of the messages associated with these validations. New validations will
help ensure reported data is accurate and consistent across SDRs. While
the Commission does not currently require validations, the Commission
can observe activity related to market participants cancelling and
correcting publicly disseminated trade information.\487\ While the new
data validation process will require increased communication between
the reporting entity and the SDR, the Commission expects these lines of
communication are already well established through the current
reporting regime.
---------------------------------------------------------------------------
\487\ For example, based on a three week study in January 2020,
Commission staff found 11% of IRS records linked to a ``Cancel''
action type and 8% of records linked to a ``Correct'' action type.
For CDS, staff found 7% and 6% of records linked to a ``Cancel'' and
``Correct'' action type, respectively. These percentages are much
larger for commodity swaps and also appear to have a higher share
related to uncleared swaps.
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Baseline: SDRs are not currently required to validate data sent by
reporting entities. However, the Commission understands that SDRs
currently employ their own validations for swap transaction and pricing
data reporting.
Benefits: The Commission expects Sec. 43.3(f) will result in
improved quality of data reported to SDRs and disseminated to the
public. Improved data quality helps market participants make trading
decisions and enables better market oversight by regulators. More
accurate and complete data also helps researchers learn about swaps
markets, which in turn can inform future market and regulatory
decisions.\488\
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\488\ The Commission is aware of at least two publicly-available
studies that discuss problems with the current part 43 data. The
first study found that about 10% of CDS traded in their data set had
missing or zero prices. Y.C. Loon, and Z. (Ken) Zhong, ``Does Dodd-
Frank affect OTC transaction costs and liquidity? Evidence from
real-time trade reports,'' Journal of Financial Economics (2016),
available at https://dx.doi.org/10.1016/j.jfineco.2016.01.01. The
second reported a number of fields that were routinely null or
missing, making it difficult to analyze swap market volumes. See
Financial Stability Report, Office of Financial Research (Dec. 15,
2015) at 84-85, available at https://financialresearch.gov/financial-stability-reports/files/OFR_2015-Financial-Stability-Report_12-15-2015.pdf.
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It is difficult to estimate how many trades are reported with
errors under the current system. The Commission estimates more than 10%
of trades are subsequently corrected or cancelled. In
[[Page 75470]]
addition to trades corrected or cancelled, trades are reported with
errors (such as missing or zero prices) that are not corrected, as
errors are not required to be corrected until they are discovered. As
such, the Commission expects the updated requirements to help ensure
accurate data is reported for public dissemination, by disallowing the
reporting of swap transaction and pricing data that does not satisfy
the validations. The Commission expects the improvements in accuracy to
increase transparency and improve price discovery.
Costs: The Commission expects the requirement to send and receive
data validation messages will create costs for SEFs, DCMs, reporting
counterparties, and SDRs, but the majority of these costs will be
related to building systems to accept and report data. The Commission
discussed these costs above in the analysis of Sec. 43.3(d). The
Commission expects the additional cost to send a message once the
validation process is complete will be minimal as SDRs already have
developed lines of communications with reporting entities.
While the Commission acknowledges there will some costs associated
with this regulation, additional flexibility has been provided to allow
SDRs options in how they perform validations. Based on a comment from
DTCC, the Commission changed the rule text by replacing
``transmitting'' with ``making available'' to allow SDRs the
flexibility to establish more efficient lines of communication to
ensure the validation occurs with the least possible disruption.\489\
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\489\ DTCC at 4.
---------------------------------------------------------------------------
The Commission is adopting Sec. 43.3(f) to establish requirements
for SDRs to validate real-time public data. Taking into consideration
the anticipated costs, the Commission believes this change is warranted
in light of the anticipated benefits.
b. Sec. 43.4--Swap Transaction and Pricing Data To Be Publicly
Disseminated in Real-Time \490\
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\490\ The Commission discusses the costs and benefits related to
cap size changes in Sec. 43.4(h) in the block thresholds discussion
in Sec. 43.6.
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i. Sec. 43.4(f)--Process To Determine Appropriate Rounded Notional or
Principal Amounts
The Commission is changing the Sec. 43.4(f) rules for rounding
actual notional or principal amounts of a swap before disseminating
such swap transaction and pricing data. The Commission requires SDRs to
disseminate rounded notional or principal amounts of swaps to conceal
the exact notional of swap transactions in order to preserve the
anonymity of counterparties. Absent some degree of concealment,
disseminating the exact notional of a swap could allow market
participants to more easily discern the identity of the counterparties
and gain insight into the counterparties' trading strategies, which
would potentially discourage market participants from executing swaps
and harm liquidity.
Final Sec. 43.4(f)(8) requires SDRs to round the notional value of
swap transactions so that the revealed amount is more precise. For
example, final Sec. 43.4(f)(8) requires trades with a notional or
principal amount less than 100 billion but equal to or greater than one
billion to be rounded to the nearest 100 million; the existing
regulation requires rounding to nearest billion. Similarly, final Sec.
43.4(f)(9) requires SDRs to round trades with a notional or principal
amount greater than 100 billion to the nearest 10 billion before
disseminating such swap transaction and pricing data; the existing
requirement is round to the nearest 50 billion. The Commission did not
receive any comments on the proposal.
This change effectively means that market participants will have
more precise measures of the size of large trades. The effects of this
change on anonymity are mitigated by the fact that most of swaps to
which these changes will apply will also be eligible for block and/or
cap treatment. If a trade is subject to cap treatment, no information
will be revealed about the trade size above the capping level, such
that this change will have no anonymity impact in many cases. For
trades with a cap above one billion, this change in Sec. 43.4(f)(8)
will allow for a more precise estimate of total traded notional or
principal amounts, and thereby help market participants achieve a more
accurate estimate of general market trading activity.
Baseline: For both changes, the baseline is the existing rule
regarding appropriate rounding (e.g., to the nearest $1 billion if the
swap is between $1 billion and $100 billion).
Benefits: The rule changes will give market participants more
precise information about the relationship between pricing and size for
large trades to improve price discovery and lead to more competitive
markets.
Costs: The Commission expects actual implementation costs to be
negligible. The Commission acknowledges the rule may make it more
likely market participants, or competitors, can identify the
counterparties to a specific trade. It may also make it more difficult
for traders to hedge positions they acquire in large trades. If either
were to occur, some counterparties to the trades could experience
higher trading costs.
As noted above, the benefits and costs of the changes in Sec.
43.4(f)(8) are mitigated by the fact that change is only relevant when
cap sizes are above one billion. Since the cap sizes for CDS and FX are
well below the one billion mark for all swap categories, the change
will have no effect in those asset classes. Only shorter-tenor IRS
categories have cap sizes above one billion.
The Commission is amending the rules for rounding actual notional
or principal amounts of a swap. Notwithstanding the anticipated costs,
the Commission believes this change is warranted in light of the
anticipated benefits to increased transparency.
d. Sec. 43.6--Block Trades
Section 43.6 specifies how the Commission sets appropriate minimum
block sizes--thresholds determining whether a transaction qualifies as
either a block trade or LNOFS \491\ eligible for a real-time public-
reporting delay under Sec. 43.5--as well as cap sizes protecting
counterparty identity by truncating the transaction size displayed on
the public tape.\492\ As such, Sec. 43.6 is an important piece of the
real-time reporting structure that seeks to enhance price discovery
while giving due concern to liquidity and counterparty anonymity as
required by CEA section 2(a)(13)(E).\493\
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\491\ As defined in Sec. 43.3(2), both block trades and LNOFSs
must have a notional or principal amount above the appropriate
minimum block size, though the former are transacted on a SEF or
DCM, while the latter are transacted off-facility. Unless otherwise
indicated, for purposes of this discussion they are collectively
referred to as ``block trades.'' Appropriate minimum block sizes are
also at times referred to as ``block thresholds'' in this
discussion.
\492\ See current Sec. 43.4(h), and amended Sec. 43.4(g) as
being adopted through this release.
\493\ The delay allows for greater liquidity for large size
trades, often by allowing SDs time to hedge positions established to
facilitate client transactions. In addition to reporting delays, the
Commission has determined the largest trades should receive
additional protection by truncating the size displayed on the public
tape, i.e., caps. In promulgating rules for blocks and caps in Block
Trade Rule, the Commission considered the benefits of delayed
reporting and anonymity against the costs of reduced transparency.
The Commission considers the same factors for the changes adopted in
this release.
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The cornerstones of current Sec. 43.6 are subsections (b)
prescribing the swap categories for which appropriate minimum block
sizes (also referred to as block thresholds) and caps must be set, and
(c)-(h), which specify the process, methodology and other details for
how the block thresholds and caps are determined for the categories
specified in subsection (b). The Commission is updating two primary
areas of Sec. 43.6: (1) The swap categories; and (2) the
[[Page 75471]]
methodologies and process for calculating appropriate minimum block
size and cap sizes.\494\
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\494\ As discussed in section II.F.1, existing Sec. 43.6(f)(1)
through (3) requires the Commission to establish post-initial
appropriate minimum block size using a one-year window of reliable
SDR data recalculated no less than once each calendar year using the
67-percent notional amount calculation for most swap categories.
Similarly, existing Sec. 43.4(h)(2) requires the Commission to
establish post-initial cap sizes using a one-year window of reliable
SDR data recalculated no less than once each calendar year using the
75-percent notional amount calculation described in Sec.
43.6(c)(3).
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As discussed above, the Commission established a phased-in approach
for the block thresholds and cap sizes. In general, the first phase
involved using a 50-percent notional amount calculation for block
thresholds and a 67-percent notional amount calculation for cap sizes.
In this release, the Commission is moving to the second and final phase
by using a 67-percent notional calculation for block thresholds and a
75-percent notional calculation for cap sizes. Using the 67-percent and
75-percent notional calculations will generally result in higher block
thresholds and larger cap sizes, but, as applied to the better
calibrated swap categories in Sec. 43.6(c), will result in some
transactions qualifying as blocks that previously would not have, while
others that previously did may not going forward. The Commission
provides additional background on its economic assessment of the
updated Sec. 43.6(c) swap categories, and their interplay with
appropriate minimum block size and cap sizes, below.
As discussed at length in section II.F, the Commission is changing
the swap categories in Sec. 43.6(c) to alleviate concerns the current
categories are too broad and would result in an undesirable impact on
certain categories of swaps when appropriate minimum block sizes and
cap sizes are calculated using the 67-percent and 75-percent notional
calculations, respectively. The Commission believes the new categories:
(1) Group together swaps with similar quantitative or qualitative
characteristics that warrant being subject to the same appropriate
minimum block size thresholds and cap sizes; and (2) minimize the
number of swap categories within an asset class in order to avoid
unnecessary complexity in the determination process.\495\
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\495\ Proposal at 85 FR 21534 (Apr. 17, 2020).
---------------------------------------------------------------------------
As the Commission did in creating the existing swap categories, the
Commission is grouping products with similar characteristics. For
example, the Commission believes products are typically related when:
The products are complements of, or substitutes for, one another; one
product is a significant input into the other product(s); the products
share a significant common input; or the prices of the products are
influenced by shared external factors. The Commission believes this is
how market participants assign products to larger swap categories,
including DCOs when portfolio margining. Further, the Commission
recognizes some market participants trade related products, and the
Commission did not want to create a block rule that would disadvantage
one product for another product by influencing market participants to
trade in the illiquid products.
The adoption of Sec. 43.6(c) will expand the number of swap
categories the Commission uses to calculate block thresholds.\496\ For
example, there will be 136 distinct IRS categories with distinct block
thresholds, compared to 27 categories under the current rule. The
Commission believes the IRS categories will better reflect trading
patterns for IRS by depending on specific currencies.\497\
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\496\ The same logic applies to cap size calculations.
\497\ For instance, this bucketing results in block levels for
the most active USD IRS products that differ from levels for the
still active, but slightly less common JPY or GBP IRS products,
where trade sizes are lower. All currencies not included in one of
the 15 groups have a block size of zero--essentially allowing this
small subset of IRS to receive full block treatment.
---------------------------------------------------------------------------
The Commission is adopting similar changes for other asset classes.
For CDS, the new swap categories are no longer based on observed
spreads with multiple tenor groups, but instead on well-defined
products (e.g., CDXIG, CMBX, iTraxx) for a single tenor range between
four to six years (designed to pick up the most actively traded five
year on-the-run CDS).
Further, in response to commenters, the Commission found a notable
difference in the distribution of trade sizes between non-option and
option CDS. As such, the Commission is giving certain option CDS their
own categories to avoid skewing the appropriate minimum block size
threshold and cap size calculations higher in CDS categories in which
they remained combined with non-option CDS (thereby resulting in more
non-option CDS falling under the thresholds, precluding them from a
block reporting delay or notional-amount capping). For example, the
average option notional trade size is three-to-six times larger than
non-option trades for certain CDS. This results in clear differences in
block and cap treatment between option and non-option swaps as 97-
percent of total notional for CDXIG options are eligible for block and
cap treatment, as compared to 66-percent for non-options.\498\ For
CDXIG, if options are excluded, the calculated block and cap thresholds
decrease by 50- and 63-percent, respectively (e.g., the new block
threshold is $500 million with options trades included and $250 million
with these trades removed). As such, the Commission separated the
option activity into distinct swap categories for CDXIG and CDXIG-
options.
---------------------------------------------------------------------------
\498\ Note that a few index CDS categories, including CDXEM and
CMBX, do not have any option trades during the time period that
comprises the data sample, so no adjustment is necessary.
---------------------------------------------------------------------------
FX swap categories include a list of 22 currencies exchanged for
USD along with the set of 180 swap categories, comprised of each unique
pairwise combination of these 22 currencies. This differs from the
current set of 84 swap categories comprised of 22 currencies exchanged
for one of the super-major currencies (EUR, GBP, JPY, or USD).\499\
Finally, the Commission changed the swap categories related to ``Other
Commodity'' to represent the underlying commodity instead of references
to specific futures contracts and exchanges.
---------------------------------------------------------------------------
\499\ While there are 84 current swap categories for FX, 40 of
these have a block size of zero.
---------------------------------------------------------------------------
The adoption of Sec. 43.6(c) will result in an appropriate minimum
block size of zero for swaps excluded from the defined swap
categories.\500\ This will result in all trades for some types of swaps
(e.g., off-the-run CDS and certain major and non-major currencies in
the IRS and FX asset classes) being eligible for block treatment. For
example, there are IRS trades linked to 37 currencies, but only 15
currencies that are explicitly placed in a category. This subset was
primarily chosen based on trading volume.\501\ Similarly, for CDS, all
trades in off-the-run series for major indices along with other less
active indices will also be eligible for complete block status with
delayed reporting.\502\
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\500\ The Final Rule also adjusts the fixed cap size applied to
currencies without swap categories by a move from the current $250
million to $150 million.
\501\ For example, the 15 currencies that are explicitly placed
in a category make up 96% of the total population of IRS trades.
\502\ The majority of off-the-run activity is linked to IG
indexes. Other indexes without defined swap categories includes
iTraxx Asia Ex-Japan, iTraxx Australia, and iTraxx Japan.
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As discussed in section II.F. above, and incorporated by reference
for purposes of the Commission's consideration of costs and benefits
herein, the Commission received numerous comments concerning the block
threshold and cap size amendments. Many concern issues of
[[Page 75472]]
cost-benefit consequence, including the trade-off between price
transparency and liquidity, which the Commission considers below in the
specific discussions of costs and benefits.\503\ Comments also
addressed two significant alternatives: (1) Lowering appropriate
minimum block size and cap thresholds rather than raising them,\504\
and (2) risk-adjusting notional values before determining block and cap
thresholds.\505\ The Commission discusses the costs and benefits of
these two alternatives below. The Commission did not receive any
comments quantifying the rule's costs or benefits, nor did it receive
comments providing data to help it do so.
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\503\ See, e.g., Clarus at 2 and Citadel at 9 (transparency/
liquidity trade-off favors higher thresholds) and PIMCO at 3-4 and
SIFMA AMG at 2-4. (transparency/liquidity trade-off favors lower
thresholds).
\504\ See, e.g., PIMCO at 3-4; SIFMA AMG at 2-4; Vanguard at 3
ISDA-SIFMA (Blocks) at 3-4; and ICI at 6-7.
\505\ See, e.g., ISDA-SIFMA (Blocks) at 4; Credit Suisse at 3;
and ACLI at 3-4.
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In addition to the block threshold and cap size amendments, the
Commission is changing the provisions for order aggregation in existing
Sec. 43.6(h) and revising the block trade definition in Sec.
43.2.\506\ Order aggregation concerns how individual orders can be
aggregated to result in a transaction eligible for block treatment.
Amended Sec. 43.6(f) will expand aggregation to include swaps that are
not yet available for trading on a SEF or DCM. It will also remove the
existing requirement for at least $25 million in assets under
management for the aggregator, thus allowing more market participants
to aggregate individual orders and receive block treatment. The revised
block trade definition will enable market participants to execute block
trades on a SEF, which will allow FCMs to conduct pre-execution credit
screenings in accordance with Sec. 1.73.\507\
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\506\ The remaining changes in Sec. 43.6 are non-substantive
and do not involve material costs or benefits. Accordingly, the
Commission does not consider them. For example, Sec. 43.6(d)
discusses the method for determining the appropriate minimum block
size, but the only change from the current rule relates to the new
definition for a ``trimmed data set,'' which does not have material
costs or benefits.
\507\ This would effectively allow SEFs to offer a ``RFQ-to-
one'' functionality that allows counterparties to bilaterally
negotiate a block trade, without requiring disclosure of the
potential trade to other market participants on a pre-trade basis.
The ability to trade bilaterally on SEFs may be particularly
relevant for parties trading Made Available for Trade (``MAT'')
instruments, which are required to be traded on SEFs.
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Baseline: The Commission considers the cost and benefits of its
amendments relative to the baseline of what its regulations currently
require. As discussed in section II.F.2, existing Sec. 43.6(f)(1) and
Sec. 43.4(h)(2), respectively, provide that after the collection of at
least one year of reliable SDR data collection--a threshold now
crossed--appropriate minimum block sizes be calculated using a 67-
percent notional formula and caps be calculated using a 75-percent
notional formula as applied to swap categories set out in existing
Sec. 43.6(b).\508\ The Commission extensively analyzed the costs and
benefits of the 50-percent threshold and 67-percent threshold when it
adopted the phased-in approach.\509\ Accordingly, this state in which
the Commission should already be in, defines the baseline against which
the costs and benefits of Sec. 43.4(h) and Sec. 43.6(c) are
considered below. In addition, for the changes to the block trade
definition, the existing block trade definition requires that block
trades be executed away from a SEF, pursuant to the rules of the
SEF.\510\
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\508\ The relative costs and benefits of not implementing the
67-percent and 75-percent notional amount calculations required
under existing Sec. Sec. 43.6(f)(1) through (3) and 43.4(h)(2) are
considered in the discussion of alternatives, below. Given the
Commission currently enforces a 50-percent threshold, the Commission
considered using a 50-percent baseline and 67-percent as an
alternative threshold. The Commission did not do so. Because the 67-
percent threshold is required by existing regulations and the
Commission did not propose amending the rule, the Commission uses a
baseline of 67-percent and below considers an alternative threshold
of 50-percent. This baseline does not impact the cost benefit
consideration, as the economic analysis and conclusion using a 50-
percent baseline with a 67-percent alternative threshold or a 67-
percent baseline and a 50-percent alternative threshold are
identical.
\509\ 78 FR 32866 at 32918-24 (May 31, 2013). In that release,
the Commission considered extensive comments, the CEA's factors for
providing price transparency, concerns about liquidity, anonymity,
competition, and the general benefits and drawbacks of transparency.
Based on those considerations, the Commission has endeavored in this
release to adopt the 67-percent block threshold with certain updates
to reflect the Commission's experience with block trade delays since
2013, including adjusting how the Commission applies the notional
amount calculations to CDS with optionality, and providing guidance
that certain risk-reduction exercises are not publicly reportable
swap transactions to calibrate appropriate minimum block sizes so as
to mitigate any costs to market participants.
\510\ As a practical matter, market participants are currently
relying on no-action relief (NAL No. 17-60) to execute on a SEF
block trades that are intended-to-be-cleared (``ITBC''). The relief
allows the market participants to use any execution method that is
not an order book, as defined in Sec. 37.3(a).
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Benefits: Large trades receive dissemination delays because large
trades often require intermediaries to take large positions, albeit
temporarily. The costs to these intermediaries to subsequently hedge
the trade are reduced by allowing the intermediaries some period to
hedge, prior to the initial trade becoming public knowledge. A trade is
``large'' in this sense when it is substantial relative to typical
trade size and daily volume in that instrument. Similarly, for the
largest trades, the Commission allows for the truncation of displayed
notionals in order to preserve anonymity and reduce hedging costs. For
this reason, blocks and caps should account for instruments' market
characteristics.
The Commission has recognized ``the optimal point in [the
transparency/liquidity interplay] defies precision.'' \511\ However,
the optimal point remains the Commission's goal, and the Commission
believes the new swap categories, in combination with raised block
thresholds and cap sizes, help the Commission get closer to this goal.
Generally speaking, thresholds determined in the context of swap
categories that better account for product characteristics--as the
Commission believes the expanded thresholds in Sec. 43.6(c) do--result
in higher thresholds for instruments for which large trades can readily
be hedged, which can improve transparency with minimal impact on
liquidity. Conversely, in categories in which large trade hedging is
likely to be more difficult, the resulting thresholds should be lower,
accommodating liquidity.
---------------------------------------------------------------------------
\511\ 78 FR at 32917 (May 31, 2013).
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The Commission expects the changes to the swap categories will
better achieve the intention of the Block Trade Rule to group swaps
with similar characteristics together, thereby improving the
transparency/liquidity optimization. The block thresholds and cap sizes
applied in the context of Sec. 43.6(c)'s swap categories will result
in levels that better reflect current liquidity for each type of swap.
For example, USD IRSs currently represent most of the actual trades in
the IRS Super-Major category, such that the current appropriate minimum
block size for JPY IRS swaps (also in the Super-Major category) is
based largely on USD trades. The new categories, which separate JPY IRS
from USD IRS will result in an appropriate minimum block size that
better reflects the size distribution of JPY rate swaps. This will mean
that instruments like the JPY IRS, with fewer large trades (than USD
IRS) will have lower thresholds, meaning that smaller trades will be
eligible for block treatment and have lower caps for such instruments
than if swap categories were not changed. This will benefit relatively
large JPY IRS trades. The move from spread-based (i.e., price-based) to
product-based swap categories
[[Page 75473]]
for CDSs is expected to achieve similar results, as the trade
distribution is often much more homogenous within a product group than
a spread category. This change will have the additional benefit of
decoupling prices and categories. Under the existing rules, a product
could move into a different cap/block regime if its price changed,
which could disrupt markets. The new categories are not price-
dependent.
The amendment to the block trade definition will enable market
participants to execute block trades on SEFs. These trades may be
executed bilaterally so that a party wishing to make a large trade on a
SEF can choose to reveal the would-be trade to a single selected
counterparty.\512\ In addition, it would allow a 15-minute reporting
delay on such trades. The Commission believes that permitting swap
block trades to be executed on SEFs pursuant to Commission regulation
would provide tangible benefits to market participants by allowing them
to further utilize a SEF's trading systems and platforms with the
exception of the order book, as defined in Sec. 37.3(a). To the extent
that a SEF provides the most operationally- and cost-efficient method
of executing swap block trades, the amendment to the block trade
definition would help market participants to continue realizing such
benefits. Additionally, allowing market participants to execute swap
block trades on a SEF helps to facilitate the pre-execution screening
of transactions against risk-based limits in an efficient manner
through SEF-based mechanisms.\513\ The amendments would preclude the
need for market participants to expend additional resources to negate
those changes. Further, incorporating the current no-action relief in
the Commission's regulations would promote the statutory goal in CEA
section 5h(e) of promoting swaps trading on SEFs. Finally, the
amendment would permit SEFs to extend the benefits of executed swap
block trades on-SEF to swaps not-ITBC as well as ITBC swaps.
---------------------------------------------------------------------------
\512\ Curtailing the number of entities that know its trading
plans can mitigate a ``winner's curse'' problem for the trader,
allowing it to get better pricing. See, e.g., Riggs, et al., ``Swap
Trading after Dodd-Frank: Evidence from Index CDS'' 137 J of Fin.
Econ. 857 (2020), available at: https://doi.org/10.1016/j.jfineco.2020.03.008.
\513\ The Commission also recognizes that many SEFs and market
participants have already expended resources to implement
technological and operational changes needed to avail themselves of
the no-action relief under NAL No. 17-60.
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Regarding the ability to aggregate orders into a large single
trade, the Commission expects the rule changes will expand the
opportunity to aggregate across more products and market participants.
By removing the $25-million requirement, the Commission expects to
create a more equal and accessible market by allowing the opportunity
to aggregate regardless of the aggregator's size. Extending the
aggregation policy to additional products will allow more equal
treatment across products, potentially reducing an entity's incentive
to trade a product because of the differential regulation.
Costs: The Commission recognizes that some market participants
could experience some costs associated with the expanding swap
categorization, but views them as less consequential relative to the
benefits described above. As noted by some commenters, one such
potential cost is that traders may find it more difficult to determine
from Sec. 43.6(c)'s expanded lists which category is relevant for
their swaps.\514\
---------------------------------------------------------------------------
\514\ See ISDA-SIFMA at 6, Citadel at 9.
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Further, there will be operational costs for reporting parties
adjusting their systems, by writing and implementing new code, for
instance. The Commission expects the operational costs of these changes
to vary by asset class and the activity level of the reporting entity,
but believes that the more granular bucketing of block categories will
help mitigate costs. Costs may also differ depending on the type of
cost. For instance, the Commission expects market participants
specializing in a single swap category to face smaller operational
costs relative to those operating across multiple categories, given the
single-category market participants will likely only need to adjust
their operational systems (where necessary) for a more limited number
of categories.
The Commission does not expect the block trade definition amendment
will impose significant costs on market participants. The change does
not reduce choices, but instead provides block trade counterparties
with the additional choice of executing block on SEFs. For
counterparties choosing to execute trades on SEFs, there will be no
increase in reporting costs as the existing regulation requires
counterparties to report transactions to a SEF after a block is
executed. The final regulation simply allows counterparties to report
the trade to the SEF before it is executed. FCMs will also not incur
greater expenses as they currently use SEFs to conduct pre-trade credit
checks. Finally, SEFs are not expected to incur greater costs
processing block trades before execution than they incur processing
block trades after execution as the entire process is automated and
already in place.
The Commission expects minimal costs resulting from changes in how
market participants aggregate orders into a single large order to
obtain block treatment. As this ability is already available to the
largest market participants, the Commission expects the new increase in
activity will be small relative to current activity. Regardless, any
increase due to greater aggregation will result in a reduction of
transparency, which can create inhibit price discovery. Moreover, to
the extent that some entities, such as asset managers, may encourage
trading by their clients in order to have sufficient volume to meet the
block threshold, the rule may lead to increased agency issues.
Notwithstanding the potential costs, the Commission believes the
substantive changes to Sec. Sec. 43.4(h), 43.6, and 43.2's definition
of block trade change are warranted in light of the anticipated
benefits.
Alternatives: Multiple commenters suggest maintaining block and cap
levels at the initial-period levels instead of raising them.\515\ The
primary reason is the expected difficulty executing large trades
between the existing 50-percent and new 67-percent block
thresholds.\516\ This section discusses the cost and benefits of this
alternative relative to those of the relevant rules amended herein.
This alternative assumes the new swap categories in Sec. 43.6(c) and
cap sizes are maintained at the current initial-period levels.
---------------------------------------------------------------------------
\515\ For example, PIMCO ``urges the CFTC not to adopt increases
to block and cap size, for purposes of real time reporting delays,
as these changes would directly and adversely impact liquidity for
block products and increase prices for PIMCO's clients.'' ISDA-SIFMA
and Credit Suisse express similar concerns. On the other side,
Citadel supports the increase as this ``more appropriately balances
market transparency and information leakage risks than the current
approach'' and also ``increases harmonization with the EU post-trade
transparency framework.''
\516\ ISDA-SIFMA and PIMCO use the extreme volatility observed
at the start of the COVID-19 pandemic to justify current levels and
even suggest lower appropriate minimum block size levels. The
Commission believes using this sample to define block and cap
thresholds would be a mistake since this is an extreme outlier to
historical market activity. The Commission notes the sample used to
define block and cap thresholds does include a more reasonable
period of elevated volatility, such as during the end of 2018. ISDA-
SIFMA further point to the significant increase in CDS, which is now
no longer an accurate comparison as new option categories have
dropped CDXIG from $550mm to $250mm.
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Maintaining the existing threshold would, all else being equal,
increase the number of swaps eligible for block delays. For those
trades, SDs could find it less difficult to hedge the exposure
[[Page 75474]]
created by trading a large swap, with ASATP reporting and public
dissemination no longer required. For example, without a 15-minute
delay, other market participants could potentially anticipate the
trades of the SDs who are trying to hedge their positions and act
accordingly to their own advantage (e.g., taking long positions to
eventually resell to the SDs). As multiple commenters suggest, if SDs
face increased difficulties hedging client demands, they could increase
the trading costs offered to clients or, potentially, stop trading in
the relevant notional range, which in turn could contribute to a
decrease in liquidity.\517\ This in turn could increase price
volatility and the bid-ask spread facing some end-users.
---------------------------------------------------------------------------
\517\ PIMCO at 2. Similar concerns were expressed in ICI at 7,
Vanguard at 4, SIFMA AMG at 2-4, and ISDA-SIFMA at 5.
---------------------------------------------------------------------------
The idea that SDs could experience higher hedging costs if their
intentions were widely known has a long history. Harris (2003), for
example, suggests other traders anticipating SDs hedging trades could
result in higher trading costs for SDs.\518\ While none of the comments
to the Proposal quantified the magnitude of this effect for swaps,
there is empirical research in other financial markets on the effect of
providing some advantages to SDs in hedging their trades. For example,
one study examined the effect of a Canadian regulation that made equity
trading more difficult for high-frequency traders (who are often seen
as traders who anticipate orders in equity markets).\519\ The policy
change reduced trading. It also led to a reduction of about 15% in the
impact on prices of the trades of large institutional traders, which
the authors suggests may be due to the reduction in trading by high-
frequency traders. At the same time, the authors found evidence bid-ask
spreads rose after the regulatory change, such that execution costs
rose for small institutional traders, while falling for larger
institutional traders (especially those trading on information), as a
result of enhanced protection against front-runners.\520\ Similarly, a
study of equity trading in Sweden found that high-frequency traders
eventually do trade in the direction of informed traders, leading to
higher trading costs.\521\ Another study found that a London Stock
Exchange (``LSE'') rule that reduced post-trade transparency led to
reduced bid-ask spreads and execution costs on the LSE, especially for
illiquid stocks, consistent with the order anticipation
hypothesis.\522\ Conversely, an older study that looked specifically at
changes in the reporting delay afforded to block trades on the LSE
found little evidence that delaying the reporting of trade data reduces
customers' cost of trading large blocks.\523\
---------------------------------------------------------------------------
\518\ Harris, Larry (2003), Trading and Exchanges: Market
Microstructure for Practitioners. See also Brunnermeier, Markus and
Lasse Pedersen (2005), ``Predatory trading'' J. of Fin, 60, 825-63,
for a theoretical treatment of this analysis.
\519\ Korajczyk, Robert and Dermot Murphy (2019) ``High-
Frequency Market Making to Large Institutional Trades'' Rev. of Fin.
Stud., 32, 1034-10.
\520\ See id.
\521\ See van Kervel, Vincent and Albert Menkveld (2019),
``High-Frequency Trading around Large Institutional Orders'', J of
Fin., 74, 1091-1137.
\522\ See Friederich, Sylvain and Richard Payne (2014) ``Trading
Anonymity and Order Anticipation'', J of Fin Markets, 21, 1-24.
\523\ See Gemmill, Gordon (1996), ``Transparency and Liquidity:
A Study of Block Trades on the London Stock Exchange under Different
Publication Rules'' J of Fin, 51, 1765-1790.
---------------------------------------------------------------------------
In sum, a certain body of academic literature suggests more
information released in some circumstances can negatively impact SDs'
hedging costs, and consequently, the prices offered by SDs to large
traders. However, the magnitude of these effects in swaps markets is
not precisely known. Further, as discussed below, there is an
offsetting body of academic literature indicating that, in at least
some circumstances, increased transparency lowers trading costs.
The Commission believes maintaining existing block thresholds would
reduce transparency in swaps markets by increasing the overall number
of trades eligible for block delays and decreasing the number of swaps
reported in real time. This would lead to decreased accuracy in the
real-time tape.
In the Proposal, the Commission characterized the costs and
benefits of changing the cap and blocks thresholds in regard to the
potential effects on liquidity of large blocks and on price
transparency. The Commission received a number of comments that
discussed these liquidity and transparency effects.\524\ With respect
to transparency, several commenters note the importance of transparency
in regard to lowering trading costs, and pointed to a significant body
of academic literature that empirically demonstrated this effect.\525\
While none of the literature cited by the commenters studied the
markets at issue here, they did evaluate a variety of financial
markets, and generally found that better price information leads to
lower trading costs. Some commenters cite the example of the experiment
for analyzing the effect of transparency that was the Trade Reporting
and Compliance Engine (``TRACE'') program. TRACE required dealers to
report all bond trades (including price data) to the National
Association of Securities Dealers (``NASD''), and the NASD made prices
for a subset of those bonds available to traders. Three papers in
leading finance journals studied the effect of this pricing
information, and all found evidence that the availability of pricing
data from TRACE lowered the costs of trading bonds.\526\ Another
example of increased transparency occurred when new reporting
requirements came into effect for single-name CDS, and the authors of a
subsequent study found that the enhanced price transparency lowered
trading costs in these markets.\527\
---------------------------------------------------------------------------
\524\ See, e.g., Citadel at 9; GFMA at 7, 10; ICI at 4-5; SIFMA
AMG at 6.
\525\ MIT at 1-2; Carnegie Mellon at 2-4; SMU at 4-5; and
Citadel at 5.
\526\ Bessembinder, Hendrick, William Maxwell and Kumar
Venkataraman (2006) ``Market transparency, liquidity externalities,
and institutional trading costs in corporate bonds'' J of Fin.
Econ., 82, 251-288, Edwards, Amy, Larry Harris, and Michael Piwowar
(2007) ``Corporate Bond Market Transaction Costs and Transparency''
J. of Fin. 62, 1421-1451, Goldstein, Michael, Edith Hotchkiss, and
Eric Sirri (2007), ``Transparency and Liquidity: A Controlled
Experiment on Corporate Bonds'' The Rev. of Fin. Stud., 20, 235-273.
\527\ Loon, Yee Cheng, and Zhaodong Ken Zhong (2014), ``The
impact of central clearing on counterparty risk, liquidity, and
trading: Evidence from the credit default swap market,'' J. of Fin.
Econ. 112, 91-115.
---------------------------------------------------------------------------
These studies analyze a change in information-related regulation
based on appropriate data before and after the regulatory change.
Without a similar study for block and cap changes for swaps, the
Commission bases its conclusion that greater transparency will benefit
the market on findings in related markets.
The ideal appropriate minimum block size balances the benefits of
large size blocks--increased transparency, price discovery, and swaps
market competitiveness with their costs--increased trading costs for
SDs and their customers and less liquidity. After providing notice to
the public of proposed methods, considering public comments and
considering costs and benefits of the proposed and alternative methods,
the Commission determined in 2013 to adopt a 67-percent notional amount
calculation method, but to implement a 50-percent notional amount
calculation method as a conservative, transitionary level to allow the
market time to adjust before moving to the more appropriate 67-percent
method.
As discussed in section II.F.4 above, the Commission continues to
believe the 67-percent method provides a better outcome than the 50-
percent method as
[[Page 75475]]
it more appropriately balances the tradeoff between transparency and
hedging costs, among other issues. The initial conservative threshold
resulted in a wide band of swaps receiving block treatment, to the
detriment of transparency, price discovery, and swaps market
competitiveness. The Commission acknowledges, as comment letters
discuss, that the increased transparency caused by the 67-percent
method potentially may result in higher market costs for some market
participants and less liquidity. However, the Commission has not been
presented with evidence that the 50-percent notional amount calculation
method is clearly superior to the 67-percent notional amount
calculation for appropriate minimum block size and the 75-percent
notional amount calculation for caps, and the Commission continues to
believe that the 67-percent and 75-percent methods provides a superior
balance of the benefits and costs of blocks and capped notionals.\528\
This is particularly true given that the 67-percent and 75-percent
notional calculation methods will be applied in the context of
recalibrated swap categories set out in Sec. 43.6(c)--a factor not
taken into account in comments advocating for the lower-threshold
alternative. Applied in the context of the new swap categories, the
Commission believes the 67-percent and 75-percent notional thresholds
will be more responsive to liquidity needs, including through separate
option and non-option CDS categories, adjusting certain CDS appropriate
minimum block sizes around the roll months, the expansion of zero-block
size categories, and clarifying certain risk reduction exercises are
not publicly reportable swap transactions.
---------------------------------------------------------------------------
\528\ The ISDA-SIFMA letter suggests the only reason to raise
the threshold is to correct a problem with price discovery and they
are not aware of any current problems. This is not a correct
interpretation of current part 43. The Commission established
requirements to increase block and cap thresholds in 2013 without
making them conditional on identifying problems with price
discovery.
---------------------------------------------------------------------------
A second alternative advocated in comments relates to risk
adjusting notional values before determining block and cap thresholds
(e.g., AGLI and ISDA-SIFMA). Comments argue that, all else being equal,
longer-tenor contracts have more risk-transfer and the thresholds
should reflect those differences. For example, if thresholds are the
same for all tenors of an asset class, the risk transfer of swaps at
the threshold value will be very different across tenors. This is
particularly relevant for IRS, where there is significant variation in
tenor and different tenors represent different amounts of risk
transfer.
Although basing appropriate minimum block size on DV01
theoretically might be appropriate, the commenters have not explained
how this could be accomplished in practice, nor are the means for doing
so apparent to the Commission. Moreover, the ultimate goal in
establishing thresholds is to focus on liquidity differences across
swap categories, not risk-transfer per se (although risk transfer may
be a factor influencing liquidity). In addition, the Commission notes
risk adjusting across tenors would imply that thresholds would be
higher for shorter-tenor swaps than longer-tenor ones. For the most
part, the rule reflects this principle, since for IRS, block thresholds
are generally decreasing with tenor.
Conclusion: The Commission is adopting the changes above.
Notwithstanding the anticipated costs, the Commission believes this
change is warranted in light of the anticipated benefits.
3. Section 15(a) Factors
Section 15(a) of the CEA requires the Commission to consider the
costs and benefits of the amendments to part 43 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.
As discussed above, the amendments to part 43 include changes that
reflect what the Commission has learned about the technical aspects of
reporting as well as changes that alter categories of swaps. The
Commission expects that this, along with the data validation
requirements in Sec. 43.3(f), will increase the quality and timeliness
of swap transaction and pricing data reported and publicly disseminated
pursuant to part 43.
a. Protection of Market Participants and the Public
The Commission believes by enhancing transparency, the reporting
requirements empower market participants by informing them, in real-
time, about the trade prices of a broad set of swap products. This
real-time information helps protect these participants from transacting
at prices significantly different from the prevailing market. In
addition, the Commission believes enhanced transparency allows for
better monitoring of the quantity and size of market transactions,
leading to improved protection of market participants and the public.
As discussed above, several of the changes increase transparency, such
as improvements in how swap categories are defined and improvements in
reported data. However, these same changes at times may make it more
expensive for SDs to hedge large positions they acquire, thereby
increasing hedging costs for trades within certain size ranges.
b. Efficiency, Competitiveness, and Financial Integrity of Markets
Real-time reporting of transactions affects the efficiency of
markets by quickly providing new information to all market participants
in a standardized manner. This real-time information, which is publicly
accessible, allows prices to rapidly and efficiently adjust to the
prevailing trading conditions. To the extent that these Final Rules
reduce the cost of information gathering and processing, as the
Commission expects, market efficiency should be improved.
Improvements to real-time reporting may also enhance competition,
as market participants may learn about the prices and venues where
potential counterparties are executing their transactions. As such,
swaps markets may become more competitive because parties will have
better access to the prices where most participants are transacting and
will be able to use this information to make their own trading
decisions.
The Final Rules, through their effects on transparency, are also
designed to positively impact the financial integrity of markets,
because market participants can verify that they are transacting at or
near prevailing market prices. In addition to transparency, the
Commission expects changes to part 43 are likely to positively affect
financial integrity in other ways. In particular, the Commission
believes that more accurate swap transaction and pricing data will lead
to greater understanding of liquidity and market depth for market
participants executing swap transactions. Also, changes improving part
43 swap transaction and pricing data for the public will expand the
ability of market participants to monitor real-time activity by other
participants and to respond appropriately.
c. Price Discovery
Section 2(a)(13) of the CEA and the Commission's existing
regulations in part 43 implementing CEA section 2(a)(13) require swap
transaction and pricing data to be made available to the public in real
time. The Commission
[[Page 75476]]
believes inaccurate and incomplete swap transaction and pricing data
hinders the use of the swap transaction and pricing data, which harms
transparency and price discovery. The Commission expects market
participants will be better able to analyze swap transaction and
pricing data as a result of the finalized amendments, because the
amendments will make swap transaction and pricing data more accurate
and complete. The Commission also expects price discovery to be
improved by avoiding duplicative reporting of mirror swaps.
One aspect of the final regulations does hold some potential to
dampen price discovery relative to the status quo to a limited degree.
Specifically, if Sec. 43.4(a)(4) encourages more PPSs, then this may
also reduce price discovery because fewer trades would have prices that
are known at the time of execution. But countering this, as noted
above, removing mirror swaps from public reporting could remove
redundancy false impressions of market activity, thereby promoting the
accuracy of the data.
d. Sound Risk Management Practices
The rule changes promulgated here will have a variety of effects on
risk management practices. The effect of increasing the threshold for
block determinations will result in more rapid dissemination of trade
data for trades within specific size ranges. As discussed above, some
commenters note that this change may make it more expensive for SDs to
manage the risk they take on when accommodating customer trades.\529\
If SDs face increased difficulties to hedge client demands, then the
SDs may increase the trading costs offered to clients or, potentially,
stop trading in the notional range, which in turn can contribute to a
decrease in liquidity.\530\ These effects may inhibit sound risk
management by SDs and their clients, respectively.
---------------------------------------------------------------------------
\529\ See, e.g., ISDA-SIFMA at 2.
\530\ See, e.g., SIFMA AMG at 3-4; PIMCO at 2-4.
---------------------------------------------------------------------------
Conversely, to the extent the final regulations result in more
price transparency for the reasons discussed above, it is likely that
trading costs will fall for some swaps, particularly smaller-sized
swaps. This effect will enable some market participants to more readily
hedge their inherent risk, and thereby improve risk management.
e. Other Public Interest Considerations
More accurate swap transaction and pricing data would be helpful to
researchers who may use the data to improve the public's understanding
of how swap markets function with respect to market participants, other
financial markets, and the overall economy. Higher-quality data would
also likely improve the Commission's regulatory oversight and
enforcement capabilities.
D. Antitrust Considerations
Section 15(b) of the CEA requires the Commission to take into
consideration the public interest to be protected by the antitrust laws
and to 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 that the amendments to part 43 will
result in anti-competitive behavior. The Commission did not receive any
comments on the antitrust considerations in the Proposal.
List of Subjects in 17 CFR Part 43
Real-time public swap reporting.
For the reasons stated in the preamble, the Commodity Futures
Trading Commission amends 17 CFR part 43 as set forth below:
PART 43--REAL-TIME PUBLIC REPORTING
0
1. The authority citation for part 43 continues to read as follows:
Authority: 7 U.S.C. 2(a), 12a(5), and 24a, as amended by Pub.
L. 111-203, 124 Stat. 1376 (2010).
0
2. Amend Sec. 43.1 by removing paragraphs (b) and (d), re-designating
paragraph (c) as paragraph (b), and revising newly re-designated
paragraph (b).
The revision reads as follows:
Sec. 43.1 Purpose, scope, and rules of construction.
* * * * *
(b) Rules of construction. The examples in this part are not
exclusive. Compliance with a particular example or application of a
sample clause, to the extent applicable, shall constitute compliance
with the particular portion of the rule to which the example relates.
0
3. Revise Sec. 43.2 to read as follows:
Sec. 43.2 Definitions.
(a) Definitions. As used in this part:
Appropriate minimum block size means the minimum notional or
principal amount for a category of swaps that qualifies a swap within
such category as a block trade or large notional off-facility swap.
As soon as technologically practicable means as soon as possible,
taking into consideration the prevalence, implementation, and use of
technology by comparable market participants.
Asset class means a broad category of commodities including,
without limitation, any ``excluded commodity'' as defined in section
1a(19) of the Act, with common characteristics underlying a swap. The
asset classes include interest rate, foreign exchange, credit, equity,
other commodity, and such other asset classes as may be determined by
the Commission.
Block trade means a publicly reportable swap transaction that:
(1) Involves a swap that is listed on a swap execution facility or
designated contract market;
(2) Is executed on a swap execution facility's trading system or
platform that is not an order book as defined in Sec. 37.3(a)(3) of
this chapter, or occurs away from the swap execution facility's or
designated contract market's trading system or platform and is executed
pursuant to the swap execution facility's or designated contract
market's rules and procedures;
(3) Has a notional or principal amount at or above the appropriate
minimum block size applicable to such swap; and
(4) Is reported subject to the rules and procedures of the swap
execution facility or designated contract market and the rules
described in this part, including the appropriate time delay
requirements set forth in Sec. 43.5.
Business day means the twenty-four hour day, on all days except
Saturdays, Sundays and legal holidays, in the location of the reporting
party or registered entity reporting data for the swap.
Business hours means the consecutive hours of one or more
consecutive business days.
Cap size means, for each swap category, the maximum notional or
principal amount of a publicly reportable swap transaction that is
publicly disseminated.
Economically related means a direct or indirect reference to the
same commodity at the same delivery location or locations, or with the
same or a substantially similar cash market price series.
Embedded option means any right, but not an obligation, provided to
one party of a swap by the other party to the swap that provides the
party holding the option with the ability to change any one or more of
the economic terms of the swap.
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.
Execution date means the date of execution of a particular swap.
[[Page 75477]]
Futures-related swap means a swap (as defined in section 1a(47) of
the Act and as further defined by the Commission in implementing
regulations) that is economically related to a futures contract.
Large notional off-facility swap means an off-facility swap that
has a notional or principal amount at or above the appropriate minimum
block size applicable to such publicly reportable swap transaction and
is not a block trade as defined in Sec. 43.2.
Major currencies means the currencies, and the cross-rates between
the currencies, of Australia, Canada, Denmark, New Zealand, Norway,
South Africa, South Korea, Sweden, and Switzerland.
Mirror swap means a swap:
(1) To which--
(i) A prime broker is a counterparty; or
(ii) Both counterparties are prime brokers;
(2) That is executed contemporaneously with a corresponding trigger
swap;
(3) That has identical terms and pricing as the contemporaneously
executed trigger swap, except:
(i) That a mirror swap, but not the corresponding trigger swap, may
include any associated prime brokerage service fees agreed to by the
parties; and
(ii) As provided in paragraph (5) of this ``mirror swap''
definition;
(4) With respect to which the sole price forming event is the
occurrence of the contemporaneously executed trigger swap; and
(5) The execution of which is contingent on, or is triggered by,
the execution of the contemporaneously executed trigger swap. The
contractually agreed payments and delivery amounts under a mirror swap
may differ from those amounts of the corresponding trigger swap if:
(i) Under all such mirror swaps to which the prime broker that is a
counterparty to the trigger swap is also a counterparty, the aggregate
contractually agreed payments and delivery amounts shall be equal to
the aggregate of the contractually agreed payments and delivery amounts
under the corresponding trigger swap; and
(ii) The market risk and contractually agreed payments and delivery
amounts of all such mirror swaps to which a prime broker that is not a
counterparty to the corresponding trigger swap is a party will offset
each other, resulting in such prime broker having a flat market risk
position at the execution of such mirror swaps.
Non-major currencies means all other currencies that are not super-
major currencies or major currencies.
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.
Off-facility swap means any swap transaction that is not executed
on or pursuant to the rules of a swap execution facility or designated
contract market.
Other commodity means any commodity that is not categorized in the
interest rate, credit, foreign exchange, equity, or other asset classes
as may be determined by the Commission.
Physical commodity swap means a swap in the other commodity asset
class that is based on a tangible commodity.
Post-priced swap means an off-facility swap for which the price is
not determined as of the time of execution.
Pricing event means the completion of the negotiation of the
material economic terms and pricing of a trigger swap.
Prime broker means, with respect to a mirror swap and its related
trigger swap, a swap dealer acting in the capacity of a prime broker
with respect to such swaps.
Prime broker swap means any swap to which a swap dealer acting in
the capacity as prime broker is a party.
Prime brokerage agency arrangement means an arrangement pursuant to
which a prime broker authorizes one of its clients, acting as agent for
such prime broker, to cause the execution of a prime broker swap.
Prime brokerage agent means a client of a prime broker who causes
the execution of one or more prime broker swap(s) acting pursuant to a
prime brokerage agency arrangement.
Public dissemination and publicly disseminate means to make freely
available and readily accessible to the public swap transaction and
pricing data in a non-discriminatory manner, through the internet or
other electronic data feed that is widely published. Such public
dissemination shall be made in a consistent, usable, and machine-
readable electronic format that allows the data to be downloaded,
saved, and analyzed.
Publicly reportable swap transaction means:
(1) Unless otherwise provided in this part--
(i) Any executed swap that is an arm's-length transaction between
two parties that results in a corresponding change in the market risk
position between the two parties; or
(ii) Any termination, assignment, novation, exchange, transfer,
amendment, conveyance, or extinguishing of rights or obligations of a
swap that changes the pricing of the swap.
(2) Examples of executed swaps that do not fall within the
definition of publicly reportable swap may include:
(i) Internal swaps between one-hundred percent owned subsidiaries
of the same parent entity;
(ii) Portfolio compression exercises; and
(iii) Swaps entered into by a derivatives clearing organization as
part of managing the default of a clearing member.
(3) These examples represent swaps that are not at arm's length and
thus are not publicly reportable swap transactions, notwithstanding
that they do result in a corresponding change in the market risk
position between two parties.
Reference price means a floating price series (including
derivatives contract prices and cash market prices or price indices)
used by the parties to a swap or swaption to determine payments made,
exchanged, or accrued under the terms of a swap contract.
Reporting counterparty means the party to a swap with the duty to
report a publicly reportable swap transaction in accordance with this
part and section 2(a)(13)(F) of the Act.
Super-major currencies means the currencies of the European
Monetary Union, Japan, the United Kingdom, and United States.
Swap execution facility means a trading system or platform that is
a swap execution facility as defined in CEA section 1a(50) and in Sec.
1.3 of this chapter and that is registered with the Commission pursuant
to CEA section 5h and part 37 of this chapter.
Swap transaction and pricing data means all data elements for a
swap in appendix A of this part that are required to be reported or
publicly disseminated pursuant to this part.
Swaps with composite reference prices means swaps based on
reference prices that are composed of more than one reference price
from more than one swap category.
Trigger swap means a swap:
(1) That is executed pursuant to one or more prime brokerage agency
arrangements;
(2) To which one counterparty or both counterparties are prime
brokers;
(3) That serves as the contingency for, or triggers, the execution
of one or more corresponding mirror swaps; and
(4) That is a publicly reportable swap transaction that is required
to be
[[Page 75478]]
reported to a swap data repository pursuant to this part and part 45 of
this chapter. A prime broker swap executed on or pursuant to the rules
of a swap execution facility or designated contract market shall be
treated as the trigger swap for purposes of this part.
Trimmed data set means a data set that has had extraordinarily
large notional transactions removed by transforming the data into a
logarithm with a base of 10, computing the mean, and excluding
transactions that are beyond two standard deviations above the mean for
the other commodity asset class and three standard deviations above the
mean for all other asset classes.
(b) Other defined terms. Terms not defined in this part have the
meanings assigned to the terms in Sec. 1.3 of this chapter.
0
4. Amend Sec. 43.3 by
0
a. Revising paragraphs (a) through (d), and (f),
0
b. Removing paragraphs (g) and (h),
0
c. Re-designating paragraph (i) as paragraph (g),
0
d. Revising newly re-designated paragraph (g).
The revisions read as follows:
Sec. 43.3 Method and timing for real-time public reporting.
(a) Responsibilities to report swap transaction and pricing data in
real-time--(1) In general. The reporting counterparty, swap execution
facility, or designated contract market responsible for reporting a
swap as determined by this section shall report the publicly reportable
swap transaction to a swap data repository as soon as technologically
practicable after execution, subject to paragraphs (a)(2) through (6)
of this section. Such reporting shall be done in the manner set forth
in paragraph (d) of this section.
(2) Swaps executed on or pursuant to the rules of a swap execution
facility or designated contract market. For each swap executed on or
pursuant to the rules of a swap execution facility or designated
contract market, the swap execution facility or designated contract
market shall report swap transaction and pricing data to a swap data
repository as soon as technologically practicable after execution.
(3) Off-facility swaps. Except as otherwise provided in paragraphs
(a)(4) through (6) of this section, a reporting counterparty shall
report all publicly reportable swap transactions that are off-facility
swaps to a swap data repository for the appropriate asset class in
accordance with the rules set forth in this part as soon as
technologically practicable after execution. Unless otherwise agreed to
by the parties prior to execution, the following shall be the reporting
counterparty for a publicly reportable swap transaction that is an off-
facility swap:
(i) If only one party is a swap dealer or major swap participant,
then the swap dealer or major swap participant shall be the reporting
counterparty;
(ii) If one party is a swap dealer and the other party is a major
swap participant, then the swap dealer shall be the reporting
counterparty;
(iii) If both parties are swap dealers, then the swap dealers shall
designate which party shall be the reporting counterparty prior to
execution of such swap;
(iv) If both parties are major swap participants, then the major
swap participants shall designate which party shall be the reporting
counterparty prior to execution of such swap; and
(v) If neither party is a swap dealer or a major swap participant,
then the parties shall designate which party shall be the reporting
counterparty prior to execution of such swap.
(4) Post-priced swaps--(i) Post-priced swaps reporting delays. The
reporting counterparty may delay reporting a post-priced swap to a swap
data repository until the earlier of the price being determined and
11:59:59 p.m. eastern time on the execution date. If the price of a
publicly reportable swap transaction that is a post-priced swap is not
determined by 11:59:59 p.m. eastern time on the execution date, the
reporting counterparty shall report to a swap data repository by
11:59:59 p.m. eastern time on the execution date all swap transaction
and pricing data for such post-priced swap other than the price and any
other then-undetermined swap transaction and pricing data and shall
report each such item of previously undetermined swap transaction and
pricing data as soon as technologically practicable after such item is
determined.
(ii) Other economic terms. The post-priced swap reporting delay set
forth in paragraph (a)(4)(i) of this section does not apply to publicly
reportable swap transactions with respect to which the price is known
at execution, but one or more other economic or other terms are not yet
known at the time of execution.
(5) Clearing swaps. Notwithstanding the provisions of paragraphs
(a)(1) through (3) of this section, if a clearing swap, as defined in
Sec. 45.1(a) of this chapter, is a publicly reportable swap
transaction, the derivatives clearing organization that is a party to
such swap shall be the reporting counterparty and shall fulfill all
reporting counterparty obligations for such swap as soon as
technologically practicable after execution.
(6) Prime broker swaps. (i) A mirror swap is not a publicly
reportable swap transaction. Execution of a trigger swap, for purposes
of determining when execution occurs under paragraphs (a)(1) through
(3) of this section, shall be deemed to occur at the time of the
pricing event for such trigger swap.
(ii) With respect to a given set of swaps, if it is unclear which
is, or are the mirror swap(s) and which is the related trigger swap
(including, but not limited to, situations where there is more than one
prime broker counterparty within such set of swaps and situations where
the pricing event for each set of swaps occurs between prime brokerage
agents of a common prime broker), or if under the prime brokerage
agency arrangement, the trigger swap would occur between two prime
brokers, the prime broker(s) shall determine which of the prime broker
swaps shall be treated as the trigger swap and which are mirror swaps.
(iii) Trigger swaps shall be reported in accordance with the
following:
(A) Trigger swaps executed on or pursuant to the rules of a swap
execution facility or designated contract market shall be reported
pursuant to paragraph (a)(2) of this section; and
(B) Off-facility trigger swaps shall be reported pursuant to
paragraph (a)(3) of this section, except that if a counterparty to a
trigger swap is a swap dealer that is not a prime broker with respect
to that trigger swap, then that swap dealer counterparty shall be the
reporting counterparty for the trigger swap.
(7) Third-party facilitation of data reporting. Any person required
by this part to report swap transaction and pricing data, while
remaining fully responsible for reporting as required by this part, may
contract with a third-party service provider to facilitate reporting.
(b) Public dissemination of swap transaction and pricing data by
swap data repositories in real-time--(1) In general. A swap data
repository shall publicly disseminate swap transaction and pricing data
as soon as technologically practicable after such data is received from
a swap execution facility, designated contract market, or reporting
counterparty, unless such swap transaction and pricing data is subject
to a time delay described in Sec. 43.5, in which case the swap
transaction and pricing data shall be publicly disseminated in the
manner described in Sec. 43.5.
(2) Compliance with 17 CFR part 49. Any swap data repository that
accepts
[[Page 75479]]
and publicly disseminates swap transaction and pricing data in real-
time shall comply with part 49 of this chapter.
(3) Prohibitions on disclosure of data. (i) If there is a swap data
repository for an asset class, a swap execution facility or designated
contract market shall not disclose swap transaction and pricing data
relating to publicly reportable swap transactions in such asset class,
prior to the public dissemination of such data by a swap data
repository unless:
(A) Such disclosure is made no earlier than the transmittal of such
data to a swap data repository for public dissemination;
(B) Such disclosure is only made to market participants on such
swap execution facility or designated contract market;
(C) Market participants are provided advance notice of such
disclosure; and
(D) Any such disclosure by the swap execution facility or
designated contract market is non-discriminatory.
(ii) If there is a swap data repository for an asset class, a swap
dealer or major swap participant shall not disclose swap transaction
and pricing data relating to publicly reportable swap transactions in
such asset class, prior to the public dissemination of such data by a
swap data repository unless:
(A) Such disclosure is made no earlier than the transmittal of such
data to a swap data repository for public dissemination;
(B) Such disclosure is only made to the customer base of such swap
dealer or major swap participant, including parties who maintain
accounts with or have been swap counterparties with such swap dealer or
major swap participant;
(C) Swap counterparties are provided advance notice of such
disclosure; and
(D) Any such disclosure by the swap dealer or major swap
participant is non-discriminatory.
(4) Acceptance and public dissemination of all swaps in an asset
class. Any swap data repository that accepts and publicly disseminates
swap transaction and pricing data in real-time for swaps in its
selected asset class shall accept and publicly disseminate swap
transaction and pricing data in real-time for all publicly reportable
swap transactions within such asset class, unless otherwise prescribed
by the Commission.
(5) Annual independent review. Any swap data repository that
accepts and publicly disseminates swap transaction and pricing data in
real-time shall perform, on an annual basis, an independent review in
accordance with established audit procedures and standards of the swap
data repository's security and other system controls for the purpose of
ensuring compliance with the requirements in this part.
(c) Availability of swap transaction and pricing data to the
public. (1) Swap data repositories shall make swap transaction and
pricing data available on their websites for a period of time that is
at least one year after the initial public dissemination of such data
and shall make instructions freely available on their websites on how
to download, save, and search such data.
(2) Swap transaction and pricing data that is publicly disseminated
pursuant to this paragraph shall be made available free of charge.
(d) Data reported to swap data repositories. (1) In reporting swap
transaction and pricing data to a swap data repository, each reporting
counterparty, swap execution facility, or designated contract market
shall report the swap transaction and pricing data as described in the
elements in appendix A of this part in the form and manner provided in
the technical specification published by the Commission pursuant to
Sec. 43.7.
(2) In reporting swap transaction and pricing data to a swap data
repository, each reporting counterparty, swap execution facility, or
designated contract market making such report shall satisfy the data
validation procedures of the swap data repository.
(3) In reporting swap transaction and pricing data to a swap data
repository, each reporting counterparty, swap execution facility, or
designated contract market shall use the facilities, methods, or data
standards provided or required by the swap data repository to which the
entity or reporting counterparty reports the data.
* * * * *
(f) Data validation acceptance message. (1) A swap data repository
shall validate each swap transaction and pricing data report submitted
to the swap data repository and notify the reporting counterparty, swap
execution facility, or designated contract market submitting the report
whether the report satisfied the data validation procedures of the swap
data repository as soon as technologically practicable after accepting
the swap transaction and pricing data report. A swap data repository
may satisfy the requirements of this paragraph by making available data
validation acceptance messages as required by Sec. 49.10 of this
chapter.
(2) If a swap transaction and pricing data report submitted to a
swap data repository does not satisfy the data validation procedures of
the swap data repository, the reporting counterparty, swap execution
facility, or designated contract market required to submit the report
has not satisfied its obligation to report swap transaction and pricing
data in the manner provided by paragraph (d) of this section. The
reporting counterparty, swap execution facility, or designated contract
market has not satisfied its obligation until it submits the swap
transaction and pricing data report in the manner provided by paragraph
(d) of this section, which includes the requirement to satisfy the data
validation procedures of the swap data repository.
(g) Fees. Any fee or charge assessed on a reporting counterparty,
swap execution facility, or designated contract market by a swap data
repository that accepts and publicly disseminates swap transaction and
pricing data in real-time for the collection of such data shall be
equitable and non-discriminatory. If such swap data repository allows a
fee discount based on the volume of data reported to it for public
dissemination, then such discount shall be made available to all
reporting counterparties, swap execution facilities, and designated
contract markets in an equitable and non-discriminatory manner.
0
5. Revise Sec. 43.4 to read as follows:
Sec. 43.4 Swap transaction and pricing data to be publicly
disseminated in real-time.
(a) Public dissemination of data fields. Any swap data repository
that accepts and publicly disseminates swap transaction and pricing
data in real-time shall publicly disseminate the information described
in appendix A of this part for the swap transaction and pricing data,
as applicable, in the form and manner provided in the technical
specification published by the Commission pursuant to Sec. 43.7.
(b) Additional swap information. A swap data repository that
accepts and publicly disseminates swap transaction and pricing data in
real-time may require reporting counterparties, swap execution
facilities, and designated contract markets to report to such swap data
repository information that is necessary to compare the swap
transaction and pricing data that was publicly disseminated in real-
time to the data reported to a swap data repository pursuant to section
2(a)(13)(G) of the Act or to confirm that parties to a swap have
reported in a timely manner pursuant to Sec. 43.3. Such additional
information shall not be publicly disseminated by the swap data
repository.
[[Page 75480]]
(c) Anonymity of the parties to a publicly reportable swap
transaction--(1) In general. Swap transaction and pricing data that is
publicly disseminated in real-time shall not disclose the identities of
the parties to the swap or otherwise facilitate the identification of a
party to a swap. A swap data repository that accepts and publicly
disseminates swap transaction and pricing data in real-time shall not
publicly disseminate such data in a manner that discloses or otherwise
facilitates the identification of a party to a swap.
(2) Actual product description reported to swap data repository.
Reporting counterparties, swap execution facilities, and designated
contract markets shall provide a swap data repository with swap
transaction and pricing data that includes an actual description of the
underlying asset(s). This requirement is separate from the requirement
that a reporting counterparty, swap execution facility, or designated
contract market shall report swap data to a swap data repository
pursuant to section 2(a)(13)(G) of the Act and 17 CFR chapter I.
(3) Public dissemination of the actual description of underlying
asset(s). Notwithstanding the anonymity protection for certain swaps in
the other commodity asset class in paragraph (c)(4) of this section, a
swap data repository shall publicly disseminate the actual underlying
asset(s) of all publicly reportable swap transactions in the interest
rate, credit, equity, and foreign exchange asset classes.
(4) Public dissemination of the underlying asset(s) for certain
swaps in the other commodity asset class. A swap data repository shall
publicly disseminate swap transaction and pricing data in the other
commodity asset class as described in this paragraph.
(i) A swap data repository shall publicly disseminate swap
transaction and pricing data for publicly reportable swap transactions
in the other commodity asset class in the manner described in
paragraphs (c)(4)(ii) and (iii) of this section.
(ii) The actual underlying asset(s) shall be publicly disseminated
for the following publicly reportable swap transactions in the other
commodity asset class:
(A) Any publicly reportable swap transaction that references one of
the contracts described in appendix B to this part;
(B) Any publicly reportable swap transaction that is economically
related to one of the contracts described in appendix B of this part;
or
(C) Any publicly reportable swap transaction executed on or
pursuant to the rules of a swap execution facility or designated
contract market.
(iii) The underlying assets of swaps in the other commodity asset
class that are not described in paragraph (c)(4)(ii) of this section
shall be publicly disseminated by limiting the geographic detail of the
underlying asset(s). The identification of any specific delivery point
or pricing point associated with the underlying asset of such other
commodity swap shall be publicly disseminated pursuant to appendix E of
this part.
(d) Reporting of notional or principal amounts to a swap data
repository--(1) Off-facility swaps. The reporting counterparty shall
report the actual notional or principal amount of any publicly
reportable swap transaction that is an off-facility swap to a swap data
repository that accepts and publicly disseminates such data pursuant to
this part.
(2) Swaps executed on or pursuant to the rules of a swap execution
facility or designated contract market. (i) A swap execution facility
or designated contract market shall report the actual notional or
principal amount for all swaps executed on or pursuant to the rules of
such swap execution facility or designated contract market to a swap
data repository that accepts and publicly disseminates such data
pursuant to this part.
(ii) The actual notional or principal amount for any block trade
executed on or pursuant to the rules of a swap execution facility or
designated contract market shall be reported to the swap execution
facility or designated contract market pursuant to the rules of the
swap execution facility of designated contract market.
(e) Public dissemination of notional or principal amounts. The
notional or principal amount of a publicly reportable swap transaction
shall be publicly disseminated by a swap data repository subject to
rounding as set forth in paragraph (f) of this section, and the cap
size as set forth in paragraph (g) of this section.
(f) Process to determine appropriate rounded notional or principal
amounts. (1) If the notional or principal amount is less than one
thousand, round to nearest five, but in no case shall a publicly
disseminated notional or principal amount be less than five;
(2) If the notional or principal amount is less than 10 thousand
but equal to or greater than one thousand, round to nearest one
hundred;
(3) If the notional or principal amount is less than 100 thousand
but equal to or greater than 10 thousand, round to nearest one
thousand;
(4) If the notional or principal amount is less than one million
but equal to or greater than 100 thousand, round to nearest 10
thousand;
(5) If the notional or principal amount is less than 100 million
but equal to or greater than one million, round to the nearest one
million;
(6) If the notional or principal amount is less than 500 million
but equal to or greater than 100 million, round to the nearest 10
million;
(7) If the notional or principal amount is less than one billion
but equal to or greater than 500 million, round to the nearest 50
million;
(8) If the notional or principal amount is less than 100 billion
but equal to or greater than one billion, round to the nearest 100
million;
(9) If the notional or principal amount is equal to or greater than
100 billion, round to the nearest 10 billion.
(g) Initial cap sizes. Prior to the effective date of a Commission
determination to establish an applicable post-initial cap size for a
swap category as determined pursuant to paragraph (h) of this section,
the initial cap sizes for each swap category shall be equal to the
greater of the initial appropriate minimum block size for the
respective swap category in appendix F of this part or the respective
cap sizes in paragraphs (g)(1) through (5) of this section. If appendix
F of this part does not provide an initial appropriate minimum block
size for a particular swap category, the initial cap size for such swap
category shall be equal to the appropriate cap size as set forth in
paragraphs (g)(1) through (5) of this section.--
(1) For swaps in the interest rate asset class, the publicly
disseminated notional or principal amount for a swap subject to the
rules in this part shall be:
(i) USD 250 million for swaps with a tenor greater than zero up to
and including two years;
(ii) USD 100 million for swaps with a tenor greater than two years
up to and including ten years; and
(iii) USD 75 million for swaps with a tenor greater than ten years.
(2) For swaps in the credit asset class, the publicly disseminated
notional or principal amount for a swap subject to the rules in this
part shall be USD 100 million.
(3) For swaps in the equity asset class, the publicly disseminated
notional or principal amount for a swap subject to the rules in this
part shall be USD 250 million.
(4) For swaps in the foreign exchange asset class, the publicly
disseminated notional or principal amount for a swap
[[Page 75481]]
subject to the rules in this part shall be USD 250 million.
(5) For swaps in the other commodity asset class, the publicly
disseminated notional or principal amount for a swap subject to the
rules in this part shall be USD 25 million.
(h) Post-initial cap sizes. (1) The Commission shall establish, by
swap categories, post-initial cap sizes as described in paragraphs
(h)(2) through (8) of this section.
(2) The Commission shall determine post-initial cap sizes for the
swap categories described in paragraphs (c)(1)(i), (c)(2)(i) through
(xii), (c)(4)(i), and (c)(5)(i) of Sec. 43.6 by utilizing reliable
data collected by swap data repositories, as determined by the
Commission, based on paragraphs (h)(2)(i) and (ii) of this section. If
the Commission is unable to determine a cap size for any swap category
described in Sec. 43.6(c)(1)(i), the Commission shall assign a cap
size of USD 100 million to such category.
(i) A one-year window of swap transaction and pricing data
corresponding to each relevant swap category recalculated no less than
once each calendar year; and
(ii) The 75-percent notional amount calculation described in Sec.
43.6(d)(2).
(3) The Commission shall determine the post-initial cap size for a
swap category in the foreign exchange asset class described in Sec.
43.6(c)(4)(ii) as the lower of the notional amount of either currency's
cap size for the swap category described in Sec. 43.6(c)(4)(i).
(4) All swaps or instruments in the swap category described in
Sec. 43.6(c)(1)(ii) shall have a cap size of USD 100 million.
(5) All swaps or instruments in the swap category described in
Sec. 43.6(c)(2)(xiii) shall have a cap size of USD 400 million.
(6) All swaps or instruments in the swap category described in
Sec. 43.6(c)(3) shall have a cap size of USD 250 million.
(7) All swaps or instruments in the swap category described in
Sec. 43.6(c)(4)(iii) shall have a cap size of USD 150 million.
(8) All swaps or instruments in the swap category described in
Sec. 43.6(c)(5)(ii) shall have a cap size of USD 100 million.
(9) The Commission shall publish post-initial cap sizes on its
website at https://www.cftc.gov.
(10) Unless otherwise indicated on the Commission's website, the
post-initial cap sizes shall be effective on the first day of the
second month following the date of publication of the revised cap size.
0
6. Revise Sec. 43.5 to read as follows:
Sec. 43.5 Time delays for public dissemination of swap transaction
and pricing data.
(a) In general. The time delay for the real-time public reporting
of a block trade or large notional off-facility swap begins upon
execution, as defined in Sec. 43.2. It is the responsibility of the
swap data repository that accepts and publicly disseminates swap
transaction and pricing data in real-time to ensure that the block
trade or large notional off-facility swap transaction and pricing data
is publicly disseminated pursuant to this part upon the expiration of
the appropriate time delay described in paragraphs (d) through (h) of
this section.
(b) Public dissemination of publicly reportable swap transactions
subject to a time delay. A swap data repository shall publicly
disseminate swap transaction and pricing data that is subject to a time
delay pursuant to this paragraph, as follows:
(1) No later than the prescribed time delay period described in
this paragraph;
(2) No sooner than the prescribed time delay period described in
this paragraph; and
(3) Precisely upon the expiration of the time delay period
described in this paragraph.
(c) [Reserved]
(d) Time delay for block trades executed on or pursuant to the
rules of a swap execution facility or designated contract market. Any
block trade that is executed on or pursuant to the rules of a swap
execution facility or designated contract market shall receive a time
delay in the public dissemination of swap transaction and pricing data
as follows:
(1) [Reserved]
(2) The time delay for public dissemination of swap transaction and
pricing data for all publicly reportable swap transactions described in
this paragraph (d) shall be 15 minutes immediately after execution of
such publicly reportable swap transaction.
(e) Time delay for large notional off-facility swaps subject to the
mandatory clearing requirement--(1) In general. This paragraph shall
not apply to off-facility swaps that are excepted from the mandatory
clearing requirement pursuant to section 2(h)(7) of the Act and 17 CFR
chapter I, and this paragraph shall not apply to those swaps that are
required to be cleared under section 2(h)(2) of the Act and 17 CFR
chapter I but are not cleared.
(2) Swaps subject to the mandatory clearing requirement where at
least one party is a swap dealer or major swap participant. Any large
notional off-facility swap that is subject to the mandatory clearing
requirement described in section 2(h)(1) of the Act and 17 CFR chapter
I, in which at least one party is a swap dealer or major swap
participant, shall receive a time delay as follows:
(i) [Reserved]
(ii) The time delay for public dissemination of swap transaction
and pricing data for all swaps described in this paragraph (e)(2) shall
be 15 minutes immediately after execution of such swap.
(3) Swaps subject to the mandatory clearing requirement where
neither party is a swap dealer or major swap participant. Any large
notional off-facility swap that is subject to the mandatory clearing
requirement described in section 2(h)(1) of the Act and 17 CFR chapter
I, in which neither party is a swap dealer or major swap participant,
shall receive a time delay as follows:
(i)-(ii) [Reserved]
(iii) The time delay for public dissemination of swap transaction
and pricing data for all swaps described in this paragraph (e)(3) shall
be one hour immediately after execution of such swap.
(f) Time delay for large notional off-facility swaps in the
interest rate, credit, foreign exchange or equity asset classes not
subject to the mandatory clearing requirement with at least one swap
dealer or major swap participant counterparty. Any large notional off-
facility swap in the interest rate, credit, foreign exchange or equity
asset classes where at least one party is a swap dealer or major swap
participant, that is not subject to the mandatory clearing requirement
or is excepted from such mandatory clearing requirement, shall receive
a time delay in the public dissemination of swap transaction and
pricing data as follows:
(1)-(2) [Reserved]
(3) The time delay for public dissemination of swap transaction and
pricing data for all swaps described in this paragraph (f) shall be 30
minutes immediately after execution of such swap.
(g) Time delay for large notional off-facility swaps in the other
commodity asset class not subject to the mandatory clearing requirement
with at least one swap dealer or major swap participant counterparty.
Any large notional off-facility swap in the other commodity asset class
where at least one party is a swap dealer or major swap participant,
that is not subject to the mandatory clearing requirement or is exempt
from
[[Page 75482]]
such mandatory clearing requirement, shall receive a time delay in the
public dissemination of swap transaction and pricing data as follows:
(1)-(2) [Reserved]
(3) The time delay for public dissemination of swap transaction and
pricing data for all swaps described in this paragraph (g) shall be two
hours after the execution of such swap.
(h) Time delay for large notional off-facility swaps in all asset
classes not subject to the mandatory clearing requirement in which
neither counterparty is a swap dealer or a major swap participant. Any
large notional off-facility swap in which neither party is a swap
dealer or a major swap participant, which is not subject to the
mandatory clearing requirement or is exempt from such mandatory
clearing requirement, shall receive a time delay in the public
dissemination of swap transaction and pricing data as follows:
(1)-(2) [Reserved]
(3) The time delay for public dissemination transaction and pricing
data for all swaps described in this paragraph (h) shall be 24 business
hours immediately after the execution of such swap.
0
6. Revise Sec. 43.6 to read as follows:
Sec. 43.6 Block trades and large notional off-facility swaps.
(a) Commission determination. The Commission shall establish the
appropriate minimum block size for publicly reportable swap
transactions based on the swap categories set forth in paragraphs (b)
and (c) of this section, as applicable, in accordance with the
provisions set forth in paragraph (d), (e), (f), (g), (h), or (i) of
this section, as applicable.
(b) Initial swap categories. Swap categories shall be established
for all swaps, by asset class, in the following manner:
(1) Interest rates asset class. Interest rate asset class swap
categories shall be based on unique combinations of the following:
(i) Currency by:
(A) Super-major currency;
(B) Major currency; or
(C) Non-major currency; and
(ii) Tenor of swap as follows:
(A) Zero to 46 days;
(B) Greater than 46 days to three months (47 to 107 days);
(C) Greater than three months to six months (108 to 198 days);
(D) Greater than six months to one year (199 to 381 days);
(E) Greater than one to two years (382 to 746 days);
(F) Greater than two to five years (747 to 1,842 days);
(G) Greater than five to ten years (1,843 to 3,668 days);
(H) Greater than ten to 30 years (3,669 to 10,973 days); or
(I) Greater than 30 years (10,974 days and above).
(2) Credit asset class. Credit asset class swap categories shall be
based on unique combinations of the following:
(i) Traded Spread rounded to the nearest basis point (0.01) as
follows:
(A) 0 to 175 points;
(B) 176 to 350 points; or
(C) 351 points and above;
(ii) Tenor of swap as follows:
(A) Zero to two years (0-746 days);
(B) Greater than two to four years (747-1,476 days);
(C) Greater than four to six years (1,477-2,207 days);
(D) Greater than six to eight-and-a-half years (2,208-3,120 days);
(E) Greater than eight-and-a-half to 12.5 years (3,121-4,581 days);
and
(F) Greater than 12.5 years (4,582 days and above).
(3) Equity asset class. There shall be one swap category consisting
of all swaps in the equity asset class.
(4) Foreign exchange asset class. Swap categories in the foreign
exchange asset class shall be grouped as follows:
(i) By the unique currency combinations of one super-major currency
paired with one of the following:
(A) Another super major currency;
(B) A major currency; or
(C) A currency of Brazil, China, Czech Republic, Hungary, Israel,
Mexico, Poland, Russia, and Turkey; or
(ii) By unique currency combinations not included in paragraph
(b)(4)(i) of this section.
(5) Other commodity asset class. Swap contracts in the other
commodity asset class shall be grouped into swap categories as follows:
(i) For swaps that are economically related to contracts in
appendix B of this part, by the relevant contract as referenced in
appendix B of this part; or
(ii) For swaps that are not economically related to contracts in
appendix B of this part, by the following futures-related swaps:
(A) CME Cheese;
(B) CBOT Distillers' Dried Grain;
(C) CBOT Dow Jones-UBS Commodity Index;
(D) CBOT Ethanol;
(E) CME Frost Index;
(F) CME Goldman Sachs Commodity Index (GSCI), (GSCI Excess Return
Index);
(G) NYMEX Gulf Coast Sour Crude Oil;
(H) CME Hurricane Index;
(I) CME Rainfall Index;
(J) CME Snowfall Index;
(K) CME Temperature Index;
(L) CME U.S. Dollar Cash Settled Crude Palm Oil; or
(iii) For swaps that are not covered in paragraphs (b)(5)(i) and
(b)(5)(ii) of this section, the relevant product type as referenced in
appendix D of this part.
(c) Post-initial swap categories. Swap categories shall be
established for all swaps, by asset class, in the following manner:
(1) Interest rate asset class. Swaps in the interest rate asset
class shall be grouped into swap categories as follows:
(i) Based on a unique combination of the following currencies and
tenors:
(A) A currency of one of the following countries or union:
(1) Australia;
(2) Brazil;
(3) Canada;
(4) Chile;
(5) Czech Republic;
(6) The European Union;
(7) Great Britain;
(8) India;
(9) Japan;
(10) Mexico;
(11) New Zealand;
(12) South Africa;
(13) South Korea;
(14) Sweden; or
(15) The United States; and
(B) One of the following tenors:
(1) Zero to 46 days;
(2) Greater than 46 and less than or equal to 107 days;
(3) Greater than 107 and less than or equal to 198 days;
(4) Greater than 198 and less than or equal to 381 days;
(5) Greater than 381 and less than or equal to 746 days;
(6) Greater than 746 and less than or equal to 1,842 days;
(7) Greater than 1,842 and less than or equal to 3,668 days;
(8) Greater than 3,668 and less than or equal to 10,973 days; or
(9) Greater than 10,973 days.
(ii) Other interest rate swaps not covered in the paragraph
(c)(1)(i) of this section.
(2) Credit asset class. Swaps in the credit asset class shall be
grouped into swap categories as follows.
(i) Based on the CDXHY product type, without options and a tenor
greater than 1,477 days and less than or equal to 2,207 days;
(ii) Based on the CDXHY product type, with only options and a tenor
greater than 1,477 days and less than or equal to 2,207 days;
(iii) Based on the iTraxx Europe product type, without options and
a tenor greater than 1,477 days and less than or equal to 2,207 days;
[[Page 75483]]
(iv) Based on the iTraxx Europe product type, with only options and
a tenor greater than 1,477 days and less than or equal to 2,207 days;
(v) Based on the iTraxx Crossover product type, without options and
a tenor greater than 1,477 days and less than or equal to 2,207 days;
(vi) Based on the iTraxx Crossover product type, with only options
and a tenor greater than 1,477 days and less than or equal to 2,207
days;
(vii) Based on the iTraxx Senior Financials product type, without
options and a tenor greater than 1,477 days and less than or equal to
2,207 days;
(viii) Based on the iTraxx Senior Financials product type, with
only options and a tenor greater than 1,477 days and less than or equal
to 2,207 days;
(ix) Based on the CDXIG product type and a tenor greater, without
options than 1,477 days and less than or equal to 2,207 days;
(x) Based on the CDXIG product type with only options and a tenor
greater, than 1,477 days and less than or equal to 2,207 days;
(xi) Based on the CDXEmergingMarkets product type and a tenor
greater than 1,477 days and less than or equal to 2,207 days;
(xii) Based on the CMBX product type; and
(xiii) Other credit swaps not covered in paragraphs (c)(2)(i)-(xii)
of this section.
(3) Equity asset class. There shall be one swap category consisting
of all swaps in the equity asset class.
(4) Foreign exchange asset class. Swaps in the foreign exchange
asset class shall be grouped into swap categories as follows:
(i) By the unique currency combinations of the United States
currency paired with a currency of one of the following countries or
union: Argentina, Australia, Brazil, Canada, Chile, China, Colombia,
the European Union, Great Britain, India, Indonesia, Japan, Malaysia,
Mexico, New Zealand, Peru, Philippines, Russia, South Korea, or Taiwan.
(ii) By the unique currency pair consisting of two separate
currencies from the following countries or union: Argentina, Australia,
Brazil, Canada, Chile, China, Colombia, the European Union, Great
Britain, India, Indonesia, Japan, Malaysia, Mexico, New Zealand, Peru,
Philippines, Russia, South Korea, and Taiwan.
(iii) Other swap categories in the foreign exchange asset class not
covered in paragraph (c)(4)(i) or (ii) of this section.
(5) Other commodity asset class. Swaps in the other commodity asset
class shall be grouped into swap categories as follows:
(i) For swaps that have a physical commodity underlier listed in
appendix D of this part, by the relevant physical commodity underlier;
or
(ii) Other commodity swaps that are not covered in paragraph
(c)(5)(i) of this section.
(d) Methodologies to determine appropriate minimum block sizes and
cap sizes. In determining appropriate minimum block sizes and cap sizes
for publicly reportable swap transactions, the Commission shall utilize
the following statistical calculations--
(1) 67-percent notional amount calculation. The Commission shall
use the following procedure in determining the 67-percent notional
amount calculation:
(i) For each relevant swap category, select all reliable SDR data
for at least a one-year period;
(ii) Convert the notional amount to the same currency or units and
use a trimmed data set;
(iii) Determine the sum of the notional amounts of swaps in the
trimmed data set;
(iv) Multiply the sum of the notional amount by 67 percent;
(v) Rank order the observations by notional amount from least to
greatest;
(vi) Calculate the cumulative sum of the observations until the
cumulative sum is equal to or greater than the 67-percent notional
amount calculated in paragraph (d)(1)(iv) of this section;
(vii) Select the notional amount associated with that observation;
(viii) Round the notional amount of that observation up to two
significant digits, or if the notional amount associated with that
observation is already significant to only two digits, increase that
notional amount to the next highest rounding point of two significant
digits; and
(ix) Set the appropriate minimum block size at the amount
calculated in paragraph (d)(1)(viii) of this section.
(2) 75-percent notional amount calculation. The Commission shall
use the procedure set out in paragraph (d)(1) of this section with 75-
percent in place of 67-percent.
(3) 50-percent notional amount calculation. The Commission shall
use the procedure set out in paragraph (d)(1) of this section with 50-
percent in place of 67-percent.
(e) No appropriate minimum block sizes for swaps in the equity
asset class. Publicly reportable swap transactions in the equity asset
class shall not be treated as block trades or large notional off-
facility swaps.
(f) Initial appropriate minimum block sizes. Prior to the
Commission making a determination as described in paragraph (g)(1) of
this section, the following initial appropriate minimum block sizes
shall apply:
(1) Prescribed appropriate minimum block sizes. Except as otherwise
provided in paragraph (f)(1) of this section, for any publicly
reportable swap transaction that falls within the swap categories
described in paragraph (b)(1), (b)(2), (b)(4)(i), (b)(5)(i), or
(b)(5)(ii) of this section, the initial appropriate minimum block size
for such publicly reportable swap transaction shall be the appropriate
minimum block size that is in appendix F of this part.
(2) Certain swaps in the foreign exchange and other commodity asset
classes. All swaps or instruments in the swap categories described in
paragraphs (b)(4)(ii) and (b)(5)(iii) of this section shall be eligible
to be treated as a block trade or large notional off-facility swap, as
applicable.
(3) Exception. Publicly reportable swap transactions described in
paragraph (b)(5)(i) of this section that are economically related to a
futures contract in appendix B of this part shall not qualify to be
treated as block trades or large notional off-facility swaps (as
applicable), if such futures contract is not subject to a designated
contract market's block trading rules.
(g) Post-initial process to determine appropriate minimum block
sizes--(1) Post-initial period. The Commission shall establish, by swap
categories, the appropriate minimum block sizes as described in
paragraphs (g)(2) through (6) of this section. No less than once each
calendar year thereafter, the Commission shall update the post-initial
appropriate minimum block sizes.
(2) Post-initial appropriate minimum block sizes for certain swaps.
The Commission shall determine post-initial appropriate minimum block
sizes for the swap categories described in paragraphs (c)(1)(i),
(c)(2)(i) through (xii), (c)(4)(i), and (c)(5)(i) of this section by
utilizing a one-year window of swap transaction and pricing data
corresponding to each relevant swap category reviewed no less than once
each calendar year, and by applying the 67-percent notional amount
calculation to such data. If the Commission is unable to determine an
appropriate minimum block size for any swap category described in
paragraph (c)(1)(i) of this section, the Commission shall assign a
block size of zero to such swap category.
[[Page 75484]]
(3) Certain swaps in the foreign exchange asset class. The parties
to a swap in the foreign exchange asset class described in paragraph
(c)(4)(ii) of this section may elect to receive block treatment if the
notional amount of either currency in the exchange is greater than the
minimum block size for a swap in the foreign exchange asset class
between the respective currency, in the same amount, and U.S. dollars
described in paragraph (c)(4)(i) of this section.
(4) All swaps or instruments in the swap category described in
paragraphs (c)(1)(ii), (c)(2)(xiii), (c)(4)(iii), and (c)(5)(ii) of
this section shall have a block size of zero and be eligible to be
treated as a block trade or large notional off-facility swap, as
applicable.
(5) Commission publication of post-initial appropriate minimum
block sizes. The Commission shall publish the appropriate minimum block
sizes determined pursuant to paragraph (g)(1) of this section on its
website at https://www.cftc.gov.
(6) Effective date of post-initial appropriate minimum block sizes.
Unless otherwise indicated on the Commission's website, the post-
initial appropriate minimum block sizes described in paragraph (g)(1)
of this section shall be effective on the first day of the second month
following the date of publication.
(h) Required notification--(1) Block trades entered into on a
trading system or platform, that is not an order book as defined in
Sec. 37.3(a)(3) of a swap execution facility, or pursuant to the rules
of a swap execution facility or designated contract market. (i) If the
parties make such an election, the reporting counterparty shall notify
the swap execution facility or designated contract market, as
applicable, of the parties' election. The parties to a publicly
reportable swap transaction may elect to have a publicly reportable
swap transaction treated as a block trade if such swap:
(A) Is executed on the trading system or platform, that is not an
order book as defined in Sec. 37.3(a)(3) of this chapter of a swap
execution facility, or pursuant to the rules of a swap execution
facility or designated contract market; and
(B) That has a notional amount at or above the appropriate minimum
block size.
(ii) The swap execution facility or designated contract market, as
applicable, shall notify the swap data repository of such a block trade
election when reporting the swap transaction and pricing data to such
swap data repository in accordance with this part.
(iii) The swap execution facility or designated contract market, as
applicable, shall not disclose swap transaction and pricing data
relating to a block trade subject to the block trade election prior to
the expiration of the applicable delay set forth in Sec. 43.5(d).
(2) Large notional off-facility swap election. The parties to a
publicly reportable swap transaction that is an off-facility swap and
that has a notional amount at or above the appropriate minimum block
size may elect to have the publicly reportable swap transaction treated
as a large notional off-facility swap. If the parties make such an
election, the reporting counterparty for such publicly reportable swap
transaction shall notify the applicable swap data repository of the
reporting counterparty's election when reporting the swap transaction
and pricing data in accordance with this part.
(i) Special provisions relating to appropriate minimum block sizes
and cap sizes. The following special rules shall apply to the
determination of appropriate minimum block sizes and cap sizes--
(1) Swaps with optionality. The notional amount of a swap with
optionality shall equal the notional amount of the component of the
swap that does not include the option component.
(2) Swaps with composite reference prices. The parties to a swap
transaction with composite reference prices may elect to apply the
lowest appropriate minimum block size or cap size applicable to one
component reference price's swap category of such publicly reportable
swap transaction.
(3) Notional amounts for physical commodity swaps. Unless otherwise
specified in this part, the notional amount for a physical commodity
swap shall be based on the notional unit measure utilized in the
related futures contract or the predominant notional unit measure used
to determine notional quantities in the cash market for the relevant,
underlying physical commodity.
(4) Currency conversion. Unless otherwise specified in this part,
when the appropriate minimum block size or cap size for a publicly
reportable swap transaction is denominated in a currency other than
U.S. dollars, parties to a swap and registered entities may use a
currency exchange rate that is widely published within the preceding
two business days from the date of execution of the swap transaction in
order to determine such qualification.
(5) Successor currencies. For currencies that succeed a super-major
currency, the appropriate currency classification for such currency
shall be based on the corresponding nominal gross domestic product
classification (in U.S. dollars) as determined in the most recent World
Bank, World Development Indicator at the time of succession. If the
gross domestic product of the country or nation utilizing the successor
currency is:
(i) Greater than $2 trillion, then the successor currency shall be
included among the super-major currencies;
(ii) Greater than $500 billion but less than $2 trillion, then the
successor currency shall be included among the major currencies; or
(iii) Less than $500 billion, then the successor currency shall be
included among the non-major currencies.
(6) Aggregation. The aggregation of orders for different accounts
in order to satisfy the minimum block trade size or the cap size
requirement is permitted for publicly reportable swap transactions only
if each of the following conditions is satisfied:
(i) The aggregation of orders is done by a person who:
(A) Is a commodity trading advisor registered pursuant to section
4n of the Act, or exempt from such registration under the Act, or a
principal thereof, and who has discretionary trading authority or
directs client accounts;
(B) Is an investment adviser who has discretionary trading
authority or directs client accounts and satisfies the criteria of
Sec. 4.7(a)(2)(v) of this chapter; or
(C) Is a foreign person who performs a similar role or function as
the persons described in paragraph (i)(6)(i)(A) or (B) of this section
and is subject as such to foreign regulation;
(ii) The aggregated transaction is reported pursuant to this part
and part 45 of this chapter as a block trade or large notional off-
facility swap, as applicable, subject to the cap size thresholds;
(iii) The aggregated orders are executed as one swap transaction;
and
(iv) Aggregation occurs on a designated contract market or swap
execution facility if the swap is listed for trading by a designated
contract market or swap execution facility.
(j) Eligible block trade parties. (1) Parties to a block trade
shall be ``eligible contract participants,'' as defined in section
1a(18) of the Act and 17 CFR chapter I. However, a designated contract
market may allow:
(i) A commodity trading advisor registered pursuant to section 4n
of the Act, or exempt from registration under the Act, or a principal
thereof, and who has discretionary trading authority or directs client
accounts,
[[Page 75485]]
(ii) An investment adviser who has discretionary trading authority
or directs client accounts and satisfies the criteria of Sec.
4.7(a)(2)(v) of this chapter, or
(iii) A foreign person who performs a similar role or function as
the persons described in paragraph (j)(1)(i) or (ii) of this section
and is subject as such to foreign regulation, to transact block trades
for customers who are not eligible contract participants.
(2) A person transacting a block trade on behalf of a customer
shall receive prior written instruction or consent from the customer to
do so. Such instruction or consent may be provided in the power of
attorney or similar document by which the customer provides the person
with discretionary trading authority or the authority to direct the
trading in its account.
0
7. Amend Sec. 43.7 by revising paragraphs (a)(1) through (3) and
adding paragraph (a)(4) to read as follows:
Sec. 43.7 Delegation of authority.
(a) * * *
(1) To publish the technical specification providing the form and
manner for reporting and publicly disseminating the swap transaction
and pricing data elements in appendix A of this part as described in
Sec. Sec. 43.3(d)(1) and 43.4(a);
(2) To determine cap sizes as described in Sec. 43.4(g) and (h);
(3) To determine whether swaps fall within specific swap categories
as described in Sec. 43.6(b) and (c); and
(4) To determine and publish post-initial appropriate minimum block
sizes as described in Sec. 43.6(g).
* * * * *
0
8. Revise appendix A to part 43 to read as follows:
Appendix A to Part 43--Swap Transaction and Pricing Data Elements
BILLING CODE 6351-01-P
[GRAPHIC] [TIFF OMITTED] TR25NO20.000
[[Page 75486]]
[GRAPHIC] [TIFF OMITTED] TR25NO20.001
[[Page 75487]]
[GRAPHIC] [TIFF OMITTED] TR25NO20.002
[[Page 75488]]
[GRAPHIC] [TIFF OMITTED] TR25NO20.003
[[Page 75489]]
[GRAPHIC] [TIFF OMITTED] TR25NO20.004
[[Page 75490]]
[GRAPHIC] [TIFF OMITTED] TR25NO20.005
[[Page 75491]]
[GRAPHIC] [TIFF OMITTED] TR25NO20.006
[[Page 75492]]
[GRAPHIC] [TIFF OMITTED] TR25NO20.007
[[Page 75493]]
[GRAPHIC] [TIFF OMITTED] TR25NO20.008
[[Page 75494]]
[GRAPHIC] [TIFF OMITTED] TR25NO20.009
[[Page 75495]]
[GRAPHIC] [TIFF OMITTED] TR25NO20.010
BILLING CODE 6351-01-C
0
9. Revise appendix C to part 43 to read as follows:
Appendix C to Part 43--Time Delays for Public Dissemination
The tables below provide clarification of the time delays for
public dissemination set forth in Sec. 43.5. The first row of each
table describes the asset classes to which each chart applies. The
column entitled ``Time Delay for Public Dissemination'' indicates
the precise length of time delay, starting upon execution, for the
public dissemination of such swap transaction and pricing data by a
swap data repository.
Table C1. Block Trades Executed on or Pursuant to the Rules of a
Swap Execution Facility or Designated Contract Market (Illustrating
Sec. 43.5(d))
All Asset Classes
------------------------------------------------------------------------
Time delay for public dissemination
-------------------------------------------------------------------------
15 minutes.
------------------------------------------------------------------------
Table C2. Large Notional Off-Facility Swaps Subject to the
Mandatory Clearing Requirement With at Least One Swap Dealer or
Major Swap Participant Counterparty (Illustrating Sec. 43.5(e)(2))
Table C2 excludes off-facility swaps that are excepted from the
mandatory clearing requirement pursuant to Section 2(h)(7) of the
Act and Commission regulations and those off-facility swaps that are
required to be cleared under Section 2(h)(2) of the Act and
Commission regulations but are not cleared.
All Asset Classes
------------------------------------------------------------------------
Time delay for public dissemination
-------------------------------------------------------------------------
15 minutes.
------------------------------------------------------------------------
Table C3. Large Notional Off-Facility Swaps Subject to the
Mandatory Clearing Requirement in Which Neither Counterparty Is a
Swap Dealer or Major Swap Participant (Illustrating Sec.
43.5(e)(3))
Table C3 excludes off-facility swaps that are excepted from the
mandatory clearing requirement pursuant to Section 2(h)(7) of the
Act and Commission regulations and those swaps that are required to
be cleared under Section 2(h)(2) of the Act and Commission
regulations but are not cleared.
All Asset Classes
------------------------------------------------------------------------
Time delay for public dissemination
-------------------------------------------------------------------------
1 hour.
------------------------------------------------------------------------
[[Page 75496]]
Table C4. Large Notional Off-Facility Swaps Not Subject to the
Mandatory Clearing Requirement With at Least One Swap Dealer or
Major Swap Participant Counterparty (Illustrating Sec. 43.5(f))
Table C4 includes large notional off-facility swaps that are not
subject to the mandatory clearing requirement or are exempt from
such mandatory clearing requirement pursuant to Section 2(h)(7) of
the Act and Commission regulations.
Interest Rates, Credit, Foreign Exchange, Equity Asset Classes
------------------------------------------------------------------------
Time delay for public dissemination
-------------------------------------------------------------------------
30 minutes.
------------------------------------------------------------------------
Table C5. Large Notional Off-Facility Swaps Not Subject to the
Mandatory Clearing Requirement With at Least One Swap Dealer or
Major Swap Participant Counterparty (Illustrating Sec. 43.5(g))
Table C5 includes large notional off-facility swaps that are not
subject to the mandatory clearing requirement or are excepted from
such mandatory clearing requirement pursuant to Section 2(h)(7) of
the Act and Commission regulations.
Other Commodity Asset Class
------------------------------------------------------------------------
Time delay for public dissemination
-------------------------------------------------------------------------
2 hours.
------------------------------------------------------------------------
Table C6. Large Notional Off-Facility Swaps Not Subject to the
Mandatory Clearing Requirement in Which Neither Counterparty Is a
Swap Dealer or Major Swap Participant (Illustrating Sec. 43.5(h))
Table C6 includes large notional off-facility swaps that are not
subject to the mandatory clearing requirement or are exempt from
such mandatory clearing requirement pursuant to Section 2(h)(7) of
the Act and Commission regulations.
All Asset Classes
------------------------------------------------------------------------
Time delay for public dissemination
-------------------------------------------------------------------------
24 business hours.
------------------------------------------------------------------------
0
10. Revise appendix D to part 43 to read as follows:
Appendix D to Part 43--Other Commodity Swap Categories
Commodity: Metals
Aluminum
Copper
Gold
Lead
Nickel
Silver
Virtual
Zinc
Commodity: Energy
Electricity
Fuel Oil
Gasoline--RBOB
Heating Oil
Natural Gas
Oil
Commodity: Agricultural
Corn
Soybean
Coffee
Wheat
Cocoa
Sugar
Cotton
Soymeal
Soybean oil
Cattle
Hogs
0
11. Revise appendix E to part 43 to read as follows:
Appendix E to Part 43--Other Commodity Geographic Identification for
Public Dissemination Pursuant to Sec. 43.4(c)(4)(iii)
Swap data repositories are required by Sec. 43.4(c)(4)(iii) to
publicly disseminate any specific delivery point or pricing point
associated with publicly reportable swap transactions in the ``other
commodity'' asset class pursuant to Tables E1 and E2 in this
appendix. If the underlying asset of a publicly reportable swap
transaction described in Sec. 43.4(c)(4)(iii) has a delivery or
pricing point that is located in the United States, such information
shall be publicly disseminated pursuant to the regions described in
Table E1 in this appendix. If the underlying asset of a publicly
reportable swap transaction described in Sec. 43.4(c)(4)(iii) has a
delivery or pricing point that is not located in the United States,
such information shall be publicly disseminated pursuant to the
countries or sub-regions, or if no country or sub-region, by the
other commodity region, described in Table E2 in this appendix.
Table E1. U.S. Delivery or Pricing Points
Other Commodity Group
Region
Natural Gas and Related Products
Midwest
Northeast
Gulf
Southeast
Western
Other--U.S.
Petroleum and Products
New England (PADD 1A)
Central Atlantic (PADD 1B)
Lower Atlantic (PADD 1C)
Midwest (PADD 2)
Gulf Coast (PADD 3)
Rocky Mountains (PADD 4)
West Coast (PADD 5)
Other--U.S.
Electricity and Sources
Florida Reliability Coordinating Council (FRCC)
Midwest Reliability Organization (MRO)
Northeast Power Coordinating Council (NPCC)
Reliability First Corporation (RFC)
SERC Reliability Corporation (SERC)
Southwest Power Pool, RE (SPP)
Texas Regional Entity (TRE)
Western Electricity Coordinating Council (WECC)
Other--U.S.
All Remaining Other Commodities (Publicly disseminate the region. If
pricing or delivery point is not region-specific, indicate ``U.S.'')
Region 1--(Includes Connecticut, Maine, Massachusetts, New
Hampshire, Rhode Island, Vermont)
Region 2--(Includes New Jersey, New York)
Region 3--(Includes Delaware, District of Columbia, Maryland,
Pennsylvania, Virginia, West Virginia)
Region 4--(Includes Alabama, Florida, Georgia, Kentucky,
Mississippi, North Carolina, South Carolina, Tennessee)
Region 5--(Includes Illinois, Indiana, Michigan, Minnesota,
Ohio, Wisconsin)
Region 6--(Includes Arkansas, Louisiana, New Mexico, Oklahoma,
Texas)
Region 7--(Includes Iowa, Kansas, Missouri, Nebraska)
Region 8--(Includes Colorado, Montana, North Dakota, South
Dakota, Utah, Wyoming)
Region 9--(Includes Arizona, California, Hawaii, Nevada)
Region 10--(Includes Alaska, Idaho, Oregon, Washington)
Table E2. Non-U.S. Delivery or Pricing Points
Other Commodity Regions
Country or Sub-Region
North America (Other than U.S.)
Canada
Mexico
Central America
South America
Brazil
Other South America
Europe
Western Europe
Northern Europe
Southern Europe
Eastern Europe (excluding Russia)
Russia
Africa
Northern Africa
Western Africa
Eastern Africa
Central Africa
Southern Africa
Asia-Pacific
Northern Asia (excluding Russia)
Central Asia
Eastern Asia
Western Asia
Southeast Asia
Australia/New Zealand/Pacific Islands
Issued in Washington, DC, on September 24, by the Commission.
Robert Sidman,
Deputy Secretary of the Commission.
Note: The following appendices will not appear in the Code of
Federal Regulations.
[[Page 75497]]
Appendices to Real-Time Public 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.
---------------------------------------------------------------------------
\1\ Statement of Chairman Heath P. Tarbert in Support of
Proposed Rules on Swap Data Reporting (Feb. 20, 2020), https://www.cftc.gov/PressRoom/SpeechesTestimony/tabertstatement022020
(hereinafter, Tarbert, Proposal Statement).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\2\ See Heath P. Tarbert, Volatility Ain't What it Used to Be,
Wall Street Journal (Mar. 23, 2020), https://www.wsj.com/articles/volatility-aint-what-it-used-to-be-11585004897?mod=searchresults&page=1&pos=1 (hereinafter Tarbert,
Volatility).
\3\ Id.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\4\ The final rule's definition of ``block trade'' is provided
in regulation 43.2.
\5\ See CFTC Core Values, https://www.cftc.gov/About/Mission/index.htm.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\6\ Aesop, ``The Dog and the Shadow,'' The Harvard Classics,
https://www.bartleby.com/17/1/3.html.
\7\ ABC News, One-on-One with Bills Gates (Feb. 21, 2008),
https://abcnews.go.com/WNT/CEOProfiles/story?id=506354&page=1.
\8\ See CFTC Strategic Plan 2020-2024, at 4 (discussing
Strategic Goal 3), https://www.cftc.gov/media/3871/CFTC2020_2024StrategicPlan/download.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\9\ Tarbert, Proposal Statement, supra note 1.
\10\ See CFTC Vision Statement, available at https://
www.cftc.gov/About/
AboutTheCommission#:~:text=CFTC%20Vision%20Statement,standard%20for%2
0sound%20derivatives%20regulation.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\11\ See CFTC, Technical Specification Document, https://www.cftc.gov/media/3496/DMO_Part43_45TechnicalSpecification022020/download.
\12\ Since November 2014, the CFTC and regulators in other
jurisdictions have collaborated 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''). The Harmonisation Group
developed global guidance for key OTC derivatives data elements,
including the Unique Transaction Identifier, the Unique Product
Identifier, and critical data elements other than UTI and UPI.
---------------------------------------------------------------------------
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
[[Page 75498]]
now has been ``a black box of potential systemic risk.'' \16\
---------------------------------------------------------------------------
\13\ See CFTC Strategic Plan, supra note 7, at 5.
\14\ Tarbert, Proposal Statement, supra note 1, note 2.
\15\ Hon. Louis D. Brandeis, Other People's Money 62 (National
Home Library Foundation ed. 1933).
\16\ Tarbert, Proposal Statement, supra note 1.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\17\ Tarbert, Proposal Statement, supra note 1, note 14.
\18\ Id.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\19\ Tarbert, Proposal Statement, supra note 1.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\20\ CFTC Strategic Plan, supra note 7, at 7.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\21\ Tarbert, Proposal Statement, supra note 1.
\22\ Id.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\23\ See Tarbert, Proposal Statement, supra note 1.
\24\ See id.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\25\ See CFTC Vision Statement, https://www.cftc.gov/About/
AboutTheCommission#:~:text=CFTC%20Vision%20Statement,standard%20for%2
0sound%20derivatives%20regulation.
\26\ The CFTC also co-chaired the Financial Stability Board's
working group on UTI and UPI governance.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\27\ Limiting error correction to open swaps--versus all swaps
that a reporting counterparty may have entered into at any point in
time--is also a sensible approach to addressing risk in the markets.
The final Part 49 rule limits error correction to errors discovered
prior to the expiration of the five-year recordkeeping period in
regulation 45.2, ensuring that market participants are not tasked
with addressing old or closed transactions that pose no active risk.
---------------------------------------------------------------------------
4. Relief for End Users
I have long said that if our derivatives markets are not working
for agriculture, then
[[Page 75499]]
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\
---------------------------------------------------------------------------
\28\ Opening Statement of Chairman Heath P. Tarbert Before the
April 22 Agricultural Advisory Committee Meeting (April 22, 2020),
https://www.cftc.gov/PressRoom/SpeechesTestimony/tarbertstatement042220.
\29\ CFTC Strategic Plan, supra note 7, at 6.
---------------------------------------------------------------------------
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
The Commodity Exchange Act (CEA) specifically directs the
Commission to ensure that real-time public reporting requirements
for swap transactions (i) do not identify the participants; (ii)
specify the criteria for what constitutes a block trade and the
appropriate time delay for reporting such block trades, and (iii)
take into account whether public disclosure will materially reduce
market liquidity.\1\ The Commission has long recognized the
intrinsic tension between the policy goals of enhanced transparency
versus market liquidity. In fact, in 2013, the Commission noted that
the optimal point in this interplay between enhanced swap
transaction transparency and the potential that, in certain
circumstances, this enhanced transparency could reduce market
liquidity ``defies precision.'' \2\ I agree with the Commission that
the ideal balance between transparency and liquidity is difficult to
ascertain and necessarily requires not only robust data but also the
exercise of reasoned judgement, particularly in the swaps
marketplace with a finite number of institutional investors trading
hundreds of thousands of products, often by appointment.
---------------------------------------------------------------------------
\1\ CEA Section 2(a)(13)(E).
\2\ Procedures to Establish Appropriate Minimum Block Sizes for
Large Notional Off-Facility Swaps and Block Trades, 78 FR 32866,
32917 (May 31, 2013).
---------------------------------------------------------------------------
Unfortunately, I fear the balance struck in this rule misses
that mark. The final rule before us today clearly favors
transparency over market liquidity, with the sacrifice of the latter
being particularly more acute given the nature of the swaps market.
In this final rule, the Commission asserts that the increased
transparency resulting from higher block trade thresholds and cap
sizes will lead to increased competition, stimulate more trading,
and enhance liquidity and pricing. That is wishful thinking, which
is no basis upon which to predicate a final rule. As numerous
commenters pointed out, this increased transparency comes directly
at the expense of market liquidity, competitive pricing for end-
users, and the ability of dealers to efficiently hedge their large
swap transactions. While the Commission hopes the 67% block
calculation will bring about the ample benefits it cites, I think
the exact opposite is the most probable outcome. I remain
unconvinced that the move from the 50% notional amount calculation
for block sizes to the 67% notional amount calculation is necessary
or appropriate. Unfortunately, the decision to retain the 67%
calculation, which was adopted in 2013 but never implemented, was
not seriously reconsidered in this rule.
Instead, in the final rule, the Commission asserts that it
``extensively analyzed the costs and benefits of the 50-percent
threshold and 67-percent threshold when it adopted the phased-in
approach'' in 2013. Respectfully, I believe that statement
drastically inflates the Commission's prior analysis. I have no
doubt the Commission ``analyzed'' the costs and benefits in 2013 to
the best of its ability. However, the reality is that in 2013, as
the Commission acknowledged in its own cost-benefit analysis, ``in a
number of instances, the Commission lacks the data and information
required to precisely estimate costs, owing to the fact that these
markets do not yet exist or are not yet fully developed.'' \3\ In
2013, the Commission was just standing up its SEF trading regime,
had not yet implemented its trade execution mandate, and had adopted
interim time delays for all swaps--meaning that, in 2013 when it
first adopted this proposal, no swap transaction data was publicly
disseminated in real time. Seven years later, the Commission has a
robust, competitive SEF trading framework and a successful real-time
reporting regime that results in 87% of IRS trades and 82% of CDS
trades being reported in real time. In light of the sea change that
has occurred since 2013, I believe the Commission should have
undertaken a comprehensive review of whether the transition to a 67%
block trade threshold was appropriate.
---------------------------------------------------------------------------
\3\ Id.
---------------------------------------------------------------------------
In my opinion, the fact that currently 87% of IRS and 82% of CDS
trades are reported in real time is evidence that the transparency
policy goals underlying the real-time reporting requirements have
already been achieved. In 2013, the Commission, quoting directly
from the Congressional Record, noted that when it considered the
benefits and effects of enhanced market transparency, the ``guiding
principle in setting appropriate block trade levels [is that] the
vast majority of swap transactions should be exposed to the public
market through exchange trading.'' \4\ The current block sizes have
resulted in exactly that--the vast majority of trades being reported
in real time. The final rule, acknowledging these impressively high
percentages, nevertheless concludes that because less than half of
total IRS and CDS notional amounts is reported in real time,
additional trades should be forced into real-time reporting. I reach
the exact opposite conclusion. By my logic, the 13% of IRS and 18%
of CDS trades that currently receive a time delay represent roughly
half of notional for those asset classes. In other words, these
trades are huge. In my view, these trades are exactly the type of
outsized transactions that Congress appropriately decided should
receive a delay from real-time reporting.
---------------------------------------------------------------------------
\4\ Id. at 32870 n.41 (quoting from the Congressional Record--
Senate, S5902, S5922 (July 15, 2010) (emphasis added)).
---------------------------------------------------------------------------
Despite my reservations, I am voting for the real-time reporting
rule before the Commission today for several reasons. First, I
worked hard to ensure that this final rule contains many significant
improvements from the initial draft we were first presented, as well
as the original proposal which I supported. For example, in order to
make sure the CDS swap categories are representative, the Commission
established additional categories for CDS with optionality. In
addition, the Commission is also providing guidance that certain
risk-reduction exercises, which are not arm's length transactions,
are not publicly reportable swap transactions, and therefore should
be excluded from the block size calculations.
Second, while most of the changes to the part 43 rules will have
a compliance period of 18 months, compliance with the new block and
cap sizes will not be not be required until one year later,
providing market participants with a 30-month compliance period and
the Commission with an extra 12 months to revisit this issue with
actual data analysis, as good government and well-reasoned public
policy demands. This means that when any final block and cap sizes
go into effect for the amended swap categories, it will be with the
benefit of cleaner, more precise data resulting from our part 43
final rule improvements adopted today. It is my firm expectation
that DMO staff will review the revised block trade sizes, in light
of the new data, at that time to ensure they are appropriately
calibrated for each swap category. In addition, as required by the
rule, DMO will publish the revised block trade and cap sizes the
month before they go effective. I am hopeful that with the benefit
of time, cleaner data and public comment, the Commission can, if
necessary, re-calibrate the minimum block sizes to ensure they
strike the appropriate balance built into our statute between the
liquidity needs of the market and transparency. To the extent market
participants also have concerns about maintaining the current time
delays for block trades given the move to the 67% calculation, I
encourage them to reach out to DMO and my fellow Commissioners
during the intervening 30-month window. That time frame is more than
enough to further refine the reporting delays, as necessary, for the
new swap categories based on sound data.
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,
[[Page 75500]]
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.\5\
---------------------------------------------------------------------------
\5\ Roadmap to Achieve High Quality Swap Data, available at
https://www.cftc.gov/idc/groups/public/@newsroom/documents/file/dmo_swapdataplan071017.pdf.
---------------------------------------------------------------------------
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.\6\
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.\7\
---------------------------------------------------------------------------
\6\ See Commodity Futures Modernization Act of 2000, Public Law
106-554, 114 Stat. 2763 (2000).
\7\ See The Financial Crisis Inquiry Commission, The Financial
Crisis Inquiry Report: Final Report of the National Commission on
the Causes of the Financial and Economic Crisis in the United States
(Official Government Edition), at 299, 352, 363-364, 386, 621 n. 56
(2011), available at https://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf.
---------------------------------------------------------------------------
In the aftermath of the financial crisis, Congress enacted the
Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010
(Dodd-Frank Act).\8\ 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.\9\ 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.
---------------------------------------------------------------------------
\8\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010).
\9\ G20, Leaders' Statement, The Pittsburgh Summit (Sept. 24-25,
2009) at 9, available at https://www.treasury.gov/resource-center/international/g7-g20/Documents/pittsburgh_summit_leaders_statement_250909.pdf.
---------------------------------------------------------------------------
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.'' \10\ 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.'' \11\
---------------------------------------------------------------------------
\10\ 7 U.S.C. 2(a)(13)(A).
\11\ Id.
---------------------------------------------------------------------------
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.'' \12\
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.'' \13\ 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.
---------------------------------------------------------------------------
\12\ 7 U.S.C. 2(a)(13)(B).
\13\ 7 U.S.C. 2(a)(13)(C)(ii-iv).
---------------------------------------------------------------------------
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) \14\ without incurring
unreasonable burdens.
---------------------------------------------------------------------------
\14\ 7 U.S.C. 24a(c)(2).
---------------------------------------------------------------------------
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.\15\ 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.
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\15\ Commission staff has identified the lack of these fields as
limiting constraints on the usefulness of SDR data to identify which
swaps should be counted towards a person's de minimis threshold, and
the ability to precisely assess the current de minimis threshold or
the impact of potential changes to current exclusions. See De
Minimis Exception to the Swap Dealer Definition, 83 FR 27444, 27449
(proposed June 12, 2018); Swap Dealer De Minimis Exception Final
Staff Report at 19 (Aug. 15, 2016); (Nov. 18, 2015), available at
https://www.cftc.gov/sites/default/files/idc/groups/public/@swaps/documents/file/dfreport_sddeminis081516.pdf; Swap Dealer De Minimis
Exception Preliminary Report at 15 (Nov. 18, 2015), available at
https://www.cftc.gov/sites/default/files/idc/groups/public/@swaps/documents/file/dfreport_sddeminis_1115.pdf.
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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 Dawn D. Stump
I have often referenced the need for a review of policies as per
the wishes of the G-20 Leaders' Statement from the Pittsburgh
[[Page 75501]]
Summit in 2009, which included an expectation that members would
``assess regularly implementation and whether it is sufficient to
improve transparency in the derivatives markets, mitigate systemic
risk, and protect against market abuse.'' \1\ Today, the Commission
finds itself debating a challenging issue with a robust history. In
order to properly assess whether we are making the right choices, I
prefer to consider where we have come from. Luckily, the history of
prior Commissions' deliberations and transparency of regulatory
rule-writing efforts affords us such an opportunity for a look back.
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\1\ See Leaders' Statement from the 2009 G-20 Summit in
Pittsburgh, Pa. at 9 (Sept. 24-25, 2009), available at https://www.treasury.gov/resource-center/international/g7-g20/Documents/pittsburgh_summit_leaders_statement_250909.pdf.
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Prior to the Dodd-Frank Act \2\ and enactment of the CFTC's swap
data reporting regulations, there was very limited, if any, public
transparency and price discovery in swaps markets. Today, under the
initial calculation applied for block sizes, Commission staff states
that 87% of interest rate swap transactions and 82% of credit
derivative swap transactions are reported in real time.
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\2\ Public Law 111-203, 124 Stat. 1376 (2010).
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The Commission previously decided \3\ that an initial
calculation (50-percent threshold notional) was appropriate to
determine block sizes, and that it would be followed by
implementation of a higher block size threshold (67-percent
threshold notional) when one year of reliable data from SDRs was
available. That Commission was in the unenviable position of making
policy determinations without the benefit of the relevant market
structures being operational. The original block calculation and the
associated sizes were determined before both the trading venues
where swaps transact (Swap Execution Facilities, or SEFs) and the
data warehouses that collect swaps market information reported to
the Commission (Swap Data Repositories, or SDRs) were fully
operational.
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\3\ Procedures to Establish Appropriate Minimum Block Sizes for
Large Notional Off-Facility Swaps and Block Trades, 78 FR 32866 (May
31, 2013).
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In the Dodd-Frank Act, Congress amended the Commodity Exchange
Act (CEA) to require the Commission to ``take into account whether
the public disclosure will materially reduce market liquidity.'' \4\
Whether the Commission did (or was able to) make such an assessment
in 2013, when it finalized the original process and treatment for
block transactions, is debatable. I cannot say for certain whether
the original calculation was appropriate. It was based on limited
available data, such as public data that was not applicable to our
jurisdictional swaps markets. It was constructed well before the
regulations it impacted, the SEF trading mandate. And the data that
it should have relied on, from SDRs, was not available, much less
reliable. The Commission based its determination of block size, and
the resulting SEF execution methods, on a calculation contrived
without the benefit of data from SEFs or SDRs.
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\4\ CEA Section 2(a)(13)(E)(iv), 7 U.S.C. 2(a)(13)(E)(iv).
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Despite many years of experience with SEFs and SDRs since then,
the Commission is today choosing to continue down the previously
determined path of raising block sizes instead of leveraging data.
Commenters, including entities responsible for providing liquidity
and entities utilizing swaps to perform risk management, expressed
concerns that increasing the block size thresholds would negatively
impact the swaps market and raise costs for end users. Yet, we are
moving forward to further limit the number of transactions that can
receive block treatment under real time reporting, and the resulting
allowable methods of execution if a swap is included in the SEF
mandate. That is, we are raising the threshold largely because a
previous Commission decided to do so many years ago.
Though I may not be happy that this Commission is left to
grapple with an arbitrary metric set by a former Commission in 2013,
even that Commission recognized the importance of considering data
before proceeding. The original block rules spoke of the Commission
updating the threshold once it had one year's worth of reliable
data. No Commission has ever updated the calculation to adopt higher
block sizes, and one would reasonably expect this is due to a lack
of reliable data. Today, the Commission is rectifying data
reliability challenges by adopting a robust set of rule amendments
to improve the quality of swap data reporting, but chooses not to
re-assess the block size thresholds with the improved data that will
result from those new rules. Perhaps that data will show that we
have gone too low or too high in setting the thresholds. I would
prefer not to predetermine the outcome until we can ascertain and
evaluate the improved data.
The Commission proposed an updated list of categories and
refreshed block sizes in February 2020. In the interim period,
changes, some that I hope will yield positive results, have been
made to affect the categories, calculations, and, as a result, the
actual block sizes. However, the lack of transparency concerns me. I
believe in this case, it would benefit the Commission to hear from
market participants as to their views on the changes to all of these
parameters.
I believe that the driving force behind the substantial rewrite
of the swap data reporting rule set we are adopting today is that
the Commission is not confident in the quality of SDR data, and that
an overhaul is needed to provide the CFTC with complete and accurate
information for data-driven policy decision making. I feel strongly
that the vast majority of the rule amendments before the Commission
today will improve the quality of the data reported to SDRs and
available for our analysis. I am encouraged that after the 18-month
compliance date, staff will be able to better review reliable data
and inform the Commission of their analysis as it pertains to block
size. I believe the more prudent course of action would be to
finalize the remainder of the rules before us today, but set aside
any Commission action on block size, thereby preserving current
block sizes until the Commission and the public can consider these
issues in light of the improved reporting rules and with the new,
more reliable data that will result from those rules.
The Commission should incorporate reliable swaps data and what
it has learned since the inception of SEFs to make a more fully
informed decision on this very meaningful metric. The numbers
established in 2013 were arbitrary, and eight years later a
different Commission is now faced with reconciling that, still
without the availability of reliable data. I believe it is equally
unfair to leave another Commission, 30 months from now, with the
same predicament. We should not be finalizing a rule to transition
to the higher block size calculation today while dictating that
other Commissioners implement our decision or have to deal with the
consequences of our decision making that is based on contemporary,
unreliable data.
It is unclear what, if any, Commission or staff analysis might
transpire between the effective date of the swap data reporting
rules (18 months) and the block size threshold compliance date (30
months). I intend to ensure that any input received will be taken
seriously, notwithstanding its retrospective nature and the fact
that it is well beyond many of our terms of office. I wish for the
Commission to soon hold a formal forum to receive input from
affected market participants, especially end users in these markets,
such as those who manage teacher retirement and college savings
plans for millions of Americans. It is that input, and reliable data
reported pursuant to the enhanced reporting rules we are adopting
today, on which the Commission's block determinations should be
based.
Appendix 6--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
[[Page 75502]]
and ``regulatory reporting'' of complete swap data to registered
swap data repositories (``SDRs'').\2\
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\1\ See CEA section 3b.
\2\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
section 727, Public Law 111-203, 124 Stat. 1376 (2010) (the ``Dodd-
Frank Act''), available at https://www.gpo.gov/fdsys/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf.
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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\
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\3\ Swap Data Recordkeeping and Reporting Requirements, 77 FR
2136 (Jan. 13, 2012); and Swap Data Repositories: Registration
Standards, Duties and Core Principles, 76 FR 54538 (Sept. 1, 2011).
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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.
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\4\ CEA section 2(13)(B) (emphasis added).
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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
[[Page 75503]]
would fragment the global swaps market and undermine U.S. swap
markets.\5\
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\5\ In my dissenting statement on the Commission's recent
revisions to it cross-border regulations, I detailed a number of
concerns with how those revisions could provide legal avenues for
U.S. swap dealers to migrate swap trading activity currently subject
to CFTC trade execution requirements to non-U.S. markets that would
not be subject to those CFTC requirements.
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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.
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\6\ Swap creation data reports replace primary economic terms
(``PET'') and confirmation data previously required in part 45. The
final rules also eliminate optional ``state data'' reporting, which
resulted in extensive duplicative reports crowding SDR databases,
and often included no new information.
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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\
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\7\ The amended reporting deadlines are also consistent with
comparable swap data reporting obligations under the Securities and
Exchange Commission's and European Securities and Markets
Authority's rules.
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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.
[FR Doc. 2020-21568 Filed 11-24-20; 8:45 am]
BILLING CODE 6351-01-P
