Swap Data Recordkeeping and Reporting Requirements, 75503-75601 [2020-21569]

Download as PDF 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 75504 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 Acting Deputy Director, (202) 418–5785, mtente@cftc.gov; Division of Market Oversight, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581; Kristin Liegel, Surveillance Analyst, (312) 596–0671, kliegel@ cftc.gov, Division of Market Oversight, Commodity Futures Trading Commission, 525 West Monroe Street, Suite 1100, Chicago, Illinois 60661; Kate Mitchel, Business Analyst, (202) 418– 5871, kmitchel@cftc.gov, Office of Data and Technology; Nancy Doyle, Senior Special Counsel, (202) 418–5136, ndoyle@cftc.gov, Office of International Affairs; John Coughlan, Research Economist, (202) 418–5944, jcoughlan@ cftc.gov, Office of the Chief Economist, in each case at the Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581. SUPPLEMENTARY INFORMATION: I. Background II. Amendments to Part 45 A. § 45.1—Definitions B. § 45.2—Swap Recordkeeping C. § 45.3—Swap Data Reporting: Creation Data D. § 45.4—Swap Data Reporting: Continuation Data E. § 45.5—Unique Transaction Identifiers F. § 45.6—Legal Entity Identifiers G. § 45.8—Determination of Which Counterparty Shall Report H. § 45.10—Reporting to a Single Swap Data Repository I. § 45.11—Data Reporting for Swaps in a Swap Asset Class Not Accepted by Any Swap Data Repository J. § 45.12—Voluntary Supplemental Reporting K. § 45.13—Required Data Standards L. § 45.15—Delegation of Authority III. Amendments to Part 46 A. § 46.1—Definitions B. § 46.3—Data Reporting for PreEnactment Swaps and Transition Swaps C. § 46.10—Required Data Standards D. § 46.11—Reporting of Errors and Omissions in Previously Reported Data IV. Amendments to part 49 A. § 49.2—Definitions B. § 49.4—Withdrawal from Registration C. § 49.10—Acceptance and Validation of Data V. Swap Data Elements Reported to Swap Data Repositories A. Proposal B. Comments on the Proposal and Commission Determination VI. Compliance Date VII. Related Matters A. Regulatory Flexibility Act B. Paperwork Reduction Act C. Cost-Benefit Considerations D. Antitrust Considerations I. Background Pursuant to section 2(a)(13)(G) of the Commodity Exchange Act (‘‘CEA’’), all swaps, whether cleared or uncleared, VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 must be reported to SDRs.1 CEA section 21(b) directs the Commission to prescribe standards for swap data recordkeeping and reporting.2 Part 45 of the Commission’s regulations implements the swap data reporting rules.3 The part 45 regulations require SEFs, DCMs, and reporting counterparties to report swap data to SDRs. SDRs collect and maintain data related to swap transactions, keeping such data electronically available for regulators or the public.4 Since the Commission adopted the part 45 regulations, Commission staff has worked with SDRs, SEFs, DCMs, reporting counterparties, and nonreporting counterparties to interpret and implement of the requirements established in the regulations. Several years ago, the Division of Market Oversight (‘‘DMO’’) announced 5 its Roadmap to Achieve High Quality Swaps Data (‘‘Roadmap’’),6 consisting of a comprehensive review to, among other things: (i) ensure the CFTC receives accurate, complete, and high-quality data on swap transactions for its regulatory oversight role; and (ii) streamline reporting, reduce messages that must be reported, and right-size the number of data elements reported to meet the agency’s priority use-cases for swap data.7 In February 2020, the Commission proposed certain changes to its parts 45, 46, and 49 regulations (‘‘Proposal’’) 8 to simplify the requirements for reporting swaps, require SDRs to validate swap reports, permit the transfer of swap data between SDRs, alleviate reporting burdens for non-SD/MSP reporting counterparties, and harmonize the swap 17 U.S.C. 2(a)(13)(G) (2020). 7 U.S.C. 24a(b)(1)–(3). 3 Commission regulations referred to herein are found at 17 CFR chapter I. 4 The term ‘‘swap data repository’’ means any person that collects and maintains information or records with respect to transactions or positions in, or the terms and conditions of, swaps entered into by third parties for the purpose of providing a centralized recordkeeping facility for swaps. See 7 U.S.C. 1a(48). Regulations governing core principles and registration requirements for, and duties of, SDRs are in part 49. See generally 17 CFR part 49. 5 See Commission Letter 17–33, Division of Market Oversight 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. 6 The Roadmap is available at https:// www.cftc.gov/sites/default/files/idc/groups/public/ @newsroom/documents/file/dmo_ swapdataplan071017.pdf. Comment letters related to the Roadmap are available at https:// comments.cftc.gov/PublicComments/ CommentList.aspx?id=1824. 7 See Commission Letter 17–33, supra at n.5; Roadmap, supra at n.6. 8 See Swap Data Recordkeeping and Reporting Requirements, 85 FR 21578 (Apr. 17, 2020). 2 See PO 00000 Frm 00084 Fmt 4701 Sfmt 4700 data elements counterparties report to SDRs with international technical guidance. The Commission received 26 comment letters on the Proposal.9 After considering the comments, the Commission is adopting parts of the rules as proposed, although there are proposed changes the Commission has determined to either revise or decline to adopt. The Commission believes the rules it is adopting herein will provide clarity and lead to more effective swap data reporting by SEFs, DCMs, and reporting counterparties. Before discussing the changes to the regulations, the Commission highlights the important role international data harmonization efforts have played in this rulemaking. As discussed in the Proposal, since November 2014, regulators across major derivatives jurisdictions, including the CFTC, have come together through the Committee on Payments and Market Infrastructures (‘‘CPMI’’) and the International Organization of Securities Commissions (‘‘IOSCO’’) working group for the harmonization of key over-the-counter (‘‘OTC’’) derivatives data elements (‘‘Harmonisation Group’’) to develop global guidance regarding the definition, format, and usage of key OTC derivatives data elements reported to trade repositories (‘‘TRs’’), including the Unique Transaction Identifier (‘‘UTI’’), the Unique Product Identifier (‘‘UPI’’), and critical data elements other than UTI and UPI (‘‘CDE’’).10 9 The following entities submitted comment letters: American Public Gas Association (‘‘APGA’’); BP Energy Company (‘‘BP’’); Chatham Financial (‘‘Chatham’’); Chris Barnard; CME Group (‘‘CME’’); Coalition of Physical Energy Companies (‘‘COPE’’); Commercial Energy Working Group (‘‘CEWG’’); Credit Suisse (‘‘CS’’); The Data Coalition (‘‘Data Coalition’’); DTCC Data Repository (U.S.) LLC (‘‘DTCC’’); Edison Electric Institute (‘‘EEI’’) and Electric Power Supply Association (‘‘EPSA’’) (collectively, ‘‘EEI–EPSA’’); Eurex Clearing AG (‘‘Eurex’’); Foreign Exchange Professionals Association (‘‘FXPA’’); Futures Industry Association (‘‘FIA’’); Global Foreign Exchange Division of the Global Financial Markets Association (collectively, ‘‘GFXD’’); Global Legal Entity Identifier Foundation (‘‘GLEIF’’); ICE Clear Credit LLC and ICE Clear Europe Limited (‘‘ICE DCOs’’); ICE Trade Vault, LLC (‘‘ICE SDR’’); IHS Markit (‘‘Markit’’); International Energy Credit Association (‘‘IECA’’); International Swaps and Derivatives Association, Inc. (‘‘ISDA’’) and Securities Industry and Financial Markets Association (‘‘SIFMA’’) (collectively, ‘‘ISDA– SIFMA’’); Japanese Bankers Association (‘‘JBA’’); Japan Securities Clearing Corporation (‘‘JSCC’’); LCH Ltd and LCH SA (collectively, ‘‘LCH’’); National Rural Electric Cooperative Association and American Public Power Association (‘‘NRECA– APPA’’); and XBRL US, Inc. (‘‘XBRL’’). 10 In February 2017 and September 2017, respectively, the Harmonisation Group published Guidance on the Harmonisation of the Unique Transaction Identifier (‘‘UTI Technical Guidance’’) and Technical Guidance on the Harmonisation of E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 The Commission has played an active role in the development and publication of each of the Harmonisation Group’s technical guidance documents. For the CDE Technical Guidance in particular, as part of the Harmonisation Group, Commission staff worked alongside representatives from Canada, France, Germany, Hong Kong, Japan, Singapore, and the United Kingdom, among others, to provide feedback regarding the data elements, taking into account the Commission’s experience with swap data reporting thus far. Commission staff also participated in the solicitation of responses to three public consultations on the CDE Technical Guidance, along with related industry workshops and conference calls.11 The Commission’s sustained, active role in the Harmonisation Group in developing global guidance on key OTC derivatives data elements reported to TRs is part of the Commission’s broader, long-range goal of continued efforts to achieve international harmony in the area of swaps reporting. The Commission has co-led efforts to design ongoing international regulatory oversight of these standards in the Financial Stability Board (‘‘FSB’’) Working Group on UPI and UTI Governance (‘‘GUUG’’) and the Commission’s efforts to achieve international harmonization in the entire clearing ecosystem, including swap data reporting, will continue. In particular, the Commission continues to be open to further ways to cooperate with our foreign regulatory counterparts in the supervision of TRs. An example is the consideration of when and how the Commission should grant swap data reporting substituted compliance determinations for SDs and DCOs domiciled in non-U.S. jurisdictions with similar swap data reporting requirements, permitting reporting of swap data to a foreign TR to satisfy Commission swap data requirements under appropriate circumstances. Efficiencies in crossborder reporting are critical to the smooth operation of transatlantic clearing and trading. To the degree the Commission can work with its international counterparts to thus increase interoperability between jurisdictions, this will enhance crossborder trading efficiency. Moreover, with appropriate tailoring and protections, and due access to foreign the Unique Product Identifier (‘‘UPI Technical Guidance’’). In April 2018, the Harmonisation Group published Technical Guidance on the Harmonisation of Critical OTC Derivatives Data Elements (other than UTI and UPI) (‘‘CDE Technical Guidance’’). 11 See CDE Technical Guidance at 9. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 TR data, deference to foreign jurisdictions will reduce expensive redundancies in trade reporting. II. Amendments to Part 45 A. § 45.1—Definitions The paragraph of existing § 45.1 is not lettered. The Commission is lettering the existing paragraph as ‘‘(a)’’ and adding (b) to § 45.1. Paragraph (a) will contain all of the definitions in existing § 45.1, as the Commission is modifying them. New paragraph (b) provides the terms not defined in part 45 have the meanings assigned to the terms in Commission regulation § 1.3, which was implied in the existing regulation but will now be explicit.12 The Commission is adding new definitions, amending certain existing definitions, and removing certain existing definitions. Within each of these categories, the Commission discusses the changes in alphabetical order, except as otherwise noted. 1. New Definitions The Commission is adding a definition of ‘‘allocation’’ to § 45.1(a). ‘‘Allocation’’ means the process by which an agent, having facilitated a single swap transaction on behalf of clients, allocates a portion of the executed swap to the clients. Existing § 45.3(f) contains regulations for reporting allocations without defining the term. The definition will help market participants comply with the regulations for reporting allocations in § 45.3. The Commission is adding a definition of ‘‘as soon as technologically practicable’’ (‘‘ASATP’’) to § 45.1(a). ‘‘As soon as technologically practicable’’ means as soon as possible, taking into consideration the prevalence, implementation, and use of technology by comparable market participants. The phrase ‘‘as soon as technologically practicable’’ is currently undefined but used throughout part 45. The Commission is adopting the same definition of ‘‘as soon as technologically practicable’’ as is defined in § 43.2 for swap transaction and pricing data.13 The Commission is adding a definition of ‘‘collateral data’’ to § 45.1(a). ‘‘Collateral data’’ means the data elements necessary to report information about the money, securities, or other property posted or received by a swap counterparty to margin, guarantee, or secure a swap, as specified in appendix 1 to part 45. The Commission explains this definition in 12 17 CFR 1.3. 17 CFR 43.2 (definition of ‘‘as soon as technologically practicable’’). 13 See PO 00000 Frm 00085 Fmt 4701 Sfmt 4700 75505 a discussion of collateral data reporting in section II.D.4 below. The Commission is adding definitions of ‘‘execution’’ and ‘‘execution date’’ to § 45.1(a). ‘‘Execution’’ means an agreement by the parties, by any method, to the terms of a swap that legally binds the parties to such swap terms under applicable law.14 In the Proposal, the Commission proposed ‘‘execution date’’ to mean the date, determined by reference to Eastern Time, on which swap execution has occurred. The execution date for a clearing swap that replaces an original swap would be the date, determined by reference to Eastern Time, on which the DCO accepts the original swap for clearing. The term ‘‘execution’’ is currently undefined but used throughout part 45, and the Commission is adding regulations referencing ‘‘execution date.’’ 15 The Commission received three comments supporting the definition of ‘‘execution date.’’ 16 In particular, ISDA–SIFMA believe the definition is more practical than the referencing the ‘‘day of execution,’’ because the latter would require a more complex build for industry participants, including requiring reporting counterparties to compare against the non-reporting counterparty to determine the party with the calendar day that ends latest, on a swap-by-swap basis.17 The Commission received three comments opposing the reference to Eastern Time in the proposed definition of ‘‘execution date.’’ CME and Chatham both believe the definition should use a coordinated universal time (‘‘UTC’’) standard.18 CME notes Eastern Time could make the reporting entity convert data between three time zones— local time zone, Eastern Time, and UTC—and also account for daylight savings time.19 Chatham notes reporting counterparties build systems using UTC and it would be time-consuming and costly to convert to Eastern Time, as well as inconsistent with other regulatory reporting frameworks.20 JBA suggests the Commission use UTC to globally harmonize and follow the CDE Technical Guidance, and points out the January 2020 CPMI–IOSCO ‘‘Clock 14 The definition of ‘‘execution’’ is functionally identical to the part 23 definition of execution. See 17 CFR 23.200(e) (definition of ‘‘execution’’). 15 See § 45.3(a) and (b), discussed in sections II.C.2.a and II.C.2.b, respectively, below. 16 GXFD at 21; Eurex at 2; ISDA–SIFMA at 5. 17 ISDA–SIFMA at 5. 18 CME at 12; Chatham at 1. 19 CME at 12. 20 Chatham at 1. E:\FR\FM\25NOR2.SGM 25NOR2 75506 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Synchronization’’ report recommends business clocks synchronize to UTC.21 The Commission agrees the reference to Eastern Time in ‘‘execution date’’ would create unnecessary operational complexities and be inconsistent with the approach taken by other regulators. In addition, the Commission’s updated swap data elements in appendix 1 reference UTC. In response, the Commission is removing the references to Eastern Time in the definition of ‘‘execution date,’’ and the swap data elements in appendix 1 will clarify that SEFs, DCMs, and reporting counterparties should report the specific data elements using UTC. As such, the new definition of ‘‘execution date’’ means the date of execution of a particular swap. The execution date for a clearing swap that replaces an original swap is the date on which the original swap has been accepted for clearing. The Commission is adding the following three definitions to § 45.1(a): ‘‘Global Legal Entity Identifier System,’’ ‘‘legal entity identifier’’ or ‘‘LEI,’’ and ‘‘Legal Entity Identifier Regulatory Oversight Committee’’ (‘‘LEI ROC’’). ‘‘Global Legal Entity Identifier System’’ means the system established and overseen by the LEI ROC for the unique identification of legal entities and individuals. ‘‘Legal entity identifier’’ or ‘‘LEI’’ means a unique code assigned to swap counterparties and entities in accordance with the standards set by the Global Legal Entity Identifier System. ‘‘Legal Entity Identifier Regulatory Oversight Committee’’ means the group charged with the oversight of the Global Legal Entity Identifier System that was established by the finance ministers and the central bank governors of the Group of Twenty nations and the FSB, under the Charter of the Regulatory Oversight Committee for the Global Legal Entity Identifier System dated November 5, 2012, or any successor thereof.22 These definitions are all associated with, and further explained in the context of, the § 45.6 regulations for LEI, in section II.F below.23 The Commission is adding a definition of ‘‘non-SD/MSP/DCO reporting counterparty’’ to § 45.1(a). ‘‘Non-SD/MSP/DCO reporting counterparty’’ means a reporting counterparty that is not an SD, MSP, or 21 JBA at 4. Charter of the Regulatory Oversight Committee For the Global Legal Entity Identifier System, available at https://www.leiroc.org/ publications/gls/roc_20190130-1.pdf. 23 GLEIF supports adding these definitions, but also suggests moving definitions to § 45.1(a) from § 45.6(a) for ‘‘local operating unit’’ and ‘‘legal entity reference data.’’ The Commission is declining to adopt this suggestion, as the definitions in § 45.6(a) are only used in § 45.6. jbell on DSKJLSW7X2PROD with RULES2 22 See VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 DCO. The existing definition of ‘‘nonSD/MSP reporting counterparty’’ does not explicitly include DCOs. This creates problems when, for instance, the Commission did not intend DCOs follow the required swap creation data reporting regulations in § 45.3(d) for offfacility swaps not subject to the clearing requirement with a non-SD/MSP reporting counterparty, even though DCOs are technically reporting counterparties that are neither SDs nor MSPs. Instead, DCOs follow § 45.3(e) for clearing swaps. The definition of ‘‘nonSD/MSP/DCO reporting counterparty’’ addresses this unintended gap. The Commission is adding a definition of ‘‘novation’’ to § 45.1(a). ‘‘Novation’’ means the process by which a party to a swap legally transfers all or part of its rights, liabilities, duties, and obligations under the swap to a new legal party other than the counterparty to the swap under applicable law. The term ‘‘novation’’ is currently undefined but used in the definition of ‘‘life cycle event,’’ as well as the existing § 45.8(g) regulations for determining which counterparty must report. The Commission is adding a definition of ‘‘swap’’ to § 45.1(a). ‘‘Swap’’ means any swap, as defined by § 1.3, as well as any foreign exchange forward, as defined by CEA section 1a(24), or foreign exchange swap, as defined by CEA section 1a(25).24 The term ‘‘swap’’ is currently undefined but used throughout part 45 and the definition codifies the meaning of the term as it is currently used throughout part 45.25 The Commission is adding definitions of ‘‘swap data’’ and ‘‘swap transaction and pricing data’’ to § 45.1(a). In the Proposal, the Commission proposed ‘‘swap data’’ to mean the specific data elements and information in appendix 1 to part 45 required to be reported to an SDR pursuant to part 45 or made available to the Commission pursuant to 24 While foreign exchange forwards and foreign exchange swaps are excluded from the definition of ‘‘swap,’’ such transactions are nevertheless required to be reported to an SDR. See 7 U.S.C. 1a(47)(E)(iii) (definition of ‘‘swap’’). 25 NRECA–APPA believe the Commission should incorporate the ‘‘swap’’ definition in CEA section 1a into its interpretations, exemptions, and other guidance, as well as remove from the definition: guarantees of a swap, commodity options meeting the conditions in § 32.3, and other types of agreements, contracts, and transactions the Commission has determined Congress did not intend to regulate as ‘‘swaps.’’ NRECA–APPA at 5. The Commission notes its interpretations, exemptions, and guidance are outside of the scope of this rulemaking, as is removing certain types of agreements, contracts, and transactions from the CEA definition of ‘‘swap.’’ The Commission emphasizes the definition of ‘‘swap’’ in § 45.1 is for swap data reporting purposes only, and does not impact any regulations outside of part 45. PO 00000 Frm 00086 Fmt 4701 Sfmt 4700 part 49, as applicable. The Commission received a comment from DTCC suggesting deleting the phrase ‘‘and information’’ from the definition of ‘‘swap data,’’ because it is unclear to what ‘‘and information’’ refers.26 The Commission agrees and is modifying the definition to remove ‘‘and information.’’ 27 The Commission is adopting the rest of the definition of ‘‘swap data’’ as proposed. Separately, the Commission is adopting the definition of ‘‘swap transaction and pricing data,’’ with minor changes from the proposed definition. ‘‘Swap transaction and pricing data’’ will mean all data elements for a swap in appendix A 28 to part 43 that are required to be reported or publicly disseminated pursuant to part 43. Having ‘‘swap data’’ apply to part 45 data, and ‘‘swap transaction and pricing data’’ apply to part 43 data, will provide clarity across the reporting regulations. The Commission is adding a definition of ‘‘swap data validation procedures’’ to § 45.1(a). ‘‘Swap data validation procedures’’ means procedures established by an SDR pursuant to § 49.10 to accept, validate, and process swap data reported to an SDR pursuant to part 45. The Commission discusses this definition in section IV.C.3 below. The Commission is adding a definition of ‘‘unique transaction identifier’’ to § 45.1(a). ‘‘Unique transaction identifier’’ means a unique alphanumeric identifier with a maximum of 52 characters constructed solely from the upper-case alphabetic characters A to Z or the digits 0 to 9, inclusive in both cases, generated for each swap pursuant to § 45.5. The Commission received a comment from DTCC supporting the definition because it is consistent with UTI Technical Guidance.29 The Commission explains this definition in a discussion of the regulations to transition from using 26 DTCC at 4. Commission notes certain swap-related information may be required to be reported to a SDR pursuant to other CFTC regulations which are not included in the definition of ‘‘swap data.’’ Market participants should be aware of other applicable reporting requirements. For example, counterparties electing an exception to or exemption from the swap clearing requirement under § 50.4 are required to report specific information to a SDR, or if no SDR is available to receive the information, to the Commission, under § 50.50(b). 28 The Commission is changing the reference to appendix C in the proposed definition of ‘‘swap transaction and pricing data’’ to appendix A due to changes to the part 43 appendices the Commission is adopting in a separate release. 29 DTCC at 4, 5. 27 The E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations unique swap identifiers (‘‘USIs’’) to UTIs in section II.E below. jbell on DSKJLSW7X2PROD with RULES2 2. Changes to Existing Definitions 30 The Commission is making nonsubstantive technical changes to the existing definitions of ‘‘asset class,’’ ‘‘derivatives clearing organization,’’ and ‘‘swap execution facility.’’ The Commission is changing the definition of ‘‘business day’’ in § 45.1. Existing § 45.1 defines ‘‘business day’’ to mean the twenty-four hour day, on all days except Saturdays, Sundays, and legal holidays, in the location of the reporting counterparty or registered entity reporting data for the swap.31 In the Proposal, the Commission proposed replacing ‘‘the twenty-four hour day’’ with ‘‘each twenty-four-hour day,’’ and ‘‘legal holidays, in the location of the reporting counterparty’’ with ‘‘Federal holidays’’ to simplify the definition by no longer requiring the determination of different legal holidays depending on the reporting counterparty’s location. The Commission received four comments raising concerns with the changes to ‘‘business day.’’ CME believes the proposed changes could result in firms keeping some staff in the office on local holidays or reporting before the deadline.32 JSCC believes the proposed changes would force non-U.S. reporting counterparties to report valuation, margin, and collateral data on local holidays even though the data would be unchanged because their markets would be closed.33 ISDA– SIFMA request clarification that ‘‘federal holidays’’ include legal holidays in the reporting counterparty’s principal place of business so a reporting counterparty located outside the U.S. can take into account legal holidays that are not U.S. federal holidays.34 DTCC suggests using the same definitions for parts 43 and 45.35 The Commission seeks to avoid firms keeping staff in the office on local holidays, as commenters pointed out the changes suggest. As such, the Commission is keeping the current 30 CEWG comments the ‘‘financial entity’’ definition, which the Commission did not propose changing, is overinclusive for financial energy firms because if a central treasury unit (‘‘CTU’’) enters into a swap for purposes other than hedging, the CTU cannot qualify for the relief in CEA section 2(h)(7)(D). CEWG at 9. The existing ‘‘financial entity’’ definition in § 45.1 simply references the CEA section 2(h)(7)(C) definition of financial entity. The Commission does not see a connection between the clearing rules in CEA section 2(h)(7)(D) to the reporting rules, and thus declines to adopt CEWG’s change to the existing definition. 31 17 CFR 45.1 (definition of ‘‘business day’’). 32 CME at 12–13. 33 JSCC at 1, 2. 34 ISDA–SIFMA at 5. 35 DTCC at 4. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 definition of ‘‘business day’’ with one modification: ‘‘registered entity’’ refers to SEFs and DCMs. Therefore, the ‘‘business day’’ will mean the twentyfour-hour day, on all days except Saturdays, Sundays, and legal holidays, in the location of SEF, DCM, or reporting counterparty reporting data for the swap. The Commission is changing the definition of ‘‘life cycle event’’ in § 45.1. Existing § 45.1 defines ‘‘life cycle event’’ to mean any event that would result in either a change to a primary economic term (‘‘PET’’) of a swap or to any PET data (‘‘PET data’’) previously reported to an SDR in connection with a swap.36 The Commission is replacing the reference to PET data with required swap creation data to reflect the Commission’s removal of the concept of PET data reporting from § 45.3.37 The Commission is also replacing a reference to a counterparty being identified in swap data by ‘‘name’’ with ‘‘other identifiers’’ to be more precise in when counterparties are identified by other means. The Commission is changing the definition of ‘‘non-SD/MSP counterparty’’ in § 45.1. Existing § 45.1 defines ‘‘non-SD/MSP counterparty’’ to mean a swap counterparty that is neither an SD nor an MSP. The Commission is changing the defined term to ‘‘non-SD/MSP/DCO counterparty.’’ 38 ‘‘Non-SD/MSP/DCO counterparty’’ means a swap counterparty that is not an SD, MSP, or DCO. This change conforms to the changes to the term ‘‘non-SD/MSP/DCO reporting counterparty’’ explained in section II.A.1 above. The Commission is changing the definition of ‘‘required swap continuation data’’ in § 45.1. Existing § 45.1 defines ‘‘required swap continuation data’’ to mean all of the data elements that must be reported during the existence of a swap to ensure that all data concerning the swap in the SDR remains current and accurate, and includes all changes to the PET terms of 36 The Commission is not changing the examples the existing definition provides: A counterparty change resulting from an assignment or novation; a partial or full termination of the swap; a change to the end date for the swap; a change in the cash flows or rates originally reported; availability of an LEI for a swap counterparty previously identified by name or by some other identifier; or a corporate action affecting a security or securities on which the swap is based (e.g., a merger, dividend, stock split, or bankruptcy). 37 The Commission discusses this change to § 45.3 in section II.C below. 38 The Commission is updating all references to ‘‘non-SD/MSP counterparty’’ to ‘‘non-SD/MSP/DCO counterparty’’ throughout part 45. To limit repetition, the Commission will not discuss each update of the phrase throughout this release. PO 00000 Frm 00087 Fmt 4701 Sfmt 4700 75507 the swap occurring during the existence of the swap. The definition further specifies that required swap continuation data includes: (i) All lifecycle-event data for the swap if the swap is reported using the life cycle reporting method, or all state data for the swap if the swap is reported using the snapshot reporting method; and (ii) all valuation data for the swap. First, the Commission is removing the reference to ‘‘[PET] of the swap.’’ 39 Second, the Commission is removing the reference to snapshot reporting to reflect the removal of the concept of snapshot reporting from § 45.4.40 Third, the Commission is adding a reference to margin and collateral data.41 As amended, ‘‘required swap continuation data’’ means all of the data elements that must be reported during the existence of a swap to ensure that all swap data concerning the swap in the SDR remains current and accurate, and includes all changes to the required swap creation data occurring during the existence of the swap. For this purpose, required swap continuation data includes: (i) All life-cycle-event data for the swap; and (ii) all swap valuation, margin, and collateral data for the swap. The Commission is changing the definition of ‘‘required swap creation data’’ in § 45.1. Existing § 45.1 defines ‘‘required swap creation data’’ to mean all PET data for a swap in the swap asset class in question and all confirmation data for the swap. The Commission is replacing the reference to PET data and confirmation data with a reference to the swap data elements in appendix 1 to part 45, to reflect the Commission’s update of the swap data elements in existing appendix 1.42 The Commission is changing the definition of ‘‘valuation data’’ in § 45.1(a). Existing § 45.1 defines ‘‘valuation data’’ to mean all of the data elements necessary to fully describe the daily mark of the transaction, pursuant to CEA section 4s(h)(3)(B)(iii),43 and § 23.431 of the Commission’s regulations, if applicable. The Commission is adding a reference to the swap data elements in appendix 1 to part 45 to link the definition and the data elements. 39 As explained above, the Commission is removing the concept of PET data reporting from § 45.3. 40 The Commission discusses the changes to § 45.4 in section II.D below. 41 The Commission discussed new margin and collateral data reporting in section II.D below. 42 The Commission discusses the changes to appendix 1 in section V below. 43 7 U.S.C. 6s(h)(3)(B)(iii). E:\FR\FM\25NOR2.SGM 25NOR2 75508 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations 3. Removed Definitions The Commission is removing the following definitions from § 45.1: ‘‘credit swap;’’ ‘‘designated contract market;’’ ‘‘foreign exchange forward;’’ ‘‘foreign exchange instrument;’’ ‘‘foreign exchange swap;’’ ‘‘interest rate swap;’’ ‘‘major swap participant;’’ ‘‘other commodity swap;’’ ‘‘state data;’’ ‘‘swap data repository;’’ and ‘‘swap dealer.’’ The Commission wants market participants to use the terms as they are already defined in Commission regulation § 1.3 or in CEA section 1a.44 The Commission is removing the following definitions from § 45.1: ‘‘confirmation;’’ ‘‘confirmation data;’’ ‘‘electronic confirmation;’’ ‘‘nonelectronic confirmation;’’ ‘‘primary economic terms;’’ and ‘‘primary economic terms data.’’ The definitions are unnecessary due to the Commission combining PET data and confirmation data into a single data report in § 45.3.45 The Commission is removing the definition of ‘‘quarterly reporting’’ from § 45.1 because the Commission is removing the quarterly reporting requirement for non-SD/MSP reporting counterparties from § 45.4(d)(2)(ii).46 The Commission is removing the definitions of ‘‘electronic verification,’’ ‘‘non-electronic verification,’’ and ‘‘verification’’ from § 45.1 because the Commission is changing the deadlines for reporting counterparties to report required swap creation data in § 45.3 to no longer depend on verification.47 The Commission is removing the definition of ‘‘international swap’’ from § 45.1. Existing § 45.1 defines ‘‘international swap’’ to mean a swap required by U.S. law and the law of another jurisdiction to be reported both to an SDR and to a different TR registered with the other jurisdiction. The Commission is removing the definition because the Commission is removing the international swap regulations in § 45.3(i).48 B. § 45.2—Swap Recordkeeping The Commission is adopting technical changes to the § 45.2 swap recordkeeping regulations.49 For instance, the Commission is removing 44 7 U.S.C. 1a. Commission discusses the changes to § 45.3 in section II.C below. 46 The Commission discusses the changes to § 45.4 in section II.D below. 47 The Commission discusses the changes to § 45.3 in section II.C below. 48 The Commission discusses the changes to § 45.3(i) in section II.C.6 below. 49 In a separate release, the Commission is relocating the recordkeeping requirements for SDRs from § 45.2(f) and (g) to § 49.12. 84 FR at 21103 (May 13, 2019). jbell on DSKJLSW7X2PROD with RULES2 45 The VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 the phrase ‘‘subject to the jurisdiction of the Commission’’ from § 45.2. The Commission is also removing this phrase from all of part 45.50 The phrase is unnecessary, as the Commission’s regulations apply to all swaps or entities within the Commission’s jurisdiction, regardless of whether the regulation states the fact. The Commission received three comments on § 45.2 unrelated to the technical changes. COPE requests the Commission confirm recordkeeping requirements for physical energy companies that use swaps for hedging purposes are limited to recordkeeping in the normal course of business, as is customary for the hedger’s particular industry.51 As the requirement does not specify records outside of the normal course of business, the Commission is unsure of what else the regulation could require. EEI–EPSA request the Commission clarify no additional recordkeeping is mandated to avoid injecting regulatory uncertainty into recordkeeping requirements.52 The Commission confirms its changes to § 45.2 in this release are technical and do not create new requirements. Chris Barnard opposes retaining the current substantive requirement of keeping records for ‘‘at least five years,’’ following the final termination of the swap.53 The Commission declines to substantively amend the five-year requirement as requested by Chris Barnard. The Commission believes five years is reasonable for the Commission to access records if it has concerns about particular swaps. The Commission did not receive any comments on the non-substantive changes to § 45.2. For the reasons discussed above, the Commission is adopting the changes as proposed. C. § 45.3—Swap Data Reporting: Creation Data Existing § 45.3 requires SEFs, DCMs, and reporting counterparties to report swap data to SDRs upon swap execution. As discussed in the sections below, the Commission is adopting four significant changes to the regulations for reporting new swaps: (i) Requiring a single data report at execution instead of two separate reports; (ii) extending the time SEFs, DCMs, and reporting counterparties have to report new swaps to SDRs; (iii) removing the requirement for SDRs to map allocations; and (iv) 50 To limit repetition, the Commission will not discuss each removal in this release. 51 COPE at 2. 52 EEI–EPSA at 3. 53 Chris Barnard at 2. PO 00000 Frm 00088 Fmt 4701 Sfmt 4700 removing the regulations for international swaps. The remaining changes to § 45.3 discussed below are non-substantive clarifying, cleanup, or technical changes. 1. Introductory Text The Commission is removing the introductory text to § 45.3. The existing introductory text to § 45.3 provides a broad overview of the swap data reporting regulations for registered entities and swap counterparties. The Commission believes the introductory text is superfluous because the scope of § 45.3 is clear from the operative provisions of § 45.3.54 Removing the introductory text does not impact any regulatory requirements, including those referenced in the existing introductory text. The Commission did not receive any comments on the proposal to remove the introductory text to § 45.3. 2. § 45.3(a) through (e)—Swap Data Reporting: Creation Data a. § 45.3(a)—Swaps Executed on or Pursuant to the Rules of a SEF or DCM The Commission is adopting several changes to the § 45.3(a) required swap creation data reporting regulations for swaps executed on or pursuant to the rules of a SEF or DCM. Existing § 45.3(a) requires that SEFs and DCMs report all PET data 55 for swaps ASATP after execution. If the swap is not intended to be cleared at a DCO, existing § 45.3(a) requires the SEF or DCM also report confirmation data 56 for the swap ASATP after execution. First, the Commission is changing § 45.3(a) to require SEFs and DCMs to report a single required swap creation data report, regardless of whether the swap is intended to be cleared. While the Commission intended the initial PET report would ensure SDRs have sufficient data on each swap for the Commission to perform its regulatory functions while the more complete confirmation data is not yet available,57 54 The Commission is moving the reference in the introductory text to required data standards for SDRs in § 45.13(b) to the regulatory text of § 45.3(a) and (b) and renumbering § 45.13(b) as § 45.13(a). 55 PET data reporting includes the reporting of approximately sixty swap data elements, varying by asset class, enumerated in appendix 1 to part 45. See 17 CFR 45.1 (definition of ‘‘primary economic terms’’). The Commission discusses the removal of the definition of ‘‘primary economic terms’’ from § 45.1 in section II.A.3 above. 56 Confirmation data reporting includes reporting all of the terms of a swap matched and agreed upon by the counterparties in confirming a swap. See 17 CFR 45.1 (definition of ‘‘confirmation data’’). The Commission discusses removing the definition of ‘‘confirmation data’’ from § 45.1 in section II.A.3 above. 57 See 77 FR at 2142, 2148 (Jan. 13, 2012). E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 the Commission is concerned the separate reports may be encouraging the reporting of duplicative information to SDRs. The Commission believes this will streamline reporting, remove uncertainty, and reduce instances of duplicative required swap creation data reports. One of the PET data elements in existing appendix 1 to part 45 is any other term(s) matched or affirmed by the counterparties in verifying the swap.58 The Commission believes this catchall has obscured the difference between PET data and confirmation data. The Commission is concerned reporting counterparties, SEFs, and DCMs are submitting duplicative reports to meet the distinct, yet seemingly indistinguishable, regulatory requirements at the expense of data quality.59 Second, the Commission is changing § 45.3(a) to extend the deadline for SEFs and DCMs to report required swap creation data until the end of the next business day following the execution date (sometimes referred to as ‘‘T+1’’). Initially, the Commission believed reporting swap data immediately after execution ensured the ability of the Commission and other regulators to fulfill their systemic risk mitigation, market transparency, position limit monitoring, and market surveillance objectives,60 but the Commission is concerned the ASATP deadline may be causing reporting counterparties to hastily report required swap creation data that has contributed to data quality issues. The Commission believes an 58 The comment associated with this ‘‘catch-all’’ data element in existing appendix 1 to part 45 instructs reporting counterparties, SEFs, DCMs, and DCOs to use as many data elements as required to report each such term. 17 CFR part 45 appendix 1. 59 Other regulators have taken different approaches to required swap creation data reporting. The Securities and Exchange Commission (‘‘SEC’’) does not have rules for reporting separate confirmation data reports. See 17 CFR 242.901. The European Market Infrastructure Regulation (‘‘EMIR’’) requires reporting of the details of any derivative contract counterparties have concluded and of any modification or termination of the contract. European Securities and Markets Authority (‘‘ESMA’’) then develops the specific technical standards and requirements for the implementation of reporting. See Regulation (EU) No. 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories, Article 9(1) (July 4, 2012) (requiring reporting after execution without reference to separate reports); Commission Implementing Regulation (EU) No. 1247/2012 laying down implementing technical standards with regard to the format and frequency of trade reports to trade repositories according to Regulation (EU) No. 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories, Article 1 (Dec. 19, 2012) (referencing ‘‘single’’ reports under Article 9 of Regulation (EU) No. 648/2012). 60 See 77 FR 2142 at 2149 (Jan. 13, 2012). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 extended reporting timeline will help improve data quality while encouraging alignment with reporting deadlines set by other regulators.61 The Commission received four comments supporting a single report for PET data and confirmation data in § 45.3(a).62 In particular, DTCC believes this will streamline reporting, reduce instances of duplicative reports, remove uncertainty regarding which data elements are required to be reported to the SDR, and reduce operational burdens for SDRs and market participants by reducing the number of message types and duplicative data.63 CEWG believes the existing requirement is duplicative and costly.64 The Commission agrees with commenters, and for the reasons discussed above, is adopting the changes proposed. The Commission received seven comments generally supporting extending the deadline for reporting required swap creation data in existing § 45.3(a).65 In particular, DTCC believes the change will reduce the number of corrections being sent to SDRs because of better quality data, be consistent with the SEC and ESMA, and promote reporting structure consistency concerning timing that would, in turn, create processing efficiencies for SDRs and data submitters.66 The Commission agrees with commenters, and for the reasons discussed above, is adopting the changes proposed, with one exception explained below. Markit opposes extending the deadline for reporting because it believes ASATP reporting is already possible and using experienced thirdparty service providers like Markit helps minimize errors.67 The Commission understands ASATP reporting is possible and market participants have 61 The SEC requires primary and secondary trade information be reported within 24 hours of execution on the next business day. 17 CFR 242.901(j). The SEC noted commenters raised concerns that unreasonably short reporting timeframes would result in the submission of inaccurate transaction information, and that the SEC’s interim 24-hour reporting timeframe § 901(j) strikes an appropriate balance between the need for prompt reporting of security-based swap transaction information and allowing reporting entities sufficient time to develop fast and robust reporting capability. See Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information, 80 FR 14564, 14623–64 (Mar. 19, 2015). ESMA requires reporting no later than the working day following execution. Regulation (EU) No. 648/2012 Article 9(1). 62 LCH at 2; FIA at 14; CEWG at 2; DTCC at 5. 63 DTCC at 5. 64 CEWG at 2. 65 GFXD at 21, 22; DTCC at 5; Eurex at 2; ISDA– SIFMA at 5; Chatham at 2; ICE DCOs at 3; LCH at 2. 66 DTCC at 5. 67 Markit at 3–4. PO 00000 Frm 00089 Fmt 4701 Sfmt 4700 75509 developed ways to minimize errors, and expects SEFs and DCMs have sophisticated reporting systems that will encourage them to continue reporting ASATP after execution. However, the Commission believes less-sophisticated reporting counterparties, especially for off-facility swaps, will benefit from having more time to report swap data to SDRs, and a single deadline for all reporting entities will be clearest for market participants.68 The Commission received three comments concerning the reference to Eastern Time in the proposed extended deadline. Eurex and Chatham believe the Commission should consider aligning with regulators that reference UTC for global harmonization.69 ISDA– SIFMA believe a T+1 deadline for required swap creation data is similar to the deadline used by other jurisdictions, and that a specific cutoff time like 11:59 p.m. eastern time is less complex to build than T+24 hours.70 The Commission agrees with Eurex and Chatham that referencing Eastern Time would be inconsistent with global regulators. The swap data elements in appendix 1 also reference UTC.71 As a result, the Commission deems it appropriate to adopt a modification from the proposal to remove the reference to 11:59 p.m. eastern time. Instead, § 45.3(a) will extend the deadline for reporting to not later than the end of the next business day following the execution date. For the same reason, and to be consistent, the Commission is removing the reference to 11:59 p.m. eastern time from all of the proposed regulations in §§ 45.3 and 45.4.72 While ISDA–SIFMA believe a specific cutoff time is less complex to build, the Commission views the complications the deadline would create for reporting counterparties, especially in other countries, as offsetting build-simplicity considerations. In summary, in light of the above changes, § 45.3(a) will require that for each swap executed on or pursuant to the rules of a SEF or DCM, the SEF or DCM shall report required swap creation data electronically to an SDR in the manner provided in § 45.13(a) not later than the end of the next business day following the execution date. 68 The Commission discusses the extended deadline for off-facility swaps in section II.C.2.b below. 69 Eurex at 2; Chatham at 2. 70 ISDA–SIFMA at 5–7. 71 The Commission discusses the changes to appendix 1 in section V below. 72 To limit repetition, the Commission will not discuss each removal in this release. E:\FR\FM\25NOR2.SGM 25NOR2 75510 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 b. § 45.3(b) through (e)—Off-Facility Swaps The Commission is making several changes to the § 45.3(b) through (e) required swap creation data reporting regulations for off-facility swaps. Most of these changes conform to the changes in § 45.3(a) because the regulations in § 45.3(b) through (e) for off-facility swaps are analogous to the regulations in § 45.3(a) for swaps executed on SEFs and DCMs. In general, for off-facility swaps subject to the Commission’s clearing requirement, existing § 45.3(b) requires that SD/MSP reporting counterparties report PET data ASATP after execution, with a 15-minute deadline, while nonSD/MSP reporting counterparties report PET data ASATP after execution with a one-business-hour deadline.73 For offfacility swaps not subject to the clearing requirement but have an SD/MSP reporting counterparty, existing § 45.3(c)(1) generally requires that SD/ MSP reporting counterparties report PET data ASATP after execution with a 30-minute deadline, and confirmation data for swaps that are not intended to be cleared ASATP with a 30-minute deadline if confirmation is electronic, or ASATP with a 24-business-hour deadline if not electronic, for credit, equity, foreign exchange, and interest rate swaps.74 Existing § 45.3(c)(2) requires that for swaps in the other commodity asset class, SD/MSP reporting counterparties report PET data ASATP after execution, with a two-hour deadline, and confirmation data for swaps that are not intended to be cleared ASATP after confirmation with a 30-minute deadline if confirmation is electronic, or a 24business-hour deadline if confirmation is not electronic.75 For off-facility swaps that are not subject to the clearing requirement but have a non-SD/MSP reporting counterparty, existing § 45.3(d) requires reporting counterparties report PET data ASATP after execution with a 24-business-hour deadline, and confirmation data ASATP with a 24-business-hour deadline, if the swap is not intended to be cleared.76 Finally, existing § 45.3(e) requires that ASATP after a DCO accepts an original swap for clearing, or ASATP after execution of a clearing swap that does not replace an original swap, the DCO report all required swap creation data for the clearing swap, which includes all confirmation data and all PET data. 73 17 CFR 45.3(b)(1)(i), (ii). 74 17 CFR 45.3(c)(1)(i), (ii). 75 17 CFR 45.3(c)(2)(i), (ii). 76 17 CFR 45.3(d). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 First, the Commission is replacing existing § 45.3(b) through (e) with § 45.3(b), titled ‘‘Off-facility swaps,’’ to restructure the regulations.77 Second, the Commission is changing the existing § 45.3(b) through (e) requirements for reporting counterparties to submit separate PET data and confirmation data reports for all off-facility swaps that are not intended to be cleared at a DCO to report a single required swap creation data report. The Commission discusses its reasoning for this change in section II.C.2.a above. As with swaps executed on SEFs and DCMs, the Commission believes a single report would align with the approach taken by other regulators and improve data quality. The Commission did not receive any comments beyond those discussed in section II.C.2.a above.78 The Commission is adopting the new requirement for reporting counterparties to report a single required swap creation data report as proposed. Third, the Commission is changing the existing § 45.3(b) through (e) requirements for reporting counterparties to report required swap creation data ASATP after execution with different deadlines for off-facility swaps in § 45.3(b)(1) and (2). New § 45.3(b)(1) requires SD/MSP/DCO reporting counterparties report swap creation data to an SDR by T+1 following the execution date. New § 45.3(b)(2) requires non-SD/MSP/DCO reporting counterparties report swap creation data to an SDR not later than T+2 following the execution date. The Commission discusses the background to these changes in section II.C.2.a above. The Commission discusses several comments beyond those discussed in section II.C.2.a in this section. CEWG believes a T+2 deadline for non-SD/MSP/DCO reporting counterparties strikes an appropriate balance between giving endusers enough time to report, incurring a limited compliance burden, and providing the Commission with swap data in a timely manner.79 The Commission agrees with CEWG and believes the extended deadline reflects the Commission’s interest in avoiding placing unnecessary burdens on nonSD/MSP/DCO reporting counterparties. The Commission received two comments raising issues with the new 77 The Commission is replacing § 45.3(c) through (d) with provisions for allocations and multi-asset swaps, respectively, as discussed in the following sections. As part of this change, the Commission is moving the requirements for reporting required swap creation data for clearing swaps from § 45.3(e) to § 45.3(b). 78 See comments from DTCC, LCH, FIA, and CEWG. 79 CEWG at 2. PO 00000 Frm 00090 Fmt 4701 Sfmt 4700 deadlines for reporting required swap creation data in § 45.3(b). ICE SDR believes including a set time of no later than 11:59 p.m. on T+1 or T+2 could impede the SDR’s ability to update its reporting system during its maintenance window.80 As the Commission discusses in section II.C.2.a above, the Commission is removing 11:59 p.m. eastern time from § 45.3(b)(1) and (2). The Commission believes this addresses ICE SDR’s timing concern. CME believes the reporting deadline should be T+1 or T+2 for all entities to avoid a sequencing issue with non-SD/ MSP/DCO reporting counterparties that have a T+2 deadline, and the § 45.4(b) deadline for DCOs to report original swap terminations, which would result in DCO terminations being rejected until original swaps are reported.81 The Commission does not share CME’s concern, as it expects SEFs, DCMs, and DCOs will continue to report original swaps and clearing swaps ASATP, which will avoid sequencing issues for original swap terminations. The Commission expects to monitor the data for implementation issues, however, and to work with SDRs in case the deadlines need to be modified. In summary, § 45.3(b) will require that for each off-facility swap, the reporting counterparty shall report required swap creation data electronically to an SDR as provided by § 45.3(b)(1) or (2), as applicable. If the reporting counterparty is an SD, MSP, or DCO, § 45.3(b)(1) will require the reporting counterparty report required swap creation data electronically to an SDR in the manner provided in § 45.13(a) not later than the end of the next business day following the execution date. If the reporting counterparty is a non-SD/MSP/DCO counterparty, the reporting counterparty shall report required swap creation data electronically to an SDR in the manner provided in § 45.13(a) not later than the end of the second business day following the execution date. 3. § 45.3(f)—Allocations 82 The Commission is making several changes to the existing § 45.3(f) regulations for reporting allocations, redesignated as § 45.3(c). The Commission is making most of the changes to § 45.3(f) to conform to the changes in § 45.3(a) through (e). Existing § 45.3(f)(1) provides that the reporting counterparty to an initial swap with an allocation agent reports required swap creation 80 ICE SDR at 7. at 14–15. 82 The Commission is re-designating existing § 45.3(f) as § 45.3(c) to reflect the consolidation of § 45.3(b) through (e) into § 45.3(b). 81 CME E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 data for the initial swap, including a USI. For the post-allocation swaps, existing § 45.3(f)(2)(i) provides that the agent tells the reporting counterparty the identities of the actual counterparties ASATP after execution, with a deadline of eight business hours. Existing § 45.3(f)(2)(ii) provides that the reporting counterparty must create USIs for the swaps and report all required swap creation data for each postallocation swap ASATP after learning the identities of the counterparties. Existing § 45.3(f)(2)(iii) provides that the SDR to which the initial and postallocation swaps were reported must map together the USIs of the initial swap and each post-allocation swap. First, the Commission is making nonsubstantive changes, including specifying required swap creation data for allocations must be reported ‘‘electronically’’ to SDRs in § 45.3(c), (c)(1), and (c)(2)(ii), and replacing the reference in existing § 45.3(f)(1) (redesignated as § 45.3(c)(1)) to ‘‘§ 45.3(a) through (d)’’ with a reference to paragraph (a) or (b) of § 45.3, to reflect the structural revisions to § 45.3(a) through (e). However, because the Commission is extending the time to report required swap creation data in § 45.3(a) and (b), reporting counterparties will have additional time to report required swap creation data for the initial swaps for allocations as well. Second, the Commission is changing existing § 45.3(f)(2)(ii) (re-designated as § 45.3(c)(2)(ii)) 83 to replace the requirement to report required swap creation data for post-allocation swaps ASATP after learning the identities of the actual counterparties with a crossreference to § 45.3(b). This gives reporting counterparties until T+1 or T+2, depending on their status, to report required swap creation data for the allocated swaps. Failing to extend the deadline for allocations would result in reporting counterparties unnecessarily reporting allocations faster than creation and continuation data swap reports. Finally,84 the Commission is removing § 45.3(f)(2)(iii) without redesignation. The Commission is requiring an event data element in 83 The Commission is not changing the § 45.3(f)(2)(i) requirement (re-designated as § 45.3(c)(2)(i)) for the agent to inform the reporting counterparty of the identities of the reporting counterparty’s actual counterparties ASATP after execution, with an eight business hour deadline. Reporting counterparties would still need to know their actual counterparties, and the eight-hour deadline is consistent with other regulations for allocations. See 17 CFR 1.35(b)(5)(iv). 84 The Commission is adopting several nonsubstantive and technical language edits, but is limiting discussion in this section to substantive amendments. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 appendix 1.85 One of the events in this data element is ‘‘allocation,’’ which requires reporting counterparties indicate whether a swap is associated with an allocation. The Commission believes this will simplify the current process involving SDRs mapping data elements by having reporting counterparties report the information about allocations themselves. The Commission received one question from two commenters on the proposed changes to § 45.3(f).86 GFXD and ISDA–SIFMA request the Commission clarify for allocations, T+1 begins on receipt of the allocations, rather than on execution, given that allocations may not be provided for up to eight hours.87 In response, the Commission clarifies T+1 begins on receipt of the allocation notification, rather than execution. However, the Commission notes it is retaining the requirement for the agent to inform the reporting counterparties of the allocation ASATP after execution, with an eight-business-hour deadline. As such, in the majority of cases, the Commission expects the deadline to effectively remain T+1 following execution. The Commission did not receive additional comments on the proposed changes to § 45.3(f), re-designated as § 45.3(c). For the reasons discussed above, the Commission is adopting the changes to § 45.3(f). 4. § 45.3(g)—Multi-Asset Swaps 88 The Commission is making nonsubstantive changes to the § 45.3(g) regulations for reporting multi-asset swaps to conform to the changes in § 45.3(a) through (f). Existing § 45.3(g) provides that for each multi-asset swap, required swap creation data and required swap continuation data must be reported to a single SDR that accepts swaps in the asset class treated as the primary asset class involved in the swap by the SEF, DCM, or reporting counterparty making the first report of required swap creation data pursuant to § 45.3. Existing § 45.3(g) also provides that the registered entity or reporting counterparty making the first report of required swap creation data report all PET data for each asset class involved in the swap. 85 The swap data elements required to be reported to SDRs are discussed in section V below. 86 GFXD separately responded to a request for comment on whether the changes create issues for SDRs stating it believes the changes do not create issues for SDRs. GXFD at 21. 87 GFXD at 21; ISDA–SIFMA at 6–7. 88 The Commission is re-designating § 45.3(g) as § 45.3(d) to reflect: The consolidation of § 45.3(b) through (e) into § 45.3(b); and re-designating § 45.3(f) as § 45.3(c). PO 00000 Frm 00091 Fmt 4701 Sfmt 4700 75511 First, the Commission is replacing ‘‘making the first report’’ of required swap creation data with ‘‘reporting’’ required swap creation data to reflect the single report for required swap creation data, instead of separate PET data and confirmation data reports. Second, the Commission is removing the last sentence of the regulation concerning all PET data for each asset class involved in the swap. The Commission believes this sentence is unnecessary and no longer relevant with the Commission’s removal of PET data from the regulations. The Commission did not receive any comments on the amendments to § 45.3(g). The Commission is adopting the amendments to § 45.3(g), redesignated as § 45.3(d), as proposed. 5. § 45.3(h)—Mixed Swaps 89 The Commission is making several non-substantive changes to the § 45.3(h) regulations for mixed swaps to conform to the changes in § 45.3(a) through (g). Existing § 45.3(h)(1) requires that for each mixed swap, required swap creation data and required swap continuation data shall be reported to an SDR registered with the Commission and to a security-based SDR (‘‘SBSDR’’) registered with the SEC. This requirement may be satisfied by reporting the mixed swap to an SDR or SBSDR registered with both Commissions. Existing § 45.3(h)(2) requires that the registered entity or reporting counterparty making the first report of required swap creation data under § 45.3(h) ensure that the same USI is recorded for the swap in both the SDR and the SBSDR. The Commission is replacing ‘‘making the first report’’ of required swap creation data with ‘‘reporting’’ required swap creation data, among other nonsubstantive changes. The Commission did not receive any comments on the changes to § 45.3(h), re-designated as § 45.3(e). The Commission is adopting the changes as proposed. 6. § 45.3(i)—International Swaps The Commission is removing the § 45.3(i) regulations for international swaps. Existing § 45.3(i) requires that for each international swap, the reporting counterparty report to an SDR the identity of the non-U.S. TR to which the swap is also reported and the swap identifier used by the non-U.S. TR.90 89 The Commission is re-designating § 45.3(h) as § 45.3(e) to reflect: The consolidation of § 45.3(b) through (e) into § 45.3(b); re-designating § 45.3(f) as § 45.3(c); and re-designating § 45.3(g) as § 45.3(d). 90 Existing § 45.1 defines ‘‘international swaps’’ to mean swaps required to be reported by U.S. law and E:\FR\FM\25NOR2.SGM Continued 25NOR2 75512 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations When § 45.3(i) was adopted, the Commission believed the regulations for international swaps were necessary to provide an accurate picture of the swaps market to regulators to further the purposes of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the ‘‘Dodd-Frank Act’’).91 However, if the same swap is reported to different jurisdictions, the USI or UTI 92 should be the same. If the transaction identifier is the same for the swap, there is no need for the counterparties to send the identifier to other jurisdictions. In addition, in the future, regulators should have access to each other’s TRs, if necessary, further obviating the need for reporting counterparties sending identifiers to multiple jurisdictions. As a result, the Commission believes § 45.3(i) is unnecessary and is removing § 45.3(i) from its regulations. The Commission did not receive any comments on the removal of § 45.3(i). 7. § 45.3(j)—Choice of SDR 93 jbell on DSKJLSW7X2PROD with RULES2 The Commission is making nonsubstantive changes to the § 45.3(j) regulations for reporting counterparties in choosing their SDR. Existing § 45.3(j) requires that the entity with the obligation to choose the SDR to which all required swap creation data for a swap is reported be the entity to make the first report of all data pursuant to § 45.3, as follows: (i) For swaps executed on or pursuant to the rules of a SEF or DCM, the SEF or DCM choose the SDR; (ii) for all other swaps, the reporting counterparty, as determined in § 45.8, choose the SDR. The Commission is changing the heading of re-designated § 45.3(f) from ‘‘Choice of SDR’’ to ‘‘Choice of swap data repository,’’ to be consistent with other headings throughout part 45, among other technical changes. The Commission did not receive any comments on the proposed changes to § 45.3(j), re-designated as § 45.3(f). The Commission is adopting the changes to § 45.3(j) as proposed. the law of another jurisdiction to be reported to both an SDR and to a different TR registered with the other jurisdiction. The Commission discusses removing the definition of ‘‘international swap’’ from § 45.1 in section II.A above. 91 Swap Data Recordkeeping and Reporting Requirements, 77 FR 2136, 2151 (Jan. 13, 2012). 92 The Commission discusses USIs and UTIs in section II.E below. 93 The Commission is re-designating § 45.3(j) as § 45.3(f) to reflect: The consolidation of § 45.3(b) through (e) into § 45.3(b); re-designating § 45.3(f) as § 45.3(c); re-designating § 45.3(g) as § 45.3(d); redesignating § 45.3(h) as § 45.3(d); and removing § 45.3(i). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 D. § 45.4—Swap Data Reporting: Continuation Data Existing § 45.4 requires reporting counterparties to report updates to existing swap data and swap valuations to SDRs. As discussed in the sections below, the Commission is adopting four significant changes to these regulations: (i) Removing the option for state data reporting; (ii) extending the deadline for reporting required swap continuation data to T+1 or T+2; (iii) removing the requirement for non-SD/MSP/DCO reporting counterparties to report valuation data quarterly; and (iv) requiring SD/MSP reporting counterparties to report margin and collateral data daily. The remaining changes to § 45.4 discussed below are non-substantive clarifying, cleanup, or technical changes. 1. Introductory Text The Commission is removing the introductory text to existing § 45.4.94 The existing introductory text to § 45.4 provides a broad overview of the swap continuation data reporting regulations for registered entities and swap counterparties. The Commission believes the introductory text is superfluous because the scope of § 45.4 is clear from the operative provisions of § 45.4. Removing the introductory text would not impact any regulatory requirements, including those referenced in the introductory text. The Commission did not receive any comments on the proposal to remove the introductory text to § 45.4. 2. § 45.4(a)—Continuation Data Reporting Method Generally The Commission is making several changes to the § 45.4(a) regulations for required swap continuation data reporting. Existing § 45.4(a) requires reporting counterparties and DCOs 95 report required swap continuation data in a manner sufficient to ensure that all 94 The introductory text to § 45.4 references: The existing § 45.13(b) regulations for required data standards for reporting swap data to SDRs; the existing § 49.10 regulations for SDRs to accept swap data; the existing part 46 regulations for reporting pre-enactment swaps and transition swaps; the existing § 45.3 regulations for reporting required swap creation data; the existing § 45.6 regulations for the use of LEIs; the real-time public reporting requirements in existing part 43; and the parts 17 and 18 regulations for large trader reporting. 95 SEFs and DCMs do not have reporting obligations with respect to required swap continuation data. DCOs are reporting counterparties for clearing swaps, and are thus responsible for reporting required swap continuation data for these swaps. However, DCOs also have required swap continuation data obligations for original swaps, to which DCOs are not counterparties. As a result, § 45.4(a) must address reporting counterparties and DCOs separately. PO 00000 Frm 00092 Fmt 4701 Sfmt 4700 data in the SDR for a swap remains current and accurate, and includes all changes to the PET data of the swap occurring during the existence of the swap. Existing § 45.4(a) further specifies reporting entities and counterparties fulfill their obligations by reporting, within the applicable deadlines outlined in § 45.4, the following: (i) Lifecycle-event data to an SDR that accepts only life-cycle-event data reporting; (ii) state data to an SDR that accepts only state data reporting; or (iii) either lifecycle-event data or state data to an SDR that accepts both life-cycle-event data and state data reporting. First, the Commission is changing the first two sentences to state that for each swap, regardless of asset class, reporting counterparties and DCOs required to report required swap continuation data shall report, to improve readability without changing the regulatory requirement. Second, the Commission is removing state data reporting as an option for reporting changes to swaps from § 45.4. State data reporting involves reporting counterparties re-reporting the PET terms of a swap every day, regardless of whether any changes have occurred to the terms of the swap since the last state data report.96 In contrast, life-cycleevent data reporting involves reporting counterparties re-submitting the PET terms of a swap when an event has taken place that results in a change to the previously reported terms of the swap.97 In adopting part 45, the Commission gave reporting counterparties the option of reporting changes to swaps by either the state data reporting method or life cycle event method to provide flexibility.98 However, the Commission believes state data reporting may be contributing to data quality issues by filling SDRs with unnecessary swap messages. As noted in the Proposal, the Commission estimates that state data reporting messages represent the vast majority of swap reports maintained by SDRs and the Commission.99 The Commission believes eliminating state 96 17 CFR 45.1 (definition of ‘‘state data’’). The Commission discusses removing the definition of ‘‘state data’’ from § 45.1 in section II.A.3 above. 97 17 CFR 45.1 (definition of ‘‘life cycle event’’). The Commission discusses amending the definition of ‘‘life-cycle-event data’’ in § 45.1 in section II.A.2 above. 98 See 77 FR at 2153. 99 For instance, an analysis of part 45 data showed that during January 2018, SDRs received approximately 30 million state data reporting messages, which included over 77% of all interest rate swap reports submitted to SDRs during that time period. Since reporting began, the Commission estimates SDRs have received and made available to the Commission over a billion state data reporting messages. E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations data reporting will improve data quality without impeding the Commission’s ability to fulfill systemic risk mitigation, market transparency, position limit monitoring, and market surveillance objectives. CME opposes removing state data reporting from § 45.4(a). CME believes the Commission should instead require the reporting of final-state life cycle event changes per swap on the day in question to reduce further submission of unnecessary data, noting that this requirement would be consistent with the requirements of other international regulators.100 The Commission agrees with CME updates should be limited to final-state life cycle event changes per swap on a day in question, but believes the Commission can clarify this without continuing to permit state data reporting. As a result, the Commission declines to keep state data reporting, but does clarify life cycle updates should be limited to end of day updates where multiple take place on a day. For the reasons discussed above, the Commission is adopting the changes to § 45.4(a) as proposed. Therefore, § 45.4(a) will require that for each swap, regardless of asset class, reporting counterparties and DCOs required to report required swap continuation data shall report life-cycle-event data for the swap electronically to an SDR in the manner provided in § 45.13(a) within the applicable deadlines outlined in § 45.4. jbell on DSKJLSW7X2PROD with RULES2 3. § 45.4(b)—Continuation Data Reporting for Clearing Swaps The Commission is making several changes to the existing § 45.4(b) regulations for required swap continuation data reporting for clearing swaps. The Commission is moving the § 45.4(b) required swap continuation data reporting regulations for clearing swaps to § 45.4(c) as part of structural changes to the regulations.101 The Commission is re-designating existing § 45.4(c) as § 45.4(b). Existing § 45.4(c) contains the continuation data reporting regulations for original swaps. Redesignated § 45.4(b) will be titled ‘‘Continuation data reporting for original swaps.’’ The Commission is also making several changes to the continuation data reporting regulations for original swaps in re-designated § 45.4(b). Existing § 45.4(c) requires required swap continuation data, including terminations, must be reported to the 100 CME at 15. Commission discusses the revisions to the continuation data requirements for clearing swaps and uncleared swaps in section II.D.4 below. 101 The VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 SDR to which the original swap that was accepted for clearing was reported pursuant to § 45.3(a) through (d).102 For continuation data, existing § 45.4(c)(1) requires: (i) Life-cycle-event data or state data reporting either on the same day that any life cycle event occurs with respect to the swap, or daily for state data reporting; and (ii) daily valuation data. In addition, existing § 45.4(c)(2) requires the reporting of: (i) The LEI of the SDR to which all required swap creation data for each clearing swap was reported by the DCO under § 45.3(e); (ii) the USI of the original swap that was replaced by the clearing swaps; and (iii) the USI of each clearing swap that replaces a particular original swap. First, the Commission is extending the deadline for reporting swap continuation data for original swaps in § 45.4(c)(1) to either T+1 or T+2, depending on the reporting counterparty, to be consistent with the new deadlines for reporting required swap creation data in § 45.3.103 As the Commission discusses in section II.C.2.a above, though, the Commission is removing the references to 11:59 p.m. eastern time that were in the Proposal. The Commission is thus changing the reference from 11:59 p.m. eastern time to the end of the next business day or the second business day that any life cycle event occurs for the swap. Second, the Commission is removing the references to state data reporting 104 in § 45.4(b) and clarifying that required swap continuation data must be reported ‘‘electronically,’’ among other non-substantive changes. The Commission received three comments supporting extending the deadline for reporting required swap continuation data in § 45.4(b).105 In particular, GFXD believes T+1 will create a more harmonized global regulatory framework.106 The Commission agrees with commenters that the proposal extending the deadline for reporting required swap continuation data will streamline 102 The regulation also specifies the information must be reported in the manner provided in § 45.13(b) and in § 45.4, and must be accepted and recorded by such SDR as provided in § 49.10. 17 CFR 45.4(c). 103 The Commission discusses these changes in sections II.C.2 above. The Commission also considered the deadlines set by other regulators. The SEC requires that any events that would result in a change in the information reported to a SBSDR be reported within 24 hours of the event taking place. 17 CFR 242.900(g); 17 CFR 242.901(e). EMIR requires that contract modifications be reported no later than the working day following the modification. Reg. 648/2012 Art. 9(1). 104 The Commission discusses removing state data reporting in section II.D.2 above. 105 GFXD at 22; Chatham at 2; ISDA–SIFMA at 5. 106 GFXD at 22. PO 00000 Frm 00093 Fmt 4701 Sfmt 4700 75513 reporting and be consistent with the deadlines set by other regulators. DTCC requests clarification on when ‘‘each business day’’ begins for § 45.4(b) reporting.107 The Commission believes the definitions of ‘‘required swap creation data’’ and ‘‘required swap continuation data’’ explain that § 45.4 required swap continuation data reporting begins when reporting counterparties need to update information for a swap reported to an SDR under § 45.3. As such, reporting data required by § 45.4 would begin on the ‘‘business day’’ on which a reporting counterparty needs to begin reporting according to § 45.4. Eurex proposes removing the DCO obligation to report terminations of original swaps for ‘‘off facility swaps.’’ 108 Eurex states that in Europe clearing members have no automated reporting line to Eurex and not all multilateral trading facilities (‘‘MTFs’’) or Approved Trade Sources (‘‘ATSs’’) transmit USI namespaces and LEIs of the SDR for ‘‘off-facility swaps’’ to the DCO.109 Eurex states this would be burdensome as SDRs’ USI namespaces and LEIs would have to be manually obtained from the MTFs and ATSs.110 The Commission is not changing DCOs’ obligations for reporting original swap terminations, as the Commission does not want to disrupt the reporting workflows for original and clearing swaps the Commission established in a 2016 rulemaking extensively analyzing the process.111 The Commission declines to adopt Eurex’s suggestion at this time. In summary, § 45.4(b) will require that for each original swap, the DCO shall report required swap continuation data, including terminations, electronically to the SDR to which the swap that was accepted for clearing was reported pursuant to § 45.3 in the manner provided in § 45.13(a), and such required swap continuation data shall be accepted and recorded by such SDR as provided in § 49.10. New § 45.4(b)(1) will provide that the DCO that accepted the swap for clearing shall report all life-cycle-event data electronically to an SDR in the manner provided in § 45.13(a) not later than the end of the next business day following the day that any life cycle event occurs with respect to the swap. New § 45.4(b)(2) will require that, in addition to all other required swap continuation data, life107 DTCC 108 Eurex at 5. 2–3. 109 Id. 110 Id. 111 See Amendments to Swap Data Recordkeeping and Reporting Requirements for Cleared Swaps, 81 FR 41736 (June 27, 2016). E:\FR\FM\25NOR2.SGM 25NOR2 75514 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 cycle-event data shall include the LEI of the SDR to which all required swap creation data for each clearing swap was reported by the DCO pursuant to § 45.3(b); the UTI of the original swap that was replaced by the clearing swaps; and the UTI of each clearing swap that replaces a particular original swap. 4. § 45.4(c)—Continuation Data for Original Swaps The Commission is making several changes to the § 45.4(c) regulations for reporting required swap continuation data for original swaps. The Commission is moving the required swap continuation data reporting requirements for original swaps from existing § 45.4(c) to § 45.4(b) as part of structural changes.112 The Commission is also moving the continuation data reporting requirements for clearing swaps from existing § 45.4(b) to § 45.4(c), and combining them with the continuation data reporting requirements for uncleared swaps in existing § 45.4(d). The Commission is retitling § 45.4(c) ‘‘Continuation data reporting for swaps other than original swaps’’ to reflect the combination. The Commission is making several changes to the continuation data reporting regulations for clearing swaps and uncleared swaps in § 45.4(b) and (d), respectively, proposed to be redesignated as § 45.4(c). Existing § 45.4(b) requires that for all clearing swaps, DCOs report: (i) Life-cycle-event data or state data reporting either on the same day that any life cycle event occurs with respect to the swap, or daily for state data reporting; and (ii) daily valuation data. Existing § 45.4(d) requires that for all uncleared swaps, including swaps executed on a SEF or DCM, the reporting counterparty report: (i) All life-cycle-event data on the same day for SD/MSP reporting counterparties, or the second business day if it relates to a corporate event of the non-reporting counterparty, or state data daily; (ii) all life-cycle-event data on the next business day for non-SD/ MSP reporting counterparties, or the end of the second business day if it relates to a corporate event of the nonreporting counterparty, or state data daily; (iii) daily valuation data for SD/ MSP reporting counterparties; and (iv) the current daily mark of the transaction as of the last day of each fiscal quarter, within 30 calendar days of the end of each fiscal quarter for non-SD/MSP reporting counterparties.113 112 The Commission discusses changes to continuation data requirements for original swaps in section II.D.3 above. 113 If a daily mark of the transaction is not available for the swap, the reporting counterparty VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 First, the Commission is changing the life cycle event reporting deadlines for these swaps to match other T+1 and T+2 deadlines.114 The Commission is changing the life cycle event reporting deadline for SD/MSP/DCO reporting counterparties from the same day to T+1 following any life cycle event.115 The Commission is changing the exception for corporate events of the non-reporting counterparty to T+2. For non-SD/MSP/ DCO reporting counterparties, the Commission is changing the life cycle event reporting deadline to T+2 following the life cycle event. As explained in section II.C.2.a above, though, the Commission is removing the references to 11:59 p.m. eastern time from the proposal. As a result, the deadlines will be either the end of the next business day or the second business day following the events. Second, the Commission is removing the references to state data reporting in new § 45.4(c).116 Third, the Commission is clarifying that required swap continuation data must be reported ‘‘electronically,’’ among other nonsubstantive edits to improve readability and update cross-references. Fourth, the Commission is changing the swap valuation data reporting requirements for all reporting counterparties. DCOs, SDs, and MSPs report valuation data daily, while nonSD/MSP reporting counterparties report the daily mark of transactions quarterly.117 For DCO, SD, and MSP reporting counterparties, the Commission is keeping the daily reporting requirement. However, the Commission is expanding the requirement to include margin and collateral data.118 Conversely, the Commission is eliminating the requirement for non-SD/MSP/DCO reporting counterparties to report satisfies the requirement by reporting the current valuation of the swap recorded on its books in accordance with applicable accounting standards. 17 CFR 45.4(d)(2)(ii). 114 The Commission discusses the T+1 and T+2 deadlines in § 45.3(b) and § 45.4(b) in sections II.C.2.b and II.D.3, respectively, above. 115 The Commission is not extending the valuation data reporting deadline for SD/MSP/DCO reporting counterparties. The Commission believes SDs, MSPs, and DCOs are already creating daily valuations and tracking margin and collateral for reasons independent of their swap reporting obligations. 116 The Commission discusses the removal of state data reporting in section II.D.2 above. 117 17 CFR 45.4(b)(2) and (d)(2). 118 The Commission is adding a definition of ‘‘collateral data’’ to § 45.1(a), as discussed in section II.A.1 above. ‘‘Collateral data’’ means the data elements necessary to report information about the money, securities, or other property posted or received by a swap counterparty to margin, guarantee, or secure a swap, as specified in appendix 1 to part 45. PO 00000 Frm 00094 Fmt 4701 Sfmt 4700 valuation data and is not requiring them to report margin and collateral data. The Commission decided against requiring collateral data reporting when it adopted part 45 in 2012. At the time, both the Commission and industry understood collateral data was important for systemic risk management, but was not yet possible to include in transaction-based reporting since it was calculated at the portfolio level.119 In light of this limitation, the Commission required the daily mark be reported for swaps as valuation data, but not collateral.120 However, the Commission noted while the industry had not yet developed data elements suitable for representing the terms required to report collateral, the Commission could revisit the issue in the future if and when industry and SDRs develop ways to represent electronically the terms required for reporting collateral.121 The Commission is concerned not having margin and collateral data at SDRs impedes its ability to fulfill systemic risk mitigation objectives. As a result, the Commission revisited this issue in the Proposal to determine whether it is now feasible.122 The Commission believes margin and collateral data is necessary to monitor risk in the swaps market. Given that ESMA is already requiring margin and collateral reporting, and that the Commission is requiring many of the data elements that ESMA requires, the Commission believes certain market participants are ready to report this data to SDRs. However, the Commission is concerned valuation, margin, and collateral data reporting could create a significant burden for non-SD/MSP/ DCO reporting counterparties. These entities include those market 119 See 77 FR 2136, 2153. CFR 45.1 (definition of ‘‘valuation data’’). The Commission proposed amending the definition of ‘‘valuation data’’ in § 45.1(a), as discussed in section II.A.2 above. As amended, ‘‘valuation data’’ would mean the data elements necessary to report information about the daily mark of the transaction, pursuant to CEA section 4s(h)(3)(B)(iii), and to § 23.431 if applicable, as specified in appendix 1 to part 45. 121 See 77 FR 2136, 2154 (Jan. 13, 2012). 122 Other regulators have taken different approaches to margin and collateral data reporting. ESMA, for instance, requires the reporting of many of the same collateral and margin swap data elements the Commission proposed requiring, either on a portfolio basis or by transaction. Reg. 148/2013 Art. 3(5). With respect to valuation data, ESMA requires central counterparties to report valuations for cleared swaps as the Commission does. Reg. 148/2013 Art. 3(4); Reg. 648/2012 Art. 10. EMIR provides an exemption from valuation reporting, as well as reporting margin and collateral data, for non-financial counterparties, unless they exceed a threshold of derivatives activity. 120 17 E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations participants that, by virtue of size and extent of activity in the swap market, may have fewer resources to devote to reporting this complex data. The Commission also recognizes the quarterly valuation data these counterparties report is not integral to the Commission’s ability to monitor systemic risk in the swaps market and may not justify the cost to these entities to report it. The Commission received 11 comments on expanding daily valuation data reporting to include margin and collateral data reporting in § 45.4(c) for SD/MSP/DCO reporting counterparties. Three commenters support the proposal.123 In particular, Markit believes it is more efficient for reporting counterparties to submit both cleared and uncleared margin and collateral data together to SDRs, and states that when it comes to valuation or collateral reporting valuation, some systems may have limited information (e.g., trade reference identification but not clearing status), and therefore it is more complex to split valuation or collateral reporting into cleared versus uncleared categories. Eight commenters oppose the proposal.124 CME, Eurex, ISDA–SIFMA, and FIA note collateral and margin reporting for DCOs pursuant to part 45 would be redundant for DCOs that have to report similar data to the Commission pursuant to part 39 of the Commission’s regulations, which could result in burdens on DCOs with questionable benefits to the Commission.125 In particular, CME believes the Commission should consider consolidating its collateral reporting obligations for DCOs under part 39.126 The Commission received nine comments supporting excluding nonSD/MSP/DCO reporting counterparties from reporting valuation, margin, and collateral data in § 45.4(c).127 In particular, IECA notes reporting counterparties contract for third-party services to perform quarterly valuations of transactions, and the valuation analysis does not mitigate systemic risk, and offers only tangential value, at best, to the two parties.128 Similarly, ISDA– SIFMA strongly support the proposal because ISDA–SIFMA do not believe the 2% of swaps reported by non-SD/MSP/ 123 Chris Barnard at 1; Markit at 6; LCH at 2. at 15–16; CEWG at 8; Eurex at 3; ICE DCOs at 3–4; ISDA–SIFMA at 8; BP at 3; FXPA at 4–5; FIA at 12. 125 CME at 15–16; Eurex at 3; ICE DCOs at 3–4; ISDA–SIFMA at 8; FIA at 12. 126 CME at 15–16. 127 IECA at 3; Chatham at 2–3; Eurex at 3; JBA at 4; NRECA–APPA at 5; ISDA–SIFMA at 8; FIA at 14; CEWG at 2; COPE at 2. 128 IECA at 3. jbell on DSKJLSW7X2PROD with RULES2 124 CME VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 DCO reporting counterparties represent systemic risk.129 The Commission acknowledges the concerns raised by CME, Eurex, ICE DCOs, ISDA–SIFMA, and FIA about duplicative reporting for DCOs regarding cleared swaps. While collateral and margin data is reported pursuant to part 39 using a different set of data elements than those contained in appendix 1, and collateral and margin data is reported for end-of-day positions pursuant to part 39 as opposed to a more granular transaction-bytransaction basis pursuant to part 45, the Commission believes the collateral and margin data reported by DCOs pursuant to part 39 is sufficiently similar to data reported pursuant to part 45 to meet the Commission’s current needs. However, the Commission is also open to requiring DCO reporting counterparties to report collateral and margin data on a transaction-bytransaction basis pursuant to part 45 at a future date if a Commission need for more granular data emerges in its monitoring of systemic risk or if granular data is needed as a condition for global jurisdictions to grant substituted compliance and TR access to one another. The Commission notes any added costs to DCO reporting counterparties to comply with any such future Commission requirement would be substantially mitigated by DCOs’ existing and future systems for transaction-by-transaction reporting of collateral and margin data developed to comply with the requirements of other jurisdictions, including Europe. The Commission received one comment on reporting corporate events. FIA suggests that for the reporting of corporate events of non-reporting counterparties, the Commission measure the reporting deadline from the day the non-reporting counterparty informs the reporting counterparty of the corporate event.130 The Commission believes corporate events need to be reported in a timely manner, and is concerned FIA’s suggestion of leaving the decision of when to inform the reporting counterparty could delay the notification for extended periods of time, resulting in inaccurate or stale data. As such, the Commission declines to adopt FIA’s suggestion. For the reasons discussed above, the Commission is adopting the changes to § 45.4(c) as proposed, except the Commission is excluding DCO reporting counterparties from the requirement to report collateral data. In summary, 129 ISDA–SIFMA 130 FIA PO 00000 at 8. at 11. Frm 00095 Fmt 4701 Sfmt 4700 75515 § 45.4(c) will require that for each swap that is not an original swap, including clearing swaps and swaps not cleared by DCOs, the reporting counterparty shall report all required swap continuation data electronically to an SDR in the manner provided in § 45.13(a) as provided in § 45.4(c). New § 45.4(c)(1) will require that: (i) If the reporting counterparty is a SD, MSP, or DCO, the reporting counterparty shall report lifecycle-event data electronically to an SDR in the manner provided in § 45.13(a) not later than the end of the next business day following the day that any life cycle event occurred, with the sole exception that life-cycle-event data relating to a corporate event of the nonreporting counterparty shall be reported in the manner provided in § 45.13(a) not later than the end of the second business day following the day that such corporate event occurred; (ii) if the reporting counterparty is a non-SD/ MSP/DCO counterparty, the reporting counterparty shall report life-cycleevent data electronically to an SDR in the manner provided in § 45.13(a) not later than the end of the second business day following the day that any life cycle event occurred. New § 45.4(c)(2)(i) will require that if the reporting counterparty is a SD, MSP, or DCO, swap valuation data shall be reported electronically to an SDR in the manner provided in § 45.13(b) each business day. New § 45.4(c)(2)(ii) will require that if the reporting counterparty is a SD or MSP, collateral data shall be reported electronically to an SDR in the manner provided in § 45.13(b) each business day. E. § 45.5—Unique Transaction Identifiers The Commission is amending § 45.5 to adopt requirements for UTIs, the globally accepted transaction identifier, replacing USIs in existing § 45.5. In general, the Commission is amending existing § 45.5(a) through (f) to require each swap to be identified with a UTI in all recordkeeping and all swap data reporting, and to require the UTI be comprised of the LEI of the generating entity and a unique alphanumeric code. Before discussing the specific changes to § 45.5(a) through (f) in sections II.E.1 to II.E.7 below, the Commission explains the policy behind adopting UTIs. In general, existing § 45.5 requires: (i) Each swap be identified with a USI in all recordkeeping and all swap data reporting, and (ii) the USI be comprised of a unique alphanumeric code and an identifier the Commission assigns to the generating entity. Each swap retains its USI from execution until, for instance, E:\FR\FM\25NOR2.SGM 25NOR2 75516 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations the swap reaches maturity or the counterparties terminate the contract. USIs allow the Commission to identify new swaps in SDR data and track changes to swaps by reviewing all reports associated with a USI. The Commission implemented the existing USI regulations before global consensus was reached on the structure and format for a common swap identifier. For entities reporting swap data to multiple jurisdictions, this has resulting in conflicting or ambiguous generation and transmission requirements across jurisdictions. Practically, the Commission is concerned this has resulted in: (i) Conflicting responsibilities for generating identifiers and (ii) entities reporting different identifiers identifying the same swap to different SDRs and TRs. The Commission believes amending § 45.5 to require each swap be identified with a UTI in all recordkeeping and all swap data reporting, and to require that the UTI be comprised of the LEI of the generating entity and a unique alphanumeric code, will result in the structure and format for the swap identifier being consistent with the UTI Technical Guidance, which will reduce cross-border reporting complexity and encourage global swap data aggregation. jbell on DSKJLSW7X2PROD with RULES2 1. Title and Introductory Text The Commission proposed several conforming amendments to the § 45.5 title and the introductory text. Existing § 45.5 is titled ‘‘Unique swap identifiers.’’ The existing introductory text states that each swap subject to the jurisdiction of the Commission shall be identified in all recordkeeping and all swap data reporting pursuant to part 45 by the use of a USI, which shall be created, transmitted, and used for each swap as provided in § 45.5(a) through (f). The Commission proposed replacing ‘‘swap’’ in the title with ‘‘transaction’’ to reflect the Commission’s proposed adoption of the UTI. Accordingly, the Commission proposed updating the reference to USI with UTI in the introductory text. The Commission also proposed updating the reference to paragraphs (a) through (f) of existing § 45.5 to (a) through (h) of proposed § 45.5. This would reflect the Commission’s addition of proposed § 45.5(g) and (h), discussed in sections II.E.8 and II.E.9 below. The Commission received eight general comments on adopting UTIs in § 45.5. Four commenters generally VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 support adopting UTIs in § 45.5.131 In particular, BP also supports using the same UTI across jurisdictions and recommends SDRs manage UTI generation and identify and coordinate the use of the earliest regulatory reporting deadline among jurisdictions.132 GFXD supports implementing global UTI standards but is concerned the Commission will conflict with the global harmonized generation hierarchy or run on a timeframe that is not coordinated with other jurisdictions, negating the purpose and benefits of a universal UTI standard and creating significant extra cost and complexity, as well as the need to separate UTI systems and logic for each jurisdiction.133 Eurex supports harmonizing the UTI and believes it would significantly relieve reporting counterparties. Eurex recommends the Commission align UTI requirements with ESMA and other global regulators on the effective date of UTI and phase in UTI to handle existing open swap positions.134 LCH recommends the Commission apply the factors provided in Table 1 of the UTI Technical Guidance, which contains specific factors authorities should consider for allocating responsibility for UTI generation.135 JBA believes not adopting the UTI Technical Guidance precisely could lead to confusion for the UTI generation responsibility for cross-border transactions. JBA asks the Commission consider designing easy-to-implement and flexible rules, such as allowing a change to the UTI generation responsibility in accordance with a bilateral agreement or adopting tiebreaker logic similar to the existing ISDA Tie-Breaker Logic that easily determines the UTI generation responsibility.136 The Commission did not receive any comments on the proposals to retitle § 45.5 ‘‘Unique Transaction Identifiers,’’ to update the reference to paragraphs (a) through (f) of § 45.5 to (a) through (h) of § 45.5, or to update the reference to USI with UTI in the introductory text and for reasons articulated in the Proposal and reiterated above, is adopting the changes to those portions of the introductory text as proposed. For the reasons articulated in the Proposal and the additional reasons discussed below, the Commission is adopting the changes 131 Chatham at 3; LCH at 3; GLEIF at 3; BP at 5. 132 BP at 5. at 22–23. 134 Eurex suggests, for example, continuing use of the old identifier for open swaps until positions are modified. Eurex at 3–4. 135 LCH at 3. 136 JBA at 2–3. 133 GFXD PO 00000 Frm 00096 Fmt 4701 Sfmt 4700 to the remainder of the introductory text to § 45.5 as proposed. The Commission acknowledges the comments supportive of the Commission’s proposal to adopt UTIs. The Commission agrees with Eurex and GFXD that the promise of UTIs can only be realized if jurisdictions worldwide adopt the UTI, but the Commission shares the FSB’s belief that it is not feasible for jurisdictions to have one coordinated global implementation date due to differences in the legislative and regulatory process across jurisdictions.137 However, as discussed in section VI below, the Commission is adopting an 18-month compliance date for UTIs in an effort to be closer aligned with the estimated implementation dates of other jurisdictions and recommends that other jurisdictions adopt UTIs as expeditiously as possible. As to the comments from LCH, GFXD, and JBA on the importance of following the UTI Technical Guidance for assigning UTI generation responsibilities, the Commission agrees and has cited the specific steps from the UTI Technical Guidance generation flowchart in sections II.E.2 to II.E.5 below to demonstrate the conformity of § 45.5(a) to (d) with the UTI Technical Guidance. The Commission declines JBA’s request for a rule affording flexibility in UTI generation responsibilities, such as allowing bilateral agreement between counterparties to override the UTI generation responsibilities in § 45.5, because it believes clear rules delineating UTI generation responsibilities provide the best assurance that only one unique UTI is generated for a trade, a necessity for swap data reporting integrity. Allowing UTIs to be generated according to bilateral agreement results in the need to reach agreement on a trade-by-trade or counterparty-by-counterparty basis, a scenario the Commission believes will increase the likelihood, due to miscommunication, that no UTI is generated for a swap if each entity believes the other agreed to generate or multiple UTIs are generated for a swap if each entity believes it agreed to generate. 137 FSB, Governance arrangements for the unique transaction identifier (UTI) (Dec. 29, 2017) at 16 (‘‘The FSB recognises the challenges in coordinating a synchronised regulatory and technological implementation across jurisdictions and registered entities. As a result, the FSB believes that the most realistic and feasible implementation plan is that jurisdictions globally implement the requirements to report UTIs as expeditiously as possible’’). E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 2. § 45.5(a)—Swaps Executed on or Pursuant to the Rules of a SEF or DCM The Commission proposed several conforming amendments to § 45.5(a) for the creation and transmission of UTIs for swaps executed on or pursuant to the rules of SEFs and DCMs. Existing § 45.5(a)(1) requires that for swaps executed on or pursuant to the rules of SEFs and DCMs, the SEFs and DCMs generate and assign USIs at or ASATP following execution, but prior to the reporting of required swap creation data, that consist of a single data field.138 Existing § 45.5(a)(2) requires that the SEF or DCM transmit the USI electronically (i) to the SDR to which the SEF or DCM reports required swap creation data for the swap, as part of that report; (ii) to each counterparty to the swap ASATP after execution of the swap; and (iii) to the DCO, if any, to which the swap is submitted for clearing, as part of the required swap creation data transmitted to the DCO for clearing purposes.139 First, the Commission proposed amendments to conform to the Commission’s proposed adoption of the UTI. The Commission proposed replacing all references to ‘‘USIs’’ with ‘‘UTIs’’ in proposed § 45.5(a)(1) and (2). In addition, the Commission proposed updating the phrase in existing § 45.5(a)(1) that requires the USI to consist of a single data ‘‘field’’ that contains two components to a single data ‘‘element with a maximum length of 52 characters’’ so that the length of the UTI is consistent with the UTI Technical Guidance.140 The Commission also proposed amending the § 45.5(a)(1)(i) description of the first component of the UTI’s single data element to replace ‘‘unique alphanumeric code assigned to’’ the SEF or DCM with ‘‘legal entity identifier of’’ the SEF or DCM so that the identifier used to identify the UTI generating entity is consistent with the UTI Technical Guidance.141 The Commission proposed to delete the phrase in the second half of the sentence statin that by the Commission for the purpose of identifying the SEF or DCM with respect to the USI creation, 138 The single data field must contain: (i) The unique alphanumeric code assigned to the SEF or DCM by the Commission for the purpose of identifying the SEF or DCM with respect to the USI creation; and (ii) an alphanumeric code generated and assigned to that swap by the automated systems of the SEF or DCM, which is unique with respect to all such codes generated and assigned by that SEF or DCM. 17 CFR 45.5(a)(1)(i) and (ii). 139 17 CFR 45.5(a)(2)(i) through (iii). 140 UTI Technical Guidance, Section 3.6. 141 UTI Technical Guidance, Section 3.5. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 because, according to the UTI Technical Guidance, an LEI is used to identify the UTI generating entity instead of an identifier assigned by individual regulators. The Commission did not receive any comments on the proposed amendments to the requirements for the creation and transmission of UTIs for swaps executed on or pursuant to the rules of SEFs and DCMs in proposed § 45.5(a) and for reasons articulated in the Proposal and reiterated above, is adopting the changes as proposed. The Commission notes assigning UTI generation responsibilities for swaps executed on or pursuant to the rules of SEFs and DCMs to the SEF or DCM adheres to the generation flowchart in the UTI Technical Guidance.142 3. § 45.5(b)—Off-Facility Swaps With an SD or MSP Reporting Counterparty The Commission proposed several amendments to existing § 45.5(b) for the creation and transmission of UTIs for off-facility swaps by SD/MSP reporting counterparties. Existing § 45.5(b)(1) requires that, for off-facility swaps with SD/MSP reporting counterparties, the reporting counterparty generate and assign a USI consisting of a single data field.143 The required USI must be generated and assigned after execution of the swap and prior to the reporting of required swap creation data and the transmission of data to a DCO if the swap is to be cleared. Existing § 45.5(b)(2) requires that the reporting counterparty transmit the USI electronically: (i) To the SDR to which the reporting counterparty reports required swap creation data for the swap, as part of that report; and (ii) to the non-reporting counterparty to the swap, ASATP after execution of the swap; and (iii) to the DCO, if any, to which the swap is submitted for clearing, as part of the required swap creation data transmitted to the DCO for clearing purposes. First, the Commission proposed expanding the UTI creation and transmission requirements for SD/MSP reporting counterparties to include reporting counterparties that are 142 UTI Technical Guidance at 12 (Step 3: ‘‘Was the transaction executed on a trading platform?’’ ‘‘If so, the trading platform’’). 143 The single data field must contain: (i) The unique alphanumeric code assigned to the SD or MSP by the Commission at the time of its registration for the purpose of identifying the SD or MSP with respect to USI creation; and (ii) an alphanumeric code generated and assigned to that swap by the automated systems of the SD or MSP, which shall be unique with respect to all such codes generated and assigned by that SD or MSP. 17 CFR 45.5(b)(1). PO 00000 Frm 00097 Fmt 4701 Sfmt 4700 75517 financial entities.144 The Commission explained that it believed extending the responsibility for generating off-facility swap UTIs to reporting counterparties that are financial entities would reduce the UTI generation burden on nonfinancial entities. The Commission also proposed conforming changes. These changes replaced ‘‘swap dealer or major swap participant reporting counterparty’’ in the title to proposed § 45.5(b) with ‘‘financial entity reporting counterparty’’ and replaced ‘‘swap dealer or major swap participant’’ in the first sentence of § 45.5(b) with ‘‘financial entity.’’ As proposed, the new title of § 45.5(b) would be ‘‘Off-facility swaps with a financial entity reporting counterparty’’ and the first sentence of proposed § 45.5(b) would begin with ‘‘For each off-facility swap where the reporting counterparty is a financial entity. . . .’’ 145 The Commission similarly proposed to replace references to ‘‘swap dealer or major swap participant’’ in § 45.5(b)(1)(i) and (ii) with ‘‘reporting counterparty.’’ 146 Second, the Commission proposed amendments to conform to the Commission’s proposed adoption of the UTI. The Commission proposed replacing all references to ‘‘USIs’’ with ‘‘UTIs’’ in proposed § 45.5(b)(1) and (2). In addition, the Commission proposed updating the phrase in proposed § 45.5(b)(1) that requires the USI to consist of a single data ‘‘field’’ that contains two components to a single data ‘‘element with a maximum length of 52 characters’’ so that the length of the UTI is consistent with the UTI Technical Guidance.147 The Commission proposed amending § 45.5(b)(1)(i) to describe the first component of the UTI’s single data element by replacing ‘‘unique alphanumeric code assigned to’’ the SD or MSP with ‘‘legal entity identifier of’’ the reporting counterparty so that the identifier used to identify the UTI generating entity is consistent with the UTI Technical Guidance.148 The Commission also proposed deleting the phrase in the second half of the sentence stating ‘‘by the Commission at the time of its registration as such, for the purpose of identifying the [SD] or [MSP] with respect to the [USI] creation,’’ because, according to the UTI Technical Guidance, an LEI should be used to identify the UTI generating 144 17 CFR 45.1 (definition of ‘‘financial entity’’). row ‘‘45.5(b)’’ of the table in section VIII.3 145 See below. 146 See row ‘‘45.5(b)(1)(ii)’’ of the table in section VIII.3 below. 147 UTI Technical Guidance, Section 3.6. 148 UTI Technical Guidance, Section 3.5. E:\FR\FM\25NOR2.SGM 25NOR2 jbell on DSKJLSW7X2PROD with RULES2 75518 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations entity instead of an identifier assigned by individual regulators. The Commission also believed this would more closely align the UTI generation hierarchy with the reporting counterparty determination hierarchy in § 45.8, which incorporates financial entities for purposes of determining the reporting counterparty.149 For example, in an off-facility swap where neither counterparty is an SD nor an MSP and only one counterparty is a financial entity, the counterparty that is a financial entity would be the reporting counterparty,150 yet the SDR would generate the USI under existing § 45.5(c).151 The Commission explained that the proposed changes to § 45.5(b) would ensure that for such swap, the financial entity would be assigned to both the reporting counterparty and to generate the UTI and that the proposal would also reduce the number of swaps for which SDRs would be required to generate the UTI. The Commission received two comments on the proposed amendments to § 45.5(b). ISDA–SIFMA believe the Commission should delay the requirement to disseminate UTIs to nonreporting counterparties from ASATP to T+1, because the UTI transmission mechanisms generally align with the method of confirmation, such as electronic or paper. ISDA–SIFMA suggest the Commission replace the ASATP requirement for UTI transmission with a deadline of no later than T+1, to correspond with the proposed timeline for reporting creation data to the SDR.152 DTCC agrees that the reporting counterparty should be responsible for generating off-facility swap UTIs.153 The Commission did not receive any comments opposing the proposed amendments to § 45.5(b) expanding the UTI creation and transmission requirements for SD/MSP reporting counterparties to include reporting counterparties that are financial entities, and for reasons articulated in the Proposal and reiterated above, is adopting the proposal with one modification relating to transmission. The Commission agrees with ISDA– SIFMA and believes in light of the proposed changes in § 45.3(b) to the deadline for reporting required swap creation data, that transmission of the UTI to the non-reporting counterparty should be similarly delayed in order to not potentially provide two separate 149 17 CFR 45.8. CFR 45.8(c). 151 17 CFR 45.5(c). 152 ISDA–SIFMA at 10. 153 DTCC at 5. 150 17 VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 confirmations to the non-reporting counterparty. The Commission therefore is adopting the changes as proposed, except it replaces ‘‘To the non-reporting counterparty to the swap, as soon as technologically practicable after execution of the swap; and’’ with ‘‘To the non-reporting counterparty to the swap, no later than the applicable deadline in § 45.3(b) for reporting required swap creation data; and’’ in final § 45.5(b)(2)(ii). The Commission notes assigning UTI generation responsibilities for offfacility swaps with a financial entity reporting counterparty to the reporting counterparty adheres to the generation flowchart in the UTI Technical Guidance.154 4. § 45.5(c)—Off-Facility Swaps With a Non-SD/MSP Reporting Counterparty The Commission proposed several amendments to existing § 45.5(c) for the creation and transmission of USIs for off-facility swaps by non-SD/MSP reporting counterparties. Existing § 45.5(c)(1) requires that, for off-facility swaps with non-SD/MSP reporting counterparties, the SDR generates and assigns the USI ASATP after receiving the first report of PET data, consisting of a single data field.155 Existing § 45.5(c)(2) requires that the SDR transmit the USI electronically: (i) To the counterparties to the swap ASATP after creation of the USI, and (ii) to the DCO, if any, to which the swap is submitted for clearing ASATP after creation of the USI. First, the Commission proposed replacing ‘‘non-SD/MSP reporting counterparty’’ in the title of proposed § 45.5(c) with ‘‘non-SD/MSP/DCO reporting counterparty that is not a financial entity’’ and replacing ‘‘reporting counterparty is a non-SD/ MSP counterparty’’ in the first sentence of proposed § 45.5(c) with ‘‘reporting counterparty is a non-SD/MSP/DCO counterparty that is not a financial entity.’’ The new title of § 45.5(c) would 154 UTI Technical Guidance at 12 (Step 7: ‘‘Does the jurisdiction employ a counterparty-status-based approach (e.g., rule definition or registration status) for determining which entity should have responsibility for generating the UTI?’’ ‘‘If so, see step 8.’’ Step 8: ‘‘Do the counterparties have the same regulatory status for UTI generation purposes under the relevant jurisdiction?’’ ‘‘Otherwise, see step 9.’’ Step 9: ‘‘Do the applicable rules determine which entity should have responsibility for generating the UTI?’’ ‘‘If so, the assigned entity’’). 155 The single data field must contain: (i) The unique alphanumeric code assigned to the SDR by the Commission at the time of its registration for the purpose of identifying the SDR with respect to USI creation; and (ii) an alphanumeric code generated and assigned to that swap by the automated systems of the SDR, which must be unique with respect to all such codes generated and assigned by that SDR. 17 CFR 45.5(c)(1). PO 00000 Frm 00098 Fmt 4701 Sfmt 4700 be ‘‘Off-facility swaps with a non-SD/ MSP/DCO reporting counterparty that is not a financial entity’’ and the first sentence of § 45.5(c) would begin with ‘‘For each off-facility swap for which the reporting counterparty is a non-SD/ MSP/DCO counterparty that is not a financial entity. . . .’’ The Commission is expanding UTI generation responsibilities to financial entities,156 and believes this amendment will clarify that § 45.5(c) will apply only where a reporting counterparty is a nonSD/MSP/DCO counterparty that is not a financial entity. Second, the Commission proposed amending existing § 45.5(c) to provide non-SD/MSP/DCO reporting counterparties that are not financial entities with the option to generate the UTI for an off-facility swap or to request the SDR to which required swap creation data will be reported to generate the UTI. If the non-SD/MSP/ DCO reporting counterparty that is not a financial entity chooses to generate the UTI for an off-facility swap, the reporting counterparty would follow the creation and transmission requirements for financial entity reporting counterparties in final § 45.5(b)(1) and (2). If the non-SD/MSP/DCO reporting counterparty that is not a financial entity chooses to request the SDR generates the UTI, the SDR would follow the creation and transmission requirements for SDRs in proposed § 45.5(c)(1) and (2). The Commission proposed amendments to the requirements for SDRs in proposed § 45.5(c)(1), as discussed below. The Commission participated in the preparation of the UTI Technical Guidance, which includes guidance to authorities for allocating responsibility for UTI generation, including a generation flowchart that places SDRs at the end.157 The UTI Technical Guidance also notes ‘‘[n]ot all factors’’ in the flowchart for allocating responsibility for UTI generation ‘‘will be relevant for all jurisdictions.’’ 158 Because the UTI Technical Guidance was produced with the need to accommodate the different trading patterns and reporting rules in jurisdictions around the world, the Commission explained certain factors included in the UTI Technical Guidance generation flowchart are not applicable for the Commission (e.g., factors relating to the principal clearing model 159 or 156 17 CFR 45.1 (definition of ‘‘financial entity’’). The Commission discusses this change in section II.E.3 above. 157 UTI Technical Guidance at 12–14. 158 UTI Technical Guidance at 12. 159 UTI Technical Guidance at 12 (Step 2: ‘‘Is a counterparty to this transaction a clearing member E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 electronic confirmation platforms),160 and that therefore the Commission was unable to adopt the UTI Technical Guidance without modification. However, the Commission explained in the Proposal that none of the provisions of proposed § 45.5 would conflict with the UTI Technical Guidance, including maintaining the existing obligations for SDRs to generate and transmit UTIs. While UTI generation and transmission responsibilities by SDRs remain in proposed § 45.5(c), the Commission also believed the proposed alignment of the UTI generation and reporting counterparty determination for financial entities in final § 45.5(b) and the proposed reporting option for reporting counterparties that are neither DCOs nor financial entities in proposed § 45.5(c) would result in reduced overall UTI generation and transmission burdens for SDRs. The Commission explained in the Proposal that amending § 45.5(c) to provide the reporting counterparty with the option to generate the UTI for an offfacility swap where the reporting counterparty is neither a DCO nor financial entity or, if the reporting counterparty elects not to generate the UTI, to request the SDR to which required swap creation data will be reported generate the UTI would provide a reporting counterparty that is neither a DCO nor financial entity with the flexibility to generate the UTI should it choose to do so. Simultaneously, the Commission believed the proposal would reduce the number of swaps where an SDR is assigned UTI generation responsibilities, while also maintaining the existing SDR role as a guarantee that every off-facility swap will be identified with a UTI. Third, the Commission proposed amendments to conform to the Commission’s proposed adoption of the UTI.161 The Commission also proposed of a CCP, and if so is that clearing member acting in its clearing member capacity for this transaction?’’). 160 UTI Technical Guidance at 12 (Step 6: ‘‘Has the transaction been electronically confirmed or will it be and, if so, is the confirmation platform able, willing and permitted to generate a UTI within the required time frame under the applicable rules?’’). 161 The Commission proposed replacing all references to ‘‘USIs’’ with ‘‘UTIs’’ in proposed § 45.5(c)(1) and (2). In addition, the Commission proposed updating the phrase in proposed § 45.5(c)(1) that required the USI to consist of a single data ‘‘field’’ that contains two components to a single data ‘‘element with a maximum length of 52 characters’’ so that the length of the UTI is consistent with the UTI Technical Guidance. UTI Technical Guidance, Section 3.6. The Commission proposed amending the § 45.5(c)(1)(i) description of the first component of the UTI’s single data element to replace ‘‘unique alphanumeric code assigned to’’ VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 deleting the phrase in the second half of the sentence stating ‘‘by the Commission at the time of its registration as such, for the purpose of identifying the [SDR] with respect to the [USI] creation,’’ because, according to the UTI Technical Guidance, an LEI should be used to identify the UTI generating entity instead of an identifier assigned by individual regulators. The Commission received four comments supporting expansion of the ability to generate UTIs. CME supports expanding the ability to generate UTIs to non-SD/MSP/DCO reporting counterparties that are not financial entities, because the internal reference identifier used in bookkeeping systems is different than the transaction identifier used in swap data reporting.162 DTCC agrees that the reporting counterparty should be responsible for generating off-facility swap UTIs, because reporting counterparties are in the best position to collect information from a non-reporting counterparty necessary to generate a UTI, such as LEI.163 Chatham believes all non-SD/MSP/DCO reporting counterparties should have the option to have the SDR continue to generate the UTI for them, because it is efficient and requires the fewest changes to the current practice.164 BP supports SDRs continuing to manage UTI generation.165 The Commission received four comments opposing the requirement for SDRs to generate UTIs. CME believes the rule changes appear to require SDRs to offer separate parts 43 and 45 messages because of the different reporting deadlines, and that SDRs would not be able to link the parts 43 and 45 messages, necessitating the reporting counterparty to include the UTI from the first message in the second message. CME believes SDRs should not generate UTIs to avoid this situation. CME also notes some reporting counterparties who currently rely on SDRs to generate USIs have swaps with multiple USIs because of an issue when reporting counterparties submit swaps to the SDR in batches but the swaps fail some validations.166 DTCC opposes SDRs generating and transmitting UTIs because it would not enable early and automated generation in the transaction’s life-cycle, which the SDR with ‘‘legal entity identifier of’’ the SDR so that the identifier used to identify the UTI generating entity is consistent with the UTI Technical Guidance. UTI Technical Guidance, Section 3.5. 162 CME at 15. 163 DTCC at 5. 164 Chatham at 3. 165 BP at 5. 166 CME at 16–17. PO 00000 Frm 00099 Fmt 4701 Sfmt 4700 75519 may be necessary for counterparties.167 ICE SDR suggests the Commission instead let non-SD/MSP/DCO reporting counterparties choose which counterparty generates the UTI, and highlights that non-SD/MSP/DCOs may have more flexibility with extended reporting timelines by electing to have a third-party service provider or confirmation platform generate and assign the UTI. ICE SDR believes allowing a confirmation platform to assign UTIs aligns with the UTI Technical Guidance.168 ICE SDR recommends that the Commission revise proposed § 45.5(c) to remove the requirement that the SDR transmit the UTI to both counterparties to a swap. ICE SDR contends that, if the reporting counterparty chooses to have the SDR generate the UTI, the SDR should be responsible only for transmitting the UTI to the reporting counterparty requesting UTI generation, because SDRs often has no relationship with the non-reporting counterparties who are not participants of the SDR.169 ISDA–SIFMA believe each jurisdiction must align to a global UTI waterfall to the maximum extent possible. ISDA–SIFMA also believe the Commission deviates from the UTI Technical Guidance by assigning SDRs the obligation to generate UTIs for nonSD/MSP/DCOs superior in the hierarchy than the UTI Technical Guidance. As non-SD reporting counterparties can conduct trade reporting and must transmit the UTI to their counterparties, ISDA–SIFMA question whether there is sufficient demand for UTI generation by the SDR to substantiate this deviation from the UTI Technical Guidance.170 For reasons articulated in the Proposal and informed by comments and analysis as further discussed below, the Commission is adopting the proposed changes to the § 45.5(c) regulations for the creation and transmission of UTIs for off-facility swaps with a non-SD/MSP/DCO reporting counterparty that is not a financial entity as proposed. The Commission notes SDRs have been required to generate USIs pursuant to existing § 45.5(c) since the adoption of part 45 in 2012 and further notes assigning UTI generation responsibility for off-facility swaps with a non-SD/ MSP/DCO reporting counterparty that is not a financial entity to the SDR adheres 167 DTCC at 5. SDR at 5. 169 ICE SDR at 5. 170 ISDA–SIFMA at 9. 168 ICE E:\FR\FM\25NOR2.SGM 25NOR2 75520 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 to the generation flowchart in the UTI Technical Guidance.171 In addition to adhering to the UTI Technical Guidance, the Commission also believes the adopted rule appropriately balances the burdens between reporting counterparties and SDRs by providing optionality to a nonSD/MSP/DCO reporting counterparty that is not a financial entity to elect to generate a UTI if it so chooses, and lowers costs for both SDRs and non-SD/ MSP/DCO reporting counterparties. SDR costs would be lowered due to fewer transaction identifiers that SDRs would be required to generate under final § 45.5(c) compared to existing § 45.5(c). Costs on non-SD/MSP/DCO reporting counterparties who choose not to generate UTIs would be lowered due to their ability to leverage the existing transaction identifier generation infrastructure of SDRs rather than expenditures to develop their own UTI generation systems. In response to the several comments indicating that the proposed amendments to § 45.5(c) do not follow the UTI Technical Guidance, the Commission notes Commission staff was heavily involved in the preparation of the UTI Technical Guidance generation flowchart, and disagrees that assigning UTI generation to SDRs contravenes the UTI Technical Guidance for the following reasons. Section 45.5(c) would apply only for offfacility trades where both counterparties are of equal status (i.e., non-financial entities), and in this scenario, UTI Technical Guidance flowchart step 8 directs to step 11, which instructs inquiring about whether the counterparties have an agreement as to UTI generation. Since no agreement exists, the flowchart leads to step 12, which instructs inquiring about whether electronic confirmation platforms are able, willing, and permitted to generate UTIs, the step ICE SDR suggests the Commission set as the last step in assigning UTI generation 171 UTI Technical Guidance at 12–13 (Step 7: ‘‘Does the jurisdiction employ a counterpartystatus-based approach . . . for determining which entity should have responsibility for generating the UTI?’’ ‘‘If so, see step 8.’’ Step 8: ‘‘Do the counterparties have the same regulatory status for UTI generation purposes[ ]?’’ ‘‘If so, see step 11.’’ Step 11: ‘‘Do the counterparties have an agreement governing which entity should have responsibility for generating the UTI for this transaction?’’ ‘‘Otherwise, see step 12.’’ Step 12 ‘‘Has the transaction been electronically confirmed or will it be and, if so, is the confirmation platform able, willing and permitted to generate a UTI within the required time frame under the applicable rules?’’ ‘‘Otherwise, see step 13.’’ Step 13: ‘‘Is there a single TR to which reports relating to the transaction have to be made, and is that TR able, willing and permitted to generate UTIs under the applicable rules?’’ ‘‘If so, the TR’’). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 responsibilities. However, the Commission is unable to assign electronic confirmation platforms with UTI generation responsibilities, as it has no jurisdiction over such platforms, nor does the Commission deem it desirable to require counterparties who do not use such platforms to specifically contract with platforms or other third parties solely for the purpose of UTI generation. As a result, step 12 is not applicable, leading to step 13 where the SDR is the entity responsible for generating UTIs. As demonstrated above, the Commission believes each step of the UTI Technical Guidance generation flowchart leading up to step 13 matches the conditions under which an SDR is required to generate UTIs pursuant to § 45.5(c). While the optionality to generate UTIs for non-SD/MSP/DCO reporting counterparties that are not financial entities is not a step in the UTI Technical Guidance generation flowchart, the Commission does not believe the optionality conflicts with an SDR’s responsibility for serving as UTI generator of last resort. Under the optionality, an SDR continues to be the entity that has legal responsibility for UTI generation for this type of offfacility trade should the non-SD/MSP/ DCO reporting counterparty that is not a financial entity elect not to, and at no point would a non-SD/MSP/DCO reporting counterparty that is not a financial entity that is unwilling or unable to generate the UTI be forced to generate the UTI. Additionally, no commenters oppose providing non-SD/ MSP/DCO reporting counterparties that are not financial entities with the ability to generate UTIs. The Commission acknowledges ICE SDR’s request to remove the requirement to transmit the UTI to the non-reporting counterparty due to a potential lack of relationship between an SDR and the non-reporting counterparty, but declines to adopt the suggestion for two reasons. First, the Commission notes the requirement for an SDR generator to transmit USIs to both counterparties has been in existing § 45.5(c)(2)(i) that SDRs have complied with since part 45 was adopted in 2012, and based on experience with compliance by SDRs since 2012, the Commission has seen no evidence that lack of relationship presents a problem in need of being addressed. In addition, the Commission is adopting three amendments to § 45.5 that will result in SDRs generating fewer UTIs than USIs and mitigate any burden placed on SDRs to transmit the UTIs they generate to non-reporting counterparties, including: (i) All financial entities, not PO 00000 Frm 00100 Fmt 4701 Sfmt 4700 just SD/MSPs, being required to generate UTIs pursuant to final § 45.5(b); (ii) the optionality provided to non-SD/MSP/DCO reporting counterparties that are not financial entities to generate UTIs in final § 45.5(c); and (iii) as described in section II.E.8 below, the requirement in final § 45.5(g) for entities using thirdparty service providers to ensure that the third-party service providers generate UTIs. Finally, the Commission declines to adopt the SDRs’ suggestion to end the UTI generation responsibilities with the reporting counterparty as the last step of the hierarchy, since this would result in incomplete UTI generation logic. A natural person reporting counterparty, who by definition is a non-SD/MSP/ DCO reporting counterparty that is not a financial entity, will highly likely be unable to generate UTIs due to the inability of most natural persons to obtain an LEI 172 that is necessary to generate UTIs. As a result, the SDRs’ suggestion would not ensure that an entity capable of generating UTIs is assigned with the responsibility to generate the UTI for every swap. The Commission also acknowledges— but does not find persuasive—DTCC’s comment that reporting counterparties should be the entity responsible for generating UTIs because they are in the best position to collect information such as LEI from a non-reporting counterparty necessary to generate a UTI. The Commission notes no information about the non-reporting counterparty is necessary for an entity to generate UTIs, as the UTI is composed using the LEI of the UTI generating entity, not the LEI of the nonreporting counterparty. Accordingly, because proposed § 45.5(c)(1)(i) requires the UTI to be composed of the ‘‘legal entity identifier of the swap data repository’’ and SDRs do not need the LEI of any other entity to generate the UTI, the Commission does not believe DTCC’s reasoning supports its request for the Commission not to assign UTI generation responsibilities to SDRs. 5. § 45.5(d)—Clearing Swaps The Commission proposed several amendments to the existing § 45.5(d) regulations for the creation and transmission of USIs for clearing swaps. Existing § 45.5(d) requires that for each clearing swap, the DCO that is a 172 CME itself notes the inability of natural person reporting counterparties to obtain LEIs in a separate portion of its comment letter. See CME at 25 (‘‘For individuals that qualify as an Eligible Contract Participant, they will not be able to obtain an LEI and hence will be unable to report if [counterparty 1] allowable value is an LEI’’). E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 reporting counterparty to such swap shall create and transmit a USI upon, or ASATP after, acceptance of an original swap for clearing, or execution of a clearing swap that does not replace an original swap, and prior to the reporting of required swap creation data for the clearing swap. Existing § 45.5(d)(1) requires that the USI consist of a single data field.173 Existing § 45.5(d)(2) requires that the DCO transmit the USI electronically to: (i) The SDR to which the DCO reports required swap creation data for the clearing swap; and (ii) to the counterparty to the clearing swap, ASATP after accepting the swap for clearing or executing the swap, if the swap does not replace an original swap. First, the Commission proposed to retitle proposed § 45.5(d) as ‘‘Off-facility swaps with a [DCO] reporting counterparty.’’ The Commission also proposed rephrasing the introductory text in § 45.5(d) to reflect this shift in terminology. Second, the Commission proposed amendments to conform to the Commission’s proposed adoption of the UTI.174 The Commission also proposed deleting the phrase in the second half of the sentence stating ‘‘by the Commission at the time of its registration as such, for the purpose of identifying the [DCO] with respect to the [USI] creation,’’ because, according to the UTI Technical Guidance, an LEI should be used to identify the UTI generating entity instead of an identifier assigned by individual regulators. The Commission received two comments regarding DCOs in § 45.5(d). LCH supports the proposal that DCOs generate the UTIs for cleared swaps, as it is in line with the UTI Technical 173 The single data field must contain: (i) The unique alphanumeric code assigned to the DCO by the Commission for the purpose of identifying the DCO with respect to USI creation; and (ii) an alphanumeric code generated and assigned to that clearing swap by the automated systems of the DCO, which shall be unique with respect to all such codes generated and assigned by that DCO. 17 CFR 45.5(d)(1). 174 The Commission proposed replacing all references to ‘‘USIs’’ with ‘‘UTIs’’ in proposed § 45.5(d)(1) and (2). In addition, the Commission proposed updating the phrase in proposed § 45.5(d)(1) that requires that the USI shall consist of a single data ‘‘field’’ that contains two components to a single data ‘‘element with a maximum length of 52 characters,’’ so that the length of the UTI is consistent with the UTI Technical Guidance. UTI Technical Guidance, Section 3.6. The Commission proposed amending § 45.5(d)(1)(i) to describe the first component of the UTI’s single data element to replace ‘‘unique alphanumeric code assigned’’ to the DCO reporting counterparty with ‘‘legal entity identifier of’’ the DCO reporting counterparty so that the identifier used to identify the UTI generating entity is consistent with the UTI Technical Guidance. UTI Technical Guidance, § 3.5. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 Guidance.175 ISDA–SIFMA suggest that the Commission cover exempt DCOs, SEFs, and DCMs in § 45.5, because it is unclear which entities have part 45 reporting obligations. ISDA–SIFMA recommend that parts 43 and 45 rules specify that the entities with individual exemptive orders assigning reporting obligations have the same reporting and UTI generation responsibilities as their non-exempt equivalents.176 The Commission received one supportive comment on the proposed amendments to the § 45.5(d) regulations for the creation and transmission of UTIs for clearing swaps and for reasons articulated in the Proposal and reiterated above, is adopting the changes as proposed. The Commission notes assigning UTI generation responsibilities for clearing swaps to the DCO adheres to the generation flowchart in the UTI Technical Guidance.177 The Commission appreciates the comment from ISDA–SIFMA recommending that the Commission issue a clarification that exempt DCOs, SEFs, and DCMs have the same reporting and UTI generation responsibilities as their non-exempt equivalents. The Commission did not propose including exempt DCOs, SEFs, and DCMs in § 45.5 and has not had enough time to study the range of effects that any inclusion of these exempt entities in § 45.5 would have on other provisions of the Act and the Commission’s regulations, and as a result, the Commission declines to adopt alternative amendments relating to UTI generation for exempt entities such as exempt DCOs, SEFs, and DCMs at this time. However, the Commission notes despite exempt DCOs, SEFs, and DCMs not being assigned with formal UTI generation responsibilities in § 45.5, exempt entities wishing to generate UTIs on behalf of their clients could do so voluntarily by entering into agreements with their clients to act as their third-party service provider pursuant to § 45.5(g). 6. § 45.5(e)—Allocations The Commission proposed several amendments to the existing § 45.5(e) regulations for the creation and transmission of USIs for allocations. The Commission proposed replacing references to USIs with UTI throughout proposed § 45.5(e) to conform to the Commission’s proposed adoption of the UTI. The Commission also proposed 175 LCH at 3. 176 ISDA–SIFMA at 9. Technical Guidance at 12 (Step 1: ‘‘Is a CCP a counterparty to this transaction?’’ ‘‘If so, the CCP’’). 177 UTI PO 00000 Frm 00101 Fmt 4701 Sfmt 4700 75521 non-substantive technical and language edits to update cross-references and improve readability. The Commission did not receive any comments on the proposed changes to existing § 45.5(e) is adopting the changes to § 45.5(e) as proposed. 7. § 45.5(f)—Use The Commission proposed several amendments to the existing § 45.5(f) regulations for the use of UTIs by registered entities and swap counterparties. Existing § 45.5(f) requires that registered entities and swap counterparties subject to the jurisdiction of the Commission include the USI for a swap in all of their records and all of their swap data reporting concerning that swap, from the time they create or receive the USI, throughout the existence of the swap, and for as long as any records concerning the swap are required to be kept by the CEA or Commission regulations, regardless of any life cycle events or any changes to state data concerning the swap, including, without limitation, any changes with respect to the counterparties to or the ownership of the swap. Existing § 45.5(f) also specifies that this requirement shall not prohibit the use by a registered entity or swap counterparty in its own records of any additional identifier or identifiers internally generated by the automated systems of the registered entity or swap counterparty, or the reporting to an SDR, the Commission, or another regulator of such internally generated identifiers in addition to the reporting of the USI. First, the Commission proposed amendments to conform proposed § 45.5(f) to the Commission’s proposed adoption of the UTI. The Commission proposed replacing all references to ‘‘USIs’’ with ‘‘UTIs’’ in proposed § 45.5(f). The Commission also proposed removing the reference to state data in part 45, and to make minor technical language edits, including removing reference to ownership of the swap, which is not needed given the reference to counterparties. Second, the Commission proposed removing the existing § 45.5(f) provision permitting the reporting of any additional identifier or identifiers internally generated by the automated systems of the registered entity or swap counterparty to an SDR, the Commission, or another regulator. The Commission explained this amendment would improve consistency in the swap data reported to SDRs, and further the goal of harmonization of SDR data across FSB member jurisdictions. E:\FR\FM\25NOR2.SGM 25NOR2 75522 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 Proposed § 45.5(f) would therefore require that registered entities and swap counterparties include the UTI for a swap in all of their records and all of their swap data reporting concerning that swap, from the time they create or receive the UTI, throughout the existence of the swap, and for as long as any records are required to be kept concerning the swap by the CEA or Commission regulations, regardless of any life cycle events concerning the swap, including, without limitation, any changes to the counterparties to the swap. The Commission received one request for clarification on the proposal. ISDA– SIFMA believe, due to the requirement for a UTI to persist through ‘‘changes with respect to the counterparty,’’ the Commission should be clearer that these counterparty changes, when related to corporate events such as name change, are not considered novations or assignments, as current market practice is to create a new USI for a swap created through the novation process.178 The Commission declines to adopt the suggestion, as the Commission notes, in light of the Commission’s adoption of the new definition of ‘‘novation’’ in § 45.1(a) described in section II.A above, market participants should refer to the newly adopted definition as to what constitutes a novation. The Commission received no additional comments on proposed § 45.5(f) and for reasons articulated in the Proposal and reiterated above in this section, is adopting § 45.5(f) as proposed. 8. § 45.5(g)—Third-Party Service Provider The Commission proposed adding new § 45.5(g) to its regulations, titled ‘‘Third-party service provider.’’ Proposed § 45.5(g) would create requirements for registered entities and reporting counterparties—when contracting with third-party service providers to facilitate reporting under § 45.9—to ensure that the third-party service providers create and transmit UTIs.179 The Commission explained in the Proposal that it had encountered inconsistencies in the format and standard of USIs for swaps reported using third-party service providers, which is detrimental to the Commission’s ability to use swap data for its regulatory purposes. The Commission believed proposed § 45.5(g) would help ensure consistency with the UTI Technical Guidance in the format 9. § 45.5(h)—Cross-Jurisdictional Swaps The Commission proposed adding new § 45.5(h) to its regulations, titled ‘‘Cross-jurisdictional swaps.’’ Proposed § 45.5(h) would clarify that, notwithstanding §§ 45.5(a) through (g), if a swap is also reportable to one or more other jurisdictions with a regulatory reporting deadline earlier than the deadline set forth in § 45.3, the same UTI generated according to the rules of the jurisdiction with the earliest regulatory reporting deadline is to be transmitted pursuant to §§ 45.5(a) through (g) and used in all recordkeeping and all swap data reporting pursuant to part 45. The Commission explained in the Proposal that the benefits resulting from global swap data aggregation and harmonization are realizable only if each swap is identified in all regulatory reporting worldwide with a single UTI to avoid double- or triple-counting of the swap. While the existing requirement in part 45 (for swap creation data to be reported ASATP after execution) results in the Commission having the earliest reporting deadline, changes to the reporting deadline in proposed amendments to § 45.3 may result in the reporting of a crossjurisdictional swap to another jurisdiction earlier than to the Commission. Further, given the critical importance of a unique UTI used to identify each swap, the Commission proposed that, if a cross-jurisdictional swap is reportable to another jurisdiction earlier than required under 178 ISDA–SIFMA 179 See at 7. generally 17 CFR 45.9. and standard of UTIs for swaps reported by third-party service providers. The Commission further explained that proposed § 45.5(g) would also reinforce that a registered entity or reporting counterparty is responsible for the data reported on its behalf by a third-party service provider. The Commission received one comment supporting the proposal. Markit supports § 45.5(g) UTI generation by third-party service providers and believes this is an important clarification, but advises the Commission to monitor SDRs’ implementation of this requirement as some SDRs have struggled to capture third-party service provider LEIs as part of the transaction record, especially when reporting on behalf of SEFs.180 The Commission received no additional comments on proposed § 45.5(g) and for reasons articulated in the Proposal and reiterated above in this section, is adopting § 45.5(g) as proposed. VerDate Sep<11>2014 18:27 Nov 24, 2020 180 Markit Jkt 253001 PO 00000 at 3. Frm 00102 Fmt 4701 Sfmt 4700 part 45, the UTI for such swap reported pursuant to part 45 be generated according to the rules of the jurisdiction with the earliest regulatory reporting deadline. The Commission explained in the Proposal that the new proposed provision would: (i) Ensure consistency with the UTI Technical Guidance; 181 (ii) assist the Commission, SDRs, and swap counterparties to avoid potentially identifying a single cross-jurisdictional trade with multiple UTIs; and (iii) eliminate the potential for market participants to be faced with a situation of attempting to comply with conflicting UTI generation rules. The Commission received three comments on cross-jurisdictional swaps. Specifically, ISDA–SIFMA highlight several implementation issues.182 ISDA–SIFMA believe counterparties may not come to the same conclusions regarding each other’s jurisdictions, which could cause differing conclusions about who generates the UTI. In this regard, ISDA–SIFMA believe each counterparty’s jurisdictional hierarchy would need to readjust each time new reporting jurisdictions go live. Separately, ISDA–SIFMA state that the UTI generating party should be determined separately from any nexus obligations, because nexus reporting (i.e., reporting requirements depending on the location of personnel) is treated differently according to jurisdiction, and it would be challenging for counterparties to communicate nexus obligations on a swap-by-swap basis.183 Lastly, ISDA–SIFMA note it is important for each reporting jurisdiction to follow a global UTI waterfall.184 JBA believes it would be difficult for a counterparty in a jurisdiction to generate a UTI if other jurisdictions with a regulatory reporting deadline earlier than the Commission’s do not mandate the UTI or use an identifier different from the UTI required under Commission or global rules.185 In addition, BP supports imparting responsibility on SDRs to coordinate identification of the jurisdiction with the earliest regulatory reporting deadline and conform to that jurisdiction’s UTI requirements.186 The Commission is adopting the proposed provisions relating to crossjurisdictional swaps in § 45.5(h) as proposed, with one clarification relating 181 UTI Technical Guidance at 13 (Step 10: ‘‘UTI generation rules of the jurisdiction with the sooner reporting deadline should be followed’’). 182 ISDA–SIFMA at 10–11. 183 Id. 184 Id. 185 JBA at 2–3. 186 BP at 5. E:\FR\FM\25NOR2.SGM 25NOR2 jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations to the CFTC reporting deadlines to be considered for cross-jurisdictional swaps, as discussed below. In the technical specification, UTIs are required to be reported (but are not publicly disseminated) pursuant to parts 43 and 45 to allow the Commission to link and reconcile the two reports for each swap, requiring the deadline to be measured in terms of both parts 43 and 45. Therefore, the Commission is adopting, in § 45.5(h), the requirement that, notwithstanding §§ 45.5(a) through (g), if a swap is also reportable to one or more other jurisdictions with a regulatory reporting deadline earlier than the deadline set forth in § 45.3 or in part 43, the same UTI generated according to the rules of the jurisdiction with the earliest regulatory reporting deadline is to be transmitted pursuant to §§ 45.5(a) through (g) and used in all recordkeeping and all swap data reporting pursuant to part 45, a modification from the proposal’s consideration of only the deadline outlined in § 45.3. The Commission declines to adopt ISDA–SIFMA’s suggestion regarding nexus obligations, as the Commission has no requirements for nexus reporting and how the jurisdictions requiring nexus reporting mandate UTI generation is outside of the Commission’s jurisdiction. As discussed above, the Commission expects the vast majority of cross-jurisdictional swaps reportable to both the CFTC and one or more additional jurisdictions will result in the CFTC having the earliest regulatory reporting deadline due to the CFTC being one of the few jurisdictions with real-time reporting requirement and UTIs being required to be generated ASATP for part 43 reporting. However, the Commission recognizes the potential concern that market participants may have in complying with similar rules that other jurisdictions may adopt to ensure consistency with the UTI Technical Guidance, and recommends that market participants and the LEI ROC work collaboratively on additional guidance relating to cross-jurisdictional swaps. The Commission also recognizes that the UTI Technical Guidance did not address which jurisdiction’s UTI generation rules to follow if two jurisdictions hypothetically have the same reporting deadline, and similarly recommends that market participants and the LEI ROC work collaboratively on guidance to address this scenario. The Commission appreciates JBA’s comment regarding the potential difficulties if other jurisdictions with a regulatory reporting deadline earlier than the Commission’s do not mandate the UTI, but the Commission does not VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 believe this hypothetical is likely to occur. As discussed above, the Commission’s ASATP reporting deadline under part 43 will result in the UTIs for most, if not all, swaps reportable to the Commission and another jurisdiction being generated according to § 45.5. Furthermore, the Commission also acknowledges JBA’s concern that other jurisdictions may require an identifier different from the UTI, but the Commission notes authorities in the major swap markets have all indicated through the FSB and CPMI–IOSCO harmonization initiatives of their intention to adopt the UTI and the other harmonized identifiers, and the Commission does not believe inaction by a holdout authority should hinder the Commission’s fulfillment of its commitments on UTI. The Commission also acknowledges BP’s desire for SDRs to coordinate identification of the jurisdiction with the earliest regulatory reporting deadline and conform to that jurisdiction’s UTI requirements, but the Commission declines to adopt the suggestion. SDRs lack information to determine on their own the jurisdiction(s) that a SEF, DCM, DCO, or counterparty for each swap is subject to, and therefore the Commission believes requiring entities without such information such as SDRs to serve as the entity responsible for determining the earliest regulatory reporting deadline would not serve the Commission’s interest in seeing that each swap is identified in all regulatory reporting worldwide with a single UTI. F. § 45.6—Legal Entity Identifiers 187 Existing § 45.6 requires counterparties to be identified in all recordkeeping and swap data reporting under part 45 by an LEI. As discussed in the sections below, the Commission is revising the § 45.6 LEI regulations in two ways: (i) Cleanup changes removing unnecessary outdated regulatory text concerning LEIs and (ii) changes to the LEI regulations for SEFs, DCMs, DCOs, SDRs, and reporting and non-reporting counterparties. 1. Introductory Text The Commission proposed amending the introductory text of the § 45.6 regulations for LEIs. The existing introductory text states that each counterparty to any swap subject to the jurisdiction of the Commission shall be identified in all recordkeeping and all swap data reporting under part 45 187 The Commission is re-numbering the requirements of existing § 45.6 to correct extensive numbering errors. PO 00000 Frm 00103 Fmt 4701 Sfmt 4700 75523 through a single LEI as specified in § 45.6. First, to improve the section’s precision, the Commission proposed replacing ‘‘each counterparty’’ with each SEF, DCM, DCO, SDR, entity reporting pursuant to § 45.9, and counterparty to any swap. Second, the Commission proposed revising the introductory text to require each relevant entity (SEF, DCM, DCO, SDR, entity reporting pursuant to § 45.9, and counterparty to any swap that is eligible to receive an LEI) to ‘‘obtain,’’ as well as be identified in, all recordkeeping and swap data reporting by a single LEI. The Commission received two comments on proposed § 45.6. ISDA– SIFMA, while recognizing that SEF trades are not specifically addressed in § 45.6, suggest clarifying that SEFs must require any entity allowed to execute a trade on a SEF under part 45 to obtain an LEI prior to reporting by the SEF.188 The Commission appreciates ISDA– SIFMA’s comment; however, the Commission did not propose substantive amendments to regulations relating to SEF trading and has not had enough time to study the range of effects that ISDA–SIFMA’s proposal would have on SEF trading or market liquidity. Accordingly, it would be inappropriate to finalize such an amendment at this time. XBRL agrees with the proposed requirement that counterparties must be identified, not only with their own LEI, but that they must obtain an LEI if they do not have one.189 The Commission agrees with XBRL. The Commission is aware of uncertainty as to whether the requirement to identify each counterparty with an LEI in existing § 45.6 also included a requirement for the counterparty to obtain an LEI, and the Commission believes clarifying in § 45.6 that a person or entity required to be identified with an LEI in recordkeeping and swap data reporting also has an associated affirmative requirement to obtain an LEI would clarify that identification using LEI necessarily requires the identified person or entity, if eligible to receive an LEI, to obtain an LEI. The Commission believes extending the requirement for each counterparty to any swap to be identified in all recordkeeping and swap data reporting by a single LEI to all SEFs, DCMs, DCOs, entities reporting under § 45.9, and SDRs will ensure consistency with the CDE Technical Guidance, allow for standardization in the identification in recordkeeping and swap data reporting, 188 ISDA–SIFMA 189 XBRL E:\FR\FM\25NOR2.SGM at 2. 25NOR2 at 13. 75524 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations and encourage global swap data aggregation. For reasons discussed above, the Commission is adopting the proposed changes to the introductory text of the § 45.6 regulations for LEIs as proposed, with one clarification relating to the maintenance of LEI reference data. As discussed in section II.F.8 below, the Commission is adding ‘‘maintain’’ to the introductory text of final § 45.6 to clarify that each SEF, DCM, DCO, SDR, entity reporting under § 45.9, and counterparty to any swap that is eligible to receive an LEI is required to ‘‘maintain,’’ as well as obtain and be identified in, all recordkeeping and swap data reporting by a single LEI. jbell on DSKJLSW7X2PROD with RULES2 2. § 45.6(a)—Definitions a. Proposal The Commission proposed several changes to the definitions for the LEI regulations in § 45.6(a). As background, existing § 45.6(a) provides definitions for ‘‘control,’’ ‘‘legal identifier system,’’ ‘‘level one reference data,’’ ‘‘level two reference data,’’ ‘‘parent,’’ ‘‘selfregistration,’’ ‘‘third-party registration,’’ and ‘‘ultimate parent.’’ The Commission proposed moving certain definitions pertaining to LEIs to § 45.1(a). The Commission explained in the Proposal these definitions should be in § 45.1(a) because they are used in regulations outside of § 45.6. These definitions were: ‘‘Global Legal Entity Identifier System,’’ 190 ‘‘legal entity identifier’’ or ‘‘LEI,’’ and ‘‘Legal Entity Identifier Regulatory Oversight Committee.’’ These definitions are discussed in section II.A.1 above. The Commission proposed removing certain definitions pertaining to LEIs from § 45.6(a). The Commission explained that these definitions would no longer be necessary in light of the proposed amendments to the LEI regulations, discussed in sections II.F.3 to II.F.8 below. These definitions were: ‘‘control,’’ ‘‘level one reference data,’’ ‘‘level two reference data,’’ ‘‘parent,’’ and ‘‘ultimate parent.’’ The Commission proposed amending certain definitions pertaining to LEIs in § 45.6(a). Specifically, the Commission proposed amending the definition of ‘‘self-registration’’ in several respects. First, the Commission proposed removing the specific reference to ‘‘level one or level two’’ reference data, and the accompanying specifier ‘‘as applicable.’’ The amendment reflected the Commission’s proposal to remove the 190 ‘‘Global Legal Entity Identifier System’’ and ‘‘local operating unit’’ would be updated versions of the existing definition of ‘‘legal identifier system.’’ VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 definitions of ‘‘level one reference data’’ and ‘‘level two reference data.’’ 191 Second, the Commission proposed adding a reference to ‘‘individuals,’’ to reflect the fact that swap counterparties may be individuals who need to obtain LEIs. As amended, ‘‘self-registration’’ would mean submission by a legal entity or individual of its own reference data. Separately, the Commission proposed amending the definition of ‘‘third-party registration.’’ In this regard, the Commission proposed removing the specific references to ‘‘level one or level two’’ reference data, and the accompanying specifier ‘‘as applicable.’’ This amendment reflected the Commission’s proposal to remove the definitions of ‘‘level one reference data’’ and ‘‘level two reference data.’’ 192 Further, the Commission proposed adding references to ‘‘individuals,’’ to reflect that swap counterparties may be individuals who need to obtain LEIs. As amended, ‘‘third-party registration’’ would mean submission of reference data for a legal entity or individual that is or may become a swap counterparty, made by an entity or organization other than the legal entity or individual identified by the submitted reference data. Examples of third-party registration include, without limitation, submission by an SD or MSP of reference data for its swap counterparties, and submission by a national numbering agency, national registration agency, or data service provider of reference data concerning legal entities or individuals with respect to which the agency or service provider maintains information. Finally, the Commission proposed adding two definitions pertaining to LEIs to § 45.6(a). First, the Commission proposed adding a definition of ‘‘local operating unit.’’ As proposed, ‘‘local operating unit’’ would mean an entity authorized under the standards of the Global Legal Entity Identifier System to issue legal entity identifiers. Second, the Commission proposed adding a definition of ‘‘reference data.’’ As proposed, ‘‘reference data’’ would mean all identification and relationship information, as outlined in the standards of the Global Legal Entity Identifier System, of the legal entity or individual to which an LEI is assigned. The terms ‘‘local operating unit’’ and 191 Instead, as discussed below, the Commission proposed adding a definition of ‘‘reference data.’’ The proposed amendment to ‘‘self-registration’’ would be consistent with the new definition. 192 Instead, as discussed below, the Commission proposed adding a definition of ‘‘reference data.’’ The proposed amendment to ‘‘self-registration’’ would be consistent with the new definition. PO 00000 Frm 00104 Fmt 4701 Sfmt 4700 ‘‘reference data’’ are explained in a discussion of the proposed amendments to § 45.6(e) in section II.F.7 below. b. Comments on the Proposal As also noted in section II.A.1 above, GLIEF suggests moving proposed definitions to § 45.1(a) from § 45.6(a) for ‘‘local operating unit’’ and ‘‘legal entity reference data.’’ 193 i. Definition: ‘‘Reference data’’ The Commission received one comment on the proposed definition of ‘‘reference data.’’ GLEIF suggests an alternative definition: ‘‘data as defined by the currently valid common data file formats in the Global [Legal Entity Identifier] System describing business card and relationship information related to corresponding [Legal Entity Identifier] Regulatory Oversight Committee policies.’’ GLEIF, however, does not explain why it believes its suggested alternative is preferable to the Commission’s proposal.194 ii. Definition: ‘‘Self-registration’’ The Commission received one comment on the definition of ‘‘selfregistration.’’ GLEIF supports the proposed definition revisions in § 45.6(a), including removal of references to ‘‘level one’’ and ‘‘level two.’’ 195 c. Final Rule The Commission did not receive any comments on the proposed definitions for ‘‘local operating unit’’ and ‘‘thirdparty registration’’ and for reasons articulated in the Proposal and reiterated in section II.F.2.a above, is adopting those two definitions as proposed. The only comment submitted on the proposed definition of ‘‘selfregistration’’ supports the proposal and for reasons articulated in the Proposal and reiterated in section II.F.2.a above, the Commission is adopting the definition as proposed. GLEIF does not explain why its suggested alternative for ‘‘reference data’’ is preferred to the Commission’s proposal. Based on the analysis of the proposed text, the Commission believes the GLEIF definition’s references to ‘‘data as defined by the currently valid common data file formats’’ and ‘‘related to corresponding [LEI ROC] policies’’ are unnecessarily detailed, and may not account for potential future changes to the Global Legal Entity Identifier System. The Commission believes 193 Id. The Commission notes the term proposed is ‘‘reference data,’’ not ‘‘legal entity reference data.’’ See 85 FR at 21632. 194 GLEIF at 2. 195 Id. E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations references in its proposed definition to ‘‘all identification and relationship information’’ and ‘‘the standards of the Global Legal Entity Identifier System’’ are more general and better-suited to account for potential future changes in the Global Legal Entity Identifier System (e.g., a hypothetical future shift away from common data files in setting reference data standards) and is adopting the definition as proposed, rather than the more-specific GLEIF suggestion. As the four definitions proposed in § 45.6(a) are only used in § 45.6, the Commission declines to adopt GLEIF’s suggestion to move the proposed definitions to § 45.1(a). 3. § 45.6(b)—International Standard for the Legal Entity Identifier jbell on DSKJLSW7X2PROD with RULES2 The Commission proposed several changes to § 45.6(b) regulations for the international standards for LEIs. The amendments would reflect changes that have taken place since the Commission adopted the existing LEI regulations in § 45.6 in 2012. Existing § 45.6(b) states that the LEI used in all recordkeeping and all swap data reporting required by part 45, following designation of the legal entity identifier system as provided in § 45.6(c)(2), shall be issued under, and shall conform to, International Organization for Standardization (‘‘ISO’’) Standard 17442, Legal Entity Identifier (LEI), issued by the ISO. The Commission proposed removing the phrase ‘‘following designation of the [LEI] system as provided in [§ 45.6(c)(2)].’’ The Commission explained in the Proposal that governance of the Global Legal Entity Identifier System was designed by the FSB with the contribution of private sector participants and was fully in place.196 The Commission further explained that LEI ROC establishes policy standards, such as the definition of the eligibility to obtain an LEI and conditions for obtaining an LEI; the definition of reference data and any extension thereof, such as the addition of information on relationships between entities; the frequency of update for some or all of the reference data; the nature of due diligence and other standards necessary for sufficient data quality; or high-level principles 196 While at the beginning of the Global Legal Entity Identifier System, LEI issuers were operating under a temporary endorsement of the LEI ROC, all active LEI issuers have now been accredited. Progress report by the LEI ROC, The Global LEI System and regulatory uses of the LEI, 2 (Apr. 30, 2018), available at https://www.leiroc.org/ publications/gls/roc_20180502-1.pdf. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 governing data and information access.197 The Commission did not receive any comments on the proposed changes to § 45.6(b) and for reasons articulated in the Proposal and reiterated above, is adopting the changes to § 45.6(b) as proposed. 4. § 45.6(b)—Technical Principles for the Legal Entity Identifier The Commission proposed removing this redundantly-numbered § 45.6(b) for the technical principles for the LEI.198 Regulations for LEI reference data are currently located in § 45.6(e), which the Commission proposed moving to § 45.6(c). The Commission discusses revisions to the existing § 45.6(e) reference data regulations in section II.F.7 below. Existing § 45.6(b) enumerates the six technical principles for the legal entity identifier to be used in all recordkeeping and all swap data reporting: (i) Uniqueness; (ii) neutrality; (iii) reliability; (iv) open source; (v) extensibility; and (vi) persistence. The Commission proposed removing the technical principles from § 45.6(b). The Commission explained in the Proposal that it adopted § 45.6(b) before global technical principles for the LEI were developed. The Commission further explained that it has participated in the Global Legal Entity Identifier System and the LEI ROC since their establishment in 2013, through which global technical principles have been developed and a functioning LEI system introduced. The Commission believed removing the technical principles from § 45.6(b) for the LEI to be used in all recordkeeping and all swap data reporting was warranted because the global technical principles that have been developed and adopted by the Global Legal Entity Identifier System already conform to the technical principles in § 45.6(b). The Commission did not receive any comments on the changes to § 45.6(b) and for reasons articulated in the Proposal and reiterated above, is adopting the changes to § 45.6(b) as proposed. 5. § 45.6(c)—Governance Principles for the Legal Entity Identifier The Commission proposed removing the existing § 45.6(c) regulations for the governance principles for the LEI.199 Regulations for the use of the LEI are 197 Id. 198 This § 45.6(b) was numbered in error, as there is already a § 45.6(b), discussed in section II.F.3 above. 199 Existing § 45.6(c) was also numbered in error because of the duplicate § 45.6(b) sections. PO 00000 Frm 00105 Fmt 4701 Sfmt 4700 75525 currently located in § 45.6(f), which the Commission proposed moving to § 45.6(d), which would be correctly renumbered as § 45.6(d). The Commission discusses the revisions to existing § 45.6(f) section II.F.8 below. Existing § 45.6(c) enumerates the five governance principles for the LEI to be used in all recordkeeping and all swap data reporting: International governance; reference data access; nonprofit operation and funding; unbundling and non-restricted use; and commercial advantage prohibition. The Commission proposed removing the governance principles from § 45.6(c). The Commission explained in the Proposal that it adopted § 45.6(c) before global governance principles for the LEI were developed. The Commission further explained that it has participated in the Global Legal Entity Identifier System and the LEI ROC since their establishment in 2013, through which global governance principles have been developed and a functioning LEI system introduced. The Commission believed deleting existing § 45.6(c) to remove the governance principles for the legal entity identifier to be used in all recordkeeping and all swap data reporting was warranted because the global governance principles that have been developed and adopted by the Global Legal Entity Identifier System already conform to the governance principles in § 45.6(c). The Commission did not receive any comments on the proposed changes to § 45.6(c) and for reasons articulated in the Proposal and reiterated above, is adopting the changes to § 45.6(c) as proposed. 6. § 45.6(e)—Designation of the Legal Entity Identifier System The Commission proposed removing the § 45.6(e) regulations for the designation of the legal entity identifier system. Existing § 45.6(e) enumerates the procedures for determining whether a legal entity identifier system meets the Commission’s requirements and the procedures for designating the legal entity identifier system as the provider of LEIs to be used in all recordkeeping and all swap data reporting. The Commission explained in the Proposal that it adopted § 45.6(e) before a global legal entity identifier system was developed. The Commission further explained that it has participated in the Global Legal Entity Identifier System and the LEI ROC since their establishment in 2013, through which a functioning LEI system has been introduced, overseeing the issuance of LEIs by local operating units. The Commission believed deleting existing E:\FR\FM\25NOR2.SGM 25NOR2 75526 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations § 45.6(e) to remove the procedures for designating a legal entity identifier system was warranted because such determination and designation procedures were no longer needed due to the establishment of the Global Legal Entity Identifier System and the standards adopted by the Global Legal Entity Identifier System under which a local operating unit is authorized to issue LEIs. The Commission did not receive any comments on the proposed changes to § 45.6(e) and for reasons articulated in the Proposal and reiterated above, is adopting the changes to § 45.6(e) as proposed. jbell on DSKJLSW7X2PROD with RULES2 7. § 45.6(e)—Reference Data Reporting (Re-Designated as § 45.6(c)) The Commission proposed changes to the § 45.6(e) regulations for LEI reference data reporting.200 First, the Commission proposed moving the requirements for reporting LEI reference data in § 45.6(e) to correctly renumbered § 45.5(c). Second, the Commission proposed changing the requirements for reporting LEI reference data in existing § 45.6(e) to be moved to § 45.6(c). Existing § 45.6(e)(1) requires level one reference data for each counterparty to be reported via self-registration, third-party registration, or both, and details the procedures for doing so, including the requirement to update level one reference data in the event of a change or discovery of the need for a correction. Existing § 45.6(e)(2) contains the requirement, once the Commission has determined the location of the level two reference database, for level two reference data for each counterparty to be reported via self-registration, thirdparty registration, or both, and the procedures for doing so, including the requirement to update level two reference data in the event of a change or discovery of the need for a correction. The Commission proposed removing the distinction between level one and level two reference data now found in § 45.6(e). Instead, proposed new § 45.6(c) would require that all reference data for each SEF, DCM, DCO, SDR, entity reporting under § 45.9, and counterparty to any swap be reported via self-registration, third-party registration, or both, to a local operating unit in accordance with the standards set by the Global Legal Entity Identifier System. Proposed new § 45.6(c) would retain the requirement in existing § 45.6(e) to update the reference data in 200 This § 45.6(e) was numbered in error, as there is already a § 45.6(e) directly preceding it. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 the event of a change or discovery of the need for a correction. The Commission explained in the Proposal that it adopted § 45.6(e) before a global legal entity identifier system was developed. The Commission further explained that it has participated in the Global Legal Entity Identifier System and the LEI ROC since their establishment in 2013, through which a functioning LEI system has been introduced that sets, and updates as needed, the standards governing the identification and relationship reference data required to be provided to obtain an LEI. The Commission believed amending existing § 45.6(e) to remove the distinction between level one and level two reference data, and proposed a new § 45.6(c) to require that all reference data is reported to a local operating unit in accordance with the standards set by the Global Legal Entity Identifier System was warranted because the establishment of Global Legal Entity Identifier System removes the role of individual authorities in determining the standards governing LEI reference data. The Commission explained in the Proposal that while existing § 45.6(e) requires that reference data for only the counterparties to a swap be reported, the extension of the requirement to be identified in all recordkeeping and swap data reporting by a single LEI to all SEFs, DCMs, DCOs, entities reporting pursuant to § 45.9, and SDRs described in section II.F.1 above also necessarily requires that all SEFs, DCMs, DCOs, entities reporting pursuant to § 45.9, and SDRs report their LEI reference data. The Commission did not receive any comments on the proposed changes to § 45.6(e) and for reasons articulated in the Proposal and reiterated above in this section, is adopting the changes to § 45.6(e) as proposed. 8. § 45.6(f)—Use of the Legal Entity Identifier System by Registered Entities and Swap Counterparties (Re-designated as § 45.6(d)) The Commission proposed changing the § 45.6(f) regulations for the use of LEIs by registered entities and swap counterparties. Existing § 45.6(f)(1) requires that when a legal entity identifier system has been designated by the Commission pursuant to § 45.6(e), each registered entity and swap counterparty shall use the LEI provided by that system in all recordkeeping and swap data reporting pursuant to part 45. Existing § 45.6(f)(2) requires that before a legal entity identifier system has been designated by the Commission, each registered entity and swap counterparty shall use a substitute counterparty PO 00000 Frm 00106 Fmt 4701 Sfmt 4700 identifier created and assigned by an SDR in all recordkeeping and swap data reporting pursuant to part 45.201 Existing § 45.6(f)(3) requires that for swaps reported pursuant to part 45 prior to Commission designation of a legal entity identifier system, after such designation each SDR shall map the LEIs for the counterparties to the substitute counterparty identifiers in the record for each such swap. Existing § 45.6(f)(4) requires that prior to October 15, 2012, if an LEI has been designated by the Commission as provided in § 45.6, but a reporting counterparty’s automated systems are not yet prepared to include LEIs in recordkeeping and swap data reporting pursuant to part 45, the counterparty shall be excused from complying with § 45.6(f)(1), and shall instead comply with § 45.6(f)(2), until its automated systems are prepared with respect to LEIs, at which time it must commence compliance with § 45.6(f)(1).202 The Commission proposed retitling the section ‘‘Use of the legal entity identifier,’’ because, as discussed below, the LEI will no longer be used only by registered entities and swap counterparties. The Commission proposed moving the requirements for the use of LEIs from existing § 45.6(f) to correctly renumbered § 45.6(d),203 as a result, the Commission’s proposed amendments to the requirements for the use of LEIs in existing § 45.6(f) discussed below will be captured in new § 45.6(d). The Commission proposed removing the sections of existing § 45.6(f) that are no longer operative, either because the Commission has designated a legal entity identifier system, or the provisions have expired. For these reasons, the Commission proposed removing existing § 45.6(f)(2) and (4). As a result, the substantive requirements of existing § 45.6(f)(2) and (4) were not proposed to be moved to § 45.6(d). The Commission explained in the Proposal that while the provisions of existing § 45.6(f)(3) relating to substitute counterparty identifiers are no longer applicable for new swaps, the substantive requirements in § 45.6(f)(3), which are still applicable for swaps 201 The requirements for the substitute identifier were set forth in § 45.6(f)(2)(i) through (iv). As the Global Legal Entity Identifier System has been introduced that oversees the issuance of LEIs by local operating units, these requirements are no longer applicable, and the Commission will limit the detail of their discussion in this release. 202 The regulation specified that this paragraph would have no effect on or after October 15, 2012. 17 CFR 45.6(f)(4). 203 As previously noted, existing § 45.6(c) was numbered in error because of the duplicate § 45.6(b) sections. E:\FR\FM\25NOR2.SGM 25NOR2 jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations previously reported pursuant to part 45 using substitute counterparty identifiers assigned by an SDR before Commission designation of a legal entity identifier system, would be moved to final § 45.6(d)(4). The Commission considered this change to be nonsubstantive. The Commission proposed the following substantive changes to the regulations requiring the use of LEIs. First, the Commission proposed revisions to the existing § 45.6(f)(1) regulations for the use of LEIs. The revised regulations would be moved to final § 45.6(d)(1), as discussed below. The Commission proposed deleting the introductory clause ‘‘[w]hen a legal entity identifier system has been designated by the Commission pursuant to paragraph (e) of this section’’ in existing § 45.6(f)(1) because it was no longer relevant due to the establishment of the Global Legal Entity Identifier System and the LEI ROC in 2013. In addition, while existing § 45.6(f)(1) requires ‘‘each registered entity and swap counterparty’’ to use LEIs in all recordkeeping and swap data reporting pursuant to part 45, the Commission proposed to replace ‘‘each registered entity and swap counterparty’’ with ‘‘[e]ach [SEF], [DCM], [DCO], [SDR], entity reporting pursuant to § 45.9, and swap counterparty’’ to, as described in section II.F.1 above, ensure consistency with the CDE Technical Guidance, allow for standardization in the identification in recordkeeping and swap data reporting, and encourage global swap data aggregation. The Commission also proposed to add ‘‘to identify itself and swap counterparties’’ immediately after ‘‘use [LEIs]’’ in this section to clarify the intended use of LEIs. Finally, the Commission proposed to add a new sentence in this section to clarify that if a swap counterparty is not eligible to receive an LEI, such counterparty should be identified in all recordkeeping and all swap data reporting pursuant to part 45 with an alternate identifier pursuant to § 45.13(a). Because some counterparties, including many individuals, are currently ineligible to receive an LEI based on the standards of the Global Legal Entity Identifier System, the Commission believed this sentence would provide clarity as to how LEIineligible counterparties should be identified. Second, the Commission proposed § 45.6(d)(2) to require each SD, MSP, SEF, DCM, DCO, and SDR to maintain and renew its LEI in accordance with the standards set by the Global Legal Entity Identifier System (as opposed to the requirement for other entities to VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 only maintain its LEI). Existing § 45.6(e) requires that reference data be updated in the event of a change or discovery of the need for a correction, which will continue to be required under final § 45.6(c). The Commission explained in the Proposal that pursuant to the Global Legal Entity Identifier System, established in 2013, a person or entity is issued an LEI after: (1) Providing its identification and relationship reference data to a local operating unit and (2) paying a fee, currently as low as approximately $65, to the local operating unit to validate the provided reference data. After initial issuance, an LEI holder is asked to certify the continuing accuracy of, or provide updates to, its reference data annually, and pay a fee, currently as low as approximately $50, to the local operating unit. LEIs that are not renewed annually are marked as lapsed. Existing § 45.6 does not require annual LEI renewal because part 45 was drafted and implemented before the establishment of the Global Legal Entity Identifier System. The Commission further explained that since the implementation of existing § 45.6, the Commission has received consistent feedback from certain market participants and industry groups that the Commission should require at least some LEI holders to annually renew their LEIs. The Commission explained in the Proposal that it was aware that some LEI holders have not updated reference data as required by existing § 45.6(e), and imposing an annual renewal requirement may increase the accuracy of their reference data. The Commission also recognized that other LEI holders comply with the continuing requirement to update reference data, and imposing an annual renewal requirement may impose costs on those LEI holders without necessarily increasing the accuracy of their reference data. The Commission further explained that it has participated in the Global Legal Entity Identifier System since its inception, and values the functionality of the LEI reference data collected, including the introduction of level two reference data. The Commission explained in the Proposal that it considers the activities of SDs, MSPs, SEFs, DCMs, DCOs, and SDRs to have the most systemic impact affecting the Commission’s ability to fulfill its regulatory mandates. Accordingly, in light of the introduction of LEI level two reference data, the Commission believed requiring each SD, MSP, SEF, DCM, DCO, and SDR to maintain and renew its LEI in PO 00000 Frm 00107 Fmt 4701 Sfmt 4700 75527 accordance with the standards set by the Global Legal Entity Identifier System in § 45.6(d)(2) struck the appropriate balance between the Commission’s interest in accurate LEI reference data and cost to LEI holders. Third, the Commission proposed a new § 45.6(d)(3) that would obligate each DCO and each financial entity reporting counterparty executing a swap with a counterparty that does not have an LEI but is eligible for one to cause, before reporting any required swap creation data for such swap, an LEI to be assigned to the counterparty, including if necessary, through thirdparty registration. The Commission explained in the Proposal that it was aware that some counterparties have not obtained an LEI. While proposed amendments to § 45.6 clarify the requirement that a counterparty required to be identified with an LEI in swap data reporting also has an associated affirmative requirement to obtain an LEI, the Commission explained that it anticipates a small percentage of counterparties nonetheless will not have obtained an LEI before executing a swap. The Commission further explained that swap data that does not identify eligible counterparties with an LEI hinders the Commission’s fulfillment of its regulatory mandates, including monitoring systemic risk, market monitoring, and market abuse prevention. The Commission believed new § 45.6(d)(3) to require each DCO and each financial entity reporting counterparty executing a swap with a counterparty that does not have an LEI to cause an LEI to be assigned to the non-reporting counterparty would further the objective of identifying each counterparty to a swap with an LEI. Proposed § 45.6(d)(3) did not prescribe the initial manner in which a DCO or financial entity reporting counterparty causes an LEI to be assigned to the non-reporting counterparty, though if initial efforts are unsuccessful, proposed § 45.6(d)(3) required the DCO or financial entity reporting counterparty to obtain an LEI for the non-reporting counterparty. The Commission explained in the Proposal that having a DCO or financial entity reporting counterparty serving as a backstop under new § 45.6(d)(3) to ensure the identification of the nonreporting counterparty with an LEI was appropriate because: (i) Each DCO and financial entity reporting counterparty already had obtained, via its ‘‘know your customer’’ and anti-money laundering compliance processes, all identification and relationship reference data of the non-reporting counterparty E:\FR\FM\25NOR2.SGM 25NOR2 75528 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 required by a local operating unit to issue an LEI for the non-reporting counterparty; (ii) multiple local operating units offered expedited issuance of LEI in sufficient time to allow reporting counterparties to meet their new extended deadline in § 45.3(a) through (b) for reporting required swap creation data; and (iii) the Commission anticipated that third-party registration in these instances would be infrequent, as the Commission expected most nonreporting counterparties to be mindful of their direct obligation to obtain their own LEIs pursuant to § 45.6.204 The Commission received two comments on the proposed provision relating to use of the LEI in proposed § 45.6(f)(1) and moved to § 45.6(d)(1). CME suggests that the Commission revise the proposal to require a DCO to record the LEIs of all of its swap counterparties in its books and records, instead of ‘‘in all recordkeeping’’ and swap data reporting, to avoid DCOs identifying a swap counterparty by its LEI every time the name of that counterparty is in its records.205 GLEIF suggests that, in the interest of clarity, the Commission reformulate § 45.6(d)(1) to state that alternative identifiers pursuant to § 45.13(a) can only be used for natural persons who are not eligible for an LEI, though no explanation was provided as to why it believes the alternative formulation is clearer than the Commission’s proposal.206 The Commission received six comments, all supporting the LEI maintenance and renewal requirements for SDs, MSPs, SEFs, DCMs, DCOs, and SDRs under proposed § 45.6(d)(2),207 with two of those commenters supporting additional expansion of the LEI renewal requirement and one commenter opposing additional expansion of the LEI renewal requirement. In particular, GFXD believes reporting counterparties should be required only to renew their LEI and that reporting counterparties should not be responsible for ensuring counterparties renew their LEI.208 LCH is concerned about the treatment of swap data that contains lapsed LEIs, specifically if that data is rejected by an SDR and recommends language be 204 ESMA also issued temporary relief to investment firms transacting with a client without an LEI on the condition that they ‘‘[obtain] the necessary documentation from this client to apply for an LEI code on his behalf,’’ available at https:// www.esma.europa.eu/press-news/esma-news/esmaissues-statement-lei-implementation-under-mifid-ii. 205 CME at 17–18. 206 GLEIF at 3. 207 DTCC at 6; Eurex at 4; LCH at 3; GFXD at 23– 24; GLEIF at 1–2; Chatham at 3. 208 GFXD at 23–24. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 included to clarify that SDRs would not reject data in an LEI lapse.209 GLEIF believes the Commission should expand the requirement to include all swap counterparties.210 Chatham opposes expanding the requirement to renew LEIs annually beyond SDs, MSPs, SEFs, DCMs, DCOs, and SDRs.211 Chatham notes many LEI applicants may not have problems with the insignificant cost of application, but often experience significant difficulty with the documentation requirements for some renewals.212 Chatham also requests clarification on whether § 45.6(d) requires counterparties to obtain an LEI to report for trades that have already been reported using a substitute identifier.213 The Commission received four comments supporting obtaining an LEI for a counterparty that does not have one under proposed § 45.6(d)(3).214 GLEIF notes performing an LEI registration on behalf of a third-party is considered to satisfy the requirements of self-registration only if the registrant has provided explicit permission for such a registration to be performed.215 In particular, Chatham believes requiring each DCO and financial entity reporting counterparty to obtain an LEI on behalf of the counterparty through third-party registration is the most logical method to implement requiring an LEI instead of a temporary identifier.216 The Commission received four comments opposing obtaining an LEI for a counterparty that does not have one, under proposed § 45.6(d)(3). GFXD believes the proposal disincentivizes smaller counterparties from obtaining their own LEI and places an administrative and financial burden on reporting counterparties.217 GFXD believes the requirement would ‘‘likely’’ cause unintended operational issues, such as reporting counterparties simultaneously creating an LEI for a counterparty.218 GFXD recommends following the EU approach, where all 209 LCH at 3. at 1–2. GLEIF mentions that costs related to LEIs continue to decline and today average $60 versus $150 five years ago, and its ‘‘validation agent’’ framework pilot program provides a new operating model where financial institutions, and not registrants, have the responsibility of obtaining and maintaining an LEI, but that the program could take 1–2 years to complete. 211 Chatham at 3. 212 Id. 213 Id. 214 GLEIF at 2; Data Coalition at 2; Chatham at 3; Eurex at 4. 215 GLEIF at 2. 216 Chatham at 3. 217 GFXD at 23–24. 218 Id. 210 GLEIF PO 00000 Frm 00108 Fmt 4701 Sfmt 4700 counterparties must obtain and maintain their own LEI (‘‘no LEI, no trade’’), with a sufficient implementation period and significant education effort for smaller counterparties.219 JBA believes obtaining an LEI on behalf of the counterparty is impractical and costly.220 JBA requests changing this requirement and suggests that DCO and financial entities ‘‘recommend’’ the counterparty to obtain an LEI, or take other similar actions.221 ISDA–SIFMA have concerns about a reporting counterparty’s ability to comply with such a requirement because a DCO or financial entity reporting counterparty cannot obtain an LEI on behalf of a non-reporting counterparty without the non-reporting counterparty’s permission, and ISDA– SIFMA anticipate that some counterparties would be resistant to obtaining an LEI.222 ISDA–SIFMA request clarification that a DCO or financial entity reporting counterparty may act as an agent for third-party registration to obtain LEIs on a counterparty’s behalf only if it chooses to do so, instead of being mandated to do so.223 ISDA–SIFMA suggest adding a clarification that the LEI registrant (i.e., the non-reporting counterparty), has the regulatory obligation to obtain and maintain its own LEI, and that the maintenance obligation be placed on the entity to whom the LEI is issued, instead of a third-party.224 ISDA–SIFMA consider a non-reporting counterparty to include an investment manager executing a transaction for, and on behalf of, a swap counterparty (e.g., funds), and wants the Commission to clarify that an investment manager executing a transaction on behalf of a counterparty is required to obtain and maintain its own LEI and that an investment manager is required to obtain its own LEI sufficiently in advance of executing pre-allocation swaps, so that the reporting counterparty can report the investment manager LEI within the reporting counterparty’s part 45 timing obligations.225 ICE DCOs believe it is inappropriate for DCOs to backstop the compliance functions of other participants, especially since this may include clients of clearing members with which a DCO has no relationship, requests the 219 Id. 220 JBA at 5–6. 221 Id. 222 ISDA–SIFMA 223 Id. 224 Id. 225 Id. E:\FR\FM\25NOR2.SGM 25NOR2 at 14–15. jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Commission to either remove the LEI backstop entirely or exempt DCOs from the backstop.226 For reasons articulated in the Proposal and informed by comments and analysis as further discussed below, the Commission is adopting the changes to § 45.6(f), re-designated as § 45.6(d), largely as proposed, with certain modifications in response to commenters and other considerations. The Commission did not receive any comments on the proposals to retitle § 45.6(f) ‘‘Use of the legal entity identifier’’ or to remove § 45.6(f)(2) and (4) and for reasons articulated in the Proposal and reiterated above, is adopting the changes as proposed. The Commission also did not receive any comments on the proposals to move the requirements for the use of LEIs from § 45.6(f) to renumbered § 45.6(d) or to move the substantive requirements in § 45.6(f)(3) relating to substitute counterparty identifiers to § 45.6(d)(4) and for reasons articulated in the Proposal and reiterated above, is adopting the changes as proposed. The Commission is adopting the changes to the § 45.6(f)(1) regulations for the use of LEIs as proposed and the move to § 45.6(d)(1) as proposed. The Commission believes a change to the ‘‘all recordkeeping and all swap data reporting’’ language in § 45.6(f)(1) would only lead to confusion due to the term being used extensively elsewhere in § 45.6 and other sections of part 45, and therefore declines to adopt CME’s suggestion. The Commission notes the requirement to identify entities using an LEI in ‘‘all recordkeeping and swap data reporting’’ has existed in § 45.6(f)(1) that all entities have complied with since part 45 was adopted in 2012, and the Commission has seen no evidence that any entity has encountered difficulty complying with this provision. The Commission notes nothing prevents an entity from supplementing the LEI with a human-readable alternative in its records. The Commission also declines to adopt GLEIF’s suggestion to rephrase the second sentence of § 45.6(f)(1) to state that alternative identifiers may only be used for natural persons who are not eligible for an LEI, as the Commission lacks sufficient knowledge of all entity structures and legal systems worldwide to know for certain that every non-natural person is eligible for an LEI.227 Even though the legal entities 226 ICE DCOs at 4–5. example, the Commission is aware that certain European banking groups with unconventional legal structures have encountered difficulties obtaining LEIs. The Commission also 227 For VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 that have faced questions regarding their eligibility for LEIs are admittedly very small in number, GLEIF’s suggested rephrasing of § 45.6(f)(1) would result in those few legal entities currently ineligible for LEIs to also not be allowed to be identified using alternative identifiers, and the resulting lack of acceptable identifier would hinder the Commission’s ability to aggregate the total exposure of those entities. The Commission did not receive any comments opposing the proposed requirements in § 45.6(d)(2) for each SD, MSP, SEF, DCM, DCO, and SDR to maintain and renew its LEI in accordance with the standards set by the Global Legal Entity Identifier System and for reasons articulated in the Proposal and reiterated above, is adopting § 45.6(d)(2) as proposed. The Commission acknowledges LCH’s request to clarify in § 45.6 that SDRs should not reject LEIs that have not been renewed, but declines to adopt this suggestion in the text of § 45.6, as the Commission has delegated to the DMO Director in § 45.15 to issue guidance on the form and manner of the technical specification governing reporting to SDRs. Nevertheless, the Commission notes DMO has not asked SDRs to validate the renewal status of LEIs in the technical specification being published concurrent with adoption of the revisions to part 45. The Commission acknowledges GFXD’s comment regarding the duty to renew should apply to a reporting counterparty’s own LEIs and not that of the non-reporting counterparty, but believes GFXD conflates two separate requirements: The LEI renewal requirement for SDs, MSPs, SEFs, DCMs, DCOs, and SDRs in § 45.6(d)(2) and the requirements described in § 45.6(d)(3) below regarding efforts to obtain LEIs for counterparties without LEIs. The Commission believes § 45.6(d)(2) is clear that the renewal requirement applies only to an entity’s own LEI. By definition, an LEI has to be issued before it can be renewed, so § 45.6(d)(3) would not apply to LEI renewals. The Commission also acknowledges the alternative suggestions of expanding the LEI renewal requirement to either all reporting counterparties or all counterparties, but declines to adopt an expansion of the LEI renewal notes a recent LEI ROC consultation covered, among other topics, ‘‘[p]otential difficulties for identification of general government entities in the [Global Legal Entity Identifier System] current framework’’; see LEI ROC, LEI Eligibility for General Government Entities (Oct. 25, 2019), available at https://www.leiroc.org/publications/ gls/roc_20191025-1.pdf. PO 00000 Frm 00109 Fmt 4701 Sfmt 4700 75529 requirement, as the Commission continues to believe requiring each SD, MSP, SEF, DCM, DCO, and SDR to maintain and renew its LEI strikes the appropriate balance between the Commission’s interest in accurate LEI reference data and the current cost to LEI holders. The Commission acknowledges and appreciates the reduction in the cost to LEI holders to obtain and renew LEIs since the start of the Global Legal Entity Identifier System, but does not believe further expansion of the renewal requirement and the resulting increased costs on LEI holders now premised solely on GLEIF’s promises of future cost reductions and/ or shifts of the LEI renewal fee to financial institutions resulting from Global Legal Entity Identifier System operating model changes is appropriate. Before the Commission mandates such a requirement, it will seek additional information to gain a better understanding what the benefits or costs of such a requirement will be. While the Commission declines to expand the renewal mandate in this release, it is open to considering expansions of the LEI renewal requirement in future releases upon further enhancements in LEI reference data or realized reductions in cost to LEI holders. In response to Chatham’s request for clarification, the Commission notes the requirements of § 45.6 would not apply retroactively to swap data reports previously reported before the adoption of the amendments to part 45, but do apply to creation data and continuation data submitted after the adoption of the amendments to part 45. For reasons articulated in the Proposal and informed by comments and analysis as further discussed below, the Commission is adopting § 45.6(d)(3) largely as proposed, with certain modifications in response to commenters and other considerations. Section 45.6(d)(3) of the final rule removes DCOs from the obligation, as DCOs may not have information regarding customers clearing trades through futures commission merchants. Section 45.6(d)(3) of the final rule also reflects the addition of ‘‘use best efforts to’’ before ‘‘cause a legal entity identifier to be assigned to the counterparty’’ to clarify that the obligation relates to actions within a financial entity reporting counterparty’s control, instead of the obligation to ensure an outcome that may be outside of a financial entity reporting counterparty’s control. Section 45.6(d)(3) of the final rule also removes the phrase ‘‘including if necessary, through third-party registration.’’ Finally, as the Commission still has a need to know the identity of the non- E:\FR\FM\25NOR2.SGM 25NOR2 75530 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 reporting counterparty despite the nonreporting counterparty’s failure to obtain its own LEI pursuant to § 45.6, the Commission is adopting in § 45.6(d)(3) of the final rule a requirement for the financial entity reporting counterparty to promptly provide to the Commission the identity and contact information of the counterparty for whom the financial entity reporting counterparty’s efforts to cause an LEI to be issued were unsuccessful.228 As discussed in the Proposal, swap data that does not identify eligible counterparties with an LEI hinders the Commission’s fulfillment of its regulatory mandates. However, the Commissioner declines to adopt a ‘‘no LEI, no trade’’ requirement that GFXD suggests due to concerns of the potential impact of such a requirement may have on market liquidity, as a ‘‘no LEI, no trade’’ rule would result in market participants without an LEI not being permitted to transact in the market. The Commission also notes part 45 relates to the reporting of swaps that already have been executed, whereas ‘‘no LEI, no trade’’ relates to who is eligible to engage in swap transactions, a completely different topic than the reporting of executed swaps and outside of the scope of the part 45 swap data reporting rule. With regards to GFXD’s operational concerns, the Commission does not believe operational issues such as multiple LEI being issued to a counterparty are likely to arise, as checks in the Global Legal Entity Identifier System prohibit multiple LEIs being issued to an entity. The Commission also does not believe GFXD’s concerns that the provision will result in a material shifting of costs for obtaining an LEI onto reporting counterparties are particularly realistic due to: (i) Most counterparties having already obtained an LEI due to significant LEI adoption by other authorities whose jurisdictions the counterparties may be subject to, (ii) the relatively sophisticated nature of counterparties in the swaps market, (iii) the financial due diligence that reporting counterparties such as GFXD’s 228 The Commission recognizes that if the nonreporting counterparty refuses to obtain an LEI or refuses to provide permission for the reporting counterparty to obtain an LEI on its behalf, the lack of LEI may cause the swap data report to fail an SDR’s validations for the ‘‘Counterparty 2’’ data element. To the extent a swap data report would otherwise pass an SDR’s validations but for the refusal by an LEI-eligible non-reporting counterparty to obtain an LEI, the Commission will take appropriate steps to address such refusal by the LEI-eligible non-reporting counterparty. The Commission expects this to be an infrequent situation. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 members perform on their counterparties, and (iv) the unlikelihood that those relatively sophisticated counterparties with adequate financial resources would willingly and knowingly disregard their own separate obligation to obtain their own LEIs pursuant to § 45.6 just so they may realize a one-time savings of $65. The Commission also recognizes the concerns noted by commenters that obtaining an LEI for a counterparty via third-party registration requires the consent of the counterparty, consent that may potentially not be obtained despite a financial entity reporting counterparty’s best efforts. The Commission believes § 45.6(d)(3) of the final rule addresses those concerns, as financial entities will only be required to ‘‘use best efforts to cause [an LEI] to be assigned to the counterparty,’’ so financial entities would not be required to obtain an LEI for a non-consenting counterparty. It was never the Commission’s intent for anyone other than the entity to which an LEI is issued to be responsible for maintaining the reference data for that LEI, and the Commission has, in response to ISDA– SIFMA’s suggestion, added a clarification in the introductory text of § 45.6 that each entity is responsible for maintaining its LEI, in addition to obtaining and being identified with an LEI. G. § 45.8 229 —Determination of Which Counterparty Shall Report The Commission is changing the introductory text to the § 45.8 reporting counterparty determination regulations. The existing introductory text states the determination of which counterparty is the reporting counterparty for all swaps, except clearing swaps, shall be made as provided in § 45.8(a) through (h), and that the determination of which counterparty is the reporting counterparty for all clearing swaps shall be made as provided in § 45.8(i). The Commission is changing the introductory text to state that the determination of which counterparty is the reporting counterparty for each swap shall be made as provided in § 45.8. The Commission believes this language is clearer, as much of the introductory text is superfluous given that the scope of what § 45.8 covers is clear from the operative provisions of § 45.8. The Commission is making nonsubstantive amendments to the rest of existing § 45.8. The Commission received two comments beyond the non-substantive changes the Commission proposed. ICE SDR recommends the Commission allow swap counterparties to determine which entity is best suited to report swap data where both counterparties are non-SDs/MSPs and only one counterparty is a financial entity and where both counterparties are non-SDs/ MSPs and only one counterparty is a U.S. person.230 The Commission declines to adopt ICE SDR’s recommendation, as financial entities, being more active in the swaps market, are better suited to report swap data to SDRs than non-SD/MSP counterparties. In addition, between two non-SD/MSP/ DCO reporting counterparties, the U.S. person counterparty should report swap data to SDRs given their stronger connection to the U.S. ISDA–SIFMA propose deleting language that seems to address crossborder matters that do not fully align with Commission guidance or no-action letters and request the Commission confirm that, so long as both counterparties incorporate a widely accepted industry practice into their internal policies and procedures, they will have met the requirements of § 45.8.231 The Commission did not propose any amendments to reflect cross-border guidance or no-action letters, and believes the substantive amendments advocated by ISDA– SIFMA, are beyond the scope of this rulemaking and thus not amenable for adoption absent an notice and an opportunity for comment. The Commission believes the requirements of § 45.8 are clear from their operative provisions, and declines to comment on widely-accepted industry practices in this rulemaking. For the reasons discussed above, the Commission is adopting the changes to § 45.8 as proposed. H. § 45.10 232 – Reporting to a Single Swap Data Repository The Commission is changing the § 45.10 regulations for reporting swap data to a single SDR. The Commission is amending and removing existing regulations, and adding new regulations to § 45.10. In particular, new § 45.10(d) will permit reporting counterparties to change the SDR to which they report swap data and swap transaction and pricing data. 1. Introductory Text The Commission is amending the introductory text to § 45.10. The existing 230 ICE SDR at 6. 231 ISDA–SIFMA 229 The Commission proposed minor, nonsubstantive amendments to § 45.7. PO 00000 Frm 00110 Fmt 4701 Sfmt 4700 at 15–16. Commission is making minor, nonsubstantive amendments to § 45.9. 232 The E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 introductory text states that all swap data for a given swap, which includes all swap data required to be reported pursuant to parts 43 and 45, must be reported to a single SDR, which must be the SDR to which the first report of required swap creation data is made pursuant to part 45. First, the Commission is clarifying all ‘‘swap transaction and pricing data and swap data’’ (both terms that the Commission proposed to newly define and add to § 45.1(a)) 233 for a given swap must be reported. As newly defined, ‘‘swap transaction and pricing data’’ and ‘‘swap data’’ would expressly refer, respectively, to data subject to parts 43 and 45, making the existing § 45.10 introductory text’s reference to the two parts redundant. Second, the Commission is adding a qualifier to the end of the introductory text specifying that all swap data and swap transaction and pricing data for a swap must be reported to a single SDR ‘‘unless the reporting counterparty changes the [SDR] to which such data is reported’’ pursuant to the new regulations proposed in § 45.10(d).234 Third, the Commission is making non-substantive changes in the introductory text to improve readability. The Commission did not receive any comments on the changes to the introductory text in § 45.10. The Commission is adopting the changes as proposed. 2. § 45.10(a)—Swaps Executed On or Pursuant to the Rules of a SEF or DCM The Commission is amending the § 45.10(a) regulations for reporting swaps executed on or pursuant to the rules of a SEF or DCM to a single SDR. Existing § 45.10(a) requires that to ensure all swap data, including all swap data required to be reported pursuant to parts 43 and 45, for a swap executed on or pursuant to the rules of a SEF or DCM is reported to a single SDR: (i) The SEF or DCM that reports required swap creation data as required by § 45.3 shall report all such data to a single SDR, and ASATP after execution shall transmit to both counterparties to the swap, and to any DCO, the identity of the SDR and the USI for the swap; and (ii) thereafter, all required swap creation data and all required swap continuation data reported for the swap reported by any registered entity or counterparty must be reported to that same SDR (or to its successor in the event that it ceases to operate, as provided in existing part 49). 233 The Commission’s addition of terms for ‘‘swap data’’ and ‘‘swap transaction and pricing data’’ to § 45.1(a) is discussed in section II.A.1 above. 234 The Commission discusses § 45.10(d) in section II.H.5 below. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 First, the Commission is removing the phrase ‘‘(or to its successor in the event that it ceases to operate, as provided in part 49)’’ from § 45.10(a)(2).235 Second, the Commission is updating all references to swap data throughout proposed § 45.10(a) with ‘‘swap transaction and pricing data and swap data.’’ The Commission believes using the new defined terms for ‘‘swap data’’ and ‘‘swap transaction and pricing data’’ will provide clarity for market participants. Third, the Commission is removing § 45.10(a)(1)(ii) and combining the text of § 45.10(a) and (a)(i) into a single provision § 45.10(a) to provide clarity as the requirement in § 45.10(a)(1)(ii) is already located in § 45.5(a)(2). Fourth, the Commission is adding the qualifier to the end of § 45.10(a)(2) that all swap data and swap transaction and pricing data for a swap must be reported to a single SDR ‘‘unless the reporting counterparty changes the [SDR] to which such data is reported’’ pursuant to the new regulations in proposed § 45.10(d).236 The Commission did not receive any comments on the changes to § 45.10(a). For the reasons discussed above, the Commission is adopting the changes as proposed. 3. § 45.10(b)—Off-Facility Swaps with an SD or MSP Reporting Counterparty The Commission is amending the § 45.10(b) regulations for reporting swaps executed off-facility with an SD/ MSP reporting counterparty to a single SDR. Existing § 45.10(b)(1) requires that to ensure that all swap data, including all swap data required to be reported pursuant to parts 43 and 45, for offfacility swaps with an SD or MSP reporting counterparty is reported to a single SDR: (i) If the reporting counterparty reports PET data to an SDR as required by § 45.3, the reporting counterparty shall report PET data to a single SDR and ASATP after execution, but no later than as required pursuant to § 45.3, shall transmit to the other counterparty to the swap both the identity of the SDR to which PET data is reported by the reporting counterparty, and the USI for the swap created pursuant to § 45.5; and (ii) if the swap will be cleared, the reporting counterparty shall transmit to the DCO at the time the swap is submitted for clearing both the identity of the SDR to which PET data is reported by the 235 This change is due to the new regulations the Commission is adding for changing SDRs in § 45.10(d). The Commission discusses § 45.10(d) in section II.H.5 below. 236 Id. PO 00000 Frm 00111 Fmt 4701 Sfmt 4700 75531 reporting counterparty, and the USI for the swap created under § 45.5. Thereafter, § 45.10(b)(2) requires that all required swap creation data and all required swap continuation data reported for the swap, by any registered entity or counterparty, shall be reported to the SDR to which swap data has been reported pursuant to § 45.10(b)(1) or (2) (or to its successor in the event that it ceases to operate, as provided in part 49). First, the Commission is combining the requirements for SD/MSP reporting counterparties in § 45.10(b) for offfacility swaps with the requirements for non-SD/MSP reporting counterparties in § 45.10(c) for off-facility swaps. The Commission believes combining the requirements for SD/MSP reporting counterparties and non-SD/MSP reporting counterparties in § 49.10(b) and (c) will simplify the regulations in § 45.10. The Commission is re-titling § 45.10(b) ‘‘Off-facility swaps that are not clearing swaps.’’ 237 Second, the Commission is removing the phrase ‘‘(or to its successor in the event that it ceases to operate, as provided in part 49)’’ from § 45.10(b)(2).238 Third, the Commission is updating all references to swap data throughout § 45.10(b) by replacing all references to ‘‘swap data’’ with ‘‘swap transaction and pricing data and swap data.’’ Fourth, the Commission is removing existing § 45.10(b)(1) and combining the regulations in existing § 45.10(b)(1)(i) through (iii) into § 45.10(b)(1). The Commission believes existing § 45.10(b)(1) is unnecessary, as all reporting counterparties must report required swap creation data to an SDR pursuant to § 45.3 for off-facility swaps. Fifth, the Commission is removing the requirement in existing § 45.10(b)(1)(ii) for the reporting counterparty to transmit the USI to the non-reporting counterparty to the swap. The requirement in § 45.10(b)(1) is unnecessary, as it is already located in § 45.5(b)(2) and (c)(2), depending on the type of counterparty. Finally, the Commission is adding the qualifier to the end of § 45.10(b)(2) that all swap data and swap transaction and pricing data for a swap must be reported to a single SDR ‘‘unless the reporting counterparty changes the [SDR] to 237 The Commission discusses the requirements of existing § 45.10(c) in section II.H.4 below. 238 This change is due to the new regulations the Commission is adopting for changing SDRs in § 45.10(d). The Commission discusses § 45.10(d) in section II.H.5 below. E:\FR\FM\25NOR2.SGM 25NOR2 75532 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations which such data is reported’’ pursuant to proposed § 45.10(d).239 The Commission did not receive any comments on the proposed changes to § 45.10(b). For the reasons discussed above, the Commission is adopting the changes as proposed. 4. § 45.10(c)—Off-Facility Swaps With a Non-SD/MSP Reporting Counterparty The Commission is moving the requirements in § 45.10(d) to § 45.10(c). The Commission discusses the requirements of existing § 45.10(d) in the following section, II.H.5. The Commission discusses the requirements of existing § 45.10(c) that it proposed moving to § 45.10(b) in section II.H.3 above. 5. § 45.10(d)—Clearing Swaps jbell on DSKJLSW7X2PROD with RULES2 a. Amendments to Existing § 45.10(d) 240 Existing § 45.10(d)(1) requires that to ensure that all swap data for a given clearing swap, and for clearing swaps that replace a particular original swap or that are created upon execution of the same transaction and that do not replace an original swap, is reported to a single SDR the DCO that is a counterparty to the clearing swap report all required swap creation data for that clearing swap to a single SDR, and ASATP after acceptance of an original swap by a DCO for clearing or execution of a clearing swap that does not replace an original swap, the DCO transmit to the counterparty to each clearing swap the LEI of the SDR to which the DCO reported the required swap creation data for that clearing swap. Thereafter, existing § 45.10(d)(2) requires the DCO report all required swap creation data and all required swap continuation data reported for that clearing swap to the SDR to which swap data has been reported pursuant to § 45.10(d)(1) (or to its successor in the event that it ceases to operate, as provided in part 49). Existing § 45.10(d)(3) requires that for clearing swaps that replace a particular original swap, and for equal and opposite clearing swaps that are created upon execution of the same transaction and that do not replace an original swap, the DCO report all required swap creation data and all required swap continuation 239 The Commission discusses new § 45.10(d) in section II.H.5 below. 240 The Commission is moving the requirements for reporting clearing swaps to a single SDR from § 45.10(d) to § 45.10(c). The Commission is replacing § 45.10(d) with new requirements for reporting counterparties to change SDRs. This section discusses the changes to the requirements for reporting clearing swaps to a single SDR in newly re-designated § 45.10(c) (existing § 45.10(d)), followed by a discussion of the new regulations permitting reporting counterparties to change SDRs. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 data for such clearing swaps to a single SDR. Newly re-designated § 45.10(c) would include several changes to the requirements in existing § 45.10(d). First, the Commission is removing the phrase ‘‘(or to its successor in the event that it ceases to operate, as provided in part 49)’’ in existing § 45.10(d)(2) from re-designated § 49.10(c)(2).241 Second, the Commission is updating all references to swap data now found throughout existing § 45.10(d) with references to ‘‘swap transaction and pricing data and swap data.’’ Third, the Commission is adding the following qualifier: ‘‘unless the reporting counterparty changes the [SDR] to which such data is reported’’ pursuant to the new regulations in § 45.10(d). Finally, the Commission is making numerous language edits to improve readability and to update certain crossreferences. The Commission did not receive any comments on the proposed changes to § 45.10(d), as moved to § 45.10(c). For the reasons discussed above, the Commission is adopting the changes as proposed. b. New Regulations for Changing SDRs The Commission is adding new § 45.10(d) to permit reporting counterparties to change the SDR to which they report swap data and swap transaction and pricing data. Existing § 45.10 provides all swaps must be reported to a ‘‘single [SDR].’’ 242 The Commission is titling new § 45.10(d) ‘‘Change of [SDR] for swap transaction and pricing data and swap data reporting.’’ The introductory text to § 45.10(d) states a reporting counterparty may change the SDR to which swap transaction and pricing data and swap data is reported as outlined in § 45.10(d). New § 45.10(d)(1) will require that at least five business days prior to changing the SDR to which the reporting counterparty reports swap transaction and pricing data and swap data for a swap, the reporting counterparty provide notice of such change to the other counterparty to the swap, the SDR to which swap transaction and pricing data and swap data is currently reported, and the SDR to which swap transaction and pricing data and swap data will be reported going forward. Such notification will include the UTI of the swap and the date on which the reporting counterparty will begin reporting such swap transaction and pricing data and swap data to a different SDR. New § 45.10(d)(2) will require that after providing notification, the reporting counterparty: (i) Report the change of SDR to the SDR to which the reporting counterparty is currently reporting swap transaction and pricing data and swap data as a life cycle event for such swap pursuant to § 45.4; (ii) on the same day that the reporting counterparty reports required swap continuation data as required by § 45.10(d)(2)(i), the reporting counterparty also report the change of SDR to the SDR to which swap transaction and pricing data and swap data will be reported going forward, as a life cycle event for such swap pursuant to § 45.4, and the report identify the swap using the same UTI used to identify the swap at the previous SDR; (iii) thereafter, all swap transaction and pricing data, required swap creation data, and required swap continuation data for the swap be reported to the new SDR, unless the reporting counterparty for the swap makes another change to the SDR to which such data is reported pursuant to § 45.10(d). When the Commission adopted § 45.10 in 2012, it believed regulators’ ability to see necessary information concerning swaps could be impeded if data concerning a swap was spread over multiple SDRs.243 However, since then, the Commission has come to recognize it can aggregate swap data from different SDRs, and the Commission has received requests to permit reporting counterparties to change SDRs.244 However, the ability to change SDRs cannot frustrate the Commission’s ability to use swap data due to duplicative swap reports housed at multiple SDRs. For this reason, the Commission is permitting reporting counterparties to change SDRs in § 49.10(d), subject to certain notification procedures described below to ensure swaps are properly transferred between SDRs. The Commission received five comments supporting new § 45.10(d).245 In particular, GFXD does not believe counterparties changing SDRs raises any operational issues and does not believe any additional requirements should be adopted.246 243 See 77 FR 2136, 2168 (Jan. 13, 2012). e.g., Joint letter from Bloomberg SDR LLC, Chicago Mercantile Exchange Inc., and ICE Trade Vault, LLC (Aug. 21, 2017) at 15. 245 GFXD at 24; Eurex at 4; JBA at 5; DTCC at 7; Markit at 6. 246 GFXD at 24. 244 See, 241 This change is due to the new regulations the Commission is adopting for changing SDRs in § 45.10(d). The Commission discusses § 45.10(d) in section II.H.5.b below. 242 17 CFR 45.10(a) through (d). PO 00000 Frm 00112 Fmt 4701 Sfmt 4700 E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 The Commission did not receive any comments opposing § 45.10(d), but did receive comments seeking clarification or commenting on some aspects of the new regulation. Markit supports § 45.10(d), but does not believe the notice period and other formal procedures are necessary, and notes a swap transaction that has been moved will be evident from the ‘‘Events’’ data elements in appendix 1.247 The Commission agrees with Markit that data elements showing a swap has been moved to a different SDR will be beneficial, but as explained above, the Commission needs to ensure swaps are properly transferred. The Commission believes it has kept the notification requirements simple enough to provide the Commission the notification it needs without placing an unreasonable burden on the parties involved in the transfer. ISDA–SIFMA suggest the § 45.10(d)(1) notification obligation could be satisfied via an email notification, reporting counterparty portal, or the reporting counterparty’s public-facing website.248 The Commission agrees with ISDA– SIFMA and clarifies the aforementioned methods could satisfy the notification requirements in § 49.10(d). ISDA–SIFMA and DTCC have questions relating to transferring historical swap data. ISDA–SIFMA believe, where a reporting counterparty elects to transfer from an SDR due to the deregistration of the SDR, the deregistering SDR should be required to bear the reporting counterparty’s costs of porting.249 DTCC requests confirmation that the transferability requirement will only apply to trades that are live at the time of the transfer, not historical trades.250 Transferring historical data in the context of SDR withdrawals from registration is covered by § 49.4 regulations (Withdrawal from registration). New § 45.10(d) does not apply to that process, with respect to costs or the process itself, among other things. The Commission believes ISDA– SIFMA and DTCC’s comments are addressed by § 49.4. I. § 45.11—Data Reporting for Swaps in a Swap Asset Class Not Accepted by Any Swap Data Repository The Commission is making nonsubstantive changes to the § 45.11 regulations for reporting swaps in an asset class not accepted by any SDR. Existing § 45.11(a) requires that, should there be a swap asset class for which no SDR registered with the Commission 247 Markit at 6. 248 ISDA–SIFMA at 16. 249 Id. 250 DTCC at 7. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 currently accepts swap data, each registered entity or counterparty required by part 45 to report any required swap creation data or required swap continuation data with respect to a swap in that asset class report that same data to the Commission. For instance, the Commission is removing the phrase ‘‘registered with the Commission’’ following the term SDR. The Commission believes this phrase is confusing, as the three SDRs are provisionally registered with the Commission pursuant to § 49.4(b) of the Commission’s regulations. The Commission also believes this phrase is unnecessary, as provisionally registered SDRs and fully registered SDRs are subject to the same requirements in the CEA and the Commission’s regulations. The Commission is also replacing ‘‘each registered entity or counterparty’’ with a reference to SEFs, DCMs, and DCOs, and the term ‘‘reporting counterparty.’’ The list of entities is more precise and does not modify the types of entities to which the requirements of § 49.11 would apply. Existing § 45.11(c) and (d) contain a delegation of authority to the Chief Information Officer of the Commission concerning the requirements in § 45.11(a) and (b). The Commission is moving this delegation to a new section, § 45.15, for delegations of authority. The Commission discusses § 45.15 in section II.L below. The Commission did not receive any comments on the proposed changes to existing § 45.11. For the reasons discussed above, the Commission is adopting the changes as proposed. J. § 45.12—Voluntary Supplemental Reporting The Commission is removing the § 45.12 regulations for voluntary supplemental reporting from part 45. Existing § 45.12 permits the submission of voluntary supplemental swap data reports by swap counterparties.251 Voluntary supplemental swap data reports are defined as any report of swap data to a [SDR] that is not required to be made pursuant to part 45 or any other part in this chapter.252 When it adopted § 45.12 in 2012, the Commission believed voluntary 251 17 CFR 45.12(b) through (e). Existing § 45.12(d) requires voluntary supplemental reports contain an indication the report is voluntary, a USI, the identity of the SDR to which required swap creation data and required swap continuation data were reported, if different from the SDR to which the voluntary supplemental report was reported, the LEI of the counterparty making the voluntary supplemental report, and an indication the report is made pursuant to laws of another jurisdiction, if applicable. 252 17 CFR 45.12(a). PO 00000 Frm 00113 Fmt 4701 Sfmt 4700 75533 supplemental reporting could have benefits for data accuracy and counterparty business processes, especially for counterparties that were not the reporting counterparty to a swap.253 The Commission recognized § 45.12 would lead to the submission of duplicative reports for the same swap,254 but believed an indication voluntary supplemental reports were voluntary would prevent doublecounting of the same swaps within SDRs.255 In practice, the Commission is concerned voluntary supplemental reports compromise data quality and provide no clear regulatory benefit. In analyzing reports that have been marked as ‘‘voluntary reports,’’ it is not immediately apparent to the Commission why reporting counterparties mark the reports as voluntary. In some cases, it appears these reports can be related to products outside the Commission’s jurisdiction. The Commission believes it should not accept duplicative or non-jurisdictional reports at the expense of the Commission’s technical and staffing resources with no clear regulatory benefit. The Commission adopted existing § 45.12 in 2012 without the benefit of having swap data available to consider the practical implications of existing § 45.12. However, after years of use by Commission staff, the Commission now believes existing § 45.12 has led to swap data reporting that inhibits the Commission’s use of the swap data. The Commission believes eliminating § 45.12 will help improve data quality. The Commission received three comments on the removal of § 45.12. NRECA–APPA and ISDA–SIFMA support removing § 45.12.256 Eurex believes this removal would lead nonU.S. DCOs to only report part 45 data for swap transactions involving SDs, MSPs, and other U.S. counterparties.257 Furthermore, Eurex agrees that this removal would significantly lessen the operational cost currently incurred from reporting data for all cleared swaps.258 However, Eurex requests a list of SDs, MSPs, and other U.S. counterparties so, as a non-U.S. DCO, Eurex can appropriately filter out swap transactions that do not fall under the jurisdiction of the Commission.259 The Commission believes Eurex is confusing 253 77 FR at 2169 (Jan. 13, 2012). 254 Id. 255 Id. 256 NRECA–APPA 257 Eurex at 5. 258 Id. 259 Id. E:\FR\FM\25NOR2.SGM 25NOR2 at 5; ISDA–SIFMA at 16. 75534 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations voluntary supplemental reporting with cross-border reporting, possibly due to the Commission’s example of some voluntary reports being nonjurisdictional. The Commission clarifies that removing the regulations for voluntary supplemental reporting does not impact cross-border reporting requirements, and non-U.S. DCOs should continue reporting swap data to SDRs, to the extent the Commission’s cross-border rules and guidance require it. K. § 45.13—Required Data Standards jbell on DSKJLSW7X2PROD with RULES2 1. § 45.13(a)—Data Maintained and Furnished to the Commission by SDRs The Commission is changing the § 45.13(a) regulations for data maintained and furnished to the Commission by SDRs. Existing § 45.13(a) requires each SDR maintain all swap data reported to it in a format acceptable to the Commission, and transmit all swap data requested by the Commission to the Commission in an electronic file in a format acceptable to the Commission. The Commission is removing existing § 45.13(a), and moving existing § 45.13(b) to § 45.13(a)(3). The May 2019 notice of proposed rulemaking relating to the Commission’s SDR regulations in parts 23, 43, 45, and 49 (the ‘‘2019 Part 49 NPRM’’) 260 proposed moving the requirements of § 45.13(a) to § 49.17(c).261 The Commission did not propose corresponding modifications to § 45.13 in that release.262 Therefore, the Commission is changing § 45.13(a) in this release by removing language that the 2019 Part 49 NPRM proposed incorporating in § 49.17(c). The Commission discusses the changes to § 45.13(b), including moving the requirement to § 45.13(a)(3), in this section. Existing § 45.13(b) requires that in reporting swap data to an SDR as required by part 45, each reporting entity or counterparty shall use the facilities, methods, or data standards provided or required by the SDR to which the entity or counterparty reports the data. Existing § 45.13(b) further provides that an SDR may permit reporting entities and counterparties to use various facilities, methods, or data standards, provided that its requirements in this regard enable it to meet the requirements of § 45.13(a) with 260 See Certain Swap Data Repository and Data Reporting Requirements, 84 FR 21044 (May 13, 2019). 261 84 FR at 21060 (May 13, 2019). 262 Id. at n.132 (noting the Commission’s expectation to modify § 45.13 in a subsequent Roadmap rulemaking). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 respect to maintenance and transmission of swap data. In new § 43.13(a)(1), the Commission is requiring that in reporting required swap creation data and required swap continuation data to an SDR, each reporting counterparty, SEF, DCM, and DCO shall report the swap data elements in appendix 1 in the form and manner provided in the technical specifications published by the Commission pursuant to § 45.15. This requirement is implied in the current regulations through the requirements in the introductory text to § 45.3 and § 45.4, the definitions of ‘‘required swap creation data’’ and ‘‘required swap continuation data,’’ and § 45.13(b) and (c), but new § 45.13(a)(1) would make the existing requirement explicit. In new § 45.13(a)(2), the Commission is requiring that in reporting required swap creation data and required swap continuation data to an SDR, each reporting counterparty, SEF, DCM, and DCO making such report satisfy the swap data validation procedures of the SDR receiving the swap data. The Commission is adopting companion requirements for SDRs to validate swap data in § 49.10.263 New § 45.13(a)(2) will establish the regulatory requirement for reporting counterparties, SEFs, DCMs, and DCOs to satisfy the data validation procedures established by SDRs pursuant to § 49.10. The Commission is specifying the requirements for the validation messages in § 45.13(b). The Commission discusses these requirements, and comments received, in section IV.C.3 below. Finally, the Commission is moving existing § 45.13(b) to § 45.13(a)(3) and changing the regulatory requirements. Existing § 45.13(b) requires that in reporting swap data to an SDR as required by part 45, each reporting entity or counterparty use the facilities, methods, or data standards provided or required by the SDR to which the entity or counterparty reports the data. An SDR may permit reporting entities and counterparties to use various facilities, methods, or data standards, provided its requirements in this regard enable it to meet the requirements of § 45.13(a) with respect to maintenance and transmission of swap data. First, the Commission is replacing ‘‘each reporting entity or counterparty’’ with ‘‘each reporting counterparty [SEF, DCM, and DCO]’’ to be more precise. Second, the Commission is removing the second sentence in existing § 45.13(b) because it pertains to the 263 The Commission discusses § 49.10 in section IV.C below. PO 00000 Frm 00114 Fmt 4701 Sfmt 4700 requirements of § 45.13(a), which the Commission is moving to part 49. The Commission did not receive any comments on the changes to § 45.13(a) and (b). For the reasons discussed above, the Commission is adopting the changes as proposed. 2. New Regulations for Data Validation Messages The Commission is specifying the requirements for data validation acceptance messages for SDRs, SEFs, DCMs, DCOs, and reporting counterparties. New § 45.13(b)(1) will require that for each required swap creation data or required swap continuation data report submitted to an SDR, an SDR notify the reporting counterparty, SEF, DCM, DCO, or thirdparty service provider submitting the report whether the report satisfied the swap data validation procedures of the SDR. The SDR will have to provide such notification ASATP after accepting the required swap creation data or required swap continuation data report. An SDR satisfies these requirements by transmitting data validation acceptance messages as required by proposed § 49.10. New § 45.13(b)(2) will require that if a required swap creation data or required swap continuation data report to an SDR does not satisfy the data validation procedures of the SDR, the reporting counterparty, SEF, DCM, or DCO required to submit the report has not yet satisfied its obligation to report required swap creation or continuation data in the manner provided by paragraph (a) within the timelines set forth in §§ 45.3 and 45.4. The reporting counterparty, SEF, DCM, or DCO has not satisfied its obligation until it submits the required swap data report in the manner provided by paragraph (a), which includes the requirement to satisfy the data validation procedures of the SDR, within the applicable time deadline outlined in §§ 45.3 and 45.4. The Commission did not receive any comments on the new validations requirements in § 45.13(b). As the new regulations for data validations in § 45.13(b) are analogous to new regulations for SDRs to validate data in § 49.10, the Commission discusses its reasoning behind requiring validations in one section in section IV.C.3, below. 3. § 45.13(c)—Delegation of Authority to the Chief Information Officer Existing § 45.13(c) and (d) contain a delegation of authority to the Chief Information Officer of the Commission concerning the requirements in existing § 45.13(a) and (b). The Commission is deleting § 45.13(c) and (d) and moving E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations the delegation to new § 45.15 and delegating authority to the DMO Director. The Commission believes the updated delegation will enhance efficiency by including DMO. The Commission discusses new § 45.15 in the next section. jbell on DSKJLSW7X2PROD with RULES2 L. § 45.15 264 – Delegation of Authority 1. New Regulation for Delegations of Authority The Commission is adding a new regulation to part 45 for delegations of authority. New § 45.15 is titled ‘‘Delegation of authority’’ and contains the delegation of authority in existing § 45.11(c) and (d) and § 45.13(c) and (d) with a new delegation to the DMO Director regarding reporting under § 45.13. Existing § 45.11(c) delegates to the Chief Information Officer of the Commission, or another such employee he or she designates, with respect to swaps in an asset class not accepted by any SDR, the authority to determine the manner, format, coding structure, and electronic data transmission standards and procedures acceptable to the Commission; whether the Commission may permit or require use by reporting entities or counterparties in reporting pursuant to § 45.11 of one or more particular data standards (such as FIX, FpML, ISO 20022, or some other standard), in order to accommodate the needs of different communities of users; and the dates and times at which required swap creation data or required swap continuation data must be reported to the Commission. Existing § 45.11(d) requires the Chief Information Officer to publish from time to time in the Federal Register and on the website of the Commission, the format, data schema, electronic data transmission methods and procedures, and dates and times for reporting acceptable to the Commission with respect to swap data reporting pursuant to § 45.11. Separately, existing § 45.13(c) delegates to the Chief Information Officer, until the Commission orders otherwise, the authority to establish the format by which SDRs maintain swap data reported to them, and the format by which SDRs transmit the data to the Commission. The authority includes the authority to determine the manner, format, coding structure, and electronic data transmission standards and procedures acceptable to the Commission for § 45.13(a); and the 264 The Commission proposed amendments to § 45.14 in the 2019 Part 49 NPRM. Therefore, § 45.14 will not be discussed in this release. See 84 FR at 21067 (May 13, 2019). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 authority to determine whether the Commission may permit or require use by reporting entities or counterparties, or by SDRs, of one or more particular data standards (such as FIX, FpML, ISO 20022, or some other standard), to accommodate the needs of different communities of users, or to enable SDRs to comply with § 45.13(a). Existing § 45.13(d) requires the Chief Information Officer to publish from time to time in the Federal Register and on the website of the Commission the format, data schema, and electronic data transmission methods and procedures acceptable to the Commission. The Commission is moving the delegations in existing §§ 45.11(c) and (d) and 45.13(c) and (d) to new § 45.15(a) and (b). The Commission is also updating the delegations to reflect the changes to the cross-references resulting from the Commission’s other proposed amendments to part 45, and changing the delegation in § 45.13 from the Chief Information Officer to the Director of the Division of Market Oversight due to different responsibilities over swap data within the Commission. The Commission received one comment on new § 45.15. NRECA– APPA support the delegation to DMO.265 The Commission agrees with NRECA–APPA and believes delegation to DMO will benefit data element harmonization. The Commission did not receive any other comments on new § 45.15. The Commission is adopting the regulation as proposed. 2. Request for Comment on Data Standards The Proposal solicited comment on whether the Commission should mandate a specific data standard for reporting swap data to SDRs, and whether that standard should be ISO 20022. Existing § 45.13(c) delegates to the Commission’s Chief Information Officer the authority to determine whether the Commission may permit or require use by reporting entities or counterparties, or by SDRs, of one or more particular data standards, including ISO 20022, in order to accommodate the needs of different communities of users. The Commission is retaining this delegation but moving the authority to § 45.15(b)(2) and transferring it to the DMO Director. While the Commission would mandate any standards via the delegated authority in § 45.15(b)(2), the Commission took the opportunity presented by the Proposal to solicit 265 NRECA–APPA PO 00000 Frm 00115 at 6. Fmt 4701 Sfmt 4700 75535 public comment on the topic.266 As explained in the Proposal, the Commission is currently part of an effort to develop a standardized ISO message for the data elements in the CDE Technical Guidance. The Commission sought comment on whether market participants believe mandating ISO 20022 would be beneficial. The Commission received five comments supporting mandating data standards for swap data reporting.267 In particular, GFXD encourages the Commission to harmonize with the CPMI–IOSCO reporting standards to the extent the Commission chooses to implement those data elements.268 Similarly, XBRL ‘‘strongly’’ recommends the Commission ‘‘require all SDRs to adopt a single data standard.’’ XBRL believes allowing SDRs to choose any data standard will lead to inconsistencies in the data, and unnecessary spending by counterparties, SDRs, data users, and the Commission, to accommodate multiple data sets that are standardized in different ways.’’ 269 The Commission received two comments opposing mandating standards for SDR reporting. ISDA– SIFMA state that, even if the Commission mandates that certain messaging formats (e.g., XML, FpML, CSV) for reporting from the SDR to the Commission, ISDA–SIFMA do not believe this should result in a mandate that the same message format type be required from the reporting counterparty to the SDRs, as not all reporting counterparties are built uniformly with respect to messaging formats and technology.270 ICE SDR believes SDRs need flexibility to determine how to implement the requirement. For example, an SDR may choose to provide notifications through a graphical user interface so that less-sophisticated reporting entities are not forced to write an application programming interface.271 The Commission received four comments supporting mandating the ISO 20022 standard specifically.272 In particular, GFXD believes including the CDE data elements in the ISO 20022 data dictionary would reduce the 266 The Commission last solicited comment on the topic in 2012 when it adopted § 45.13. 77 FR 2136 at 2169–70. 267 GFXD at 25; Chatham at 3–4; Eurex at 5; Data Coalition at 2; XBRL at 2. 268 GFXD at 25. 269 XBRL at 2. 270 ISDA–SIFMA at 16–18. 271 ICE SDR at 6, 10. 272 GFXD at 25; Eurex at 5–6; JBA at 5; DTCC at 7. E:\FR\FM\25NOR2.SGM 25NOR2 75536 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations mapping required by market participants and third parties, but believes the Commission should coordinate with fellow international regulators to coordinate the adoption of CDE data elements.273 GFXD also believes it is ‘‘extremely advisable’’ for the Commission and ESMA to come to the same determination on the adoption of the ISO 20022 messaging scheme and coordinate on implementation to reduce operational complexity and risk to data quality from mapping different message schemes in the interim.274 DTCC also encourages the Commission to ‘‘adopt a messaging methodology that is broadly consistent and aligned with the methodology adopted and used in other jurisdictions’’ and notes ESMA has proposed ISO 20022 in its EMIR REFIT consultation published in March 2020.275 The Commission received three comments opposing mandating ISO 20022. CME questions the value of using ISO 20022 values for reporting certain data elements given the significant implementation cost.276 ISDA–SIFMA oppose mandating ISO 20022 due to costs imposed on market participants without benefits to regulatory oversight.277 ICE SDR does not support prescribed facilities and methods for SDRs to communicate with and take in data from participants.278 According to ICE SDR, the Commission should not consider mandating the ISO 20022 message scheme for reporting to SDRs as non-SD/MSP reporting entities often are not as sophisticated as SDs/MSPs and cannot follow such a standard.279 The Commission agrees with some commenters that mandating one standard for reporting swap data to SDRs is necessary to ensure data quality. The Commission believes if the data is reported using different standards or protocols, the data is then subject to interpretation by the SDRs, as it is transformed or translated into the SDRs’ systems and further transformed when it is reported to the Commission. These successive layers of transformation inject ambiguity and 273 GFXD at 25. jbell on DSKJLSW7X2PROD with RULES2 274 Id. 275 DTCC at 7. See Regulation (EU) 2019/834 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivative contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories (‘‘EMIR REFIT’’). 276 CME at 21. 277 ISDA–SIFMA at 18–20. 278 ICE SDR at 10. 279 Id. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 data quality issues into the life cycle of the data. Such layers of transformation are unnecessary if the reporting solution is straight through processing. Consistency of data from the source, in a common format, regardless of SDR, will lead to better quality data. Several commenters note aligning with other jurisdictions will help reduce burden on market participants. Staff supports the idea that having a consistent standard for reporting, such as ISO 20022, across the globe would reduce reporting burden, streamline processing and allow industry to leverage scaled solutions bringing down the cost of changes and updates. As previously noted by a commenter, ESMA has proposed ISO 20022 in its EMIR REFIT consultation published in March 2020 and has implemented ISO 20022 for other reporting regimes, including SFTR. As discussed in the Proposal, CPMI– IOSCO assigned ISO to execute the maintenance functions for the CDE Technical Guidance because ISO has significant experience maintaining financial data standards and almost half of the CDE data elements in the CDE Technical Guidance are already tied to an ISO standard. CPMI–IOSCO also decided that the CDE data elements should be included in the ISO 20022 data dictionary and the development of an ISO 20022-compliant message for CDE data elements is in progress. Further, a majority of the data elements in the technical specification are from the CDE Technical Guidance. For these reasons, and because comprehensive and unambiguous rules regarding reporting format will ensure the quality and usefulness of the data, the Commission will mandate ISO 20022 for reporting to SDRs according to § 45.15(b)(2) when the standard is developed. III. Amendments to Part 46 CEA sections 4r(a)(2)(A) and 2(h)(5) provide for the reporting of preenactment and transition swaps.280 Part 46 of the Commission’s regulations establishes the requirements for reporting pre-enactment and transition swaps to SDRs. In some instances, the 280 See 7 U.S.C. 6r(a)(2)(A) and 7 U.S.C. 2(h)(5); see also 17 CFR 46.1 (defining ‘‘pre-enactment swap’’ as any swap entered into prior to enactment of the Dodd-Frank Act of 2010 (July 21, 2010), the terms of which have not expired as of the date of enactment of that Act, and ‘‘transition swap’’ as any swap entered into on or after the enactment of the Dodd-Frank Act of 2010 (July 21, 2010) and prior to the applicable compliance date on which a registered entity or swap counterparty subject to the jurisdiction of the Commission is required to commence full compliance with all provisions of part 46). PO 00000 Frm 00116 Fmt 4701 Sfmt 4700 revisions to part 45 necessitate corresponding amendments to the regulations in part 46. The Commission describes any substantive amendments in this section. However, the Commission does not repeat the reasoning for changes if the Commission has discussed the reasoning for analogous part 45 provisions above. A. § 46.1—Definitions Existing § 46.1 contains the definitions for terms used throughout the regulations in part 46. The Commission is separating § 46.1 into two paragraphs: § 46.1(a) for definitions and § 46.1(b), which would state that terms not defined in part 46 have the meanings assigned to the terms in § 1.3, to be consistent with the same change in § 45.1. The Commission is adding a definition of ‘‘historical swaps’’ to § 46.1(a). ‘‘Historical swaps’’ means preenactment swaps or transition swaps. This term will provide clarity as it is already used in part 46. The Commission is adding a definition of ‘‘substitute counterparty identifier’’ to § 46.1(a). ‘‘Substitute counterparty identifier’’ means a unique alphanumeric code assigned by an SDR to a swap counterparty prior to the Commission designation of an LEI identifier system on July 23, 2012. The term ‘‘substitute counterparty identifier’’ is already used throughout § 46.4. The Commission is making nonsubstantive minor technical changes to ‘‘asset class’’ and ‘‘required swap continuation data.’’ The Commission is amending the definition of ‘‘non-SD/MSP counterparty’’ in § 46.1(a) to conform to the amendments proposed to the corresponding term in § 45.1(a).281 The Commission is updating the term throughout part 46. The Commission is amending the definition of ‘‘reporting counterparty’’ to update the reference to ‘‘swap data.’’ Currently, ‘‘reporting counterparty’’ means the counterparty required to report swap data pursuant to part 46, selected as provided in § 46.5. As discussed in section II.A.1 above, the Commission is defining ‘‘swap data’’ to mean swap data reported pursuant to part 45. As a result, the Commission is changing the reference to ‘‘data for a pre-enactment swap or transition swap’’ to reflect the reference is to part 46 data. The Commission is removing the following definitions from § 46.1. The Commission has determined that the 281 The Commission discusses the changes to the term in § 45.1(a) in section II.A.2 above. E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations following definitions are redundant because the terms are already defined in either Commission regulation § 1.3 or CEA section 1a: ‘‘credit swap;’’ ‘‘foreign exchange forward;’’ ‘‘foreign exchange instrument;’’ ‘‘foreign exchange swap;’’ ‘‘interest rate swap;’’ ‘‘major swap participant;’’ ‘‘other commodity swap;’’ ‘‘swap data repository;’’ and ‘‘swap dealer.’’ The Commission is removing the definition of ‘‘international swap,’’ as there are no regulations for international swaps in part 46. The Commission did not receive any comments on the changes to § 46.1. jbell on DSKJLSW7X2PROD with RULES2 B. § 46.3—Data Reporting for PreEnactment Swaps and Transition Swaps Existing § 46.3(a)(2)(i) 282 requires that for each uncleared pre-enactment or transition swap in existence on or after April 25, 2011, throughout the existence of the swap following the compliance date, the reporting counterparty must report all required swap continuation data required to be reported pursuant to part 45, with the exception that when a reporting counterparty reports changes to minimum PET data for a preenactment or transition swap, the reporting counterparty is required to report only changes to the minimum PET data listed in appendix 1 to part 46 and reported in the initial data report made pursuant to § 46(a)(1), rather than changes to all minimum PET data listed in appendix 1 to part 45. The Commission is amending § 46.3(a)(2)(i) to remove the exception from PET data reporting for preenactment and transition swaps to specify that reporting counterparties would report updates to pre-enactment and transition swaps according to part 45. The Commission believes this is current practice and would not result in any significant change for the entities reporting updates to historical swaps. The Commission received one comment supporting the proposal. ISDA–SIFMA believe SDs should benefit from more limited part 46 reporting obligations. The Commission is adopting the changes as proposed. C. § 46.10—Required Data Standards Existing § 46.10 requires that in reporting swap data to an SDR as required by part 46, each reporting counterparty use the facilities, methods, or data standards provided or required by the SDR to which counterparty reports the data. The Commission is adding a provision that in reporting required 282 The Commission is not making substantive amendments outside of § 46.3(a)(2)(i). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 swap continuation data as required by this part, each reporting counterparty shall comply with the required data standards outlined in part 45 of this chapter, including those set forth in § 45.13(a) of this chapter. As discussed above in the previous section, the Commission believes this is current practice for reporting counterparties and should not result in any significant change for reporting counterparties. The Commission did not receive any comments on the changes to § 46.10. The Commission is adopting the changes as proposed. D. § 46.11—Reporting of Errors and Omissions in Previously Reported Data Consistent with the Commission’s removal of the option to report required swap continuation data by the state data reporting method, discussed in section II.D.2 above, the Commission is removing the option in § 46.11(b) for pre-enactment/transition swaps reporting. Specifically, existing § 46.11(b) provides that for preenactment or transition swaps for which part 46 requires reporting of continuation data, reporting counterparties reporting state data as provided in part 45 may fulfill the requirement to report errors or omissions by making appropriate corrections in their next daily report of state data pursuant to part 45. Further to the removal of existing § 46.11(b), the Commission is re-designating existing § 46.11(c) and (d) as new § 46.11(b) and (c), respectively. The Commission received two comments supporting the proposal. Consistent with its position supporting removing state data reporting in § 45.4, Chatham believes this will significantly reduce the number of reports as life cycle data reporting provides the same critical information as state data reporting.283 CEWG believes the proposal will improve the effectiveness and efficiency of reporting.284 The Commission agrees removing state data reporting from part 46 will be beneficial for the reasons described above relating to § 45.4. The Commission did not receive any other comments on the proposed changes to § 46.11. The Commission is adopting the changes as proposed. IV. Amendments to Part 49 A. § 49.2—Definitions The Commission is adding four definitions to § 49.2(a): ‘‘data validation acceptance message,’’ ‘‘data validation error,’’ ‘‘Data validation error message,’’ 283 Chatham 284 CEWG PO 00000 at 2. at 3. Frm 00117 Fmt 4701 Sfmt 4700 75537 and ‘‘data validation procedures.’’ 285 The Commission discusses the impact of the four definitions in section IV.C below. The four definitions encompass the messages and validations reports SDRs would be required to send reporting counterparties under new regulations in § 49.10(c). ‘‘Data validation acceptance message’’ means a notification that SDR data satisfied the data validation procedures applied by a SDR. ‘‘Data validation error’’ means that a specific data element of SDR data did not satisfy the data validation procedures applied by a SDR. ‘‘Data validation error message’’ means a notification SDR data contained one or more data validation error(s). ‘‘Data validation procedures’’ means procedures established by a SDR pursuant to § 49.10 to validate SDR data reported to the SDR. B. § 49.4—Withdrawal From Registration The Commission is amending the § 49.4 regulations for SDR withdrawals from registration. Existing § 49.4(a)(1)(iv) requires that a request to withdraw filed pursuant to § 49.4(a)(1) shall specify, among other items, a statement that the custodial SDR is authorized to make such data and records available in accordance with § 1.44.286 Existing § 49.4(a)(2) requires that before filing a request to withdraw, a registered SDR shall file an amended Form SDR to update any inaccurate information. A withdrawal of registration shall not affect any action taken or to be taken by the Commission based upon actions, activities, or events occurring during the time that the facility was designated by the Commission. First, the Commission is removing the § 49.4(a)(1)(iv) requirement for SDRs to submit a statement to the Commission that the custodial SDR is authorized to make the withdrawing SDR’s data and records available in accordance with § 1.44. The reference to § 1.44 is erroneous. Existing § 1.44 requires ‘‘depositories’’ to maintain all books, records, papers, and memoranda relating to the storage and warehousing of commodities in such warehouse, 285 The Commission also proposed defining ‘‘SDR data’’ in the 2019 Part 49 NPRM. As proposed, ‘‘SDR data’’ would mean the specific data elements and information required to be reported to an SDR or disseminated by an SDR, pursuant to two or more of parts 43, 45, 46, and/or 49, as applicable. See 84 FR at 21047. The term ‘‘SDR data’’ is also used in the amendments to § 49.10 in this release. 286 The Commission is not making substantive amendments to § 49.4(a)(1)(i) through (iii). The Commission is limiting the discussion in this release to § 49.4(a)(1)(iv). E:\FR\FM\25NOR2.SGM 25NOR2 75538 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations depository or other similar entity for a period of 5 years from the date thereof.287 The recordkeeping requirements for SDRs are located in § 49.12.288 The Commission is removing erroneous § 49.4(a)(1)(iv) to avoid confusion. Second, the Commission is removing the § 49.4(a)(2) requirement that prior to filing a request to withdraw, a registered SDR file an amended Form SDR to update any inaccurate information.289 The Commission is adding a new requirement in § 49.4(a)(2) for SDRs to execute an agreement with the custodial SDR governing the custody of the withdrawing SDR’s data and records prior to filing a request to withdraw with the Commission. New § 49.4(a)(2) will also specify that the custodial SDR retain such records for at least as long as the remaining period of time the SDR withdrawing from registration would have been required to retain such records pursuant to part 49. The Commission did not receive any comments on the changes to § 49.4. The Commission believes the existing § 49.4(a)(2) requirement is unnecessary and does not help the Commission confirm the successful transfer of data and records to a custodial SDR. The Commission has a significant interest in ensuring that the data and records of an SDR withdrawing from registration are successfully transferred to a custodial SDR. In addition, the Commission needs confirmation that the custodial SDR will retain the data and records for at least the remainder of the time that records are required to be retained according to the Commission’s recordkeeping rules. When an SDR is withdrawing from registration, the Commission would no longer have a regulatory need for the information in Form SDR to be updated. The Commission believes § 49.4(a)(2) will better address the Commission’s primary concerns in an SDR withdrawal from registration. 287 17 CFR 1.44(d). Commission proposed amendments to § 49.12 in the 2019 Part 49 NPRM. However, these amendments do not impact the substance of the SDR recordkeeping requirements. See 84 FR at 21055 (May 13, 2019). Pursuant to § 49.12(b), SDRs must maintain swap data, including historical positions, throughout the existence of the swap and for five years following final termination of the swap, during which time the records must be readily accessible to the Commission via real-time electronic access; and in archival storage for which the swap data is retrievable by the SDR within three business days. 289 Existing § 49.4(a)(2) further provides that a withdrawal of registration shall not affect any action taken or to be taken by the Commission based upon actions, activities or events occurring during the time that the facility was designated by the Commission. The Commission is removing this part of § 49.4(a)(2) as well. jbell on DSKJLSW7X2PROD with RULES2 288 The VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 The Commission is adopting the changes to § 49.4 as proposed. C. § 49.10—Acceptance and Validation of Data The Commission is changing the § 49.10(a) through (d) 290 and (f) requirements for the acceptance of data. As part of these changes, the Commission is re-titling the section to reflect new requirements for SDRs to validate data proposed in § 49.10(c) as ‘‘Acceptance and validation of data.’’ 1. § 49.10(a)—General Requirements The Commission is making nonsubstantive amendments to the general requirements in existing § 49.10(a) for SDRs to have policies and procedures to accept swap data and swap transaction and pricing data. Existing § 49.10(a) requires that registered SDRs establish, maintain, and enforce policies and procedures for the reporting of swap data to the registered SDR and shall accept and promptly record all swap data in its selected asset class and other regulatory information that is required to be reported pursuant to parts 43 and 45 by DCMs, DCOs, SEFs, SDs, MSPs, or non-SD/MSP counterparties. The non-substantive amendments include titling § 49.10(a) ‘‘General requirements’’ to distinguish it from the rest of § 49.10 and renumbering the sections. The Commission is revising the first sentence to specify that SDRs shall maintain and enforce policies and procedures reasonably designed to facilitate the complete and accurate reporting of SDR data. The Commission is removing the last phrase of § 49.10(a) beginning with ‘‘all swap data in its selected asset class’’ and create a second sentence requiring SDRs to promptly accept, validate, and record SDR data. Finally, the Commission is correcting references to defined terms. Together, the amendments to § 49.10(a)(1) through (2) will improve the readability of § 49.10(a) while updating the terminology to use the proposed ‘‘SDR data’’ term for the data SDRs are required to accept, validate, and record pursuant to § 49.10.291 The Commission did not receive any comments on the proposed changes to § 49.10(a). For reasons discussed above, the Commission is adopting the changes as proposed. 290 The Commission proposed amendments to the § 49.10(e) requirements for correction of errors and omissions in SDR data in the 2019 Part 49 NPRM. See 84 FR at 21050. 291 The background for the validations is discussed in section IV.C.3 below. PO 00000 Frm 00118 Fmt 4701 Sfmt 4700 2. § 49.10(b)—Duty To Accept SDR Data The Commission is adopting nonsubstantive amendments to the § 49.10(b) requirements for SDRs to accept SDR data. Existing § 49.10(b) requires a registered SDR set forth in its application for registration as described in § 49.3 the specific asset class or classes for which it will accept swaps data. If an SDR accepts swap data of a particular asset class, then it shall accept data from all swaps of that asset class, unless otherwise prescribed by the Commission. The non-substantive changes include titling § 49.10(b) ‘‘Duty to accept SDR data’’ and updating references to data in § 49.10(b) to ‘‘SDR data’’ to use the correct defined term. The Commission did not receive any comments on the changes. For the reasons discussed above, the Commission is adopting the changes as proposed. 3. § 49.10(c)—Duty To Validate SDR Data The Commission is adding new regulations for the SDR validation of SDR data in § 49.10(c). The Commission is moving the requirements in existing § 49.10(c) to § 49.10(d).292 In § 49.10(c), the Commission is requiring SDRs to apply validations and inform the entity submitting the swap report of any associated rejections. SDRs will be required to apply the validations approved in writing by the Commission. The Commission is also adopting regulations for SDRs to send validation messages to SEFs, DCMs, and reporting counterparties in § 45.13(b).293 The Commission discusses § 49.10(c) and § 45.13(b) together in this section. The Commission believes the consistent application of validation rules across SDRs will lead to an improvement in the quality of swap data maintained at SDRs. SDRs currently check each swap report for compliance with a list of rules specific to each SDR. However, the Commission is concerned SDRs apply different validation rules that could be making it difficult for SDR data to either be reported to the SDR or the SDRs’ real-time public data feeds. The SDRs applying different validations to swap reports creates numerous challenges for the Commission and 292 The amendments to the existing requirements of § 49.10(c), to be moved to § 49.10(d), are discussed in section IV.C.4 below. 293 The Commission is adopting regulations for reporting counterparties, SEFs, and DCMs to address the validations messages sent by SDRs and to resubmit any rejected swap reports in time to meet their obligations to report creation and continuation data. The requirements for reporting counterparties, SEFs, and DCMs to comply with SDR validations are proposed in § 45.13(b). E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 market participants. While one SDR may reject a report based on an incorrect value in a particular data element, another SDR may accept reports containing the same erroneous value in the same data element. Further, the Commission is concerned responses to SDR validation messages vary across reporting counterparties, given the lack of current standards. ESMA has published specific validations for TRs to perform to ensure that derivatives data meets the requirements set out in their technical standards pursuant to EMIR.294 ESMA’s validations, for instance, set forth when data elements are mandatory, conditional, optional, or must be left blank, and specify conditions for data elements along with the format and content of allowable values for almost 130 data elements.295 The Commission believes similarly consistent SDR validations will help improve data quality. The Commission received two comments supporting data validations regulations in § 45.13. FIA believes the validations should strengthen data accuracy and appreciates using the SDRs’ current processes.296 Markit believes validation requirements will enable third-party service providers to develop data validation mechanisms that will substantially reduce the cost of complying with new SDR data validation procedures.297 The Commission received two comments on the new validations requirements in § 49.10(c) and § 45.13(b). NRECA–APPA request the Commission provide evidence that the validation process will achieve a specific regulatory benefit to offset the significant additional burden on nonSD/MSP/DCO counterparties to offfacility swaps.298 As discussed above, the Commission believes consistent SDR validations will improve data quality without placing unnecessary burdens on any swap counterparties as SDRs validate data today. GFXD believes limited exceptions to the validation requirements should be in place but believes such exceptions may have limited use.299 The Commission agrees, and believes the regulations, along with the existing delegations of authority that the Commission is moving to § 45.15, give the Commission the discretion to 294 See ‘‘EMIR Reporting’’ at https:// www.esma.europa.eu/policy-rules/post-trading/ trade-reporting. 295 See id. 296 FIA at 7. 297 Markit at 3. 298 NRECA–APPA at 5. 299 GFXD at 25. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 specify validations exceptions in the case of new products or changes that require flexibility. The Commission did not receive any additional comments on § 49.10(c) or § 45.13(b). The Commission is adopting the regulations as proposed. 4. § 49.10(d)—Policies and Procedures To Prevent Invalidation or Modification As described above, the Commission is moving the requirement in § 49.10(c) for SDRs to have policies and procedures to prevent invalidations or modifications of swaps to § 49.10(d). As a result, the Commission is redesignating § 49.10(d) as new § 49.10(f).300 Existing § 49.10(c) requires registered SDRs to establish policies and procedures reasonably designed to prevent any provision in a valid swap from being invalidated or modified through the confirmation or recording process of the SDR.301 The Commission is making nonsubstantive amendments to existing § 49.10(c), moved to § 49.10(d). For instance, the Commission is titling § 49.10(c) ‘‘Policies and procedures to prevent invalidation or modification’’ to distinguish it from the other requirements in § 49.10. The Commission did not receive any comments on the non-substantive changes to § 49.10(d). For the reasons discussed above, the Commission is adopting the changes as proposed. 5. § 49.10(f)—Policies and Procedures for Resolving Disputes Regarding Data Accuracy As described above, the Commission is re-designating § 49.10(d) as § 49.10(f).302 The Commission is making non-substantive amendments to the requirements in existing § 49.10(d), redesignated as § 49.10(f). Existing § 49.10(d) requires that registered SDRs establish procedures and provide facilities for effectively resolving disputes over the accuracy of the swap data and positions that are recorded in the SDR. The Commission is re-titling § 49.10(f) ‘‘Policies and procedures for resolving disputes regarding data accuracy’’ and updating terminology in the regulation. The Commission did not receive any comments on the amendments to § 49.10(f). For the reasons discussed 300 The amendments to the existing requirements of § 49.10(d), re-designated as § 49.10(f), are discussed in section IV.C.5 below. 301 Existing § 49.10(c) further provides that the policies and procedures must ensure that the SDR’s user agreements must be designed to prevent any such invalidation or modification. 17 CFR 49.10(c). 302 The Commission’s proposed revisions to § 49.10(e) are discussed in the 2019 Part 49 NPRM. See 84 FR at 21050 (May 13, 2019). PO 00000 Frm 00119 Fmt 4701 Sfmt 4700 75539 above, the Commission is adopting the changes as proposed. V. Swap Data Elements Reported to Swap Data Repositories A. Proposal The Commission is updating and standardizing the data elements in appendix 1 to part 45. The Commission’s minimum PET for swaps in each swap asset class are found in existing appendix 1 to part 45. The existing PET for swaps contain a set of ‘‘data categories and fields’’ followed by ‘‘comments’’ instead of specifications such as allowable values, formats, and conditions.303 In some cases, these comments include directions, such as to use ‘‘yes/no’’ indicators for certain data elements.304 In others, the comments reference Commission regulations (e.g., to report the LEI of the non-reporting counterparty ‘‘[a]s provided in § 45.6’’).305 In adopting part 45, the Commission intended the PET would ensure uniformity in ‘‘essential data’’ concerning swaps across all of the asset classes and across SDRs to ensure the Commission had the necessary information to characterize and understand the nature of reported swaps.306 However, in practice, this approach permitted a degree of discretion in reporting swap data that led to a lack of standardization which makes it more difficult for the Commission to analyze and aggregate swap data. Each SDR has worked to standardize the data within each SDR over recent years, and Commission staff has noted the improvement in data quality. However, the Commission believes a significant effort must be made to standardize swap data across SDRs. As a result, the Commission is revisiting the data currently required to be reported to SDRs in appendix 1. In the course of revisiting which swap data elements should be reported to SDRs, the Commission reviewed the swap data elements currently in appendix 1 to part 45 to determine if any currently required data elements should be eliminated and if any additional data elements should be added. The Commission then reviewed the CDE Technical Guidance to determine which data elements the Commission could adopt according to the CDE Technical Guidance. As a general matter, the Commission believes the implementation of the CDE Technical Guidance will further 303 See generally 17 CFR part 45 appendix 1. 304 Id. 305 Id. 306 See E:\FR\FM\25NOR2.SGM 77 FR at 2149 (Jan. 13, 2012). 25NOR2 75540 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 improve the harmonization of SDR data across FSB member jurisdictions. This international harmonization, when widely implemented, would allow market participants to report swap data to several jurisdictions in the same format, allowing for potential costsavings. This harmonization, when widely implemented, would also allow the Commission to potentially receive more standardized information regarding swaps reported to TRs regulated by other authorities. For instance, such standardization across SDRs and TRs could support data aggregation for the analysis of global systemic risk in swaps markets. As part of this process, the Commission also reviewed the part 43 swap transaction and pricing data and part 45 swap data elements to determine whether any differences could be reconciled.307 Having completed this assessment, the Commission proposed listing the swap data elements required to be reported to SDRs pursuant to part 45 in appendix 1 to part 45. In a separate proposal, the Commission proposed listing the swap transaction and pricing data elements required to be reported to, and then publicly disseminated by, SDRs pursuant to part 43 in appendix A to part 43. The swap transaction and pricing data elements will be a harmonized subset of the swap data elements in appendix 1 to part 45. At the same time as the Commission proposed updating the swap data elements in appendix 1, DMO published draft technical specifications for reporting the swap data elements in appendix 1 to part 45 to SDRs, and for reporting and publicly disseminating the swap transaction and pricing data elements in appendix A to part 43 described in a separate proposal. Once finalized, DMO would then publish the technical specification in the Federal Register pursuant to the delegation of authority proposed in § 45.15(b). Overall, DMO is establishing a technical specification for certain swap data elements according to the CDE Technical Guidance, where possible. The swap data elements to be reported to SDRs will therefore consist of: (i) The data elements implemented in the CDE Technical Guidance; and (ii) additional CFTC-specific data elements that support the Commission’s 307 The Commission intended the data elements in appendix A to part 43 would be harmonized with the data elements required to be reported to an SDR for regulatory purposes pursuant to part 45. See 77 FR at 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, there is no existing regulatory requirement linking the two sets of data elements. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 regulatory responsibilities.308 While much of this swap data is already being reported to SDRs according to each SDR’s technical specifications, as explained below, the technical specification and validation conditions will be new. A discussion of the swap data elements and comments on the technical specification follows below. Data elements specific to part 43 are discussed in a separate part 43 final rule. DMO’s technical specification contains an extensive introduction to help reviewers. As a preliminary matter, the Commission notes the swap data elements in appendix 1 do not include swap data elements specific to swap product terms. The Commission is currently heavily involved in separate international efforts to introduce UPIs.309 The Commission expects UPIs will be available within the next two years.310 Until the Commission designates a UPI pursuant to § 45.7, SDRs will continue to accept, and reporting counterparties will continue to report, the product-related data elements unique to each SDR. The Commission believes this temporary solution will have SDRs change their systems only once when UPI becomes available, instead of twice if the Commission adopted standardized product data elements in this release before UPIs are available and then later designates UPIs pursuant to § 45.7. In addition, the Commission is adopting the CDE Technical Guidance data elements as closely as possible. Where the Commission adopts a CDE Technical Guidance data element, the Commission adopts the terms used in the CDE Technical Guidance. This means that some terms may be different for certain concepts. For instance, ‘‘derivatives clearing organization’’ is the Commission’s term for registered entities that clear swap transactions, but the CDE Technical Guidance uses the term ‘‘central counterparty.’’ To help clarify, DMO includes footnotes in the technical specification to explain these differences as well as provide examples and jurisdiction308 The update of appendix 1 and the technical specification are expected to represent a significant reduction in the number of swap data elements that could be reported to an SDR by market participants. 309 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/. 310 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. PO 00000 Frm 00120 Fmt 4701 Sfmt 4700 specific requirements. However, the Commission is not including these footnotes in appendix 1. In addition, the definitions from CDE Technical Guidance data elements included in appendix 1 sometimes include references to allowable values in the CDE Technical Guidance, which may not be included in appendix 1, but are in the technical specification. Finally, the CDE Technical Guidance did not harmonize many data elements that would be particularly relevant for commodity and equity swap asset classes (e.g., unit of measurement for commodity swaps). CPMI and IOSCO, in the CDE Governance Arrangements, address both implementation and maintenance of CDE, together with their oversight. One area of the CDE Governance Arrangements includes updating the CDE Technical Guidance, including the harmonization of certain data elements and allowable values that were not included in the CDE Technical Guidance (e.g., data elements related to events and allowable values for the following data elements: Price unit of measure, Quantity unit of measure, and Custom basket constituents’ unit of measure). The Commission anticipates addressing implementation issues through the international working groups to help ensure that authorities follow the established processes for doing so. In addition, the Commission anticipates updating its rules to adopt any new or updated CDE Technical Guidance, as necessary. B. Comments on the Proposal and Commission Determination 1. Category: Clearing The Commission proposed requiring reporting counterparties report 12 clearing data elements.311 The Commission received two comments on whether it should require a data element for indicating whether a swap is subject to the Commission’s clearing requirement in § 50.4 and the trade execution requirement in CEA section 2(h)(8). ISDA–SIFMA do not believe the Commission should add these data elements because it is static data and the Commission already gets all the data elements necessary to determine whether a swap is subject to the clearing requirement or trade execution 311 In appendix 1, these data elements are: Cleared (1); Central counterparty (2); Clearing account origin (3); Clearing member (4); Clearing swap USIs (5); Clearing swap UTIs (6); Original swap USI (7); Original swap UTI (8); Original swap SDR identifier (9); Clearing receipt timestamp (10); Clearing exceptions and exemptions—Counterparty 1 (11); and Clearing exceptions and exemptions— Counterparty 2 (12). E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations requirement.312 They believe the data elements would be burdensome due to their granularity and the prescriptiveness of the clearing mandates under § 50.4, and that the Commission will ultimately be able to use the global UPI to analyze data related to swaps subject to clearing.313 Chatham believes the Commission can determine whether a product is subject to the clearing requirement or the trade execution requirement by other related data elements in the report.314 The Commission agrees with Chatham and ISDA–SIFMA and is declining to add the mandatory clearing and trade execution indicators in appendix 1 at this time.315 The Commission is adopting the clearing data elements for clearing in appendix 1 as proposed. Nearly all of this information is currently being reported to SDRs. Three of these data elements are consistent with the CDE Technical Guidance. Four of these data elements would transition clearing swap and original swap USIs to UTIs. All of these data elements help the Commission monitor the cleared swaps market. 2. Category: Counterparty The Commission proposed requiring reporting counterparties to report ten counterparty data elements.316 The Commission received eight comments on whether it should require an ultimate parent data element. GLEIF support the proposed addition of ultimate parent data elements, but acknowledges that the Commission could instead retrieve this information through its LEI data search engine.317 GFXD, ISDA–SIFMA, BP, CEWG, DTCC, Chatham, and FIA all oppose requiring this information at a transaction level, with most commenters pointing out that the Commission could obtain this information from the Global Legal Entity Identifier System.318 The 312 ISDA–SIFMA at 21. 313 Id. 314 Chatham at 4. Commission acknowledges that it can determine which swaps are subject to the clearing requirement or the trade execution requirement, but notes there have been certain difficulties with obtaining all of the necessary information in the past due to data quality concerns. The Commission expects significant data quality improvements in response to this final rule to make that process easier. 316 In appendix 1, these data elements are: Counterparty 1 (reporting counterparty) (13); Counterparty 2 (14); Counterparty 2 identifier source (15); Counterparty 1 financial entity indicator (16); Counterparty 2 financial entity indicator (17); Buyer identifier (18); Seller identifier (19); Payer identifier (20); Receiver identifier (21); and Submitter identifier (22). 317 GLEIF at 3. 318 GFXD at 27; ISDA–SIFMA at 23; BP at 5–6; CEWG at 8; DTCC at 6; Chatham at 4; FIA at 4–6. jbell on DSKJLSW7X2PROD with RULES2 315 The VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 Commission agrees with GFXD, ISDA– SIFMA, BP, CEWG, DTCC, Chatham, and FIA that the Commission can obtain this information outside of SDR data. As a result, the Commission is declining to adopt any parent/ultimate parent swap data elements. Reflecting input received from the Department of Treasury, the Commission is adopting two counterparty swap data elements that were not in the Proposal: Counterparty 1 federal entity indicator and Counterparty 2 federal entity indicator.319 The Commission believes these swap data elements will help identify swaps use by federal entities. The Commission is adopting the rest of the counterparty data elements in appendix 1 as proposed. Nearly all of this information is currently being reported to SDRs. Six of these data elements are consistent with the CDE Technical Guidance. 3. Category: Events The Commission proposed requiring reporting counterparties to report four event data elements.320 The Commission received four comments on the event model generally. GFXD encourages the Commission harmonize the event model with ESMA.321 CME and DTCC point out the differences between the Commission’s event model and ESMA’s.322 The Commission has worked to harmonize its event model with ESMA’s as much as possible. Any remaining differences between its and ESMA’s event models reflect differences in regulations referenced by the event model in the two jurisdictions. The Commission is adopting the event data elements as proposed, with one modification. The Commission is adding an Amendment indicator data element to flag changes to a previously submitted transaction due to a newly negotiated modification. The Amendment indicator will notify the public a swap is being amended on the public tape pursuant to part 43, to indicate that the change to the previously disseminated swap transaction is price-forming. The Commission is adopting the rest of the events swap data elements as proposed. Nearly all of this information is currently being reported to SDRs. Event data elements were not included in the CDE Technical Guidance. This 319 https://www.cftc.gov/LawRegulation/Dodd FrankAct/ExternalMeetings/dfmeeting_060320_ 1568. 320 In appendix 1, these data elements are: Action type (26); Event type (27); Event identifier (29); Event timestamp (30); 321 GFXD at 28. 322 CME at 18; DTCC at 3. PO 00000 Frm 00121 Fmt 4701 Sfmt 4700 75541 information is, however, critical for the Commission to be able to properly utilize swap data. Without it, the Commission would be unable to discern why each swap event is reported following the initial required swap creation data report. 4. Category: Notional Amounts and Quantities The Commission proposed requiring reporting counterparties report 12 notional data elements.323 The Commission requested comment on whether it should adopt the CDE Technical Guidance data elements for notional schedules. ISDA–SIFMA support the inclusion of ‘‘Notional Amount Schedule’’ data elements.324 They explain that the Notional amount data element does not provide a way to report changes (if applicable) in notional amounts, such as for amortizing swaps.325 The Commission agrees with ISDA–SIFMA that the Notional amount schedule data elements would remedy an issue with reporting changing notionals. As such, the Commission is adding the notional amount schedule data elements to appendix 1. The Commission also requested comment on whether it should require the reporting of a USD equivalent notional amount data element. Four commenters oppose the data element on the grounds it would impose an unnecessary burden on reporting counterparties.326 The Commission agrees with commenters that the USD equivalent notional amount data element would be burdensome to compute and is declining to add the swap data element to appendix 1. The Commission is adopting the notional data elements as proposed, with the modification described above for Notional amount schedule data elements and the data element Delta (109) which will be moved and included with valuation data elements. Nearly all of this information is currently being reported to SDRs. Eleven of the data elements are consistent with the CDE Technical Guidance. Exposure information, in conjunction with valuation information, is critical for, and currently used 323 In appendix 1, these data elements are: Notional amount (31); Notional currency (32); Delta (109); 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). 324 Notional amount schedule is three data elements in the CDE Technical Guidance. 325 ISDA–SIFMA at 25. 326 CME at 19–20; GFXD at 29; ISDA–SIFMA at 25–26; FIA at 4–6. E:\FR\FM\25NOR2.SGM 25NOR2 75542 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations understands that many swaps are executed as part of packages. extensively by, the Commission to monitor activity and risk in the swaps market. 5. Category: Packages jbell on DSKJLSW7X2PROD with RULES2 The Commission proposed requiring reporting counterparties report four package transaction data elements.327 The Commission received three comments related to package data elements. GFXD supports the decision to implement package transaction elements, but GFXD requests the Commission coordinate with ESMA to ensure that implementation is consistent across jurisdictions.328 ISDA– SIFMA do not support additional package data elements because they are exceptionally complex and there is no consistent approach to decomposing a package transaction or their associated definitions.329 Markit opposes package transaction data elements because it believes they are too complex to provide a benefit to the Commission.330 The Commission believes package transaction data is necessary for the Commission to monitor the exposure of its registrants to these complex transactions. As a result, despite the objections of ISDA–SIFMA and Markit, the Commission is adding three package transaction swap data elements to appendix 1 from the CDE Technical Guidance: Package transaction spread; Package transaction spread currency; and Package transaction spread notation. The Commission is also adding Package indicator data element to appendix 1. The Commission agrees with GFXD that it should harmonize with ESMA to ensure consistent implementation across jurisdictions, and that is why the Commission adopted the package data elements according to the CDE Technical Guidance where possible. The Package indicator will alert the public on the part 43 tape that the swap is part of a package, so the public will know the price is impacted by factors beyond the swap. The Commission is adopting the rest of the package data elements as proposed. Some of this information is currently being reported to SDRs. Seven of these data elements are consistent with the CDE Technical Guidance. The Commission anticipates using this information to better understand risk in the swaps market, as the Commission 327 In appendix 1, these data elements are: Package identifier (46); Package transaction price (47); Package transaction price currency (48); and Package transaction price notation (49). 328 GFXD at 29. 329 ISDA–SIFMA at 26. 330 Markit at 5. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 6. Category: Payments The Commission proposed requiring reporting counterparties to report 12 data elements related to payments.331 The Commission did not receive any comments on adding or removing the payments data elements in appendix 1 and is adopting the data elements as proposed. Nine of these data elements are consistent with the CDE Technical Guidance. Nearly all of this information is currently being reported to SDRs. 7. Category: Prices The Commission proposed requiring reporting counterparties to report 18 data elements related to swap prices.332 The Commission received two comments on whether the Commission should continue to require the reporting of the Non-standardized pricing indicator. ISDA–SIFMA and GFXD oppose the indicator 333 and raise a concern that it could lead to reporting counterparties reporting additional terms to address the vague direction the data element provides. The Commission disagrees with ISDA–SIFMA and GFXD and is declining to remove this data element from appendix 1. While broad, the Non-standardized term indicator alerts the public a price may be due to unique terms when SDRs disseminate it to the public. The Commission does not share ISDA–SIFMA’s concerns about additional terms, as the data element is just an indicator to flag terms of the swap that may not be reported to an SDR. The Commission is adopting the price data elements in appendix 1 as proposed. Nearly all of this information is currently being reported to SDRs. Seventeen of these data elements are consistent with the CDE Technical Guidance. This information is critical for, and used by, the Commission in understanding pricing in the swaps market. 331 In appendix 1, these data elements are: Day count convention (53); Fixing date (54); 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); Other payment date (60); Other payment payer (61); Other payment receiver (62); Payment frequency period (63); and Payment frequency period multiplier (64). 332 In appendix 1, 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); Option premium payment date (81); and First exercise date (82). 333 GFXD at 31; ISDA–SIFMA at 29. PO 00000 Frm 00122 Fmt 4701 Sfmt 4700 8. Category: Product The Commission proposed requiring reporting counterparties to report five product-related data elements.334 The Commission received two comments on its approach to product data elements until the UPI is available. GFXD and ISDA–SIFMA support the Commission’s approach.335 The Commission is adopting the product data elements in appendix 1 as proposed. Product data elements are currently being reported to SDRs. The Commission has determined these data elements are critical for monitoring risk in the swaps market, even though the Commission expects any additional product data elements to remain unstandardized until the UPI is introduced. 9. Category: Settlement The Commission proposed requiring reporting counterparties to report two settlement data elements.336 The Commission received two comments on additional settlement data elements. GFXD and ISDA–SIFMA recommend the Commission consider including the Settlement location data element in the CDE Technical Guidance, as it would be an efficient option to collect additional information on trades involving offshore currencies.337 The Commission agrees with GFXD and ISDA–SIFMA that the Settlement location data element would help the Commission collect information on trades involving offshore currencies. As a result, the Commission is adding the CDE Technical Guidance data element for Settlement location to appendix 1. For reasons articulated in the Proposal and reiterated above, the Commission is adopting the rest of the settlement data elements in appendix 1 as proposed. 10. Category: Transaction-Related The Commission proposed requiring reporting counterparties to report 15 data elements that provide information about each swap transaction.338 The 334 In appendix 1, these data elements are: CDS index attachment point (83); CDS index detachment point (84); Index factor (85); Embedded option type (86); and Unique product identifier (87). 335 ISDA–SIFMA at 26–27; GFXD at 30. 336 In appendix 1, these data elements are: Final contractual settlement date (88) and Settlement currency (89). 337 GFXD at 30; ISDA–SIFMA at 27. 338 In appendix 1, these data elements are: Allocation indicator (91); Non-standardized term indicator (92); Block trade election indicator (93); Effective date (94); Expiration date (95); Execution timestamp (96); Reporting timestamp (97); Platform identifier (98); Prime brokerage transaction identifier (89 in the Proposal); Prime brokerage transaction indicator (99); Prior USI (for one-to-one and one-to-many relations between transactions) (100); Prior UTI (for one-to-one and one-to-many E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Commission received one comment on whether the Commission should include the data element for Jurisdiction indicator. ISDA–SIFMA oppose the indicator as the reporting counterparty would need to reach out to each of its counterparties for each transaction at or shortly after execution.339 They also question whether and how the list of jurisdictions could change and whether they would be subject to the public rulemaking process, and note this is not a CDE data element.340 The Commission is adopting the data element with one change to address ISDA–SIFMA’s concerns about complicated implementation: the data element will be named Jurisdiction and will include limited allowable values. The Commission received one comment on whether the Commission should add a Prime brokerage transaction identifier data element in appendix 1. ISDA–SIFMA have significant concerns with the Prime brokerage transaction identifier data element and opposes its adoption.341 ISDA–SIFMA point out that the Commission can require any SD to provide any information relating to a swap, including asking any prime broker to map swaps that result from a trigger swap and to which such SD is a party.342 In addition, the Prime brokerage transaction indicator data element should help identify prime broker intermediated transactions in SDR data.343 The Commission agrees with ISDA–SIFMA that the identifier would be too complex to implement at this time. As such, the Commission is declining to add Prime brokerage transaction identifier to appendix 1. The Commission is adopting the rest of the transaction data elements in appendix 1 as proposed. Most of this information is currently being reported to SDRs and the Commission requires data elements like transaction identifiers to properly track new and amended swaps. jbell on DSKJLSW7X2PROD with RULES2 11. Category: Transfer The Commission proposed requiring reporting counterparties to report one data element related to changing SDRs.344 The Commission did not receive any comments on the New SDR identifier data element and is adopting relations between transactions) (101); Unique swap identifier (USI) (102); Unique transaction identifier (UTI) (103); and Jurisdiction (104). 339 ISDA–SIFMA at 28. 340 Id. 341 ISDA–SIFMA at 27–28. 342 Id. 343 Id. 344 In appendix 1, this data element is: New SDR identifier (105). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 the data element as proposed. This data element is necessary as the Commission is adopting § 45.10(d) permitting reporting counterparties to change the SDR to which they report data for a given swap. Without this data element, the Commission is concerned there would be swaps in the SDR that would appear open but not updated because the reporting counterparty reports to a different SDR. 12. Category: Valuation The Commission proposed requiring reporting counterparties to report six valuation data elements.345 The Commission received several comments on the valuation data elements. ISDA– SIFMA, GFXD, and Markit generally oppose the valuation data elements. GFXD and ISDA–SIFMA do not support any valuation data elements outside of those required by the CDE Technical Guidance.346 Markit opposes the valuation data elements as it would be difficult for firms to report them each day because (i) valuation data comes from systems separate from risk management systems that hold the transaction information; and (ii) daily valuation reporting that is prepared for other jurisdictions only involves minimum transaction information (trade reference, USI or UTI) that are used to link the valuation to the right trade.347 The Commission is adopting Next floating reference reset date, along with the other valuation data elements in appendix 1. Nearly all of this information is currently being reported to SDRs. Five data elements are consistent with the CDE Technical Guidance. Valuation information is critical for, and currently used by, the Commission to monitor risk in the swaps market. 13. Category: Collateral and Margins The Commission proposed requiring reporting counterparties to report 14 collateral and margins data elements.348 345 In appendix 1, these data elements are: Last floating reference value (107); Last floating reference reset date (108); Valuation amount (110); Valuation currency (111); Valuation method (112); and Valuation timestamp (113). 346 ISDA–SIFMA at 30–31; GFXD at 31–32. 347 Markit at 7. 348 In appendix 1, these data elements are: Affiliated counterparty for margin and capital indicator (114); Collateralisation category (115); collateral portfolio code (105 in the Proposal); Portfolio containing non-reportable component indicator (117); Initial margin posted by the reporting counterparty (post-haircut) (118); Initial margin posted by the reporting counterparty (prehaircut) (119); Currency of initial margin posted (120); Initial margin collected by the reporting counterparty (post-haircut) (121); Initial margin collected by the reporting counterparty (pre-haircut) (122); Currency of initial margin collected (123); PO 00000 Frm 00123 Fmt 4701 Sfmt 4700 75543 In light of the importance of this information, the Commission is adopting the margin and collateral data elements as proposed, with one change. The proposed Collateral portfolio code is now two separate data elements, Initial margin collateral portfolio code and Variation margin collateral portfolio code. This information is not currently being reported to SDRs. Eleven of these data elements are consistent with the CDE Technical Guidance. One data element, Affiliated counterparty for margin and capital indicator (114), will help the Commission monitor compliance with the uncleared margin requirements. The three remaining CFTC-specific data elements are indicators and codes that will help the Commission understand how the margin and collateral data is being reported by reporting counterparties. Margin and collateral information is critical for the Commission to monitor risk in the swaps market. When other jurisdictions implement the CDE Technical Guidance, sharing this information with other regulators will permit regulators to create a global picture of swaps risk. 14. Category: Miscellaneous CME requests clarification on whether SDRs can add proprietary data elements to its technical specification or whether an SDR can reject submissions due to validation failures of these data elements, and gave two examples of certain data elements for internal processing purposes (e.g., billing) and data elements to satisfy its regulatory obligations (e.g., implementation of certain data elements at the leg level).349 The Commission understands SDRs may have data elements for internal processing, and the Commission does not want to interrupt an SDR’s ability to efficiently function. Beyond that, the Commission opposes SDRs adding data elements outside of those mandated by the Commission to satisfy the Commission’s rules to avoid creating the issue SDRs and the Commission currently face of each SDR creating their own data elements according to different standards and thus inhibiting data quality. ISDA–SIFMA request the Commission follows EMIR’s process on the data elements in the future: ESMA publishes the data validation table on an ‘‘EMIR Reporting’’ web landing page, while Variation margin posted by the reporting counterparty (pre-haircut) (125); Currency of variation margin posted (126); Variation margin collected by the reporting counterparty (pre-haircut) (127); and Currency of variation margin collected (128). 349 CME at 20. E:\FR\FM\25NOR2.SGM 25NOR2 75544 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations only the data elements required to be reported, format and applicable types of derivatives contracts appear in the rule text.350 The approach would allow for public comment on any future changes to the data required to be reported to the SDRs, but would provide greater flexibility to make adjustments (e.g., due to industry feedback or completion of developing the ISO message for example) that do not change the data elements required to be reported.351 The Commission has endeavored to follow ESMA’s approach as reflected by the steps taken to solicit public comment on the data elements and have DMO publish its technical specification. VI. Compliance Date jbell on DSKJLSW7X2PROD with RULES2 In the Proposal, the Commission acknowledged that market participants will need a sufficient implementation period to accommodate the changes proposed in the three Roadmap proposals that would be adopted by the Commission. The Commission expected to finalize all rules at the same time, even though the three Roadmap proposals were approved separately. The Commission also expected that the compliance date for the Roadmap rules that the Commission adopts other than the rules on UTIs in § 45.5 would be one year from the date the final rulemakings are published in the Federal Register. The Commission expected that the compliance date for the rules on UTIs in § 45.5 would be December 31, 2020, according to the UTI implementation deadline recommended by the FSB.352 The Commission received three comments supporting the proposed oneyear compliance period. ISDMA–SIFMA support a single compliance date for parts 43, 45, and 49 at a minimum of 12 months from the date the final rules are published in the Federal Register. If the Commission does not implement all rules at the same time, ISDA–SIFMA support a compliance date a minimum of 12 months from the date the last rule of the final set of rules is published in the Federal Register.353 Similarly, LCH recommends the Commission set the compliance date for all requirements under the proposal to 12 months from publication to comply with all aspects of the rules, as LCH believes the current date of December 31, 2020, related to UTI implementation 350 ISDA–SIFMA at 34–35. 352 See Financial Stability Board, Governance Arrangements for the Unique Transaction Identifier (UTI), Conclusions and Implementation Plan (Dec. 2017), section 5.2. 353 ISDSA–SIFMA at 36. 18:27 Nov 24, 2020 Jkt 253001 at 2 and 4. SDR at 2 and 5. 356 GFXD at 35. 357 CME at 22–23. 358 DTCC at 8. 359 ICE DCOs at 1–2. developments necessary for compliance.360 The Commission received six comments opposing the UTI compliance date proposal. GFXD believes the December 31, 2020 compliance date for UTIs is ‘‘extremely ambitious,’’ and that there should be a later implementation period for UTI that is coordinated with the EU.361 CME requests the Commission align the UTI transition with the main compliance date to reduce the potential for unnecessary duplication of effort and to allow for potential project implementation synergies.362 JBA believes aligning the UTI implementation timeline across jurisdictions will be more beneficial, and that deadlines should coincide with those of the UPI and CDE, in light of proposals offered in the ESMA consultation.363 ISDA–SIFMA note the proposed date would give only two months for entities to complete builds and test systems, accounting for yearend code freezes and the exacerbation of budgeting and resource constraints caused by the COVID–19 pandemic. ISDMA–SIFMA want § 45.5 to be implemented at least at the same time as the rest of part 45 but would prefer the Commission wait until closer to the Australian Securities and Investments Commission’s or ESMA’s compliance dates in 2022. CS recommends the Commission not separate the Proposal’s compliance dates. If the Commission does keep them separate, CS suggests working closely with fellow IOSCO members in considering an extended implementation timeline for the UTI. In light of other initiatives for global SDs, the operationalizing requirements and operational hurdles present challenges for SDs. CS requests the Commission continue to weigh concerns related to data fragmentation in evaluating a bifurcated implementation of the proposals. CS also suggests the Commission continue to engage in dialogue with the Harmonisation Group and could suggest a timeframe that takes into account the Commission’s proposals and other data reform efforts in other IOSCO jurisdictions.364 FIA believes the USI and UTI compliance changes will have to be addressed and should occur in tandem with the rest of the reporting rule requirements. It recommends eliminating the December 30, 2020 354 LCH 351 Id. VerDate Sep<11>2014 does not allow enough time for market participants to comply.354 ICE SDR suggests the Commission allow voluntary early implementation before the compliance effective date, and points out that having SDRs and market participants implement immediately after publication would be advantageous to the market and would eliminate the need for reporting counterparties to report valuation data.355 The Commission received five comments opposing the proposed implementation period. GFXD suggests 12 months from publication of final rules should be the minimum implementation period and that GFXD believes the changes to the technical specification in parts 43 and 45 should be implemented and allowed to imbed before the validation changes under part 49 are implemented.356 CME believes SDRs will need an extra six months beyond the Commission’s proposal because the Commission expects SDRs to implement all changes simultaneously. CME notes this timing assumes the technical specification would be finalized at the same time and would not be modified in any material respect prior. CME’s DCO also believes the Commission underestimated the number of man-hours that it will take reporting entities, including CME’s DCO, to implement the Commission’s proposed changes to the reporting requirements.357 DTCC requests clarification regarding the implementation period for any proposed changes to the reporting requirements in § 45.15(a)(1) through (3) and in § 45.15(b)(1) through (3), because certain changes, including the potential use and ingestion of prescribed message standards, may take significant time to implement.358 ICE DCOs believe the Commission should adopt a realistic compliance period that allows for industry coordination.359 FIA suggests extending the compliance date for all aspects of the proposals to the later of two years following the effective date of the final rules or one year following finalization of the required data elements and validation processes of the reporting counterparty’s SDR. FIA is concerned the proposed dates do not provide enough time for market participants to undertake the extensive system 355 ICE PO 00000 Frm 00124 Fmt 4701 360 FIA at 10–11. at 34–35. 362 CME at 22. 363 JBA at 1–2. 364 CS at 2. 361 GFXD Sfmt 4700 E:\FR\FM\25NOR2.SGM 25NOR2 jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations compliance date for UTIs and instead imposing one date for compliance for all final rules.365 The Commission received two questions on going-forward amendments for UTIs. ISDA–SIFMA request the amendments to the Commission’s swap reporting rules clarify that requirements should be applied on a ‘‘going forward’’ basis and only apply to swaps and events occurring on or after the compliance date of the amended rules, including the clarification that UTI requirements only apply to new swap transactions and not to swaps prior to the compliance date that have a USI.366 DTCC requests clarification on implementing UTI versus USI. It questions whether swaps that were reported using a USI prior to the end of the compliance period can continue being reported using the USI and only events requiring the creation of new UTIs will be reported using the UTI.367 Based on the many comments that requested one compliance date for all aspects of the Proposal and all of the Roadmap proposals, including final § 45.5, and the many comments that requested a compliance date that is more than one year from the date the proposals are finalized, the Commission has determined to adopt a unified compliance date that is 18 months from the date of publication of the final rule amendments in the Federal Register. The Commission agrees with the suggestion from ICE SDR that market participants should be able to adopt the rule changes ahead of the compliance date. Regarding the UTI implementation, the Commission clarifies that UTI implementation should be on a goingforward basis. This means that all new swaps entered into after the compliance date should have UTIs according to final § 45.5. As a result, SDRs will need to accommodate both USIs and UTIs for a certain amount of time after the compliance date, but the Commission anticipates SDRs would be able to phase it out at a certain point after swaps using USIs are terminated or reach maturity. Part 20 of the Commission’s regulations governing large trader reporting for physical commodity swaps contains a ‘‘sunset provision’’ in § 20.9 that would take effect upon a Commission finding that, through the issuance of an order, operating SDRs are processing positional data and that such processing will enable the Commission 365 FIA at 10–11. 366 ISDA–SIFMA 367 DTCC at 36. at 5. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 to effectively surveil trading in paired swaps and swaptions and paired swap and swaption markets.368 In the Proposal, the Commission asked whether in conjunction with the Commission’s proposals to update its swap reporting regulations, should the Commission review part 20 to determine whether it would be appropriate to sunset part 20 reporting according to the § 20.9? 369 The Commission received three comments on the appropriateness of sunsetting part 20. BP supports sunsetting part 20 since SDRs have been collecting and processing data for several years, Commission and industry resources should no longer be expended on part 20.370 CEWG believes once the improvements in the proposed rules are implemented, CFTC should look towards ending part 20.371 FIA believes the provisions in § 20.9 have been met and recommends CFTC sunset the part 20 reporting requirements.372 Since part 20 data is reported directly to the Commission and not to SDRs, the Commission did not propose any changes to part 20 in the Roadmap or in the Proposal, and therefore, the Commission is taking no action on part 20 in this release. The Commission nonetheless acknowledges the commenters’ responses to the question. The Commission may address part 20 reporting at a future date after implementation of the Roadmap rules. VII. Related Matters A. Regulatory Flexibility Act The Regulatory Flexibility Act (‘‘RFA’’) requires federal agencies, in promulgating rules, to consider the impact of those rules on small entities.373 The Commission has previously established certain definitions of ‘‘small entities’’ to be used by the Commission in evaluating the impact of its rules on small entities under the RFA.374 The changes to parts 45, 46, and 49 adopted herein would have a direct effect on the operations of DCMs, DCOs, MSPs, reporting counterparties, SDs, SDRs, and SEFs. The Commission has previously 368 17 CFR 20.9. Data Recordkeeping and Reporting Requirements, 85 FR 21578, 21614 (Apr. 17, 2020). 370 BP at 6. 371 CEWG at 9. 372 FIA at 14. 373 See 5 U.S.C. 601–604. 374 See Policy Statement and Establishment of ‘‘Small Entities’’ for purposes of the Regulatory Flexibility Act, 47 FR 18618 (Apr. 30, 1982). 369 Swap PO 00000 Frm 00125 Fmt 4701 Sfmt 4700 75545 certified that DCMs,375 DCOs,376 MSPs,377 SDs,378 SDRs, 379 and SEFs 380 are not small entities for purpose of the RFA. Various changes to parts 45, 46, and 49 would have a direct impact on all reporting counterparties. These reporting counterparties may include SDs, MSPs, DCOs, and non-SD/MSP/ DCO counterparties. Regarding whether non-SD/MSP/DCO reporting counterparties are small entities for RFA purposes, the Commission notes CEA section 2(e) prohibits a person from entering into a swap unless the person is an eligible contract participant (‘‘ECP’’), except for swaps executed on or under the rules of a DCM.381 The Commission has previously certified that ECPs are not small entities for purposes of the RFA.382 The Commission has analyzed swap data reported to each SDR 383 across all five asset classes to determine the number and identities of non-SD/MSP/ DCOs that are reporting counterparties to swaps under the Commission’s jurisdiction. A recent Commission staff review of swap data, including swaps executed on or under the rules of a DCM, identified nearly 1,600 non-SD/ MSP/DCO reporting counterparties. 375 See id. Derivatives Clearing Organization General Provisions and Core Principles, 76 FR 69334, 69428 (Nov. 8, 2011). 377 See 77 FR at 20194 (basing determination in part on minimum capital requirements). 378 See Swap Trading Relationship Documentation Requirements for Swap Dealers and Major Swap Participants, 76 FR 6715 (Feb. 8, 2011). 379 See Swap Data Repositories; Proposed Rule, 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). 380 Core Principles and Other Requirements for Swap Execution Facilities, 78 FR 33476, 33548 (June 4, 2013). 381 See 7 U.S.C. 2(e). 382 See Opting Out of Segregation, 66 FR 20740, 20743 (Apr. 25, 2001). The Commission also notes this determination was based on the definition of ECP as provided in the Commodity Futures Modernization Act of 2000. The Dodd-Frank Act amended the definition of ECP as to 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 higher than was in place 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 than when the Commission first made the determination. 383 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, 98,145 credit swaps, 357,851 commodities swaps, 603,864 equities swaps, and 276,052 interest rate swaps. 376 See E:\FR\FM\25NOR2.SGM 25NOR2 75546 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 Based on its review of publicly available data, the Commission believes the overwhelming majority of these non-SD/ MSP/DCO reporting counterparties are either ECPs or do not meet the definition of ‘‘small entity’’ established in the RFA. Accordingly, the Commission does not believe the rules would affect a substantial number of small entities. Based on the above analysis, the Commission does not believe this Final Rule will have a significant economic impact on a substantial number of small entities. Therefore, the Chairman, on behalf of the Commission, pursuant to 5 U.S.C. 605(b), hereby certifies that the Final Rule will not have a significant economic impact on a substantial number of small entities. B. Paperwork Reduction Act The Paperwork Reduction Act (‘‘PRA’’) 384 imposes certain requirements on federal agencies, including the Commission, in connection with their conducting or sponsoring any collection of information, as defined by the PRA. The rule amendments adopted herein will result in the revision of three information collections, as discussed below. The Commission has previously received control numbers from the Office of Management and Budget (‘‘OMB’’) for each of the collections impacted by this rulemaking: OMB Control Numbers 3038–0096 (relating to part 45 swap data recordkeeping and reporting); 3038–0089 (relating to part 46 pre-enactment swaps and transition swaps); and 3038–0086 (relating to part 49 SDR regulations). The Commission did not receive any comments regarding its PRA burden analysis in the preamble to the Proposal. The Commission is revising the three information collections to reflect the adoption of amendments to parts 45, 46, and 49, as discussed below, including changes to reflect adjustments that were made to the final rules in response to comments on the Proposal (not relating to the PRA). In addition, the Commission is revising the information collections for part 45 to include estimates of the burden hours that SDRs, SEFs, DCMs, and reporting counterparties could incur to report updated swap data elements in appendix 1 to part 45 in the form and manner provided in the technical specification published by the Commission, as discussed below, which were not included in the Proposal. The Commission has re-evaluated its analysis of the one-time costs that SDRs, 384 See 44 U.S.C. 3501. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 SEFs, DCMs, and reporting counterparties could incur to modify their systems for part 45. These estimates have been updated to include software developer labor costs for amended § 45.3 related to the technical specification, as developed by staff in its Offices of the Chief Economist and Data and Technology. The Commission does not expect any ongoing costs after the initial builds. Further, the Commission previously included estimates for proposed § 45.4 of costs for SDRs and reporting counterparties to update systems for reporting required swap continuation data. However, after further analysis, the Commission is removing the estimates for § 45.4 to avoid double-counting, since the costs relate to reporting certain swap data elements that are included in the estimated one-time start-up costs for § 45.3. The Commission does not believe the rule amendments as adopted impose any other new collections of information that require the approval of OMB under the PRA. Under the PRA, Federal agencies must obtain approval from OMB for each collection of information they collect or sponsor. ‘‘Collection of information’’ is defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3 and includes agency requests or requirements that members of the public submit reports, keep records, or provide information to a third party. Section 3506(c)(2)(A) of the PRA, 44 U.S.C. 3506(c)(2)(A), requires Federal agencies to provide a 60-day notice in the Federal Register for each proposed collection of information before submitting the collection to OMB for approval. The Commission is publishing a 60-day notice (‘‘60-day Notice’’) in the Federal Register concurrently with the publication of this final rule in order to solicit comment on burden estimates for part 45 that were not included in the Proposal. 1. Part 45: Revisions to Collection 3038– 0096 (Swap Data Recordkeeping and Reporting Requirements) a. § 45.3—Swap Creation Data Reports Existing § 45.3 requires SEFs, DCMs, and reporting counterparties to report confirmation data reports and PET data reports when entering into new swaps. The Commission is adopting changes that will remove the requirement for SEFs, DCMs, and reporting counterparties 385 to report confirmation data reports, and instead report a single swap creation data report. Commission staff estimates that for these entities, the 385 The current requirement for SEFs and DCMs is in § 45.3(a), and the current requirement for offfacility swaps is in §§ 45.3(b) through (d). PO 00000 Frm 00126 Fmt 4701 Sfmt 4700 change will reduce the number of swap creation data reports sent to SDRs from 10,000 reports per 1,732 respondents to 7,000 reports per 1,732 respondents, or 12,124,000 reports in the aggregate. The annual hourly burden is estimated to remain .01 average hours per report for the remaining reports, and the gross annual reporting burden is estimated to be 121,240 hours. The Commission is also adopting changes that will remove the § 45.3(i) requirement for SEFs, DCMs, and reporting counterparties to report TR identifiers and swap identifiers for international swaps. The changes remove the requirement to report two pieces of information within a required swap creation data report without impacting the number of reports themselves. The requirement to report swap identifiers is duplicative, and will not change the burden estimate, as SEFs, DCMs, and reporting counterparties are required to report swap identifiers for all swaps pursuant to § 45.5. However, the removal of the requirement to report TR identifiers will slightly reduce the amount of time required to make each report, as SEFs, DCMs, and reporting counterparties will not need to report this information anymore. The Commission estimates the removal of this requirement will lower the burden hours by .01 hour per report. However, at the same time, as discussed further below in section VII.B.1.c, the Commission is adopting changes to require the reporting of UTIs instead of USIs, which are currently reported in every required swap creation data report. The Commission estimates the new rules requiring SEFs, DCMs, and reporting counterparties to report UTIs will impact the burden calculations for § 45.3 by increasing the burden hours by .01 hour per report. As a result, the Commission estimates there will be no net change to the .01 burden hours per report for § 45.3 required swap creation data reporting resulting from the amendments to § 45.3(i). The aggregate burden estimate for § 45.3 required swap creation data reports is as follows: Estimated number of respondents: 1,732. Estimated number of reports per respondent: 7,000. Average number of hours per report: .01. Estimated gross annual reporting burden: 121,240. In addition, the Commission estimates SDRs, SEFs, DCMs, and reporting counterparties will incur capital/startup costs related to adopting the changes proposed in § 45.3. The Commission E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations estimates that SDRs will incur one-time initial costs in a range of $144,000 to $1,010,000 per SDR to update their systems, with each SDR spending approximately 3,000 to 5,000 hours on the updates. The Commission estimates SEFs, DCMs, and reporting counterparties will incur one-time initial costs in a range of $24,000 to $73,225 per reporting entity, with each reporting entity spending approximately 500 to 725 hours per reporting entity on the updates.386 The cost per entity is estimated to be $28,923 for a total cost across entities of $50,094,636. b. § 45.4—Swap Continuation Data Reports Existing § 45.4 requires reporting counterparties to report data to SDRs when swap terms change, as well as daily and quarterly swap valuation data, depending on the type of reporting counterparty. As a preliminary matter, the Commission is correcting the estimated number of respondents for § 45.4 from 1,732 SDRs, SEFs, DCMs, and reporting counterparties to 1,705 SDRs and reporting counterparties to reflect that SEFs and DCMs do not report required swap continuation data. Existing § 45.4(a) permits reporting counterparties to report changes to swap terms when they occur (life cycle reporting), or to provide a daily report of all of the swap terms (state data reporting). The Commission is adopting changes that will remove the option for state data reporting for reporting counterparties. The Commission estimates that this will reduce the number of § 45.4 continuation data reports that reporting counterparties report from 207,543 reports per respondent to 103,772 reports per respondent. The Commission is also adopting changes to remove the requirement for non-SD/MSP/DCO reporting counterparties to report quarterly valuation data. For the 1,585 non-SD/ MSP/DCO reporting counterparties, the Commission estimates this will further reduce the number of § 45.4 swap continuation data reports they send to SDRs by four quarterly reports per 1,585 non-SD/MSP/DCO reporting counterparties. This is estimated to reduce the number of § 45.4 continuation data reports sent by jbell on DSKJLSW7X2PROD with RULES2 386 The Commission is updating its estimates of the capital/start-up costs that SDRs, SEFs, DCMs, and reporting counterparties will incur related to adopting the changes in § 45.3 to provide a moreaccurate range of expected costs. In doing so, the Commission includes the costs associated with updates to § 45.4, discussed below, as they would be captured in the costs of updating systems to adopt the updated data elements in appendix 1 to part 45. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 reporting counterparties from 103,772 reports per respondent to 97,431 reports per respondent. Separately, the Commission is adopting changes to expand the daily valuation data reporting requirement for SD/MSP reporting counterparties to report margin and collateral data in addition to valuation data. This is a change from the Proposal, in which the Commission proposed requiring DCO counterparties to report the information as well. The frequency of the report will not change for SD/MSP reporting counterparties, but the Commission estimated SD/MSP/DCO reporting counterparties would require more time to prepare each report. However, since all of this information is reported electronically, the Commission expected the increase per report to be small, from .003 to .004 hours per report. Since the Commission is not requiring DCO reporting counterparties to report the information, the Commission is revising its estimate to .0035 hours per report. The reduction in this estimate from .004 hours in the Proposal reflects the Commission adopting a less burdensome rule than was proposed. The aggregate burden estimate for § 45.4 required swap continuation data is as follows: Estimated number of respondents: 1,705. Estimated number of reports per respondent: 97,431. Average number of hours per report: .0035. Estimated gross annual reporting burden: 581,419. In addition, in the Proposal, the Commission estimated SDRs and reporting counterparties would incur capital/start-up costs and ongoing operational/maintenance costs related to adopting the changes proposed in § 45.4. In reevaluating its analysis in the Proposal, the Commission recognizes the reporting costs created by the changes to § 43.4 relate to reporting swap data elements, which the Commission has included in the estimated costs for § 45.3. To avoid double-counting costs, the Commission is not estimating separate initial and ongoing costs for § 43.4 and removing the estimate that was included in the Proposal. c. § 45.5—Unique Swap Identifier Reporting Existing § 45.5 requires SEFs, DCMs, reporting counterparties, and SDRs to generate and transmit USIs, and include USIs in all of their § 45.3 creation data and § 45.4 continuation data reports to SDRs. As a preliminary matter, the Commission is correcting the estimated PO 00000 Frm 00127 Fmt 4701 Sfmt 4700 75547 number of respondents and the estimated number of reports per each respondent. Currently, SDRs, SDs, MSPs, SEFs, and DCMs are required to generate USIs, but the Commission inadvertently had included the 1,585 non-SD/MSP/DCO reporting counterparties in the current estimated number of respondents. The Commission is updating the number of respondents to 147 SDs, MSPs, SEFs, DCMs, DCOs, and SDRs. However, these entities generate USIs on behalf of nonSD/MSP/DCO reporting counterparties for all swaps, so the estimated number of reports per each respondent will increase proportionately to 115,646 reports per 147 respondents to account for the 17,000,000 new swaps reported each year with USIs. Existing § 45.5 requires SDRs to generate and transmit USIs for offfacility swaps with a non-SD/MSP reporting counterparty. The Commission is adopting changes that will require non-SD/MSP/DCO reporting counterparties that are financial entities to generate and transmit UTIs for off-facility swaps. The Commission estimates that approximately half of non-SD/MSP/ DCO reporting counterparties are financial entities. Therefore, the Commission estimates that the number of respondents will increase from 147 SDs, MSPs, SEFs, DCMs, DCOs, and SDRs to 940 respondents with the addition of financial entities. At the same time, however, this will lower the number of UTIs generated per respondent to account for the increase in the number of respondents generating UTIs. The Commission estimates the estimated number of reports per respondent will decrease from 115,646 reports per 147 respondents to 18,085 reports per 940 respondents. The aggregate burden estimate for § 45.5 is as follows: Estimated number of respondents: 940. Estimated number of reports per respondent: 18,085. Average number of hours per report: .01. Estimated gross annual reporting burden: 169,999. In addition, the Commission estimates that § 45.5 will create costs for entities required to generate USIs to update their systems to generate UTIs. The Commission estimates that SDRs and reporting counterparties required to generate UTIs will incur a one-time initial burden of one hour per entity to modify their systems to adopt the changes described below, for a total estimated hours burden of 940 hours. The cost per entity is estimated to be E:\FR\FM\25NOR2.SGM 25NOR2 75548 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations $72.23 for a total cost across entities of $67,896. The Commission additionally estimates one hour per entity annually to perform any needed maintenance or adjustments to reporting systems, at a cost of $72.23 per entity and $67,896 across entities. d. § 45.6—Legal Entity Identifier Reporting Existing § 45.6 requires reporting entities to have LEIs and report them to SDRs as part of their § 45.3 creation data and § 45.4 continuation data reports. As a preliminary matter, the Commission is revising the burden estimate for § 45.6. LEIs are reported in required swap creation data and required swap continuation data reports, which are separately accounted for in the estimates for §§ 45.3 and 45.4. The current estimate for § 45.6 doublecounts the estimates for §§ 45.3 and 45.4 by calculating the burden per data report. Instead, the burden for § 45.6 should be based on the requirement for each counterparty to obtain an LEI. The Commission is revising the estimate to state that there are 1,732 entities required to have one LEI per respondent, and revise the burden hours based on this change.387 The Commission is also adopting amendments to § 45.6 to require SDs, MSPs, SEFs, DCMs, DCOs, and SDRs to renew their LEIs annually. The change will increase the burden estimates for these entities, but will not affect the burden for the majority of entities required to have LEIs. Nonetheless, the Commission expects the burden associated with these changes to increase from .01 to .02 hours per report, and 17 hours in the aggregate. The aggregate burden estimate for § 45.6 is as follows: Estimated number of respondents: 1,732. Estimated number of reports per respondent: 1. Average number of hours per report: .02. Estimated gross annual reporting burden: 35. jbell on DSKJLSW7X2PROD with RULES2 e. § 45.10—Reporting Changing SDRs The Commission is adopting new regulations in § 45.10(d) that require reporting counterparties to send SDRs 387 The Commission is similarly revising the estimate for § 45.7, which requires reporting counterparties to use UPIs. Until the Commission designates a UPI, reporting counterparties use the product fields unique to each SDR. As a result, until the Commission designates a UPI, the burden estimates for the product fields are accounted for in §§ 45.3 and 45.4. To avoid double-counting until there is a UPI, the Commission is removing the burden estimate for § 45.7 until the Commission designates a UPI. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 and non-reporting counterparties notifications if they change the SDR to which they report swap data and swap transaction and pricing data. This is a new reporting burden that is not covered in the current collection. The Commission estimates that no more than 15 reporting counterparties will choose to change the SDR to which they report data. As a result, the Commission estimates these 15 reporting counterparties will each send one report annually, with an average response time of .01 hours per report and a gross annual burden of .15 hours. The aggregate burden estimate for § 45.10 is as follows: Estimated number of respondents: 15. Estimated number of reports per respondent: 1. Average number of hours per report: .01. Estimated gross annual reporting burden: .15. 2. Revisions to Collection 3038–0086 (Swap Data Repositories: Registration and Regulatory Requirements) a. SDR Withdrawal from Registration Amendments Existing § 49.4 requires SDRs to follow certain requirements when withdrawing from registration with the Commission. These requirements involve filing paperwork with the Commission. The Commission does not believe any of the changes the Commission is adopting will require any one-time or ongoing system updates for SDRs. In addition, the Commission notes it had not previously provided a burden estimate for § 49.4, so the Commission provided an estimate with the Proposal. Existing § 49.4(a)(1)(iv) requires that an SDR’s request to the Commission to withdraw from SDR registration specify, among other items, a statement that the custodial SDR is authorized to make such data and records available in accordance with § 1.44. The Commission is adopting changes to remove this requirement from § 49.4(a)(1)(iv). Existing § 49.4(a)(2) requires that before filing a request to withdraw, a registered SDR shall file an amended Form SDR to update any inaccurate information. The Commission is adopting changes that eliminate the requirement for SDRs to file an amended Form SDR prior to filing a request to withdraw. Separately, the Commission is adopting new § 49.4(a)(2) to require SDRs to execute an agreement with the custodial SDR governing the custody of the withdrawing SDR’s data and records PO 00000 Frm 00128 Fmt 4701 Sfmt 4700 prior to filing a request to withdraw with the Commission. The Commission estimates that at most one SDR will request to withdraw from registration each year pursuant to amended § 49.4. The Commission estimates that the SDR will provide one notification to the CFTC, which will take an estimated 40 hours for the SDR to complete. The aggregate burden estimate for § 49.4 is as follows: Estimated number of respondents: 1. Estimated number of reports per respondent: 1. Average number of hours per report: 40. Estimated gross annual reporting burden: 40. b. SDR Data Validation Requirement Amendments Existing § 49.10 provides the requirements for SDRs in accepting SDR data. As an initial matter, the Commission is correcting the estimates for § 49.10 in the Proposal. In the Proposal, the Commission misstated the current burden estimate for § 49.10 as 5,652,000 messages per SDR respondent, for a total of almost 17,000,000 messages across SDRs. The correct current estimate for § 49.10 is 2,652,000 messages per SDR, for a total of almost 8,000,000 messages. The Commission will discuss the changes to the estimate for § 49.10 resulting from this rulemaking below according to the corrected estimate for § 49.10. Existing § 49.10(a) requires SDRs to accept and promptly record all swap data. In the 2019 Part 49 NPRM, the Commission proposed amending the requirements in § 49.10 by detailing separate § 49.10(e) requirements for correcting swap errors. The Commission is adopting those changes in a separate release. In this release, the Commission is adopting separate § 49.10(c) requirements for validating swap messages. These changes further specify that SDRs must send validation acceptance and rejection messages after validating SDR data. The Commission estimates that this will increase the number of reports SDRs will need to send reporting entities. The Commission estimates that the new requirement to send validation messages in § 49.10(c) will add 3,000,000 messages to each SDR’s current burden estimate, at .00055 hours per message, or 4,950 aggregate burden hours for all three SDRs. When added to the current estimate for § 49.10, the aggregate burden estimate for § 49.10 is as follows: Estimated number of respondents: 3. E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Estimated number of reports per respondent: 5,652,000. Average number of hours per report: .00055. Estimated gross annual reporting burden: 9,326. 388 In addition, the Commission estimates that SDRs will incur capital/start-up costs and ongoing operational/ maintenance costs related to adopting the changes proposed in § 49.10(c). The Commission estimates that SDRs will incur a one-time initial burden of 100 hours per entity to modify their systems to adopt the changes described above, for a total estimated hours burden of 300 hours, and that SDRs will additionally spend 100 hours per entity annually to perform any needed maintenance or adjustments to reporting systems. Based on a labor cost of $72.23 per hour, the total cost of the one-time initial burden is estimated at $21,669 across all three SDRs, and the total cost to perform any additional needed maintenance or adjustments to reporting systems annually is estimated at $21,669 across all three SDRs. jbell on DSKJLSW7X2PROD with RULES2 3. Revisions to Collection 3038–0089 (Pre-Enactment Swaps and Transition Swaps) Existing § 46.11 provides that for preenactment or transition swaps for which part 46 requires reporting of continuation data, reporting counterparties reporting state data as provided in part 45 may fulfill the requirement to report errors or omissions by making appropriate corrections in their next daily report of state data pursuant to part 45. Since the Commission is adopting changes to remove the option for state data reporting from § 45.4, the Commission is also adopting changes to remove the option for state data reporting from § 46.11. Because reporting counterparties will no longer be able to send daily state data reports for their part 46 historical swaps, the Commission estimates the changes adopted in § 46.11 will reduce the number of continuation data reports reporting counterparties send SDRs for historical swaps by 50%. As a result, the Commission estimates that the 125 389 SD/MSP reporting counterparties that the Commission estimates are reporting historical swaps will each spend five hours on these reports annually instead of the previous estimate of 10 hours, 388 The Commission is correcting an incorrect estimate from the Proposal of 9,750 hours, due to an error in another Supporting Statement accompanying a different rulemaking. 389 The Commission had erroneously stated there were 500 SD, MSP, and non-SD/MSP reporting counterparties in the Proposal. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 and the 500 non-SD/MSP reporting counterparties will spend .64 hours on these reports annually, instead of the previous estimate of 1.275 hours. The aggregate burden estimate for reporting historical swaps to SDRs under part 46 is as follows: Estimated number of respondents: 625. Estimated number of reports per respondent: 151. Average number of hours per report: .01. Estimated gross annual reporting burden: 945. 390 The Commission does not believe the changes to § 46.11 being adopted will require SDRs or reporting counterparties to make any one-time or ongoing updates to their systems. C. Cost-Benefit Considerations 1. Introduction Since issuing the first swap reporting rules in 2012, the Commission has gained a significant amount of experience with swaps markets and products based on studying and monitoring swap data.391 As a result of this work, the Commission has identified ways to improve the existing swap data reporting rules. Limitations with the regulations have, in some cases, encouraged the reporting of swap data in a way that has made it difficult for the Commission to aggregate and analyze. As a result, the Commission is amending its rules to improve data quality and standardization to achieve the Group of Twenty (‘‘G20’’) goal for trade reporting to improve transparency, mitigate systemic risk, and prevent market abuse.392 390 In the Proposal, the Commission estimated that to comply with proposed amended § 46.11, 500 SD, MSP, and non-SD/MSP reporting counterparties that the Commission estimated are reporting historical swaps would each submit 200 reports under part 46 with an average burden of .01 hours per report, for a burden of 2 hours per respondent or 1,000 burden hours in the aggregate. The correct aggregate burden hours estimate, which was reflected in the supporting statement filed with OMB in connection with the Proposal, is 945 (consisting of 625 aggregate annual burden hours for the 125 SD/MSP reporting counterparties and 320 aggregate burden hours for the 500 non-SD/ MSP reporting counterparties). The Commission is also revising the estimated number of reports filed per respondent under part 46 from 200 reports to 151. 391 The Commission has used swap data in various rulemakings, research, and reports. See, e.g., ‘‘Introducing ENNs: A Measure of the Size of Interest Rate Swap Markets,’’ Haynes R., Roberts J. Sharma R., and Tuckman B., January 2018; CFTC Weekly Swaps Report, available at www.cftc.gov/ MarketReports/SwapsReports/index.htm. 392 See G20, Leader’s Statement Pittsburgh Summit September 24–25, 2009, (Sept. 2009), available at https://www.treasury.gov/resourcecenter/international/g7-g20/Documents/pittsburgh_ summit_leaders_statement_250909.pdf. PO 00000 Frm 00129 Fmt 4701 Sfmt 4700 75549 While the Commission believes the amendments will meaningfully benefit market participants and the public, some costs could result as well. Section 15(a) of the CEA requires the Commission to consider the costs and benefits of its actions before promulgating rules under the CEA.393 Section 15(a) specifies that the Commission evaluates costs and benefits in light of five broad areas of market and public concern: (1) Protection of market participants and the public; (2) the efficiency, competitiveness, and financial integrity of markets; (3) price discovery; (4) sound risk management practices; and (5) other public interest considerations.394 The Commission considers the costs and benefits resulting from its discretionary determinations concerning the section 15(a) factors. In this release, the Commission is adopting revisions to existing regulations in parts 45, 46, and 49. The Commission is also adopting new requirements in parts 45, 46, and 49. Together, these revisions and additions should further specify and streamline swap data reporting and improve the quality of swap data reporting. The Commission is making most of the changes to existing systems and processes, so nearly all costs considered are incremental additions or updates to systems already in place. The Commission believes many of the amendments, which are non-substantive or technical, will not have material costbenefits implications.395 The Commission is adopting multiple changes to harmonize the Commission’s reporting regulations with those of other regulators as part of the FSB and CPMI– IOSCO harmonization efforts. As these efforts have incorporated industry feedback, and the Commission has been vocal about its support and participation,396 the Commission expects many market participants have been planning and preparing for updates to accommodate these 393 7 U.S.C. 19(a)(1). U.S.C. 19(a)(2). 395 The Commission believes there are no costbenefit implications for amendments to §§ 45.1, 45.2, 45.7, 45.8, 45.9, 45.11, 45.15, 46.1, 46.2, 46.4, 46.5, 46.8, 46.9, and 49.2. 396 See, e.g., Testimony of Chairman J. Christopher Giancarlo before the House Committee on Agriculture, Washington, DC, July 25, 2018, available at https://www.cftc.gov/PressRoom/ SpeechesTestimony/opagiancarlo50 (‘‘I believe the CFTC needs to be a leading participant in IOSCO and other international bodies. The CFTC currently chairs the following international committees and groups and serves as a member of many other ones: . . . Co-Chair, CPMI–IOSCO Data Harmonization Group[, and] Co-Chair, FSB Working Group on UTI and UPI Governance’’). 394 7 E:\FR\FM\25NOR2.SGM 25NOR2 jbell on DSKJLSW7X2PROD with RULES2 75550 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations important changes in efficient, costeffective manners. Many jurisdictions have committed to these harmonization efforts for which the Commission is adopting standards. If the Commission did not adopt these standards, but other jurisdictions— consistent with the technical guidance and implementation deadlines recommended by the FSB—did, SDRs and reporting entities could experience unnecessary costs due to unharmonized reporting infrastructures for CFTC reporting, while market participants in other jurisdictions enjoyed harmonization efficiencies. The Commission discusses reasonably quantifiable costs and benefits in this section; the Commission discusses them qualitatively if they are not reasonably quantifiable. Throughout this release, the Commission estimates the costbenefit impact of its changes using swap data, such as the prevalence of state data reporting and duplicative required swap creation data reports. Most of the changes affect reporting requirements for reporting counterparties, SDRs, SEFs, and DCMs. As a result, there will likely be some reasonably quantifiable costs related to either: (a) Creating new data reporting systems; (b) reprogramming existing data reporting systems to meet the new reporting requirements; or (c) canceling data streams, which might lead to archiving data and maintaining legacy systems. These estimates focus on the costs and benefits of the amended rules market participants are likely to encounter with an emphasis on technical details, implementation, and market-level impacts. Where software changes are expected, these costs reflect software developer labor costs only, not a blend of different occupations. Costs and benefits quantified at the respondent level are estimated in the PRA section in section VII.B above. Those costs are not repeated in this section, but where appropriate, quantified costs reflected in the PRA are noted below to reflect PRA costs have been taken into account in the cost-benefit analysis. These costs are quantifiable if entities covered by the final regulations can price-out the changes to the information technology architecture to adopt the reporting requirement changes. These quantifiable costs, however, will likely vary because the sophistication of reporting entities varies. For example, some reporting entities operate their own data reporting systems and employ in-house developers and analysts to plan, design, code, test, establish, and monitor systems. Other reporting entities pay fees to third-party vendors. The quantitative costs associated with VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 the reporting rules in this release will vary depending on the reporting entities’ operations and number of swaps they execute. The Commission provides a monetary range for quantifiable costs as they relate to each change discussed below where possible. This consideration of costs and benefits is based on the understanding that the swaps market functions internationally. Many swaps transactions involving U.S. firms occur across international borders and some Commission registrants are organized outside of the U.S., including many SDs. Many of the largest market participants often conduct operations both within and outside the U.S. Where the Commission does not always refer to location, the discussion of costs and benefits refers to the rules’ effects on all swaps activity, whether by virtue of the activity’s physical location in the U.S. or by virtue of the activity’s connection with or effect on U.S. commerce under CEA section 2(i).397 2. Background The Commission has issued several rulemakings related to swaps reporting where it has considered the benefits and costs.398 Among others, the Commission has identified benefits such as increased transparency to both market participants and regulators; improved regulatory understanding of risk distributions and concentrations in derivatives markets; more effective monitoring of risk profiles by regulators and regulated entities through the use of unique identifiers; and improved regulatory oversight and more robust data management systems.399 The Commission also identified two main 397 See 7 U.S.C. 2(i). CEA section 2(i) provides that the swap provisions enacted by the Dodd-Frank Act, and Commission regulations promulgated under those provisions, shall not apply to activities outside 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. 398 In 2012, the Commission provided a detailed cost-benefit discussion on its final swap reporting rules to ensure that market participants reported cleared and uncleared swaps to SDRs. See 77 FR at 2176–2193 (Jan. 13, 2012). In 2012, the Commission also issued final rules for reporting pre-enactment and transition swaps. See generally Swap Data Recordkeeping and Reporting Requirements: PreEnactment and Transition Swaps, 77 FR 35200 (June 12, 2012). In 2016, the Commission amended its regulations to clarify the reporting obligations for DCOs and swap counterparties with respect to cleared swaps. See generally Amendments to Swap Data Recordkeeping and Reporting Requirements for Cleared Swaps, 81 FR 41736 (June 27, 2016). 399 See, e.g., 77 FR at 2176–2193 (Jan. 13, 2012); 77 FR at 35217–35225 (June 12, 2012); 81 FR at 41758–41770 (June 27, 2016). PO 00000 Frm 00130 Fmt 4701 Sfmt 4700 areas where costs may be incurred: recordkeeping and reporting.400 Based on its experience with swap data and extensive feedback from market participants, the Commission believes improving data quality will significantly enhance the utility of the swap data while also reducing burdens on reporting entities and SDRs through harmonizing, streamlining, and clarifying data requirements. In this release, the Commission focuses on the swap data reporting workflows, the swap data elements reporting counterparties report to SDRs, and the validations SDRs apply to help ensure the swap data they receive is accurate. The Commission is also modifying several other regulations for clarity and consistency. Three SDRs are currently provisionally registered with the Commission: CME, DTCC, and ICE. The changes the Commission is adopting should apply equally to all three SDRs. The current reporting environment also involves third-party service providers that help market participants fulfill their reporting requirements, though the reporting requirements do not apply directly to them. The Commission estimates that third-party service providers do not account for a large portion of the overall record submissions to SDRs, but provide an important service for entities that use them. Finally, the current reporting environment depends on reporting counterparties. The Commission estimates reporting counterparties include 107 provisionally registered SDs, 24 SEFs, 3 DCMs, 13 DCOs, and approximately 1,585 non-SD/MSP/DCO reporting counterparties. Each of these reporting counterparty types varies as to size and activity. The Commission believes most SDs and nearly all SEFs, DCMs, DCOs, and SDRs have sophisticated technology dedicated to data reporting because of the frequency with which they enter into or facilitate swaps execution or accept swap data from reporting entities. The Commission also believes these entities have greater access to resources to update these systems as regulatory requirements change. Further, the Commission estimates that SDs will incur much of the costs and benefits associated with the Commission’s changes, given they are the most sophisticated participants with the most experience reporting under the EU and U.S. reporting regimes. For instance, SDs accounted for 400 See, E:\FR\FM\25NOR2.SGM e.g., id. 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 over 70% of records submitted to SDRs in December 2019.401 Non-SD/MSP/DCO reporting counterparties account for a small fraction of SDR reports. The Commission believes there is a wide variation in the reporting systems maintained by these entities and the resources available to them. These reporting counterparties can be large, sophisticated financial entities, including banks, hedge funds, and asset management firms, but a significant number are smaller, less-sophisticated swap end-users entering into swaps less frequently to hedge commercial risk. The Commission has a significant interest in ensuring these smaller, lesssophisticated entities can access the U.S. swaps market without unnecessary costs or burdens, but the Commission has difficulty accurately estimating the cost impact of the changes on them. The challenge stems from the wide range of complexity of firms in this group: A large asset manager with billions of dollars in assets under management and a large swaps portfolio could have a reporting system as complex and sophisticated as an SD while a small hedge fund with a limited swaps portfolio might rely on third-party service providers to handle its reporting obligations. Commenters did not provide information to help the Commission quantify the costs to these smaller entities, notwithstanding the Proposal’s request for data and other information to assist the Commission’s quantification effort.402 Swap data reports submitted under the existing regulations have posed data quality challenges. For example, the existing appendix 1 to part 45 provides no standards, formats, or allowable values for the swap data that reporting counterparties report to SDRs and there is no technical specification or other guidance associated with the existing rule. Since the industry has not identified a standard for all market participants to use, market participants have reported information in many different ways, often creating difficulties in data harmonization, or even identification, within and across SDRs. It is not uncommon for Commission staff to find discrepancies between open swaps information available to the Commission and swap transaction data reported for the same swaps. In the processing of swap data to generate the 401 Analyzing SDR data from December 2019, CFTC staff found over 70% of all records submitted to the SDRs came from SDs. Between 15% and 20% came from DCOs, 4% came from SEFs, and the remaining came from non-SD reporting counterparties. 402 85 FR at 21628 (Apr. 17, 2020). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 CFTC’s Weekly Swaps Report,403 for example, there are instances when the notional amount differs between the Commission’s open swaps information and the swap transaction data reported for the same swap. While infrequent errors can be expected, the wide variation in standards among SDRs has increased the challenge of swap data analysis and often has required significant data cleaning and data validation prior to any data analysis effort. This has meant that the Commission has, in some but not all cases, determined that certain data analyses were not feasible, harming its ability to oversee market activity. In addition to the lack of standardization across SDRs, the Commission is concerned the current timeframes for reporting swap data may have contributed to the prevalence of errors. Common examples of errors include incorrect references to underlying currencies, such as a notional value incorrectly linked to U.S. dollars instead of Japanese Yen. Among others, these examples strongly suggest a need for standardized, validated swap data as well as additional time to review the accuracy of the data report. Based on its experience with data reporting, the Commission is amending certain regulations, particularly in parts 45, 46, and 49, to improve swap data accuracy and completeness. This release also adopts one amendment to part 49 to improve the process for an SDR’s withdrawal from registration. Many of the final regulations have costs and benefits that must be considered. The Commission discusses these below. The Commission summarizes the amendments 404 and identifies and discusses the costs and benefits attributable to the amendments below. Where significant software development costs are expected, CFTC staff estimated the hourly wages market participants will likely pay software developers to implement each change to be between $48 and $101 per hour.405 Relevant 403 See CFTC’s Weekly Swaps Report, available at https://www.cftc.gov/MarketReports/SwapsReports/ index.htm. 404 As described throughout this release, the Commission is adopting a number of nonsubstantive changes, such as renumbering provisions and modifying the wording of existing provisions. The Commission may acknowledge these non-substantive amendments, but they present no costs or benefits to consider. 405 Hourly wage rates came 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 PO 00000 Frm 00131 Fmt 4701 Sfmt 4700 75551 amendments below will list a low-tohigh range of potential cost as determined by the number of developer hours estimated by technical subject matter experts (‘‘SMEs’’) in the Commission’s Office of Data and Technology. The Commission did not receive any comments on its hourly wage estimates. Finally, the Commission considers the costs and benefits of all of the amendments jointly in light of the five public interest considerations in CEA section 15(a). 3. Baselines There are multiple baselines for the costs and benefits that might arise from the regulations in this release. The Commission believes the baseline for measurement of costs and benefits attributable to the amendments to §§ 45.3, 45.4, 45.5, 45.6, 45.10, 45.12, 46.3, 46.10, 46.11, and 49.4 are the costs and benefits realized under current regulations, as discussed above in sections II, III, and IV. The baseline for § 49.10 is current practice, which is that SDRs may be performing validations according to their own specifications, as discussed above in section IV.C. 4. General Cost-Benefit Comments The Commission received no comments on the general costs and benefits of the Proposal overall. The Commission received a few comments on the costs and benefits of the proposed amendments to individual sections, which are discussed in the relevant sections below. To the extent the Commission did not receive comments objecting to the Proposal’s general cost-benefit consideration, or to its cost-benefit consideration of specific sections, the Commission views the absence of comment as affirmation that the Proposal’s consideration of costs and benefits was sound, unless otherwise stated below. The Commission also notes, with one exception discussed in section VII.C.5.a below, it did not receive specific data or information regarding costs and benefits from commenters in response to its requests for such information in the Proposal.406 The Commission therefore did not receive additional information adjustment factor of 1.3 for overhead and benefits (rounded to the nearest whole dollar) which is in line with adjustment factors the CFTC has used for similar purposes in other final rules adopted under the Dodd-Frank Act. See, e.g., 77 FR at 2173 (using an adjustment factor of 1.3 for overhead and other benefits). These estimates are intended to capture and reflect U.S. developer hourly rates market participants are likely to pay when complying with the changes. Individual entities may, based on their circumstances, incur costs substantially greater or less than the estimated averages. 406 See 85 FR at 21628 (Apr. 17, 2020). E:\FR\FM\25NOR2.SGM 25NOR2 75552 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations making it reasonably feasible for the Commission to quantify overall costs and benefits, or costs and benefits for specific proposed amendments, to a degree beyond that presented in the Proposal, except as otherwise noted below. 5. Costs and Benefits of Amendments to Part 45 jbell on DSKJLSW7X2PROD with RULES2 a. § 45.3—Swap Data Reporting: Creation Data The Commission is changing § 45.3 to (i) remove the requirement for SEFs, DCMs, and reporting counterparties to report separate PET and confirmation data reports; (ii) extend the deadline for reporting required swap creation data and allocations to T+1 or T+2, depending on the reporting counterparty; (iii) remove the requirement for SDRs to map allocations; and (iv) remove the international swap reporting requirements. The Commission believes: (i) Single required creation data report will reduce complexity for reporting counterparties, as well as for the Commission; (ii) extending the deadline to report required swap creation data and allocations will improve data quality without impacting the Commission’s ability to perform its regulatory responsibilities; (iii) the requirements for SDRs to map allocations and the international swap requirements are unnecessary. The Commission is also updating the swap data elements in appendix 1, which existing and amended § 45.3 require SEFs, DCMs, and reporting counterparties report to SDRs in the manner provided in § 45.13(b).407 The Commission believes this will improve data quality at SDRs and help market participants by removing ambiguity around what data they need to report to SDRs. i. Benefits Requiring a single confirmation data report for SEFs, DCMs, and reporting counterparties will benefit SDRs, SEFs, DCMs, and reporting counterparties by reducing the number of swap data reports being sent to and stored by SDRs. An analysis of SDR data by Commission staff found this change is likely to significantly reduce reported messages, which benefits the reporting parties sending data, and the SDRs who ingest, validate and store the data. The analysis showed 26% of all swap messages received by the Commission from DTCC, ICE, and CME in December 407 The Commission is moving § 45.13(b) to § 45.13(a)(3) and updating the reference in § 45.3. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 of 2019 (48 million records in total) were separate PET and confirm messages, which means this amendment could reduce overall messages reported to and stored by SDRs by approximately 13% overall. Extending the deadline to report required swap creation data will benefit SDRs, SEFs, DCMs, and reporting counterparties by giving SEFs, DCMs, and reporting counterparties more time to report swap data to SDRs, likely reducing the number of errors SDRs would need to follow-up on with reporting entities. Since reporting data ASATP requires reporting systems to monitor activity and report in real-time, the new deadline will also benefit SDRs, SEFs, DCMs, and reporting counterparties by allowing them to implement a simpler data reporting workflow that assembles and submits data once per day. Removing the requirements to map allocations and international swaps will benefit SDRs by removing the need to manage separate processes to maintain this information. SEFs, DCMs, and reporting counterparties will benefit from reporting allocations directly via swap data reporting, and no longer reporting information about international swaps that will be rendered unnecessary given the UTI standards. Through updating and further specifying the swap data elements required to be reported to SDRs, the Commission will benefit from having swap data that is more standardized, accurate, and complete across SDRs. As discussed in section V above, the Commission’s use of the data to fulfill its regulatory responsibilities has been complicated by varying degrees of compliance with swap data standards both within and across SDRs. ii. Costs The Commission expects the initial cost of updating systems to adopt the changes in § 45.3—outside of updating the data elements in appendix 1—to be small.408 Most SEFs, DCMs, and reporting counterparties should have systems to report swap data to SDRs ASATP after execution, as well as systems that report separate PET and confirmation swap reports and information about international swaps. SDRs likewise have systems to accept both PET data and confirmation data reports, possibly separately or combined, as well as systems to map 408 The Commission estimates for PRA purposes that there would be a decrease in the burden incurred by reporting counterparties, as discussed in the PRA estimates. PO 00000 Frm 00132 Fmt 4701 Sfmt 4700 allocations and ingest information about international swaps. In both cases, the changes will reduce complexity and software functionality. Reporting entities will no longer have to generate and submit multiple messages, which will require limited cost and effort to implement. SDRs will also require few, if any, updates to ingest fewer messages and will see data storage costs decline over time. The Commission expects market participants to further mitigate costs by the fact they involve updates to current systems, rather than having to create new systems as most firms had to do when the CFTC first required swaps reporting. CFTC SMEs estimate the cost of these changes to be small, but not zero, for large reporting entities and SDRs due to the reduction in complexity and system features. However, over time, after entities implement these one-time system updates, the Commission expects SDRs, SEFs, DCMs, and reporting counterparties will recognize significant benefits through reduced costs and complexity associated with reporting streamlined data to SDRs. The Commission received comments supporting its expectation that the changes to § 45.3 will improve data quality and reduce compliance and cost burdens. Specifically, DTCC believes these changes will improve data quality by reducing the number of corrections sent to the SDRs and streamline reporting for market participants.409 ISDA–SIFMA believe the extended timeline for reporting swap data will improve data quality 410 and CEWG comments that these changes will reduce the compliance burden on market participants.411 The Commission requested comments on the proposed cost-benefit analysis for § 45.3, but did not receive any providing data, significant cost-benefit alternatives, or opposing views on the costs and benefits. Conversely, the Commission expects SEFs, DCMs, SDRs, and reporting counterparties will incur greater costs in response to the changes to the appendix 1 data elements in order to comply with § 45.3. Beyond the changes to appendix 1, the Commission expects SEFs, DCMs, SDRs, and reporting counterparties will update systems according to DMO’s technical specification on website at www.cftc.gov, resulting in additional costs, even though the technical specifications help these entities 409 DTCC at 5. 410 ISDA–SIFMA 411 CEWG E:\FR\FM\25NOR2.SGM at 2. 25NOR2 5–7. jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations implement reporting for the data elements in appendix 1. The three SDRs will need to update their systems to accept the updated swap data elements in appendix 1. SEFs, DCMs, and reporting counterparties will need to update systems to report the swap data elements in appendix 1 to SDRs. SDRs will also need to update systems to validate swap data pursuant to the validations requirements in § 49.10(c). The costs are likely to differ across entities but, depending on current systems, as indicated in the estimates detailed below, could be significant, before accounting for likely mitigating factors, also discussed below. The Commission believes some factors will mitigate the costs to these entities. First, most of the swap data the Commission is further standardizing with updated appendix 1 is currently being reported to SDRs. Commission staff recognizes that data quality has improved over the past years as SDRs adopted more technical standards on their own. However, for certain assets classes, the Commission expects the changes from current practice could be more pronounced. Costs to standardize data elements that had not previously been standardized in certain asset classes like commodities, or adding new data elements would be costlier; although the reporting entity could mitigate costs if it already saves this information but either does not currently send it to an SDR or sends it in a non-standard format. To the extent SDRs operate in multiple jurisdictions, ESMA already requires many of the swap data elements the Commission is adopting. An SDR presumably will spend fewer resources updating its systems for the changes in appendix 1 if it has already made these changes for European markets. Similarly, SEFs, DCMs, and reporting counterparties reporting to European TRs may have to spend fewer resources. Additionally, after the updates are made, the Commission expects SDRs, SEFs, DCMs, and reporting counterparties will see an offsetting reduction in costs through reporting a more streamlined data set than what is currently being reported to SDRs. In addition, entities reporting in multiple jurisdictions will be able to report more efficiently as jurisdictions adopt the CDE Technical Guidance data elements. Finally, the changes adopted to the swap data elements makes the part 43 swap transaction and pricing data elements a subset of the part 45 swap data elements. This means the changes to parts 43 and 45 will require VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 technological changes that could merge two different data streams into one. For example, SDRs will have to adjust their extraction, transformation, and loading (‘‘ETL’’) process to accept feeds that comply with the new technical specification and validation conditions, but these changes will apply to data elements in both parts 43 and 45. Because many of the changes SDRs will make to comply with part 45 will likely also help them comply with part 43, the Commission anticipates significantly lower aggregate costs for complying with both rules relative to the costs for parts 43 and 45 separately. For this reason, the costs described below may most accurately represent the full technological cost of satisfying the requirements for both final rules but for purposes of this section focus on the part 45 swap data elements. Based on conversations with ODT SMEs experienced in designing data reporting, ingestion, and validation systems, Commission staff estimates the cost per SDR to be in a range of $144,000 to $505,000.412 Staff based this estimate on several assumptions and covers the set of tasks required for an SDR to design, test, and implement a data system based on the list of swap data elements in appendix 1 and the technical specification.413 These numbers assume that each SDR will spend approximately 3,000–5,000 hours to establish ETL processes into a relational database on such a data stream.414 412 To generate the included estimates, a bottomup estimation method was used based on internal CFTC expertise. In brief, and as seen in the estimates, staff anticipates the task for the SDRs will be significantly more complex than it is for reporters. On several occasions, the CFTC has developed an ETL data stream similar to the parts 43 and 45 data streams. These data sets consist of 100–200 data elements, similar to the number of data elements in appendix 1. This past Commission experience has been used to derive the included estimates. 413 These assumptions include: (1) At a minimum, the SDRs will be required to establish a data extraction transformation and loading (ETL) process. This implies that either the SDR is using a sophisticated ETL tool, or will be implementing a data staging process from which the transformation can be implemented. (2) The SDR would require 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) The SDR would need to implement a data validation regime typical of data sets of this size and magnitude. (5) 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. 414 The lower estimate of $144,000 represents 3,000 working hours at the $48 rate. The higher estimate of $505,000 represents 5,000 working hours at the $101 rate. PO 00000 Frm 00133 Fmt 4701 Sfmt 4700 75553 For reporting entities, the Commission estimates the cost per reporting entity to be in a range of $24,000 to $73,225.415 This cost estimate is based on several assumptions and covers a number of tasks required by the reporting entities to design, test, and implement an updated data system based on the swap data elements, technical specification, and validation conditions.416 These tasks include defining requirements, developing an extraction query, developing an interim extraction format (e.g., comma-separated values (‘‘CSV’’)), developing validations, developing formatting conversions, developing a framework to execute tasks on a repeatable basis, and finally, integration and testing. Staff estimates it would take a reporting entity 200 to 325 hours to implement the extraction. Including validations and conversions would add another 300 to 400 hours, resulting in an estimated total of 500 to 725 hours per reporting entity.417 The Commission received one comment, from CME, addressing these estimates.418 CME notes it expects the costs for its organization to be 8,000 to 10,000 developer hours, which is approximately double the 3,000 to 5,000 developer-hour estimate listed above. The costs CME references are specific to its organization. The costs may not directly apply to other SDRs and do not apply to the reporting counterparties, but provide useful information on the level of effort needed to comply with these amendments. Accordingly, the 415 To generate the included estimates, a bottomup estimation method was used based on internal CFTC expertise. On several occasions, the CFTC has created data sets transmitted to outside organizations. These data sets consist of 100–200 data elements, similar to the number of data elements in appendix 1. This past experience has been used to derive the included estimates. 416 These assumptions include: (1) The data that will be provided to the SDRs from this group of reporters largely exists in their environment. 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; it is 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; and (5) there is no cost to disable reporting streams that will be made for obsolete by the change in part 43. 417 The lower estimate of $24,000 represents 500 working hours at the $48 rate. The higher estimate of $73,225 represent 725 working hours at the $101 rate. 418 CME at 22. E:\FR\FM\25NOR2.SGM 25NOR2 75554 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Commission deems it appropriate to expand the range of potential costs per SDR before mitigation upwards to between $144,000 and $1,010,000 for purposes of its cost-benefit assessment. Additionally, CME acknowledges they expect maintenance costs to decline over time due to the streamlined reporting requirements. The Commission did not receive any other comments related to the amendments to the data elements in appendix 1 that provided additional data, significant cost-benefit alternatives, or other opposing or critical views. In sum, for reasons discussed above and taking into account relevant comments, the Commission believes the expected benefits justify the final rule amendments notwithstanding their expected mitigated costs.419 jbell on DSKJLSW7X2PROD with RULES2 b. § 45.4—Swap Data Reporting: Continuation Data The Commission is amending § 45.4 to (i) remove the option for state data reporting; (ii) extend the deadline for reporting required swap continuation data to T+1 or T+2; (iii) remove the requirement for non-SD/MSP/DCO reporting counterparties to report valuation data quarterly; and (iv) require SD/MSP reporting counterparties to report margin and collateral data daily. The Commission believes: (i) Removing state data reporting will reduce the number of messages being sent to and stored by SDRs; (ii) extending the deadline to report required swap continuation data will improve data quality without impacting the Commission’s ability to perform its regulatory responsibilities; (iii) removing the valuation data reporting for non-SD/MSP/DCO reporting counterparties will reduce burdens for these counterparties, which tend to be smaller and less active in the swaps market; and (iv) requiring SD/MSP reporting counterparties to report margin and collateral daily is reasonable given the sophistication of their trading and reporting systems, especially on a T+1 timeline, and essential for the Commission to monitor risk. i. Benefits Removing state data reporting will benefit reporting counterparties by reducing the number of messages they report to SDRs. This will also benefit SDRs by reducing the number of messages they need to ingest, validate, process, and store. In 2019, CFTC staff 419 Note the costs associated with reporting daily collateral and margin information required by § 45.4 for SD/MSP/DCO reporting counterparties as detailed in section VII.C.5.b.ii are fully reflected in the costs detailed in this section. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 estimates the Commission received over 557 million swap messages from CME, DTCC, and ICE. Staff analysis from December 2019 shows over 50% of all records submitted were state data messages. Extending the deadline to report required swap continuation data will benefit SDRs and reporting counterparties by reducing the number of validation errors SDRs must notify reporting counterparties about. Removing the requirement for non-SD/ MSP/DCO reporting counterparties to report quarterly valuation data will reduce reporting costs for these estimated 1,585 counterparties, which tend to be smaller and less active in the swaps market. Because of their size, the Commission does not expect the lack of valuation data to inhibit the Commission’s market oversight responsibilities. ISDA–SIFMA note approximately 98% of uncleared swaps involve at least one SD. As such, this change will affect 2% of reported swaps, which they agree do not present systemic risk issues.420 Requiring SD/MSP reporting counterparties to report margin and collateral daily will benefit the swaps market by improving the Commission’s ability to monitor swap markets and systemic risk within and across markets, particularly for uncleared swaps. In contrast, because existing part 45 reports do not include collateral information, while the Commission is often able to identify the level of risk inherent to a swap (or set of swaps), it may not fully understand the amount of collateral protection a counterparty holds to mitigate this risk. ii. Costs The Commission expects the initial costs of updating systems to adopt the changes in § 45.4 to range from low to moderate, offset by the decreased reporting burden for all reporting entities.421 For instance, the Commission understands many reporting counterparties have systems to report swap data, including snapshot data, to SDRs according to the current timelines. Extending the deadline reduces some of this complexity and removes a message type that accounts for over 50% of the existing message traffic, which will significantly reduce reporting burdens. Based on CFTC SME experience with similar systems, SDRs should require minimal updates to their systems that accept snapshot data and 420 ISDA–SIFMA at 8. Commission estimates for PRA purposes that there would be a moderate increase in the burden incurred by market participants, as discussed in the PRA section. 421 The PO 00000 Frm 00134 Fmt 4701 Sfmt 4700 should ultimately experience reduced data storage costs. Non-SD/MSP/DCO reporting counterparties will need to update their systems to stop sending valuation data to SDRs. In contrast, SD/MSP reporting counterparties will need to program systems to begin reporting margin and collateral data in addition to valuation data. The T+1 reporting timeline mitigates this by allowing end-of-day data integration and validation processes as opposed to near-real-time integration, which, according to CFTC SMEs and staff conversations with industry participants, provides flexibility in how and when system resources are used to produce the reports and better aligns trade and collateral and margin data reporting streams. The Commission understands SD/MSP reporting counterparties currently have access to the data they need to report collateral and margin data and the costs lie in integrating that information with the swap data reporting stream. The cost of implementing these changes is expected to be fully contained in and a subset of the costs associated with implementing the updated data elements in appendix 1 detailed in section VII.C.5.a above. As a result, the Commission expects the cost of reporting daily collateral and margin data for SD/MSP reporting counterparties on a T+1 basis to be fully encapsulated by the effort to implement the updated data elements in appendix 1. Additionally, over time, after these one-time system updates, the Commission expects SDRs, SEFs, DCMs, and reporting counterparties will recognize the full benefits of the reduced costs associated with reporting streamlined data to SDRs in a more reasonable time frame. While the Commission understands reporting margin and collateral data to SDRs will likely involve costs for the estimated 107 SD/MSP reporting counterparties, it is unlikely to occasion significant, if any material, additional costs for the SDRs serving EU jurisdictions. This is because ESMA currently requires the reporting of much of the same information to EUregistered TRs. The Commission expects this could also mitigate the costs for most of the 107 SD/MSP reporting counterparties given that they are likely active in European swap markets and thus already comply with similar requirements. The Commission also expects, for the smaller remaining group of reporting entities not active in European swaps markets, each entity already has access to the collateral and margin information. Accordingly, for E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 them, the primary cost will be in integrating existing collateral data streams into SDR reporting workflows, which is less costly and burdensome than acquiring additional or outside data to integrate. CFTC SMEs estimate the cost of these changes to be small to moderate for large reporting entities and SDRs due to the reduction in complexity and system features, as well as the extended timeline to integrate potentially disparate data streams. The Commission received comments supporting its expectation these amendments will benefit the market and mitigate costs incurred. FIA agrees the quarterly valuation data reported by non-SD/MSP/DCO reporting counterparties is not integral to the CFTC’s systemic risk monitoring and the benefit of collecting this data do not justify the cost incurred by the impacted market participants.422 CEWG believes the burden of collecting the quarterly valuation data is not proportional to the limited value the data provides.423 Additionally, IECA notes many small counterparties contract with third-party reporting services to report the required quarterly valuations and the value derived from the data does not justify the cost.424 The Commission received 12 comments related to the daily collection of collateral and margin data from SD/ MSP/DCO counterparties, with four in favor and eight opposed. Of the supportive comments, Markit addresses the expected costs by noting the daily submission of both cleared and uncleared collateral and margin data is more streamlined and efficient (and therefore cost-effective) than making reporting for cleared trades optional.425 Other supportive commenters emphasize the need to harmonize collateral and margin data elements to the greatest extent possible across jurisdictions in order to not create unnecessary costs for market participants.426 Several of the opposing comments note the additional regulatory costs associated with reporting collateral and margin data,427 which as noted above is mitigated by the T+1 reporting deadline. CME, Eurex, ICE DCOs, ISDA–SIFMA, and FIA raise concerns about duplicative reporting for DCOs regarding cleared swaps. Further, as noted in section II.D.4 above, the Commission acknowledges these 422 FIA at 14. at 2. 424 IECA at 3. 425 Markit at 6. 426 FXPA at 4–5. 427 See, e.g., CEWG at 8 and Eurex at 3. 423 CEWG VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 concerns but believes the costs are warranted for uncleared swaps reported by SD/MSP reporting counterparties, as this information is not available elsewhere and is critical for monitoring systemic risk. For cleared swaps reported by DCOs, however, the Commission acknowledges the potential duplication with collateral and margin data reported by DCOs pursuant to part 39. While collateral and margin data is reported pursuant to part 39 using a different set of data elements than those contained in appendix 1, and collateral and margin data is reported for end-ofday positions pursuant to part 39 as opposed to a more granular transactionby-transaction basis pursuant to part 45, the Commission believes the collateral and margin data reported by DCOs pursuant to part 39 is sufficiently similar to data reported pursuant to part 45 to meet the Commission’s current needs. In sum, for reasons discussed above and taking into account relevant comments, the Commission believes the expected benefits justify the final rule amendments notwithstanding their expected mitigated costs. c. § 45.5—Unique Swap Identifiers The Commission is amending § 45.5 to (i) require reporting parties use UTIs instead of USIs for new swaps; (ii) require financial entities to generate UTIs for off-facility swaps; and (iii) permit non-SD/MSP/DCO reporting counterparties that are not financial entities to generate UTIs themselves or ask their SDR to generate UTIs for offfacility swaps. In general, the Commission believes transitioning to the globally standardized UTI system will benefit SDRs, SEFs, DCMs, and reporting counterparties by reducing the complexity associated with reporting swaps to multiple jurisdictions. i. Benefits The Commission believes amending § 45.5 will benefit SDRs by providing one identifier for multiple regulators to adopt to reduce the burdens associated with multiple jurisdictions requiring different, and possibly conflicting, identifiers. The Commission believes requiring SD/MSP and other financial entity reporting counterparties to generate UTIs for off-facility swaps will benefit SDRs by reducing the frequency with which they would be responsible for UTI generation, as compared to the current frequency with which they generate USIs. The Commission believes permitting non-SD/MSP/DCO reporting counterparties that are not financial entities to either generate UTIs or ask PO 00000 Frm 00135 Fmt 4701 Sfmt 4700 75555 their SDR to generate UTIs for offfacility swaps will benefit smaller, lessactive swaps market participants by relieving them of the burden to generate UTIs unless they choose to do so. Nonfinancial entities may include end-users more likely to not maintain systems that automatically generate UTIs. Therefore, this group will benefit proportionally more from this change. Permitting these entities to ask the SDRs to generate UTIs will maintain, but lower, an ancillary cost for the three SDRs that are currently required to generate USIs for off-facility swaps with non-SD/MSP reporting counterparties. The Commission believes giving these reporting counterparties the option, rather than a mandate, strikes the appropriate balance between avoiding undue costs for SDRs and significant burdens for the least-sophisticated market participants. ii. Costs In general, the Commission expects the initial costs of updating systems to adopt UTIs will be small to moderate for most reporting entities and SDRs.428 For instance, the Commission expects reporting counterparties and SDRs have systems that generate, report, accept, validate, process, and store USIs. CFTC SMEs estimate the cost of these changes to be small for large reporting entities and small to moderate for SDRs. However, over time, the Commission expects market participants will recognize the reduced costs associated with reporting a globally-standardized UTI. In addition, the Commission understands ESMA mandates UTIs. The Commission views this as a significant mitigating factor when assessing what, if any, additional burden SDRs serving multiple jurisdictions as well as reporting counterparties active in the European markets, will experience, since they have likely already updated their systems to meet the European standards. Commenters support the Commission’s expectation implementing the global standard would streamline reporting across jurisdictions, reduce costs overall, and benefit markets by facilitating more accurate global swap data aggregation.429 LCH notes implementing the UTI will reduce cross-border reporting complexity, further 428 The Commission estimates for PRA purposes that there would be a moderate increase in the burden incurred by market participants, as discussed in the PRA section. 429 GLEIF at 3; see also GFXD at 22–23. E:\FR\FM\25NOR2.SGM 25NOR2 75556 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations encouraging global aggregation.430 Many commenters also support expanding the ability to generate UTIs to non-SD/MSP/ DCO reporting counterparties that are not financial entities for off-facility swaps since they are in the best position to collect the required information (such as the LEI) from the non-reporting counterparty 431 and it removes a disparity between trade identifiers used by internal record-keeping systems and data reported to SDRs.432 Some commenters disagree with keeping SDRs as the UTI ‘‘generator of last resort.’’ 433 However, other commenters recognize the need for it in some cases.434 Further, keeping SDRs at the bottom of the UTI generation hierarchy is consistent with the UTI Technical Guidance and is currently required by the Commission’s regulations. In sum, for reasons discussed above and taking into account relevant comments, the Commission believes the expected benefits justify the final rule amendments notwithstanding their expected mitigated costs. d. § 45.6—Legal Entity Identifiers The Commission is amending § 45.6 to (i) require SDs, MSPs, DCOs, SEFs, DCMs, and SDRs to maintain and renew LEIs; (ii) require financial entity reporting counterparties to use best efforts to cause LEIs to be issued for swap counterparties that do not have one and if those efforts fail, to promptly provide the identity and contact information of the counterparty to the Commission; and (iii) update unnecessary and outdated regulatory text. The Commission believes accurate LEIs are essential for the Commission to use swap data to fulfill its regulatory responsibilities. jbell on DSKJLSW7X2PROD with RULES2 i. Benefits Mandating LEI renewal will benefit the swaps market by improving the Commission’s ability to analyze activity in the swaps market. Reference data provide valuable identification and relationship information about swap counterparties. Accurate reference data allow for robust analysis of risk concentration within and across entities, as well as a way to identify the distribution or transfer of risk across different legal entities under the same parent. The Commission believes accurate reference data is essential for it to satisfy its regulatory responsibilities 430 LCH at 3. at 5. 432 CME at 16. 433 CME at 16–17, DTCC at 5, and ICE SDR at 5. 434 Chatham at 3. 431 DTCC VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 because it clearly identify entities involved in the swaps market, as well as how these entities relate to one another—both key requirements for monitoring systemic risk and promoting fair and efficient markets. In addition, LEIs have already been broadly adopted in swaps markets and have reduced ambiguity for market participants previously using various unstandardized identifiers. ii. Costs LEI renewals will impose some costs.435 Currently, the Commission understands registering a new LEI costs $65 and renewals cost each holder $50 per year.436 One comment notes the mitigating fact these costs have fallen by more than 50% over the last 5 years due to increased efficiency as market adoption increased.437 To limit burdens, the Commission is limiting the renewal requirement to the estimated 150 SDs, MSPs, SEFs, DCMs, DCOs, and SDRs, resulting in an aggregate cost of approximately $7,500 for this requirement. The Commission believes these entities have the most systemic impact on the Commission’s ability to fulfill its regulatory mandates and thus warrant this small additional cost. The Commission will consider expanding the renewal requirement in future releases upon further enhancements in LEI reference data or realized reductions in cost to LEI holders. Requiring financial entities to endeavor to cause LEIs to be issued for swap counterparties that do not have one (and, if those efforts fail, to report the identity and contact information of the counterparty to the Commission) will both further the Commission’s objective of monitoring risk in the swaps market and incentivize LEI registration for counterparties that have not yet obtained LEIs. However, the Commission recognizes this requirement imposes some costs on both the entity encouraged to obtain an LEI and the financial entity in verifying that its counterparties have valid LEIs and encouraging them to obtain one (or obtaining an LEI for them) if they do not and informing the Commission if the financial entity’s efforts fail. As mentioned above, the cost to an entity to obtain an LEI is minor, and has trended down over time. Further, 435 The Commission estimates for PRA purposes that there would be a slight increase in the burden incurred by market participants, as discussed in the PRA section. 436 LEI registration and renewal costs from Bloomberg LLP, retrieved on September 16, 2020. https://lei.bloomberg.com/docs/faq#what-fees-areinvolved. 437 GLEIF at 1–2. PO 00000 Frm 00136 Fmt 4701 Sfmt 4700 financial entities collect the same information during the onboarding process when entering into a swap contract with a new counterparty that is needed to obtain an LEI for the counterparty, a mitigating factor for the financial entities to the extent they must be required to encourage their counterparties to obtain LEIs (or obtain an LEI for them). The cost to notify the Commission if the financial entity’s efforts fail is also expected to be low. The Commission expects both cases to impose a limited burden on swaps markets as the widespread adoption of the LEI standard continues. The number of current swap counterparties without LEIs is difficult to estimate because of the lack of standardization of non-LEI identifiers. The Commission cannot determine whether non-LEI identifiers represent an entity that has already been assigned an LEI or whether two non-LEI identifiers are two different representations of the same entity. However, the Commission expects the number of counterparties currently without LEIs to be small, given the results of an analysis from December 2019 that showed 90% of all records reported had LEIs for both counterparties. More generally, any swap data that does not identify eligible counterparties with an LEI hinders the Commission’s fulfillment of its regulatory mandates, including systemic risk monitoring. Given the low cost of registering for a new LEI listed above, the small number of remaining entities engaging in swap transactions without an LEI, and the limited amount of additional effort financial entities need to exert so that every LEI-eligible counterparty has an LEI, the Commission expects the overall cost of this amendment to be minimal. The Commission received comments supporting its expectation that requiring the most systemically important swaps market participants to maintain and renew their LEIs will facilitate better aggregation of entities and more accurate analysis of swaps market activity, market concentration, risk transfer, and systemic risk. Commenters, including DTCC, GLEIF, XBRL, LCH, Chatham, and Eurex, all support the requirement for SDs, MSPs, DCOs, SEFs, DCMs, and SDRs to maintain and renew their LEIs to ensure their accuracy noting this improves transparency and aligns with the global adoption of LEIs.438 While the existing requirement for all LEI holders to update their LEI reference data remains, the Commission believes the confirmation of the 438 DTCC at 6, GLEIF at 1–2, XBRL at 2, LCH at 3, Chatham at 3, Eurex at 4. E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations accuracy of their reference data provided by LEI holders during LEI renewal serves as an additional assurance of data quality for the most systematically important entities, and therefore warrants the annual renewal requirement for SDs, MSPs, DCOs, SEFs, DCMs, and SDRs. In sum, for reasons discussed above and taking into account relevant comments, the Commission believes the expected benefits justify the final rule amendments notwithstanding their expected mitigated costs. e. § 45.10—Reporting to a Single SDR The Commission is amending § 45.10 to permit reporting counterparties to transfer swap data and swap transaction and pricing data between SDRs in revised § 45.10(d). To do so, reporting counterparties will need to notify the current SDR, new SDR, and nonreporting counterparty of the UTIs for the swaps being transferred and the date of transfer at least five business days before the transfer. Reporting counterparties will then need to report the change of SDR to the current SDR and the new SDR, and then begin reporting to the new SDR. The Commission believes the ability to change SDRs will benefit reporting counterparties by permitting them to choose the SDR that best fits their business needs. jbell on DSKJLSW7X2PROD with RULES2 i. Benefits The amendments to § 45.10(d) will benefit reporting counterparties by giving them the freedom to select the SDR that provides the best services, pricing, and functionality to serve their business needs instead of having to use the same SDR for the entire life of the swap. The Commission believes reporting counterparties could benefit through reduced costs if they had the ability to change to an SDR that provided services better calibrated to their business needs. ii. Costs The amendments will impose costs on the three SDRs. SDRs will need to update their systems to permit reporting counterparties to transfer swap data and swap transaction pricing data in the middle of a swap’s life cycle, rather than at the point of swap initiation. However, the Commission believes SDRs will be able to accommodate these changes after initial system updates since they are only slightly more burdensome than current onboarding practices for new clients at SDRs.439 439 The Commission estimates for PRA purposes that there would be a minimal increase in the VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 The Commission received comments supporting its expectation that market participants will benefit from the flexibility to change SDRs and the SDRs themselves will be able to accommodate the changes with minimal additional burden.440 The Commission requested comments on the costs and benefits of the amendments to § 45.10, but did not receive any comments that provided additional data, significant cost-benefit alternatives, or other opposing or critical views on the costs and benefits. In sum, for reasons discussed above and taking into account relevant comments, the Commission believes the expected benefits justify the rule amendments notwithstanding their expected mitigated costs. f. § 45.12—Data Reporting for Swaps in a Swap Asset Class Not Accepted by Any SDR The Commission is removing the § 45.12 regulations permitting voluntary supplemental reporting. Existing § 45.12 permits voluntary supplemental reporting to SDRs and specifies counterparties must report USIs, LEIs, and an indication of jurisdiction as part of the supplementary report. Existing § 45.12 also requires counterparties correct errors in voluntary supplemental reports. The Commission believes removing voluntary supplemental reports will reduce unnecessary messages at SDRs that do not provide a clear regulatory benefit to the Commission. i. Benefits Removing the option for voluntary supplemental reporting will benefit SDRs that will no longer need to take in, process, validate, and store the reports. This should reduce costs and any unnecessary complexities for SDRs concerning these reports that provide little benefit to the Commission. ii. Costs The change could impose initial costs on SDRs. SDRs may need to update their systems to stop accepting these reports. However, the Commission expects these costs will be minimal and after the initial system updates, SDRs should see reduced costs by not having to accommodate these reports. CFTC SMEs estimate the cost of these changes to be small for large reporting entities and SDRs. The Commission received comments from Eurex, ISDA–SIFMA, and NRECA– burden incurred by reporting counterparties, as discussed in the PRA section. 440 GFXD at 24, DTCC at 7. PO 00000 Frm 00137 Fmt 4701 Sfmt 4700 75557 APPA in support of this amendment.441 The Commission did not receive any comments providing additional data, significant cost-benefit alternatives, or other opposing or critical views on the costs and benefits. In sum, for reasons discussed above and taking into account relevant comments, the Commission believes the expected benefits justify the final rule amendments notwithstanding their expected mitigated costs. 6. Costs and Benefits of Amendments to Part 46 a. § 46.3—Swap Data Reporting for PreEnactment Swaps and Transition Swaps The Commission is amending § 46.3 to remove an exception for required swap continuation data reporting for pre-enactment and transition swaps. Existing § 46.3(a)(2) provides that reporting counterparties need to report only a subset of part 45 swap data elements when reporting updates to preenactment and transition swaps. The Commission is removing that exception to specify that reporting counterparties would report updates to pre-enactment and transition swaps according to part 45. The Commission believes this is current practice for SDRs and reporting counterparties, and therefore should not impact costs or benefits to SDRs and reporting counterparties. The Commission did not receive any comments on the cost-benefit considerations for the proposed changes to § 46.3. b. § 46.10—Required Data Standards The Commission is updating § 46.10 to require reporting counterparties to use the required data standards outlined in § 45.13(a) and data elements in appendix 1 for reporting historical swaps to SDRs. The Commission believes reporting counterparties currently use the same data standards for both parts 45 and 46 reporting. This change will ensure that reporting counterparties continue to do so under the updated list of swap data elements in appendix 1 and the new technical specification. SDRs and reporting counterparties will both incur costs in updating their part 46 reporting systems to report according to any of the changes to part 45 reporting. However, given the diminishing number of historical swaps that have not yet matured or been terminated, the Commission expects these costs will be negligible compared to the costs associated with complying with new data elements in appendix 1. 441 Eurex at 5, ISDA–SIFMA at 16, NRECA–APPA at 5. E:\FR\FM\25NOR2.SGM 25NOR2 75558 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations In addition, since the data elements are the same, any costs or benefits are captured in the Commission’s analysis for § 45.3. The Commission did not receive any comments on the costbenefit considerations for the proposed changes to § 46.10. c. § 46.11—Reporting of Errors and Omissions in Previously Omitted Data The Commission is removing § 46.11(b) to remove the option for state data reporting. This is consistent with the Commission’s elimination of state data reporting in § 45.4. While the number of historical swaps that have not yet matured or been terminated is dwindling, SD/MSP and non-SD/MSP reporting counterparties would see a reduction in costs due to no longer having to submit daily reports for any open swaps.442 The Commission did not receive any comments on the costbenefit considerations for the proposed removal of § 46.11(b). 7. Costs and Benefits of Amendments to Part 49 jbell on DSKJLSW7X2PROD with RULES2 a. § 49.4—Withdrawal From Registration The Commission is amending § 49.4 to (i) remove the erroneous requirement for SDRs to submit a statement to the Commission that the custodial SDR is authorized to make the withdrawing SDR’s data and records available in accordance with § 1.44; and (ii) remove the § 49.4(a)(2) requirement that prior to filing a request to withdraw, a registered SDR file an amended Form SDR to update any inaccurate information and replace it with a new requirement for SDRs to execute an agreement with the custodial SDR governing the custody of the withdrawing SDR’s data and records prior to filing a request to withdraw with the Commission. The Commission believes the amendments will simplify the regulations and help ensure that swap data is properly transferred to a different SDR when one SDR withdraws from registration. i. Benefits The Commission believes SDRs will benefit from the removal of the unnecessary requirement to update Form SDR prior to withdrawing from registration. The swaps market will benefit from having an explicit regulatory requirement for an SDR withdrawing from registration to have an agreement with the custodial SDR regarding the withdrawing SDR’s data and records. This will also benefit 442 For instance, in reviewing credit default swap data, the Commission found that there were 153,563 open pre-enactment swaps and transition swaps in 2013. In 2019, that number had decreased to 2,048. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 market participants by ensuring the preservation of historical swap data which will improve the Commission’s oversight abilities and promote the health and integrity of swaps markets. ii. Costs The Commission believes SDRs will not incur any material costs associated with the changes.443 SDRs will execute a custodial agreement to transfer the data as a matter of due course. The changes concerning timing and removing the erroneous reference will not result in costs for the SDRs. The Commission did not receive any comments on the cost-benefit considerations for the proposed changes to § 49.4. In the absence of material costs, the Commission believes the expected benefits justify this amendment. b. § 49.10—Acceptance of Data Most of the amendments to § 49.10 are non-substantive technical amendments. However, the Commission is adding new § 49.10(c) to require SDRs to validate SDR data. New § 49.10(c) will require that SDRs establish data validations. SDRs will also be required to send SEFs, DCMs, and reporting counterparties data validation acceptance and error messages that identify the validation errors. The Commission is prohibiting SDRs from rejecting a swap transaction and pricing data message if it was submitted jointly with a swap data message that contained a validation error. i. Benefits SDRs, SEFs, DCMs, and reporting counterparties will benefit by having a single set of validation rules in the technical specification instead of the current environment where each SDR applies different validations they designed independently. A common set of validations specified in the technical data standards will also benefit market participants by streamlining the data reporting process for market participants and ensuring more accurate data which facilitates more effective market oversight by the Commission. ii. Costs SDRs, SEFs, DCMs, and reporting counterparties will incur costs in updating their reporting systems to apply these validation rules.444 To the 443 The Commission estimates for PRA purposes that there would be a minimal change in the burden incurred by reporting counterparties, as discussed in the PRA section. 444 The Commission estimates for PRA purposes that there would be an increase in the burden incurred by reporting counterparties and SDRs, as discussed in the PRA section. PO 00000 Frm 00138 Fmt 4701 Sfmt 4700 extent SDRs operate in multiple jurisdictions, ESMA already requires many data validations similar to those in the DMO technical specification to be published on cftc.gov. An SDR may have to spend fewer resources updating its systems for the changes in § 49.10(c) if it has already made these changes for European market participants. Similarly, SEFs, DCMs, and reporting counterparties reporting to European TRs may have to spend fewer resources making these updates. In both cases, the cost of implementing these changes is expected to be fully contained in the costs associated with implementing the data standards detailed in section VII.C.5.a above, since the validations are part of the data standards. As a result, the Commission expects the cost of implementing data validations to be fully encapsulated by the effort to implement the data standards. The Commission received comments from FIA that they believe validations will improve data accuracy.445 Markit supports validations notes they will allow third-party service providers to develop data validation solutions for reporting parties that will substantially reduce the cost of complying with them.446 NRECA–APPA note these validations burden swap market participants and requests evidence of regulatory benefits that would offset their costs.447 In response, the Commission maintains the critical regulatory benefits of more accurate swap data noted multiple times throughout section VII.C of this final rule and consistent with Congressional goals reflected in the Dodd-Frank Act— including more effective market oversight by the Commission and streamlined reporting processes for market participants—provide the necessary degree of justifying benefits. The Commission did not receive any comments that provided additional data, significant cost-benefit alternatives, or other opposing or critical views on the costs and benefits. In sum, for reasons discussed above and taking into account relevant comments, the Commission believes the expected benefits justify the final rule amendments notwithstanding their expected mitigated costs. 8. Consideration of CEA Section 15(a) Factors The Dodd-Frank Act sought to promote the financial stability of the U.S., in part, by improving financial system accountability and transparency. 445 FIA at 7. at 3. 447 NRECA–APPA at 5. 446 Markit E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations More specifically, Title VII of the DoddFrank Act directs the Commission to promulgate regulations to increase swaps markets’ transparency and thereby reduce the potential for counterparty and systemic risk.448 Transaction-based reporting is a fundamental component of the legislation’s objectives to increase transparency, reduce risk, and promote market integrity within the financial system generally, and the swaps market in particular. SDRs and SEFs, DCMs, and other reporting entities that submit data to SDRs are central to achieving the legislation’s objectives related to swap reporting. CEA section 15(a) requires the Commission to consider the costs and benefits of the proposed amendments to parts 45, 46, and 49 with respect to the following factors: • Protection of market participants and the public; • Efficiency, competitiveness, and financial integrity of markets; • Price discovery; • Sound risk management practices; and • Other public interest considerations. The Commission discusses the CEA section 15(a) factors below. a. Protection of Market Participants and the Public The Commission believes the reporting changes under parts 45, 46, and 49 will enhance protections already in place for market participants and the public. By lengthening reporting timeframes and standardizing data formats, the Commission believes it will receive more cohesive, more standardized, and, ultimately, more accurate data without sacrificing the ability to oversee the markets robustly. Higher-quality swap data will improve the Commission’s oversight and enforcement capabilities, and, in turn, will aid it in protecting markets, participants, and the public in general. b. Efficiency, Competitiveness, and Financial Integrity jbell on DSKJLSW7X2PROD with RULES2 The Commission believes the final rules will streamline reporting and improve efficiencies given the improved data standardization. By identifying reporting entities and more sharply defining reporting responsibilities by 448 See Congressional Research Service Report for Congress, The Dodd-Frank Wall Street Reform and Consumer Protection Act: Title VII, Derivatives, by Mark Jickling and Kathleen Ann Ruane (August 30, 2010); Department of the Treasury, Financial Regulatory Reform: A New Foundation: Rebuilding Financial Supervision and Regulation (June 17, 2009) at 47–48. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 75559 making DCO reporting duties clearer, the final rules strive to improve the reliability and consistency of swap data. This enhanced reliability, in turn, is an added support that might further lead to bolstering the financial integrity of swaps markets. Finally, the validation of swap data will improve the accuracy and completeness of swap data available to the Commission and will assist the Commission with, among other things, improved monitoring of risk exposures of individual counterparties, monitoring concentrations of risk exposure, and evaluating systemic risk. believes the amendments to § 45.10(d) that would permit reporting counterparties to change SDRs would promote competition by encouraging SDRs to offer competitive pricing and services to encourage reporting counterparties to either stay customers or come to their SDR. The Commission did not receive any comments on the antitrust considerations in the Proposal. c. Price Discovery The Commission does not believe the final rules will have a significant impact on price discovery. 17 CFR Part 46 d. Risk Management Practices The Commission believes the final rules will improve the quality of swap data reported to SDRs and, hence, improve the Commission’s ability to monitor the swaps market, react to changes in market conditions, and fulfill its regulatory responsibilities generally. The Commission believes regulator access to high-quality swap data is essential for regulators to monitor the swaps market for systemic risk or unusually large concentrations of risk in individual swaps markets or asset classes. e. Other Public Interest Considerations The Commission believes the improved accuracy resulting from improvements to data entry by market participants and validation efforts by SDRs via the final rules has other public interest impacts including: • Increased understanding for the public, market participants, and the Commission of the interaction between the swaps market, other financial markets, and the overall economy; • Improved regulatory oversight and enforcement capabilities; and • Enhanced information for the Commission and other regulators so that they may establish more effective public policies to monitor and, where necessary, reduce overall systemic risk. D. Antitrust Considerations CEA section 15(b) requires the Commission to take into consideration the public interest to be protected by the antitrust laws and endeavor to take the least anticompetitive means of achieving the objectives of the CEA, in issuing any order or adopting any Commission rule or regulation. The Commission does not believe the changes to part 45 would result in anticompetitive behavior. The Commission PO 00000 Frm 00139 Fmt 4701 Sfmt 4700 List of Subjects 17 CFR Part 45 Data recordkeeping requirements, Data reporting requirements, Swaps. Data recordkeeping requirements, Data reporting requirements, Swaps. 17 CFR Part 49 Registration and regulatory requirements, Swap data repositories. For the reasons stated in the preamble, the Commodity Futures Trading Commission amends 17 CFR chapter I as follows: PART 45—SWAP DATA RECORDKEEPING AND REPORTING REQUIREMENTS 1. The authority citation for part 45 continues to read as follows: ■ Authority: 7 U.S.C. 6r, 7, 7a–1, 7b–3, 12a, and 24a, as amended by Title VII of the Wall Street Reform and Consumer Protection Act of 2010, Pub. L. 111–203, 124 Stat. 1376 (2010), unless otherwise noted. ■ 2. Revise § 45.1 to read as follows: § 45.1 Definitions. (a) As used in this part: Allocation means the process by which an agent, having facilitated a single swap transaction on behalf of several clients, allocates a portion of the executed swap to the clients. 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. Business day means the twenty-fourhour day, on all days except Saturdays, Sundays, and legal holidays, in the location of the swap execution facility, designated contract market, or reporting E:\FR\FM\25NOR2.SGM 25NOR2 jbell on DSKJLSW7X2PROD with RULES2 75560 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations counterparty reporting data for the swap. Business hours means consecutive hours during one or more consecutive business days. Clearing swap means a swap created pursuant to the rules of a derivatives clearing organization that has a derivatives clearing organization as a counterparty, including any swap that replaces an original swap that was extinguished upon acceptance of such original swap by the derivatives clearing organization for clearing. Collateral data means the data elements necessary to report information about the money, securities, or other property posted or received by a swap counterparty to margin, guarantee, or secure a swap, as specified in appendix 1 to this part. Derivatives clearing organization means a derivatives clearing organization, as defined by § 1.3 of this chapter, that is registered with the Commission. Electronic reporting (‘‘report electronically’’) means the reporting of data normalized in data elements as required by the data standard or standards used by the swap data repository to which the data is reported. Except where specifically otherwise provided in this chapter, electronic reporting does not include submission of an image of a document or text file. 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. The execution date for a clearing swap that replaces an original swap is the date on which the original swap has been accepted for clearing. Financial entity has the meaning set forth in CEA section 2(h)(7)(C). Global Legal Entity Identifier System means the system established and overseen by the Legal Entity Identifier Regulatory Oversight Committee for the unique identification of legal entities and individuals. Legal entity identifier or LEI means a unique code assigned to swap counterparties and entities in accordance with the standards set by the Global Legal Entity Identifier System. Legal Entity Identifier Regulatory Oversight Committee means the group charged with the oversight of the Global Legal Entity Identifier System that was established by the Finance Ministers and the Central Bank Governors of the Group of Twenty nations and the Financial Stability Board, under the Charter of the Regulatory Oversight Committee for the Global Legal Entity VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 Identifier System dated November 5, 2012, or any successor thereof. Life-cycle event means any event that would result in a change to required swap creation data previously reported to a swap data repository in connection with a swap. Examples of such events include, without limitation, a counterparty change resulting from an assignment or novation; a partial or full termination of the swap; a change to the end date for the swap; a change in the cash flows or rates originally reported; availability of a legal entity identifier for a swap counterparty previously identified by some other identifier; or a corporate action affecting a security or securities on which the swap is based (e.g., a merger, dividend, stock split, or bankruptcy). Life-cycle-event data means all of the data elements necessary to fully report any life cycle event. Mixed swap has the meaning set forth in CEA section 1a(47)(D), and refers to an instrument that is in part a swap subject to the jurisdiction of the Commission, and in part a securitybased swap subject to the jurisdiction of the Securities and Exchange Commission. Multi-asset swap means a swap that does not have one easily identifiable primary underlying notional item, but instead involves multiple underlying notional items within the Commission’s jurisdiction that belong to different asset classes. Non-SD/MSP/DCO counterparty means a swap counterparty that is not a swap dealer, major swap participant, or derivatives clearing organization. Non-SD/MSP/DCO reporting counterparty means a reporting counterparty that is not a swap dealer, major swap participant, or derivatives clearing organization. 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. Original swap means a swap that has been accepted for clearing by a derivatives clearing organization. Reporting counterparty means the counterparty required to report swap data pursuant to this part, selected as provided in § 45.8. Required swap continuation data means all of the data elements that must be reported during the existence of a swap to ensure that all swap data PO 00000 Frm 00140 Fmt 4701 Sfmt 4700 concerning the swap in the swap data repository remains current and accurate, and includes all changes to the required swap creation data occurring during the existence of the swap. For this purpose, required swap continuation data includes: (i) All life-cycle-event data for the swap; and (ii) All swap valuation, margin, and collateral data for the swap. Required swap creation data means all data for a swap required to be reported pursuant to § 45.3 for the swap data elements in appendix 1 to this part. Swap means any swap, as defined by § 1.3 of this chapter, as well as any foreign exchange forward, as defined by section 1a(24) of the Act, or foreign exchange swap, as defined by section 1a(25) of the Act. Swap data means the specific data elements in appendix 1 to this part required to be reported to a swap data repository pursuant to this part or made available to the Commission pursuant to part 49 of this chapter, as applicable. Swap data validation procedures means procedures established by a swap data repository pursuant to § 49.10 of this chapter to accept, validate, and process swap data reported to the swap data repository pursuant to part 45 of this chapter. 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 to part 43 of this chapter that are required to be reported or publicly disseminated pursuant to part 43 of this chapter. Unique transaction identifier means a unique alphanumeric identifier with a maximum length of 52 characters constructed solely from the upper-case alphabetic characters A to Z or the digits 0 to 9, inclusive in both cases, generated for each swap pursuant to § 45.5. Valuation data means the data elements necessary to report information about the daily mark of the transaction, pursuant to section 4s(h)(3)(B)(iii) of the Act, and to § 23.431 of this chapter, if applicable, as specified in appendix 1 to this part. (b) Other defined terms. Terms not defined in this part have the meanings assigned to the terms in § 1.3 of this chapter. § 45.2 ■ [Amended] 3. In § 45.2: E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations a. Remove all instances of ‘‘non-SD/ MSP’’ and add in its place ‘‘non-SD/ MSP/DCO’’; and b. For each paragraph indicated in the left column of the table below, remove the text indicated in the middle column ■ Paragraph Remove (a) introductory text .............. major swap participant subject to the jurisdiction of the Commission. counterparties subject to the jurisdiction of the Commission. the clearing requirement exception in CEA section 2(h)(7). (b) ......................................... (b) ......................................... (h) ......................................... ■ Swap data reporting: Creation data. (a) 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 required swap creation data electronically to a swap data repository in the manner provided in § 45.13(a) not later than the end of the next business day following the execution date. (b) Off-facility swaps. For each offfacility swap, the reporting counterparty shall report required swap creation data electronically to a swap data repository as provided by paragraph (b)(1) or (2) of this section, as applicable. (1) If the reporting counterparty is a swap dealer, major swap participant, or derivatives clearing organization, the reporting counterparty shall report required swap creation data electronically to a swap data repository in the manner provided in § 45.13(a) not later than the end of the next business day following the execution date. (2) If the reporting counterparty is a non-SD/MSP/DCO counterparty, the reporting counterparty shall report required swap creation data electronically to a swap data repository in the manner provided in § 45.13(a) not later than the end of the second business day following the execution date. (c) Allocations. For swaps involving allocation, required swap creation data shall be reported electronically to a single swap data repository as follows. (1) Initial swap between reporting counterparty and agent. The initial swap transaction between the reporting counterparty and the agent shall be reported as required by paragraph (a) or (b) of this section, as applicable. A unique transaction identifier for the initial swap transaction shall be created as provided in § 45.5. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 major swap participant. counterparties. any clearing requirement exception or exemption pursuant to section 2(h)(7) of the Act or part 50 of this chapter. counterparty. (2) Post-allocation swaps—(i) Duties of the agent. In accordance with this section, the agent shall inform the reporting counterparty of the identities of the reporting counterparty’s actual counterparties resulting from allocation, as soon as technologically practicable after execution, but no later than eight business hours after execution. (ii) Duties of the reporting counterparty. The reporting counterparty shall report required swap creation data, as required by paragraph (b) of this section, for each swap resulting from allocation to the same swap data repository to which the initial swap transaction is reported. The reporting counterparty shall create a unique transaction identifier for each such swap as required in § 45.5. (d) Multi-asset swaps. For each multiasset swap, required swap creation data and required swap continuation data shall be reported to a single swap data repository that accepts swaps in the asset class treated as the primary asset class involved in the swap by the swap execution facility, designated contract market, or reporting counterparty reporting required swap creation data pursuant to this section. (e) Mixed swaps. (1) For each mixed swap, required swap creation data and required swap continuation data shall be reported to a swap data repository and to a security-based swap data repository registered with the Securities and Exchange Commission. This requirement may be satisfied by reporting the mixed swap to a swap data repository or security-based swap data repository registered with both Commissions. (2) The registered entity or reporting counterparty reporting required swap creation data pursuant to this section shall ensure that the same unique transaction identifier is recorded for the swap in both the swap data repository and the security-based swap data repository. PO 00000 Frm 00141 from wherever it appears, and add in its place the text indicated in the right column: Add counterparty subject to the jurisdiction of the Commission. 4. Revise § 45.3 to read as follows: § 45.3 jbell on DSKJLSW7X2PROD with RULES2 ■ 75561 Fmt 4701 Sfmt 4700 (f) Choice of swap data repository. The entity with the obligation to choose the swap data repository to which all required swap creation data for the swap is reported shall be the entity that is required to make the first report of all data pursuant to this section, as follows: (1) For swaps 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 choose the swap data repository; (2) For all other swaps, the reporting counterparty, as determined in § 45.8, shall choose the swap data repository. ■ 5. Revise § 45.4 to read as follows: § 45.4 data. Swap data reporting: Continuation (a) Continuation data reporting method generally. For each swap, regardless of asset class, reporting counterparties and derivatives clearing organizations required to report required swap continuation data shall report life-cycle-event data for the swap electronically to a swap data repository in the manner provided in § 45.13(a) within the applicable deadlines set forth in this section. (b) Continuation data reporting for original swaps. For each original swap, the derivatives clearing organization shall report required swap continuation data, including terminations, electronically to the swap data repository to which the swap that was accepted for clearing was reported pursuant to § 45.3 in the manner provided in § 45.13(a) and in this section, and such required swap continuation data shall be accepted and recorded by such swap data repository as provided in § 49.10 of this chapter. (1) The derivatives clearing organization that accepted the swap for clearing shall report all life-cycle-event data electronically to a swap data repository in the manner provided in § 45.13(a) not later than the end of the next business day following the day that E:\FR\FM\25NOR2.SGM 25NOR2 75562 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations any life cycle event occurs with respect to the swap. (2) In addition to all other required swap continuation data, life-cycle-event data shall include all of the following: (i) The legal entity identifier of the swap data repository to which all required swap creation data for each clearing swap was reported by the derivatives clearing organization pursuant to § 45.3(b); (ii) The unique transaction identifier of the original swap that was replaced by the clearing swaps; and (iii) The unique transaction identifier of each clearing swap that replaces a particular original swap. (c) Continuation data reporting for swaps other than original swaps. For each swap that is not an original swap, including clearing swaps and swaps not cleared by a derivatives clearing organization, the reporting counterparty shall report all required swap continuation data electronically to a swap data repository in the manner (2) Valuation, margin, and collateral data reporting. (i) If the reporting counterparty is a swap dealer, major swap participant, or derivatives clearing organization, swap valuation data shall be reported electronically to a swap data repository in the manner provided in § 45.13(b) each business day. (ii) If the reporting counterparty is a swap dealer or major swap participant, collateral data shall be reported electronically to a swap data repository in the manner provided in § 45.13(b) each business day. ■ 6. Amend § 45.5 by: ■ a. Revising the section heading and paragraphs (a)(1)(i); (b)(1)(i); (b)(2)(ii); (c) introductory text; (c)(1) introductory text; (c)(1)(i); (d) introductory text; (d)(1)(i); ■ b. In the table below, for each paragraph indicated in the left column, remove the text indicated in the middle column from wherever it appears, and add in its place the text indicated in the right column: Paragraph Remove Add introductory text ................... introductory text ................... (a)(1) introductory text ......... swap subject to the jurisdiction of the Commission ....... (a) through (f) .................................................................. single data field ............................................................... (b) paragraph heading and introductory text. (b)(1) introductory text ......... (b)(1) introductory text ......... swap dealer or major swap participant ........................... swap. (a) through (h). single data element with a maximum length of 52 characters. financial entity. (b)(1)(ii) ................................ (d)(1) introductory text ......... swap dealer or major swap participant ........................... single data field ............................................................... (e)(1) introductory text ......... (e)(2)(i) ................................. (e)(2)(ii) ................................ (a) through (c) of this section .......................................... question ........................................................................... agent ............................................................................... transmission of data ........................................................ single data field ............................................................... c. Revising paragraph (f) and adding paragraphs (g) and (h); and ■ d. Removing all instances of ‘‘unique swap identifier’’ and ‘‘unique swap identifiers’’ and adding in their place ‘‘unique transaction identifier’’ and ‘‘unique transaction identifiers’’, respectively. The revisions and additions read as follows: ■ § 45.5 Unique transaction identifiers. * jbell on DSKJLSW7X2PROD with RULES2 provided in § 45.13(a) as provided in this paragraph (c). (1) Life-cycle-event data reporting. (i) If the reporting counterparty is a swap dealer, major swap participant, or derivatives clearing organization, the reporting counterparty shall report lifecycle-event data electronically to a swap data repository in the manner provided in § 45.13(a) not later than the end of the next business day following the day that any life cycle event occurred, with the sole exception that life-cycle-event data relating to a corporate event of the nonreporting counterparty shall be reported in the manner provided in § 45.13(a) not later than the end of the second business day following the day that such corporate event occurred. (ii) If the reporting counterparty is a non-SD/MSP/DCO counterparty, the reporting counterparty shall report lifecycle-event data electronically to a swap data repository in the manner provided in § 45.13(a) not later than the end of the second business day following the day that any life cycle event occurred. * * * * (a) * * * (1) * * * (i) The legal entity identifier of the swap execution facility or designated contract market; and * * * * * (b) * * * (1) * * * VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 transmission of swap data. single data element with a maximum length of 52 characters. reporting counterparty. single data element with a maximum length of 52 characters. (a) through (d) of this section, as applicable. question. agent; and. (i) The legal entity identifier of the reporting counterparty; and * * * * * (2) * * * (ii) To the non-reporting counterparty to the swap, no later than the applicable deadline in § 45.3(b) for reporting required swap creation data; and * * * * * (c) Off-facility swaps with a non-SD/ MSP/DCO reporting counterparty that is not a financial entity. For each offfacility swap for which the reporting counterparty is a non-SD/MSP/DCO counterparty that is not a financial entity, the reporting counterparty shall either: Create and transmit a unique transaction identifier as provided in paragraphs (b)(1) and (2) of this section; or request that the swap data repository to which required swap creation data will be reported create and transmit a unique transaction identifier as PO 00000 Frm 00142 Fmt 4701 Sfmt 4700 provided in paragraphs (c)(1) and (2) of this section. (1) Creation. The swap data repository shall generate and assign a unique transaction identifier as soon as technologically practicable following receipt of the request from the reporting counterparty. The unique transaction identifier shall consist of a single data element with a maximum length of 52 characters that contains two components: (i) The legal entity identifier of the swap data repository; and * * * * * (d) Off-facility swaps with a derivatives clearing organization reporting counterparty. For each offfacility swap where the reporting counterparty is a derivatives clearing organization, the reporting counterparty shall create and transmit a unique E:\FR\FM\25NOR2.SGM 25NOR2 jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations transaction identifier as provided in paragraphs (d)(1) and (2) of this section. (1) * * * (i) The legal entity identifier of the derivatives clearing organization; and * * * * * (f) Use. Each registered entity and swap counterparty shall include the unique transaction identifier for a swap in all of its records and all of its swap data reporting concerning that swap, from the time it creates or receives the unique transaction identifier as provided in this section, throughout the existence of the swap and for as long as any records are required by the Act or Commission regulations to be kept concerning the swap, regardless of any life cycle events concerning the swap, including, without limitation, any changes with respect to the counterparties to the swap. (g) Third-party service provider. If a registered entity or reporting counterparty required by this part to report required swap creation data or required swap continuation data contracts with a third-party service provider to facilitate reporting pursuant to § 45.9, the registered entity or reporting counterparty shall ensure that such third-party service provider creates and transmits the unique transaction identifier as otherwise required for such category of swap by paragraphs (a) through (e) of this section. The unique transaction identifier shall consist of a single data element with a maximum length of 52 characters that contains two components: (1) The legal entity identifier of the third-party service provider; and (2) An alphanumeric code generated and assigned to that swap by the automated systems of the third-party service provider, which shall be unique with respect to all such codes generated and assigned by that third-party service provider. (h) Cross-jurisdictional swaps. Notwithstanding the provisions of paragraphs (a) through (g) of this section, if a swap is also reportable to one or more other jurisdictions with a regulatory reporting deadline earlier than the deadline set forth in § 45.3 or in part 43 of this chapter, the same unique transaction identifier generated according to the rules of the jurisdiction with the earliest regulatory reporting deadline shall be transmitted pursuant to paragraphs (a) through (g) of this section and used in all recordkeeping and all swap data reporting pursuant to this part. ■ 7. Revise § 45.6 to read as follows: VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 § 45.6 Legal entity identifiers. Each swap execution facility, designated contract market, derivatives clearing organization, swap data repository, entity reporting pursuant to § 45.9, and counterparty to any swap that is eligible to receive a legal entity identifier shall obtain, maintain, and be identified in all recordkeeping and all swap data reporting pursuant to this part by a single legal entity identifier as specified in this section. (a) Definitions. As used in this section: Local operating unit means an entity authorized under the standards of the Global Legal Entity Identifier System to issue legal entity identifiers. Reference data means all identification and relationship information, as set forth in the standards of the Global Legal Entity Identifier System, of the legal entity or individual to which a legal entity identifier is assigned. Self-registration means submission by a legal entity or individual of its own reference data. Third-party registration means submission of reference data for a legal entity or individual that is or may become a swap counterparty, made by an entity or organization other than the legal entity or individual identified by the submitted reference data. Examples of third-party registration include, without limitation, submission by a swap dealer or major swap participant of reference data for its swap counterparties, and submission by a national numbering agency, national registration agency, or data service provider of reference data concerning legal entities or individuals with respect to which the agency or service provider maintains information. (b) International standard for the legal entity identifier. The legal entity identifier used in all recordkeeping and all swap data reporting required by this part shall be issued under, and shall conform to, ISO Standard 17442, Legal Entity Identifier (LEI), issued by the International Organization for Standardization. (c) Reference data reporting. Reference data for each swap execution facility, designated contract market, derivatives clearing organization, swap data repository, entity reporting pursuant to § 45.9, and counterparty to any swap shall be reported, by selfregistration, third-party registration, or both, to a local operating unit in accordance with the standards set by the Global Legal Entity Identifier System. All subsequent changes and corrections to reference data previously reported shall be reported, by self-registration, PO 00000 Frm 00143 Fmt 4701 Sfmt 4700 75563 third-party registration, or both, to a local operating unit as soon as technologically practicable following occurrence of any such change or discovery of the need for a correction. (d) Use of the legal entity identifier. (1) Each swap execution facility, designated contract market, derivatives clearing organization, swap data repository, entity reporting pursuant to § 45.9, and swap counterparty shall use legal entity identifiers to identify itself and swap counterparties in all recordkeeping and all swap data reporting pursuant to this part. If a swap counterparty is not eligible to receive a legal entity identifier as determined by the Global Legal Entity Identifier System, such counterparty shall be identified in all recordkeeping and all swap data reporting pursuant to this part with an alternate identifier as prescribed by the Commission pursuant to § 45.13(a) of this chapter. (2) Each swap dealer, major swap participant, swap execution facility, designated contract market, derivatives clearing organization, and swap data repository shall maintain and renew its legal identity identifier in accordance with the standards set by the Global Legal Entity Identifier System. (3) Each financial entity reporting counterparty executing a swap with a counterparty that is eligible to receive a legal entity identifier, but has not been assigned a legal entity identifier, shall, prior to reporting any required swap creation data for such swap, use best efforts to cause a legal entity identifier to be assigned to the counterparty. If these efforts do not result in a legal entity identifier being assigned to the counterparty prior to the reporting of required swap creation data, the financial entity reporting counterparty shall promptly provide the identity and contact information of the counterparty to the Commission. (4) For swaps previously reported pursuant to this part using substitute counterparty identifiers assigned by a swap data repository prior to Commission designation of a legal entity identifier system, each swap data repository shall map the legal entity identifiers for the counterparties to the substitute counterparty identifiers in the record for each such swap. § 45.7 [Amended] 8. Amend § 45.7 introductory text by removing ‘‘subject to the jurisdiction of the Commission’’. ■ 9. In § 45.8: ■ a. Revise the section heading and the introductory text; ■ E:\FR\FM\25NOR2.SGM 25NOR2 75564 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations b. Remove ‘‘non-SD/MSP’’ wherever it appears and add in its place ‘‘non-SD/ MSP/DCO’’; and ■ Paragraph Remove (h) introductory text .............. (h)(1) introductory text ......... (h)(1)(vii)(D) .......................... (h)(2) .................................... swap creation data .......................................................... achieve this ..................................................................... unique swap identifier ..................................................... achieve this ..................................................................... The revisions read as follows: § 45.8 Determination of which counterparty shall report. The determination of which counterparty is the reporting counterparty for each swap shall be made as provided in this section. * * * * * § 45.9 [Amended] 10. Amend § 45.9 by removing ‘‘swap counterparties’’ and adding in its place ‘‘reporting counterparties’’. ■ 11. Revise § 45.10 to read as follows: ■ § 45.10 Reporting to a single swap data repository. jbell on DSKJLSW7X2PROD with RULES2 c. In the table below, for each paragraph indicated in the left column, remove the text indicated in the middle ■ All swap transaction and pricing data and swap data for a given swap shall be reported to a single swap data repository, which shall be the swap data repository to which the first report of such data is made, unless the reporting counterparty changes the swap data repository to which such data is reported pursuant to paragraph (d) of this section. (a) Swaps executed on or pursuant to the rules of a swap execution facility or designated contract market. To ensure that all swap transaction and pricing data and swap data for a swap executed on or pursuant to the rules of a swap execution facility or designated contract market is reported to a single swap data repository: (1) The swap execution facility or designated contract market shall report all swap transaction and pricing data and required swap creation data for a swap to a single swap data repository. As soon as technologically practicable after execution of the swap, the swap execution facility or designated contract market shall transmit to both counterparties to the swap, and to the derivatives clearing organization, if any, that will clear the swap, the identity of the swap data repository to which such data is reported. (2) Thereafter, all swap transaction and pricing data, required swap creation data, and required swap continuation data for the swap shall be reported to that same swap data repository, unless the reporting counterparty changes the VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 Add required swap creation data. comply with paragraph (h) of this section. unique transaction identifier. comply with paragraph (h) of this section. swap data repository to which such data is reported pursuant to paragraph (d) of this section. (b) Off-facility swaps that are not clearing swaps. To ensure that all swap transaction and pricing data and swap data for an off-facility swap that is not a clearing swap is reported to a single swap data repository: (1) The reporting counterparty shall report all swap transaction and pricing data and required swap creation data to a single swap data repository. As soon as technologically practicable after execution, the reporting counterparty shall transmit to the other counterparty to the swap, and to the derivatives clearing organization, if any, that will clear the swap, the identity of the swap data repository to which such data is reported. (2) Thereafter, all swap transaction and pricing data, required swap creation data, and required swap continuation data for the swap shall be reported to the same swap data repository, unless the reporting counterparty changes the swap data repository to which such data is reported pursuant to paragraph (d) of this section. (c) Clearing swaps. To ensure that all swap transaction and pricing data and swap data for a given clearing swap, including clearing swaps that replace a particular original swap or that are created upon execution of the same transaction and that do not replace an original swap, is reported to a single swap data repository: (1) The derivatives clearing organization that is a counterparty to such clearing swap shall report all swap transaction and pricing data and required swap creation data for that clearing swap to a single swap data repository. As soon as technologically practicable after acceptance of an original swap for clearing, or execution of a clearing swap that does not replace an original swap, the derivatives clearing organization shall transmit to the counterparty to each clearing swap the identity of the swap data repository to which such data is reported. (2) Thereafter, all swap transaction and pricing data, required swap creation data and required swap continuation PO 00000 Frm 00144 column from wherever it appears, and add in its place the text indicated in the right column: Fmt 4701 Sfmt 4700 data for that clearing swap shall be reported by the derivatives clearing organization to the same swap data repository to which swap data has been reported pursuant to paragraph (c)(1) of this section, unless the reporting counterparty changes the swap data repository to which such data is reported pursuant to paragraph (d) of this section. (3) For clearing swaps that replace a particular original swap, and for equal and opposite clearing swaps that are created upon execution of the same transaction and that do not replace an original swap, the derivatives clearing organization shall report all swap transaction and pricing data, required swap creation data, and required swap continuation data for such clearing swaps to a single swap data repository. (d) Change of swap data repository for swap transaction and pricing data and swap data reporting. A reporting counterparty may change the swap data repository to which swap transaction and pricing data and swap data is reported as set forth in this paragraph. (1) Notifications. At least five business days prior to changing the swap data repository to which the reporting counterparty reports swap transaction and pricing data and swap data for a swap, the reporting counterparty shall provide notice of such change to the other counterparty to the swap, the swap data repository to which swap transaction and pricing data and swap data is currently reported, and the swap data repository to which swap transaction and pricing data and swap data will be reported going forward. Such notification shall include the unique transaction identifier of the swap and the date on which the reporting counterparty will begin reporting such swap transaction and pricing data and swap data to a different swap data repository. (2) Procedure. After providing the notifications required in paragraph (d)(1) of this section, the reporting counterparty shall follow paragraphs (d)(2)(i) through (iii) of this section to complete the change of swap data repository. E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations (i) The reporting counterparty shall report the change of swap data repository to the swap data repository to which the reporting counterparty is currently reporting swap transaction and pricing data and swap data as a life cycle event for such swap pursuant to § 45.4. (ii) On the same day that the reporting counterparty reports required swap continuation data as required by paragraph (d)(2)(i) of this section, the reporting counterparty shall also report the change of swap data repository to the swap data repository to which swap transaction and pricing data and swap data will be reported going forward as a life cycle event for such swap pursuant to § 45.4. The required swap continuation data report shall identify the swap using the same unique transaction identifier used to identify the swap at the previous swap data repository. (iii) Thereafter, all swap transaction and pricing data, required swap creation data, and required swap continuation data for the swap shall be reported to the same swap data repository, unless the reporting counterparty for the swap makes another change to the swap data repository to which such data is reported pursuant to paragraph (d) of this section. ■ 12. Revise § 45.11 to read as follows: § 45.11 Data reporting for swaps in a swap asset class not accepted by any swap data repository. (a) Should there be a swap asset class for which no swap data repository currently accepts swap data, each swap execution facility, designated contract market, derivatives clearing organization, or reporting counterparty required by this part to report any required swap creation data or required swap continuation data with respect to a swap in that asset class must report that same data to the Commission. (b) Data subject to this section shall be reported at times announced by the Commission and in an electronic file in a format acceptable to the Commission. § 45.12 ■ ■ 13. Remove and reserve § 45.12. 14. Revise § 45.13 to read as follows: § 45.13 jbell on DSKJLSW7X2PROD with RULES2 [Removed and reserved] Required data standards. (a) Data reported to swap data repositories. (1) In reporting required swap creation data and required swap continuation data to a swap data repository, each reporting counterparty, swap execution facility, designated contract market, and derivatives clearing organization shall report the swap data elements in appendix 1 to VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 this part in the form and manner provided in the technical specifications published by the Commission pursuant to § 45.15. (2) In reporting required swap creation data and required swap continuation data to a swap data repository, each reporting counterparty, swap execution facility, designated contract market, and derivatives clearing organization making such report shall satisfy the swap data validation procedures of the swap data repository. (3) In reporting swap data to a swap data repository as required by this part, each reporting counterparty, swap execution facility, designated contract market, and derivatives clearing organization shall use the facilities, methods, or data standards provided or required by the swap data repository to which the entity or counterparty reports the data. (b) Data validation acceptance message. (1) For each required swap creation data or required swap continuation data report submitted to a swap data repository, a swap data repository shall notify the reporting counterparty, swap execution facility, designated contract market, derivatives clearing organization, or third-party service provider submitting the report whether the report satisfied the swap data validation procedures of the swap data repository. The swap data repository shall provide such notification as soon as technologically practicable after accepting the required swap creation data or required swap continuation data report. A swap data repository may satisfy the requirements of this paragraph by transmitting data validation acceptance messages as required by § 49.10 of this chapter. (2) If a required swap creation data or required swap continuation data report to a swap data repository does not satisfy the data validation procedures of the swap data repository, the reporting counterparty, swap execution facility, designated contract market, or derivatives clearing organization required to submit the report has not yet satisfied its obligation to report required swap creation or continuation data in the manner provided by paragraph (a) of this section within the timelines set forth in §§ 45.3 and 45.4. The reporting counterparty, swap execution facility, designated contract market, or derivatives clearing organization has not satisfied its obligation until it submits the required swap data report in the manner provided by paragraph (a) of this section, which includes the requirement to satisfy the data validation procedures of the swap data PO 00000 Frm 00145 Fmt 4701 Sfmt 4700 75565 repository, within the applicable time deadline set forth in §§ 45.3 and 45.4. ■ 15. Add § 45.15 to read as follows: § 45.15 Delegation of authority. (a) Delegation of authority to the chief information officer. The Commission hereby delegates to its chief information officer, until the Commission orders otherwise, the authority set forth in paragraph (a) of this section, to be exercised by the chief information officer or by such other employee or employees of the Commission as may be designated from time to time by the chief information officer. The chief information officer may submit to the Commission for its consideration any matter which has been delegated in this paragraph. Nothing in this paragraph prohibits the Commission, at its election, from exercising the authority delegated in this paragraph. The authority delegated to the chief information officer by this paragraph (a) shall include: (1) The authority to determine the manner, format, coding structure, and electronic data transmission standards and procedures acceptable to the Commission for the purposes of § 45.11; (2) The authority to determine whether the Commission may permit or require use by swap execution facilities, designated contract markets, derivatives clearing organizations, or reporting counterparties in reporting pursuant to § 45.11 of one or more particular data standards (such as FIX, FpML, ISO 20022, or some other standard), to accommodate the needs of different communities of users; (3) The dates and times at which required swap creation data or required swap continuation data shall be reported pursuant to § 45.11; and (4) The chief information officer shall publish from time to time in the Federal Register and on the website of the Commission the format, data schema, electronic data transmission methods and procedures, and dates and times for reporting acceptable to the Commission with respect to swap data reporting pursuant to § 45.11. (b) Delegation of authority to the Director of the Division of Market Oversight. The Commission hereby delegates to the Director of the Division of Market Oversight, until the Commission orders otherwise, the authority set forth in § 45.13(a)(1), to be exercised by the Director of the Division of Market Oversight or by such other employee or employees of the Commission as may be designated from time to time by the Director of the Division of Market Oversight. The Director of the Division of Market E:\FR\FM\25NOR2.SGM 25NOR2 75566 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 Oversight may submit to the Commission for its consideration any matter which has been delegated pursuant to this paragraph. Nothing in this paragraph prohibits the Commission, at its election, from exercising the authority delegated in this paragraph. The authority delegated to the Director of the Division of Market Oversight by this paragraph (b) shall include: (1) The authority to publish the technical specifications providing the form and manner for reporting the swap data elements in appendix 1 to this part VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 to swap data repositories as provided in § 45.13(a)(1); (2) The authority to determine whether the Commission may permit or require use by swap execution facilities, designated contract markets, derivatives clearing organizations, or reporting counterparties in reporting pursuant to § 45.13(a)(1) of one or more particular data standards (such as FIX, FpML, ISO 20022, or some other standard), to accommodate the needs of different communities of users; (3) The dates and times at which required swap creation data or required PO 00000 Frm 00146 Fmt 4701 Sfmt 4700 swap continuation data shall be reported pursuant to § 45.13(a)(1); and (4) The Director of the Division of Market Oversight shall publish from time to time in the Federal Register and on the website of the Commission the technical specifications for swap data reporting pursuant to § 45.13(a)(1). 16. Revise appendix 1 to part 45 to read as follows: Appendix 1 to Part 45—Swap Data Elements ■ BILLING CODE 6351–01–P E:\FR\FM\25NOR2.SGM 25NOR2 VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00147 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 75567 ER25NO20.011</GPH> jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00148 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 ER25NO20.012</GPH> jbell on DSKJLSW7X2PROD with RULES2 75568 VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00149 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 75569 ER25NO20.013</GPH> jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00150 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 ER25NO20.014</GPH> jbell on DSKJLSW7X2PROD with RULES2 75570 VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00151 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 75571 ER25NO20.015</GPH> jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00152 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 ER25NO20.016</GPH> jbell on DSKJLSW7X2PROD with RULES2 75572 VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00153 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 75573 ER25NO20.017</GPH> jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00154 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 ER25NO20.018</GPH> jbell on DSKJLSW7X2PROD with RULES2 75574 VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00155 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 75575 ER25NO20.019</GPH> jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00156 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 ER25NO20.020</GPH> jbell on DSKJLSW7X2PROD with RULES2 75576 VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00157 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 75577 ER25NO20.021</GPH> jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00158 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 ER25NO20.022</GPH> jbell on DSKJLSW7X2PROD with RULES2 75578 VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00159 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 75579 ER25NO20.023</GPH> jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00160 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 ER25NO20.024</GPH> jbell on DSKJLSW7X2PROD with RULES2 75580 VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00161 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 75581 ER25NO20.025</GPH> jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00162 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 ER25NO20.026</GPH> jbell on DSKJLSW7X2PROD with RULES2 75582 VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00163 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 75583 ER25NO20.027</GPH> jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00164 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 ER25NO20.028</GPH> jbell on DSKJLSW7X2PROD with RULES2 75584 VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00165 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 75585 ER25NO20.029</GPH> jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00166 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 ER25NO20.030</GPH> jbell on DSKJLSW7X2PROD with RULES2 75586 VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00167 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 75587 ER25NO20.031</GPH> jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00168 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 ER25NO20.032</GPH> jbell on DSKJLSW7X2PROD with RULES2 75588 VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00169 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 75589 ER25NO20.033</GPH> jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00170 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 ER25NO20.034</GPH> jbell on DSKJLSW7X2PROD with RULES2 75590 VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00171 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 75591 ER25NO20.035</GPH> jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00172 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 ER25NO20.036</GPH> jbell on DSKJLSW7X2PROD with RULES2 75592 VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00173 Fmt 4701 Sfmt 4700 E:\FR\FM\25NOR2.SGM 25NOR2 75593 ER25NO20.037</GPH> jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations 75594 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations BILLING CODE 6351–01–C PART 46-SWAP DATA RECORDKEEPING AND REPORTING REQUIREMENTS: PRE–ENACTMENT AND TRANSITION SWAPS 17. The authority citation for part 46 continues to read as follows: ■ Authority: Title VII, sections 723 and 729, Pub. L. 111–203, 124 Stat. 1738. 18. Amend § 46.1 by: a. Revising the introductory text and designating it as paragraph (a) introductory text; ■ b. Revising the definition of ‘‘Asset class’’; ■ c. Removing the definitions of ‘‘Credit swap’’, ‘‘Foreign exchange forward’’, ‘‘Foreign exchange instrument’’, and ‘‘Foreign exchange swap’’; ■ d. Adding, in alphabetical order, a definition for ‘‘Historical swap’’ ■ e. Removing the definitions of ‘‘Interest rate swap’’, ‘‘International swap’’, and ‘‘Major swap participant’’; ■ f. Removing the definition of ‘‘NonSD/MSP counterparty’’ and adding a definition for ‘‘Non-SD/MSP/DCO counterparty’’; ■ g. Removing the definition of ‘‘Other commodity swap’’; ■ h. Revising the definitions of ‘‘Reporting counterparty’’ and ‘‘Required swap continuation data’’; ■ i. Adding, in alphabetical order, a definition for ‘‘Substitute counterparty identifier’’; ■ j. Removing the definitions of ‘‘Swap data repository’’ and ‘‘Swap dealer’’; and ■ k. Adding paragraph (b). ■ ■ § 46.1 Definitions. (a) As used in this part: 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. * * * * * Historical swap means pre-enactment swaps and transition swaps. * * * * * Non-SD/MSP/DCO counterparty means a swap counterparty that is not a swap dealer, major swap participant, or derivatives clearing organization. * * * * * Reporting counterparty means the counterparty required to report data for a pre-enactment swap or a transition swap pursuant to this part, selected as provided in § 46.5. Required swap continuation data means all of the data elements that shall be reported during the existence of a swap as required by part 45 of this chapter. Substitute counterparty identifier means a unique alphanumeric code assigned by a swap data repository to a swap counterparty prior to the Commission designation of a legal entity identifier system on July 23, 2012. * * * * * Section/paragraph Remove 46.4 introductory text ........... 46.4(a) .................................. swap data reporting ........................................................ substitute counterparty identifier as provided in § 45.6(f) of this chapter. unique swap identifier and unique product identifier ...... 46.4(d) .................................. 46.5(a) introductory text ....... 46.5(a)(3), (4), and (5) ......... 46.5(d)(3) ............................. 46.6 ...................................... 46.8(a) .................................. 46.8(a) .................................. 46.8(c)(2)(ii) .......................... 46.8(d) .................................. 46.9(a) .................................. 46.9(f) ................................... jbell on DSKJLSW7X2PROD with RULES2 The revisions and additions read as follows: 22. In § 46.10: ■ a. Remove the text ‘‘reporting swap data’’ and add in its place ‘‘reporting data for a pre-enactment or a transition swap’’; and VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 (a) * * * (2) * * * (i) For each uncleared pre-enactment or transition swap in existence on or after April 25, 2011, throughout the existence of the swap following the compliance date, the reporting counterparty must report all required swap continuation data as required by part 45 of this chapter. * * * * * §§ 46.4, 46.5, 46.6, 46.8, 46.9 [Amended] 21. In the table below, for each section and paragraph indicated in the left column, remove the text indicated in the middle column from wherever it appears, and add in its place the text indicated in the right column: ■ registered entities. reporting data for pre-enactment and transition swaps. any report of data. errors in the data for a pre-enactment or a transition swap. Required data standards. * * * In reporting required swap continuation data as required by this Frm 00174 § 46.3 Data reporting for pre-enactment swaps and transition swaps. unique swap identifier, unique transaction identifier, and unique product identifier. data. non-SD/MSP/DCO. non-SD/MSP/DCO. report data. accepts data for pre-enactment and transition swaps. such data. b. Add a second sentence to read as follows: PO 00000 [Amended] 19. Remove from § 46.2 the text ‘‘nonSD/MSP’’ and add in its place ‘‘non-SD/ MSP/DCO’’ wherever it appears. ■ 20. In § 46.3: ■ a. Revise the section heading; ■ b. Remove from the end of paragraph (a)(1)(iii)(A) ‘‘; and’’ and add in its place a period; ■ c. Revise paragraph (a)(2)(i); and ■ d. Remove from paragraph (a)(3)(i) the text ‘‘first report of required swap creation data’’ and add in its place ‘‘first report of such data’’. The revisions read as follows: ■ data reporting. substitute counterparty identifier. ■ § 46.10 § 46.2 Add swap data ........................................................................ non-SD/MSP ................................................................... non-SD/MSP ................................................................... report swap data ............................................................. accepts swap data .......................................................... required swap creation data or required swap continuation data. reporting entities .............................................................. swap data reporting ........................................................ any report of swap data .................................................. errors in the swap data ................................................... ■ (b) Other defined terms. Terms not defined in this part have the meanings assigned to the terms in § 1.3 of this chapter. Fmt 4701 Sfmt 4700 part, each reporting counterparty shall comply with the required data standards set forth in part 45 of this chapter, including those set forth in § 45.13(a) of this chapter. E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations 23. Amend § 46.11 by: a. Removing from paragraph (a) the text ‘‘report swap data’’ and adding in its place ‘‘report data for a preenactment or a transition swap’’; ■ b. Removing paragraph (b); ■ c. Redesignating paragraph (c) as new paragraph (b) and revising it; and ■ d. Redesignating paragraph (d) as new paragraph (c). The revision reads as follows: ■ ■ § 46.11 Reporting of errors and omissions in previously reported data. * * * * * (b) Each counterparty to a preenactment or transition swap that is not the reporting counterparty as determined pursuant to § 46.5, and that discovers any error or omission with respect to any data for a pre-enactment or transition swap reported to a swap data repository for that swap, shall promptly notify the reporting counterparty of each such error or omission. As soon as technologically practicable after receiving such notice, the reporting counterparty shall report a correction of each such error or omission to the swap data repository. * * * * * § 49.2 24. The authority citation for part 49 is revised to read as follows: ■ Authority: 7 U.S.C. 1a, 2(a), 6r, 12a, and 24a, as amended by Title VII of the Wall Street Reform and Consumer Protection Act, Pub. L. 111–203, 124 Stat. 1376 (Jul. 21, 2010), unless otherwise noted. 25. In § 49.2(a), a. Remove the paragraph designations of the definitions and arrange the definitions in alphabetical order; ■ b. Add, in alphabetical order, definitions for the terms ‘‘Data validation acceptance message’’; ‘‘Data validation error’’; ‘‘Data validation error message’’; and ‘‘Data validation procedures’’ ■ c. Redesignate paragraphs (i) through (iii) under the definition for ‘‘Nonaffiliated third party’’ as paragraphs (1) through (3); ■ d. Redesignate paragraphs (i) through (iii) under the definition for ‘‘Person associated with a swap data repository’’ as paragraphs (1) through (3); and ■ e. Redesignate paragraphs (i) through (vi) under the definition for ‘‘Position’’ as paragraphs (1) through (6); ■ ■ Definitions. (a) * * * Data validation acceptance message means a notification that SDR data satisfied the data validation procedures applied by a swap data repository. Data validation error means that a specific data element of SDR data did not satisfy the data validation procedures applied by a swap data repository. Data validation error message means a notification that SDR data contained one or more data validation error(s). Data validation procedures procedures established by a swap data repository pursuant to § 49.10 to validate SDR data reported to the swap data repository. * * * * * 26. In § 49.4: a. For each paragraph indicated in the left column of the table below, remove the text indicated in the middle column from wherever it appears, and add in its place the text indicated in the right column: ■ ■ Remove (a)(1) introductory text ......... (a)(1) introductory text ......... (a)(1) introductory text ......... (a)(1) introductory text and (a)(1)(i). (a)(1)(ii) ................................ (a)(1)(iii) ................................ (c) ......................................... registered swap data repository ...................................... withdrawn, which ............................................................. sixty ................................................................................. registrant ......................................................................... swap data repository. withdrawn. Such. 60. swap data repository. registrant; ........................................................................ located; and ..................................................................... registered swap data repository ...................................... swap data repository; and. located. swap data repository. b. Remove paragraph (a)(1)(iv) and revise paragraph (a)(2). The revision reads as follows: § 49.4 jbell on DSKJLSW7X2PROD with RULES2 The additions read as follows: PART 49—SWAP DATA REPOSITORIES Section/paragraph ■ Withdrawal from registration. (a) * * * (2) Prior to filing a request to withdraw, a swap data repository shall execute an agreement with the custodial swap data repository governing the custody of the withdrawing swap data repository’s data and records. The custodial swap data repository shall retain such records for at least as long as the remaining period of time the swap data repository withdrawing from registration would have been required to retain such records pursuant to this part. * * * * * ■ 27. Revise § 49.10 to read as follows: § 49.10 Acceptance and validation of data. (a) General requirements—(1) Generally. A swap data repository shall VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 Add establish, maintain, and enforce policies and procedures reasonably designed to facilitate the complete and accurate reporting of SDR data. A swap data repository shall promptly accept, validate, and record SDR data. (2) Electronic connectivity. For the purpose of accepting SDR data, the swap data repository shall adopt policies and procedures, including technological protocols, which provide for electronic connectivity between the swap data repository and designated contract markets, derivatives clearing organizations, swap execution facilities, swap dealers, major swap participants and non-SD/MSP/DCO reporting counterparties who report such data. The technological protocols established by a swap data repository shall provide for the receipt of SDR data. The swap data repository shall ensure that its mechanisms for SDR data acceptance are reliable and secure. PO 00000 Frm 00175 75595 Fmt 4701 Sfmt 4700 (b) Duty to accept SDR data. A swap data repository shall set forth in its application for registration as described in § 49.3 the specific asset class or classes for which it will accept SDR data. If a swap data repository accepts SDR data of a particular asset class, then it shall accept SDR data from all swaps of that asset class, unless otherwise prescribed by the Commission. (c) Duty to validate SDR data. A swap data repository shall validate SDR data as soon as technologically practicable after such data is accepted according to the validation conditions approved in writing by the Commission. A swap data repository shall validate SDR data by providing data validation acceptance messages and data validation error messages, as provided in this paragraph (c). (1) Data validation acceptance message. A swap data repository shall validate each SDR data report submitted to the swap data repository and notify E:\FR\FM\25NOR2.SGM 25NOR2 75596 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 the reporting counterparty, swap execution facility, designated contract market, or third-party service provider submitting the report whether the report satisfied the data validation procedures of the swap data repository as soon as technologically practicable after accepting the SDR data report. (2) Data validation error message. If SDR data contains one or more data validation errors, the swap data repository shall distribute a data validation error message to the designated contract market, swap execution facility, reporting counterparty, or third-party service provider that submitted such SDR data as soon as technologically practicable after acceptance of such data. Each data validation error message shall indicate which specific data validation error(s) was identified in the SDR data. (3) Swap transaction and pricing data submitted with swap data. If a swap data repository allows for the joint submission of swap transaction and pricing data and swap data, the swap data repository shall validate the swap transaction and pricing data and swap data separately. Swap transaction and pricing data that satisfies the data validation procedures applied by a swap data repository shall not be deemed to contain a data validation error because it was submitted to the swap data repository jointly with swap data that contained a data validation error. (d) Policies and procedures to prevent invalidation or modification. A swap data repository shall establish policies and procedures reasonably designed to prevent any provision in a valid swap from being invalidated or modified through the verification or recording process of the swap data repository. The policies and procedures shall ensure that the swap data repository’s user agreements are designed to prevent any such invalidation or modification. (e) [Reserved] (f) Policies and procedures for resolving disputes regarding data accuracy. A swap data repository shall establish procedures and provide facilities for effectively resolving disputes over the accuracy of the SDR data and positions that are recorded in the swap data repository. Issued in Washington, DC, on September 24, 2020, by the Commission. Robert Sidman, Deputy Secretary of the Commission. Note: The following appendices will not appear in the Code of Federal Regulations. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 Appendices to Swap Data Recordkeeping and Reporting Requirements—Commission Voting Summary, Chairman’s Statement, and Commissioners’ Statements Appendix 1—Commission Voting Summary On this matter, Chairman Tarbert and Commissioners Quintenz, Behnam, Stump, and Berkovitz voted in the affirmative. No Commissioner voted in the negative. Appendix 2—Statement of Chairman Heath P. Tarbert I am pleased to support today’s final swap data reporting rules under Parts 43, 45, and 49 of the CFTC’s regulations, which are foundational to effective oversight of the derivatives markets. As I noted when these rules were proposed in February, ‘‘[d]ata is the lifeblood of our markets.’’ 1 Little did I know just how timely that statement would prove to be. COVID–19 Crisis and Beyond In the month following our data rule proposals, historic volatility caused by the coronavirus pandemic rocketed through our derivatives markets, affecting nearly every asset class.2 I said at the time that while our margin rules acted as ‘‘shock absorbers’’ to cushion the impact of volatility, the Commission was also considering data rules that would expand our insight into potential systemic risk. In particular, the data rules ‘‘would for the first time require the reporting of margin and collateral data for uncleared swaps . . . significantly strengthen[ing] the CFTC’s ability to monitor for systemic risk’’ in those markets.3 Today we complete those rules, shoring up the data-based reporting systems that can help us identify—and quickly respond to—emerging systemic threats. But data reporting is not just about mitigating systemic risk. Vibrant derivatives markets must be open and free, meaning transparency is a critical component of any reporting system. Price discovery requires robust public reporting that supplies market participants with the information they need to price trades, hedge risk, and supply liquidity. Today we double down on transparency, ensuring that public reporting of swap transactions is even more accurate and timely. In particular, our final rules adjust certain aspects of the Part 43 proposal’s block-trade 4 reporting rules to improve transparency in our markets. These changes have been carefully considered to 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-be11585004897?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. PO 00000 Frm 00176 Fmt 4701 Sfmt 4700 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%20 Vision%20Statement,standard%20for%20sound %20derivatives%20regulation. E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations 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. jbell on DSKJLSW7X2PROD with RULES2 Systemic Risk Mitigation Today’s final swap data reporting rules are designed to fulfill our agency’s first Strategic Goal: to strengthen the resilience and integrity of our derivatives markets while fostering the vibrancy.13 The Part 45 rule requires swap dealers to report uncleared margin data for the first time, enhancing the CFTC’s ability to ‘‘to monitor systemic risk accurately and to act quickly if cracks begin to appear in the system.’’ 14 As Justice Brandeis famously wrote in advocating for transparency in organizations, ‘‘sunlight is the best disinfectant.’’ 15 So too it is for financial markets: the better visibility the CFTC has into the uncleared swaps markets, the more effectively it can address what until now has been ‘‘a black box of potential systemic risk.’’ 16 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). 16 Tarbert, Proposal Statement, supra note 1. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 Doubling Down on Transparency Justice Brandeis’s words also resonate across other areas of the final swap data reporting rules. The final swap data reporting rules enhance transparency to the public of pricing and trade data. 1. Blocks and Caps A critical aspect of the final Part 43 rule is the issue of block trades and dissemination delays. When the Part 43 proposal was issued, I noted that ‘‘[o]ne of the issues we are looking at closely is whether a 48-hour delay for block trade reporting is appropriate.’’ 17 I encouraged market participants to ‘‘provide comment letters and feedback concerning the treatment of block delays.’’ 18 Market participants responded with extensive feedback, much of which advocated for shorter delays in making block trade data publicly available. I agree with this view, and support a key change in the final Part 43 rule. Rather than apply the proposal’s uniform 48-hour dissemination delay on block trade reporting, the final rule returns to bespoke public reporting timeframes that consider liquidity, market depth, and other factors unique to specific categories of swaps. The result is shorter reporting delays for most block trades. The final Part 43 rule also changes the threshold for block trade treatment, raising the amount needed from a 50% to 67% notional calculation. It also increases the threshold for capping large notional trades from 67% to 75%. These changes will enhance market transparency by applying a stricter standard for blocks and caps, thereby enhancing public access to swap trading data. At the same time, the rule reflects serious consideration of how these thresholds are calculated, particularly for block trades. In excluding certain option trades and CDS trades around the roll months from the 67% notional threshold for blocks, the final rule helps ensure that dissemination delays have their desired effect of preventing front-running and similar disruptive activity. 2. Post-Priced and Prime-Broker Swaps The swaps market is highly complex, reflecting a nearly endless array of transaction structures. Part 43 takes these differences into account in setting forth the public reporting requirements for price and transaction data. For example, post-priced swaps are valued after an event occurs, such as the ringing of the daily closing bell in an equity market. As it stands today, post-priced swaps often appear on the public tape with no corresponding pricing data—rendering the data largely unusable. The final Part 43 rule addresses this data quality issue and improves price discovery by requiring 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 sets to multiple regulators for the very same 19 Tarbert, 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 17 Tarbert, Proposal Statement, supra note 1, note 14. 18 Id. PO 00000 Frm 00177 Fmt 4701 Sfmt 4700 75597 E:\FR\FM\25NOR2.SGM 25NOR2 75598 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations swap.24 A better approach is to conform swap data reporting requirements where possible. Data harmonization is not just good for market participants: it also advances the CFTC’s vision of being the global standard for sound derivatives regulation.25 The CFTC has a long history of leading international harmonization efforts in data reporting, including by serving as a co-chair of the Committee on Payments and Infrastructures and the International Organization of Securities Commissioners (CPMI–IOSCO) working group on critical data elements (CDE) in swap reporting.26 I am pleased to support a final Part 45 rule that advances these efforts by incorporating CDE fields that serve our regulatory goals. In addition to certain CDE fields, the final Part 45 rule also adopts other important features of the CPMI–IOSCO Technical Guidance, such as the use of a Unique Transaction Identifier (UTI) system in place of today’s Unique Swap Identifier (USI) system. This change will bring the CFTC’s swap data reporting system in closer alignment with those of other regulators, leading to better data sharing and lower burdens on market participants. Last, the costs of altering data reporting systems makes implementation timeframes especially important. To that effect, the CFTC has worked with ESMA to bring our jurisdictions’ swap data reporting compliance timetables into closer harmony, easing transitions to new reporting systems. 3. Verification and Error Correction The final Part 49 rule has changed since the proposal stage to facilitate easier verification of SDR data by swap dealers. Based on feedback we received, the final rule now requires SDRs to provide a mechanism for swap dealers and other reporting counterparties to access the SDR’s data for their open swaps to verify accuracy and address errors. This approach replaces a message-based system for error identification and correction, which would have produced significant implementation costs without improving error remediation. The final rule achieves the goal—data accuracy—with fewer costs and burdens.27 4. Relief for End Users I have long said that if our derivatives markets are not working for agriculture, then they are not working at all.28 While swaps are 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. 28 Opening Statement of Chairman Heath P. Tarbert Before the April 22 Agricultural Advisory jbell on DSKJLSW7X2PROD with RULES2 25 See VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 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 I am pleased to support these amendments to part 45 regulatory reporting, which hopefully represent the beginning of the end of this agency’s longstanding efforts to collect and utilize accurate, reliable swap data to further its regulatory mandates. There is frequently a trade-off between being first and being right. That is especially true when it comes to regulation and specifically true when it comes to the CFTC’s historical approach to data reporting. Although the CFTC was the first regulator in the world to implement swap data reporting requirements, it did so only in a partial, nondescriptive, and non-technical fashion, which has led to the fact that, even today— more than 10 years after Dodd Frank—the Commission has great difficulty aggregating and analyzing data for uncleared swaps across swap data repositories (SDRs). Since the CFTC first implemented its swap data reporting requirements, the CFTC has continued to lead global efforts to reach international consensus on those reporting requirements so that derivatives regulators can finally get a clear picture of the uncleared swaps landscape. I would like to recognize the diligent efforts of DMO staff to finally get us over the finish line. Today’s amendments to part 45 regulatory reporting will provide the Commission with the homogeneous data it needs to readily analyze swap data for both cleared and uncleared swaps across jurisdictions. The final rule eliminates unnecessary reporting fields and implements internationally agreed to ‘‘critical data elements’’ (CDE fields) consistently with the detailed technical standards put forth by CPMI–IOSCO.1 The final rule also provides reporting counterparties with a longer time to report Committee Meeting (April 22, 2020), https:// www.cftc.gov/PressRoom/SpeechesTestimony/ tarbertstatement042220. 29 CFTC Strategic Plan, supra note 7, at 6. 1 See CPMI–IOSCO, Technical Guidance, Harmonization of Critical OTC Derivatives Data Elements (other than UTI and UPI) (Apr. 2018), available at https://www.bis.org/cpmi/publ/ d175.pdf. PO 00000 Frm 00178 Fmt 4701 Sfmt 4700 trades accurately to an SDR by moving to a ‘‘T+1’’ reporting timeframe for swap dealer (SD), derivatives clearing organization (DCO), and swap execution facility (SEF) reporting parties, and a ‘‘T+2’’ reporting timeframe for non-SD/DCO/SEF reporting counterparties. I have long supported providing additional time for market participants to meet their regulatory reporting obligations given it is a matter of being right, not first. A later regulatory reporting deadline will help counterparties report the trade correctly the first time, instead of reporting an erroneous trade that then needs to be corrected later. This change also more closely harmonizes the CFTC’s and ESMA’s reporting deadlines. For the first time, the final rule also requires SD reporting counterparties to report daily margin and collateral information for uncleared swaps to the Commission. However, the final rule would not require DCO reporting parties to report margin and collateral information with respect to cleared swaps. Instead, the Commission will continue to rely on the comprehensive margin and collateral data reported by DCOs pursuant to part 39. Importantly, in order to alleviate burdens on small reporting counterparties, non-SD/MSP reporting counterparties are not required to report valuation, margin, or collateral information to the Commission. Although this final rule implements the lion’s share of regulatory reporting requirements, it is not quite the capstone of the Commission’s reporting efforts. The CDE technical guidance did not harmonize many data elements that are relevant to the physical commodity and equity swap asset classes. More work remains to be done with respect to how certain data elements should be reported, including how the prices and quantities of physical commodity swaps should be reported and how swaps on customized equity baskets should be represented. I know DMO will continue to play an active role through CPMI–IOSCO’s CDE governance process to ensure that additional guidance and specificity are provided regarding the data elements for these asset classes. I support the CFTC’s efforts to adopt the CDE fields—the most basic data elements that are critical to the analysis and supervision of swaps activities—in a manner identical to other jurisdictions’ reporting fields. Over time and through cooperative arrangements with other jurisdictions, global aggregation and measurement of risk, including counterparty credit risk, can become a reality. However, as the Commission moves closer to achieving its goal of global data harmonization, in my opinion, it should keep in mind that the benefits of harmonization should always be balanced against the burdens and practical realities facing reporting counterparties. I think the final rule before us today strikes an appropriate balance on this point. Appendix 4—Concurring Statement of Commissioner Rostin Behnam I respectfully concur in the Commission’s amendments to its regulations regarding realtime public reporting, recordkeeping, and swap data repositories. The three rules being E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 finalized together today are the culmination of a multi-year effort to streamline, simplify, and internationally harmonize the requirements associated with reporting swaps. Today’s actions represent the end of a long procedural road at the Commission, one that started with the Commission’s 2017 Roadmap to Achieve High Quality Swap Data.1 But the road really goes back much further than that, to the time prior to the 2008 financial crisis, when swaps were largely exempt from regulation and traded exclusively over-the-counter.2 Lack of transparency in the over-the-counter swaps market contributed to the financial crisis because both regulators and market participants lacked the visibility necessary to identify and assess swaps market exposures, counterparty relationships, and counterparty credit risk.3 In the aftermath of the financial crisis, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 (Dodd-Frank Act).4 The Dodd-Frank Act largely incorporated the international financial reform initiatives for over-thecounter derivatives laid out at the 2009 G20 Pittsburgh Summit, which sought to improve transparency, mitigate systemic risk, and protect against market abuse.5 With respect to data reporting, the policy initiative developed by the G20 focused on establishing a consistent and standardized global data set across jurisdictions in order to support regulatory efforts to timely identify systemic risk. The critical need and importance of this policy goal given the consequences of the financial crisis cannot be overstated. Among many critically important statutory changes, which have shed light on the 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.’’ 6 The Act defines that term to mean reporting ‘‘data relating to swap transaction, including price and volume, as soon as technologically practicable after the time at which the swap transaction has been executed.’’ 7 As we amend these rules, I think it is important that we keep in mind the Dodd1 Roadmap to Achieve High Quality Swap Data, available at http://www.cftc.gov/idc/groups/public/ @newsroom/documents/file/dmo_ swapdataplan071017.pdf. 2 See Commodity Futures Modernization Act of 2000, Public Law 106–554, 114 Stat. 2763 (2000). 3 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. 4 See Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111–203, 124 Stat. 1376 (2010). 5 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. 6 7 U.S.C. 2(a)(13)(A). 7 Id. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 Frank Act’s emphasis on transparency, and what transpired to necessitate that emphasis. However, the Act is also clear that its purpose, in regard to transparency and real time public reporting, is to authorize the Commission to make swap transaction and pricing data available to the public ‘‘as the Commission determines appropriate to enhance price discovery.’’ 8 The Act expressly directs the Commission to specify the criteria for what constitutes a block trade, establish appropriate time delays for disseminating block trade information to the public, and ‘‘take into account whether the public disclosure will materially reduce market liquidity.’’ 9 So, as we keep Congress’s directive regarding public transparency (and the events that necessitated that directive) in mind as we promulgate rules, we also need to be cognizant of instances where public disclosure of the details of large transactions in real time will materially reduce market liquidity. This is a complex endeavor, and the answers vary across markets and products. I believe that these final rules strike an appropriate balance. Today’s final rules amending the swap data and recordkeeping and reporting requirements also culminate a multi-year undertaking by dedicated Commission staff and our international counterparts working through the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions working group for the harmonization of key over-the-counter derivatives data elements. The amendments benefit from substantial public consultation as well as internal data and regulatory analyses aimed at determining, among other things, how the Commission can meet its current data needs in support of its duties under the CEA. These include ensuring the financial integrity of swap transactions, monitoring of substantial and systemic risks, formulating bases for and granting substituted compliance and trade repository access, and entering information sharing agreements with fellow regulators. I wish to thank the responsible staff in the Division of Market Oversight, as well as in the Offices of International Affairs, Chief Economist, and General Counsel for their efforts and engagement over the last several years as well as their constructive dialogues with my office over the last several months. Their timely and fulsome responsiveness amid the flurry of activity at the Commission as we continue to work remotely is greatly appreciated. The final rules should improve data quality by eliminating duplication, removing alternative or adjunct reporting options, utilizing universal data elements and identifiers, and focusing on critical data elements. To the extent the Commission is moving forward with mandating a specific data standard for reporting swap data to swap data repositories (‘‘SDRs’’), and that the standard will be ISO 20022, I appreciate the Commission’s thorough discussion of its rationale in support of that decision. I also commend Commission staff for its demonstrated expertise in incorporating the 87 97 PO 00000 U.S.C. 2(a)(13)(B). U.S.C. 2(a)(13)(C)(ii–iv). Frm 00179 Fmt 4701 Sfmt 4700 75599 mandate into the regulatory text in a manner that provides certainty while acknowledging that the chosen standard remains in development. The rules provide clear, reasonable and universally acceptable reporting deadlines that not only account for the minutiae of local holidays, but address the practicalities of common market practices such as allocation and compression exercises. I am especially pleased that the final rules require consistent application of rules across SDRs for the validation of both Part 43 and Part 45 data submitted by reporting counterparties. I believe the amendments to part 49 set forth a practical approach to ensuring SDRs can meet the statutory requirement to confirm the accuracy of swap data set forth in CEA section 21(c) 10 without incurring unreasonable burdens. I appreciate that the Commission considered and received comments regarding whether to require reporting counterparties to indicate whether a specific swap: (1) Was entered into for dealing purposes (as opposed to hedging, investing, or proprietary trading); and/or (2) needs not be considered in determining whether a person is a swap dealer or need not be counted towards a person’s de minimis threshold for purposes of determining swap dealer status under Commission regulations.11 While today’s rules may not be the appropriate means to acquire such information, I continue to believe that that the Commission’s ongoing surveillance for compliance with the swap dealer registration requirements could be enhanced through data collection and analysis. Thank you again to the staff who worked on these rules. I support the overall vision articulated in these several rules and am committed to supporting the acquisition and development of information technology and human resources needed for execution of that vision. As data forms the basis for much of what we do here at the Commission, especially in terms of identifying, assessing, and monitoring risk, I look forward to future discussions with staff regarding how the CFTC’s Market Risk Advisory Committee which I sponsor may be of assistance. Appendix 5—Statement of Commissioner Dan M. Berkovitz Introduction I support today’s final rules amending the swap data reporting requirements in parts 43, 10 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. 11 Commission E:\FR\FM\25NOR2.SGM 25NOR2 75600 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations 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 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 1 See CEA section 3b. 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). jbell on DSKJLSW7X2PROD with RULES2 2 Dodd-Frank VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 transaction and pricing data available to the public in such form and at such times as the Commission determines appropriate to enhance price discovery.’’ 4 For real-time data to be useful for price discovery, SDRs must be able to report standardized, valid, and timely data. The reported data should also reflect the large majority of swaps executed within a particular swap category. The final Reporting Rules for part 43 address a number of infirmities in the current rules affecting the aggregation, validation, and timeliness of the data. They also provide pragmatic solutions to several specific reporting issues, such as the treatment of prime broker trades and post-priced swaps. Block Trade Reporting The Commission’s proposed rule for block trades included two significant amendments to part 43: (1) Refined swap categories for calculating blocks; and (2) a single 48-hour time-delay for reporting all blocks. In addition, the proposed rule would give effect to increased block trade size thresholds from 50% to 67% of a trimmed (excluding outliers) trade data set as provided for in the original part 43. The increases in the block sizing thresholds and the refinement of swap categories were geared toward better meeting the statutory directives to the Commission to enhance price discovery through real-time reporting while also providing appropriate time delays for the reporting of swaps with very large notional amounts, i.e., block trades. Although I supported the issuance of the proposed rule, I outlined a number of concerns with the proposed blanket 48-hour delay. As described in the preamble to the part 43 final rule, a number of commenters supported the longer delay as necessary to facilitate the laying off of risk resulting from entering into swaps in illiquid markets or with large notional amounts. Other commenters raised concerns that such a broad, extended delay was unwarranted and could impede, rather than foster, price discovery. The delay also would provide counterparties to large swaps with an information advantage during the 48-hour delay. The CEA directs the Commission to provide for both real-time reporting and appropriate block sizes. In developing the final rule the Commission has sought to achieve these objectives. As described in the preamble, upon analysis of market data and consideration of the public comments, the Commission has concluded that the categorization of swap transactions and associated block sizes and time delay periods set forth in the final rule strikes an appropriate balance to achieve the statutory objectives of enhancing price discovery, not disclosing ‘‘the business transactions and market positions of any person,’’ preserving market liquidity, and providing appropriate time delays for block transactions. The final part 43 includes a mechanism for regularly reviewing swap transaction data to refine the block trade sizing and reporting delays as appropriate to maintain that balance. 4 CEA PO 00000 section 2(13)(B) (emphasis added). Frm 00180 Fmt 4701 Sfmt 4700 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 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 E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 ISDA commented that the higher block size thresholds might incentivize swap dealers to move at least a portion of their swap trading from United States SEFs to European trading platforms. They also noted that this regulatory arbitrage activity could apply to swaps that are subject to mandatory exchange trading. Importantly, European platforms allow a non-competitive single-quote trading mechanism for these swaps while U.S. SEFs are required to maintain more competitive request-for-quotes mechanisms from at least three parties. The three-quote requirement serves to fulfill important purposes delineated in the CEA to facilitate price discovery and promote fair competition. The migration of swap trading from SEFs to non-U.S. trading platforms to avoid U.S. trade execution and/or swap reporting requirements would diminish the liquidity in and transparency of U.S. markets, to the detriment of many U.S. swap market participants. Additionally, as the ISDA/ SIFMA comment letter notes, it would provide an unfair competitive advantage to non-U.S. trading platforms over SEFs registered with the CFTC, who are required to abide by CFTC regulations. Such migration would fragment the global swaps market and undermine U.S. swap markets.5 I have supported the Commission’s substituted compliance determinations for foreign swap trading platforms in non-U.S. markets where the foreign laws and regulations provide for comparable and comprehensive regulation. Substituted compliance recognizes the interests of 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. 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. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 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 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. 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. 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 00181 Fmt 4701 Sfmt 4700 75601 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. 2020–21569 Filed 11–24–20; 8:45 am] BILLING CODE 6351–01–P COMMODITY FUTURES TRADING COMMISSION 17 CFR Parts 43, 45, and 49 RIN 3038–AE32 Certain Swap Data Repository and Data Reporting Requirements Commodity Futures Trading Commission. ACTION: Final rule. AGENCY: The Commodity Futures Trading Commission (‘‘Commission’’ or ‘‘CFTC’’) is amending its regulations to improve the accuracy of data reported to, and maintained by, swap data repositories (‘‘SDRs’’), and to provide enhanced and streamlined oversight over SDRs and data reporting generally. Among other changes, the amendments SUMMARY: E:\FR\FM\25NOR2.SGM 25NOR2

Agencies

[Federal Register Volume 85, Number 228 (Wednesday, November 25, 2020)]
[Rules and Regulations]
[Pages 75503-75601]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-21569]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 45, 46, and 49

RIN 3038-AE31


Swap Data Recordkeeping and Reporting Requirements

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or 
``CFTC'') is amending certain regulations setting forth the swap data 
recordkeeping and reporting requirements for swap data repositories 
(``SDRs''), derivatives clearing organizations (``DCOs''), swap 
execution facilities (``SEFs''), designated contract markets 
(``DCMs''), swap dealers (``SDs''), major swap participants (``MSPs''), 
and swap counterparties that are neither SDs nor MSPs. The amendments, 
among other things, streamline the requirements for reporting new 
swaps, define and adopt swap data elements that harmonize with 
international technical guidance, and reduce reporting burdens for 
reporting counterparties that are neither SDs nor MSPs.

DATES: Effective Date: The effective date for this final rule is 
January 25, 2021.
    Compliance Date: SDRs, SEFs, DCMs, reporting counterparties, and 
non-reporting counterparties must comply with the amendments to the 
rules by May 25, 2022.

FOR FURTHER INFORMATION CONTACT: Richard Mo, Special Counsel, (202) 
418-7637, cftc.gov">[email protected]cftc.gov; Benjamin DeMaria, Special Counsel, (202) 418-
5988, cftc.gov">[email protected]cftc.gov; Thomas Guerin, Special Counsel, (202) 734-
4194, cftc.gov">[email protected]cftc.gov; Meghan Tente,

[[Page 75504]]

Acting Deputy Director, (202) 418-5785, cftc.gov">[email protected]cftc.gov; Division of 
Market Oversight, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street NW, Washington, DC 20581; Kristin Liegel, 
Surveillance Analyst, (312) 596-0671, cftc.gov">[email protected]cftc.gov, Division of 
Market Oversight, Commodity Futures Trading Commission, 525 West Monroe 
Street, Suite 1100, Chicago, Illinois 60661; Kate Mitchel, Business 
Analyst, (202) 418-5871, cftc.gov">[email protected]cftc.gov, Office of Data and 
Technology; Nancy Doyle, Senior Special Counsel, (202) 418-5136, 
cftc.gov">[email protected]cftc.gov, Office of International Affairs; John Coughlan, 
Research Economist, (202) 418-5944, cftc.gov">[email protected]cftc.gov, Office of the 
Chief Economist, in each case at the Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 
20581.

SUPPLEMENTARY INFORMATION: 

I. Background
II. Amendments to Part 45
    A. Sec.  45.1--Definitions
    B. Sec.  45.2--Swap Recordkeeping
    C. Sec.  45.3--Swap Data Reporting: Creation Data
    D. Sec.  45.4--Swap Data Reporting: Continuation Data
    E. Sec.  45.5--Unique Transaction Identifiers
    F. Sec.  45.6--Legal Entity Identifiers
    G. Sec.  45.8--Determination of Which Counterparty Shall Report
    H. Sec.  45.10--Reporting to a Single Swap Data Repository
    I. Sec.  45.11--Data Reporting for Swaps in a Swap Asset Class 
Not Accepted by Any Swap Data Repository
    J. Sec.  45.12--Voluntary Supplemental Reporting
    K. Sec.  45.13--Required Data Standards
    L. Sec.  45.15--Delegation of Authority
III. Amendments to Part 46
    A. Sec.  46.1--Definitions
    B. Sec.  46.3--Data Reporting for Pre-Enactment Swaps and 
Transition Swaps
    C. Sec.  46.10--Required Data Standards
    D. Sec.  46.11--Reporting of Errors and Omissions in Previously 
Reported Data
IV. Amendments to part 49
    A. Sec.  49.2--Definitions
    B. Sec.  49.4--Withdrawal from Registration
    C. Sec.  49.10--Acceptance and Validation of Data
V. Swap Data Elements Reported to Swap Data Repositories
    A. Proposal
    B. Comments on the Proposal and Commission Determination
VI. Compliance Date
VII. Related Matters
    A. Regulatory Flexibility Act
    B. Paperwork Reduction Act
    C. Cost-Benefit Considerations
    D. Antitrust Considerations

I. Background

    Pursuant to section 2(a)(13)(G) of the Commodity Exchange Act 
(``CEA''), all swaps, whether cleared or uncleared, must be reported to 
SDRs.\1\ CEA section 21(b) directs the Commission to prescribe 
standards for swap data recordkeeping and reporting.\2\ Part 45 of the 
Commission's regulations implements the swap data reporting rules.\3\ 
The part 45 regulations require SEFs, DCMs, and reporting 
counterparties to report swap data to SDRs. SDRs collect and maintain 
data related to swap transactions, keeping such data electronically 
available for regulators or the public.\4\
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    \1\ 7 U.S.C. 2(a)(13)(G) (2020).
    \2\ See 7 U.S.C. 24a(b)(1)-(3).
    \3\ Commission regulations referred to herein are found at 17 
CFR chapter I.
    \4\ The term ``swap data repository'' means any person that 
collects and maintains information or records with respect to 
transactions or positions in, or the terms and conditions of, swaps 
entered into by third parties for the purpose of providing a 
centralized recordkeeping facility for swaps. See 7 U.S.C. 1a(48). 
Regulations governing core principles and registration requirements 
for, and duties of, SDRs are in part 49. See generally 17 CFR part 
49.
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    Since the Commission adopted the part 45 regulations, Commission 
staff has worked with SDRs, SEFs, DCMs, reporting counterparties, and 
non-reporting counterparties to interpret and implement of the 
requirements established in the regulations. Several years ago, the 
Division of Market Oversight (``DMO'') announced \5\ its Roadmap to 
Achieve High Quality Swaps Data (``Roadmap''),\6\ consisting of a 
comprehensive review to, among other things: (i) ensure the CFTC 
receives accurate, complete, and high-quality data on swap transactions 
for its regulatory oversight role; and (ii) streamline reporting, 
reduce messages that must be reported, and right-size the number of 
data elements reported to meet the agency's priority use-cases for swap 
data.\7\
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    \5\ See Commission Letter 17-33, Division of Market Oversight 
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.
    \6\ The Roadmap is available at https://www.cftc.gov/sites/default/files/idc/groups/public/@newsroom/documents/file/dmo_swapdataplan071017.pdf. Comment letters related to the Roadmap 
are available at https://comments.cftc.gov/PublicComments/CommentList.aspx?id=1824.
    \7\ See Commission Letter 17-33, supra at n.5; Roadmap, supra at 
n.6.
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    In February 2020, the Commission proposed certain changes to its 
parts 45, 46, and 49 regulations (``Proposal'') \8\ to simplify the 
requirements for reporting swaps, require SDRs to validate swap 
reports, permit the transfer of swap data between SDRs, alleviate 
reporting burdens for non-SD/MSP reporting counterparties, and 
harmonize the swap data elements counterparties report to SDRs with 
international technical guidance.
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    \8\ See Swap Data Recordkeeping and Reporting Requirements, 85 
FR 21578 (Apr. 17, 2020).
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    The Commission received 26 comment letters on the Proposal.\9\ 
After considering the comments, the Commission is adopting parts of the 
rules as proposed, although there are proposed changes the Commission 
has determined to either revise or decline to adopt. The Commission 
believes the rules it is adopting herein will provide clarity and lead 
to more effective swap data reporting by SEFs, DCMs, and reporting 
counterparties.
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    \9\ The following entities submitted comment letters: American 
Public Gas Association (``APGA''); BP Energy Company (``BP''); 
Chatham Financial (``Chatham''); Chris Barnard; CME Group (``CME''); 
Coalition of Physical Energy Companies (``COPE''); Commercial Energy 
Working Group (``CEWG''); Credit Suisse (``CS''); The Data Coalition 
(``Data Coalition''); DTCC Data Repository (U.S.) LLC (``DTCC''); 
Edison Electric Institute (``EEI'') and Electric Power Supply 
Association (``EPSA'') (collectively, ``EEI-EPSA''); Eurex Clearing 
AG (``Eurex''); Foreign Exchange Professionals Association 
(``FXPA''); Futures Industry Association (``FIA''); Global Foreign 
Exchange Division of the Global Financial Markets Association 
(collectively, ``GFXD''); Global Legal Entity Identifier Foundation 
(``GLEIF''); ICE Clear Credit LLC and ICE Clear Europe Limited 
(``ICE DCOs''); ICE Trade Vault, LLC (``ICE SDR''); IHS Markit 
(``Markit''); International Energy Credit Association (``IECA''); 
International Swaps and Derivatives Association, Inc. (``ISDA'') and 
Securities Industry and Financial Markets Association (``SIFMA'') 
(collectively, ``ISDA-SIFMA''); Japanese Bankers Association 
(``JBA''); Japan Securities Clearing Corporation (``JSCC''); LCH Ltd 
and LCH SA (collectively, ``LCH''); National Rural Electric 
Cooperative Association and American Public Power Association 
(``NRECA-APPA''); and XBRL US, Inc. (``XBRL'').
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    Before discussing the changes to the regulations, the Commission 
highlights the important role international data harmonization efforts 
have played in this rulemaking. As discussed in the Proposal, since 
November 2014, regulators across major derivatives jurisdictions, 
including the CFTC, have come together through the Committee on 
Payments and Market Infrastructures (``CPMI'') and the International 
Organization of Securities Commissions (``IOSCO'') working group for 
the harmonization of key over-the-counter (``OTC'') derivatives data 
elements (``Harmonisation Group'') to develop global guidance regarding 
the definition, format, and usage of key OTC derivatives data elements 
reported to trade repositories (``TRs''), including the Unique 
Transaction Identifier (``UTI''), the Unique Product Identifier 
(``UPI''), and critical data elements other than UTI and UPI 
(``CDE'').\10\
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    \10\ In February 2017 and September 2017, respectively, the 
Harmonisation Group published Guidance on the Harmonisation of the 
Unique Transaction Identifier (``UTI Technical Guidance'') and 
Technical Guidance on the Harmonisation of the Unique Product 
Identifier (``UPI Technical Guidance''). In April 2018, the 
Harmonisation Group published Technical Guidance on the 
Harmonisation of Critical OTC Derivatives Data Elements (other than 
UTI and UPI) (``CDE Technical Guidance'').

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[[Page 75505]]

    The Commission has played an active role in the development and 
publication of each of the Harmonisation Group's technical guidance 
documents. For the CDE Technical Guidance in particular, as part of the 
Harmonisation Group, Commission staff worked alongside representatives 
from Canada, France, Germany, Hong Kong, Japan, Singapore, and the 
United Kingdom, among others, to provide feedback regarding the data 
elements, taking into account the Commission's experience with swap 
data reporting thus far. Commission staff also participated in the 
solicitation of responses to three public consultations on the CDE 
Technical Guidance, along with related industry workshops and 
conference calls.\11\
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    \11\ See CDE Technical Guidance at 9.
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    The Commission's sustained, active role in the Harmonisation Group 
in developing global guidance on key OTC derivatives data elements 
reported to TRs is part of the Commission's broader, long-range goal of 
continued efforts to achieve international harmony in the area of swaps 
reporting. The Commission has co-led efforts to design ongoing 
international regulatory oversight of these standards in the Financial 
Stability Board (``FSB'') Working Group on UPI and UTI Governance 
(``GUUG'') and the Commission's efforts to achieve international 
harmonization in the entire clearing ecosystem, including swap data 
reporting, will continue.
    In particular, the Commission continues to be open to further ways 
to cooperate with our foreign regulatory counterparts in the 
supervision of TRs. An example is the consideration of when and how the 
Commission should grant swap data reporting substituted compliance 
determinations for SDs and DCOs domiciled in non-U.S. jurisdictions 
with similar swap data reporting requirements, permitting reporting of 
swap data to a foreign TR to satisfy Commission swap data requirements 
under appropriate circumstances. Efficiencies in cross-border reporting 
are critical to the smooth operation of transatlantic clearing and 
trading. To the degree the Commission can work with its international 
counterparts to thus increase interoperability between jurisdictions, 
this will enhance cross-border trading efficiency. Moreover, with 
appropriate tailoring and protections, and due access to foreign TR 
data, deference to foreign jurisdictions will reduce expensive 
redundancies in trade reporting.

II. Amendments to Part 45

A. Sec.  45.1--Definitions

    The paragraph of existing Sec.  45.1 is not lettered. The 
Commission is lettering the existing paragraph as ``(a)'' and adding 
(b) to Sec.  45.1. Paragraph (a) will contain all of the definitions in 
existing Sec.  45.1, as the Commission is modifying them. New paragraph 
(b) provides the terms not defined in part 45 have the meanings 
assigned to the terms in Commission regulation Sec.  1.3, which was 
implied in the existing regulation but will now be explicit.\12\
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    \12\ 17 CFR 1.3.
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    The Commission is adding new definitions, amending certain existing 
definitions, and removing certain existing definitions. Within each of 
these categories, the Commission discusses the changes in alphabetical 
order, except as otherwise noted.
1. New Definitions
    The Commission is adding a definition of ``allocation'' to Sec.  
45.1(a). ``Allocation'' means the process by which an agent, having 
facilitated a single swap transaction on behalf of clients, allocates a 
portion of the executed swap to the clients. Existing Sec.  45.3(f) 
contains regulations for reporting allocations without defining the 
term. The definition will help market participants comply with the 
regulations for reporting allocations in Sec.  45.3.
    The Commission is adding a definition of ``as soon as 
technologically practicable'' (``ASATP'') to Sec.  45.1(a). ``As soon 
as technologically practicable'' means as soon as possible, taking into 
consideration the prevalence, implementation, and use of technology by 
comparable market participants. The phrase ``as soon as technologically 
practicable'' is currently undefined but used throughout part 45. The 
Commission is adopting the same definition of ``as soon as 
technologically practicable'' as is defined in Sec.  43.2 for swap 
transaction and pricing data.\13\
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    \13\ See 17 CFR 43.2 (definition of ``as soon as technologically 
practicable'').
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    The Commission is adding a definition of ``collateral data'' to 
Sec.  45.1(a). ``Collateral data'' means the data elements necessary to 
report information about the money, securities, or other property 
posted or received by a swap counterparty to margin, guarantee, or 
secure a swap, as specified in appendix 1 to part 45. The Commission 
explains this definition in a discussion of collateral data reporting 
in section II.D.4 below.
    The Commission is adding definitions of ``execution'' and 
``execution date'' to Sec.  45.1(a). ``Execution'' means an agreement 
by the parties, by any method, to the terms of a swap that legally 
binds the parties to such swap terms under applicable law.\14\ In the 
Proposal, the Commission proposed ``execution date'' to mean the date, 
determined by reference to Eastern Time, on which swap execution has 
occurred. The execution date for a clearing swap that replaces an 
original swap would be the date, determined by reference to Eastern 
Time, on which the DCO accepts the original swap for clearing. The term 
``execution'' is currently undefined but used throughout part 45, and 
the Commission is adding regulations referencing ``execution date.'' 
\15\
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    \14\ The definition of ``execution'' is functionally identical 
to the part 23 definition of execution. See 17 CFR 23.200(e) 
(definition of ``execution'').
    \15\ See Sec.  45.3(a) and (b), discussed in sections II.C.2.a 
and II.C.2.b, respectively, below.
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    The Commission received three comments supporting the definition of 
``execution date.'' \16\ In particular, ISDA-SIFMA believe the 
definition is more practical than the referencing the ``day of 
execution,'' because the latter would require a more complex build for 
industry participants, including requiring reporting counterparties to 
compare against the non-reporting counterparty to determine the party 
with the calendar day that ends latest, on a swap-by-swap basis.\17\
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    \16\ GXFD at 21; Eurex at 2; ISDA-SIFMA at 5.
    \17\ ISDA-SIFMA at 5.
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    The Commission received three comments opposing the reference to 
Eastern Time in the proposed definition of ``execution date.'' CME and 
Chatham both believe the definition should use a coordinated universal 
time (``UTC'') standard.\18\ CME notes Eastern Time could make the 
reporting entity convert data between three time zones-- local time 
zone, Eastern Time, and UTC--and also account for daylight savings 
time.\19\ Chatham notes reporting counterparties build systems using 
UTC and it would be time-consuming and costly to convert to Eastern 
Time, as well as inconsistent with other regulatory reporting 
frameworks.\20\ JBA suggests the Commission use UTC to globally 
harmonize and follow the CDE Technical Guidance, and points out the 
January 2020 CPMI-IOSCO ``Clock

[[Page 75506]]

Synchronization'' report recommends business clocks synchronize to 
UTC.\21\
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    \18\ CME at 12; Chatham at 1.
    \19\ CME at 12.
    \20\ Chatham at 1.
    \21\ JBA at 4.
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    The Commission agrees the reference to Eastern Time in ``execution 
date'' would create unnecessary operational complexities and be 
inconsistent with the approach taken by other regulators. In addition, 
the Commission's updated swap data elements in appendix 1 reference 
UTC. In response, the Commission is removing the references to Eastern 
Time in the definition of ``execution date,'' and the swap data 
elements in appendix 1 will clarify that SEFs, DCMs, and reporting 
counterparties should report the specific data elements using UTC. As 
such, the new definition of ``execution date'' means the date of 
execution of a particular swap. The execution date for a clearing swap 
that replaces an original swap is the date on which the original swap 
has been accepted for clearing.
    The Commission is adding the following three definitions to Sec.  
45.1(a): ``Global Legal Entity Identifier System,'' ``legal entity 
identifier'' or ``LEI,'' and ``Legal Entity Identifier Regulatory 
Oversight Committee'' (``LEI ROC''). ``Global Legal Entity Identifier 
System'' means the system established and overseen by the LEI ROC for 
the unique identification of legal entities and individuals. ``Legal 
entity identifier'' or ``LEI'' means a unique code assigned to swap 
counterparties and entities in accordance with the standards set by the 
Global Legal Entity Identifier System. ``Legal Entity Identifier 
Regulatory Oversight Committee'' means the group charged with the 
oversight of the Global Legal Entity Identifier System that was 
established by the finance ministers and the central bank governors of 
the Group of Twenty nations and the FSB, under the Charter of the 
Regulatory Oversight Committee for the Global Legal Entity Identifier 
System dated November 5, 2012, or any successor thereof.\22\ These 
definitions are all associated with, and further explained in the 
context of, the Sec.  45.6 regulations for LEI, in section II.F 
below.\23\
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    \22\ See Charter of the Regulatory Oversight Committee For the 
Global Legal Entity Identifier System, available at https://www.leiroc.org/publications/gls/roc_20190130-1.pdf.
    \23\ GLEIF supports adding these definitions, but also suggests 
moving definitions to Sec.  45.1(a) from Sec.  45.6(a) for ``local 
operating unit'' and ``legal entity reference data.'' The Commission 
is declining to adopt this suggestion, as the definitions in Sec.  
45.6(a) are only used in Sec.  45.6.
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    The Commission is adding a definition of ``non-SD/MSP/DCO reporting 
counterparty'' to Sec.  45.1(a). ``Non-SD/MSP/DCO reporting 
counterparty'' means a reporting counterparty that is not an SD, MSP, 
or DCO. The existing definition of ``non-SD/MSP reporting 
counterparty'' does not explicitly include DCOs. This creates problems 
when, for instance, the Commission did not intend DCOs follow the 
required swap creation data reporting regulations in Sec.  45.3(d) for 
off-facility swaps not subject to the clearing requirement with a non-
SD/MSP reporting counterparty, even though DCOs are technically 
reporting counterparties that are neither SDs nor MSPs. Instead, DCOs 
follow Sec.  45.3(e) for clearing swaps. The definition of ``non-SD/
MSP/DCO reporting counterparty'' addresses this unintended gap.
    The Commission is adding a definition of ``novation'' to Sec.  
45.1(a). ``Novation'' means the process by which a party to a swap 
legally transfers all or part of its rights, liabilities, duties, and 
obligations under the swap to a new legal party other than the 
counterparty to the swap under applicable law. The term ``novation'' is 
currently undefined but used in the definition of ``life cycle event,'' 
as well as the existing Sec.  45.8(g) regulations for determining which 
counterparty must report.
    The Commission is adding a definition of ``swap'' to Sec.  45.1(a). 
``Swap'' means any swap, as defined by Sec.  1.3, as well as any 
foreign exchange forward, as defined by CEA section 1a(24), or foreign 
exchange swap, as defined by CEA section 1a(25).\24\ The term ``swap'' 
is currently undefined but used throughout part 45 and the definition 
codifies the meaning of the term as it is currently used throughout 
part 45.\25\
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    \24\ While foreign exchange forwards and foreign exchange swaps 
are excluded from the definition of ``swap,'' such transactions are 
nevertheless required to be reported to an SDR. See 7 U.S.C. 
1a(47)(E)(iii) (definition of ``swap'').
    \25\ NRECA-APPA believe the Commission should incorporate the 
``swap'' definition in CEA section 1a into its interpretations, 
exemptions, and other guidance, as well as remove from the 
definition: guarantees of a swap, commodity options meeting the 
conditions in Sec.  32.3, and other types of agreements, contracts, 
and transactions the Commission has determined Congress did not 
intend to regulate as ``swaps.'' NRECA-APPA at 5. The Commission 
notes its interpretations, exemptions, and guidance are outside of 
the scope of this rulemaking, as is removing certain types of 
agreements, contracts, and transactions from the CEA definition of 
``swap.'' The Commission emphasizes the definition of ``swap'' in 
Sec.  45.1 is for swap data reporting purposes only, and does not 
impact any regulations outside of part 45.
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    The Commission is adding definitions of ``swap data'' and ``swap 
transaction and pricing data'' to Sec.  45.1(a). In the Proposal, the 
Commission proposed ``swap data'' to mean the specific data elements 
and information in appendix 1 to part 45 required to be reported to an 
SDR pursuant to part 45 or made available to the Commission pursuant to 
part 49, as applicable. The Commission received a comment from DTCC 
suggesting deleting the phrase ``and information'' from the definition 
of ``swap data,'' because it is unclear to what ``and information'' 
refers.\26\ The Commission agrees and is modifying the definition to 
remove ``and information.'' \27\ The Commission is adopting the rest of 
the definition of ``swap data'' as proposed.
---------------------------------------------------------------------------

    \26\ DTCC at 4.
    \27\ The Commission notes certain swap-related information may 
be required to be reported to a SDR pursuant to other CFTC 
regulations which are not included in the definition of ``swap 
data.'' Market participants should be aware of other applicable 
reporting requirements. For example, counterparties electing an 
exception to or exemption from the swap clearing requirement under 
Sec.  50.4 are required to report specific information to a SDR, or 
if no SDR is available to receive the information, to the 
Commission, under Sec.  50.50(b).
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    Separately, the Commission is adopting the definition of ``swap 
transaction and pricing data,'' with minor changes from the proposed 
definition. ``Swap transaction and pricing data'' will mean all data 
elements for a swap in appendix A \28\ to part 43 that are required to 
be reported or publicly disseminated pursuant to part 43. Having ``swap 
data'' apply to part 45 data, and ``swap transaction and pricing data'' 
apply to part 43 data, will provide clarity across the reporting 
regulations.
---------------------------------------------------------------------------

    \28\ The Commission is changing the reference to appendix C in 
the proposed definition of ``swap transaction and pricing data'' to 
appendix A due to changes to the part 43 appendices the Commission 
is adopting in a separate release.
---------------------------------------------------------------------------

    The Commission is adding a definition of ``swap data validation 
procedures'' to Sec.  45.1(a). ``Swap data validation procedures'' 
means procedures established by an SDR pursuant to Sec.  49.10 to 
accept, validate, and process swap data reported to an SDR pursuant to 
part 45. The Commission discusses this definition in section IV.C.3 
below.
    The Commission is adding a definition of ``unique transaction 
identifier'' to Sec.  45.1(a). ``Unique transaction identifier'' means 
a unique alphanumeric identifier with a maximum of 52 characters 
constructed solely from the upper-case alphabetic characters A to Z or 
the digits 0 to 9, inclusive in both cases, generated for each swap 
pursuant to Sec.  45.5. The Commission received a comment from DTCC 
supporting the definition because it is consistent with UTI Technical 
Guidance.\29\ The Commission explains this definition in a discussion 
of the regulations to transition from using

[[Page 75507]]

unique swap identifiers (``USIs'') to UTIs in section II.E below.
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    \29\ DTCC at 4, 5.
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2. Changes to Existing Definitions \30\
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    \30\ CEWG comments the ``financial entity'' definition, which 
the Commission did not propose changing, is overinclusive for 
financial energy firms because if a central treasury unit (``CTU'') 
enters into a swap for purposes other than hedging, the CTU cannot 
qualify for the relief in CEA section 2(h)(7)(D). CEWG at 9. The 
existing ``financial entity'' definition in Sec.  45.1 simply 
references the CEA section 2(h)(7)(C) definition of financial 
entity. The Commission does not see a connection between the 
clearing rules in CEA section 2(h)(7)(D) to the reporting rules, and 
thus declines to adopt CEWG's change to the existing definition.
---------------------------------------------------------------------------

    The Commission is making non-substantive technical changes to the 
existing definitions of ``asset class,'' ``derivatives clearing 
organization,'' and ``swap execution facility.''
    The Commission is changing the definition of ``business day'' in 
Sec.  45.1. Existing Sec.  45.1 defines ``business day'' to mean the 
twenty-four hour day, on all days except Saturdays, Sundays, and legal 
holidays, in the location of the reporting counterparty or registered 
entity reporting data for the swap.\31\ In the Proposal, the Commission 
proposed replacing ``the twenty-four hour day'' with ``each twenty-
four-hour day,'' and ``legal holidays, in the location of the reporting 
counterparty'' with ``Federal holidays'' to simplify the definition by 
no longer requiring the determination of different legal holidays 
depending on the reporting counterparty's location.
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    \31\ 17 CFR 45.1 (definition of ``business day'').
---------------------------------------------------------------------------

    The Commission received four comments raising concerns with the 
changes to ``business day.'' CME believes the proposed changes could 
result in firms keeping some staff in the office on local holidays or 
reporting before the deadline.\32\ JSCC believes the proposed changes 
would force non-U.S. reporting counterparties to report valuation, 
margin, and collateral data on local holidays even though the data 
would be unchanged because their markets would be closed.\33\ ISDA-
SIFMA request clarification that ``federal holidays'' include legal 
holidays in the reporting counterparty's principal place of business so 
a reporting counterparty located outside the U.S. can take into account 
legal holidays that are not U.S. federal holidays.\34\ DTCC suggests 
using the same definitions for parts 43 and 45.\35\
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    \32\ CME at 12-13.
    \33\ JSCC at 1, 2.
    \34\ ISDA-SIFMA at 5.
    \35\ DTCC at 4.
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    The Commission seeks to avoid firms keeping staff in the office on 
local holidays, as commenters pointed out the changes suggest. As such, 
the Commission is keeping the current definition of ``business day'' 
with one modification: ``registered entity'' refers to SEFs and DCMs. 
Therefore, the ``business day'' will mean the twenty-four-hour day, on 
all days except Saturdays, Sundays, and legal holidays, in the location 
of SEF, DCM, or reporting counterparty reporting data for the swap.
    The Commission is changing the definition of ``life cycle event'' 
in Sec.  45.1. Existing Sec.  45.1 defines ``life cycle event'' to mean 
any event that would result in either a change to a primary economic 
term (``PET'') of a swap or to any PET data (``PET data'') previously 
reported to an SDR in connection with a swap.\36\ The Commission is 
replacing the reference to PET data with required swap creation data to 
reflect the Commission's removal of the concept of PET data reporting 
from Sec.  45.3.\37\ The Commission is also replacing a reference to a 
counterparty being identified in swap data by ``name'' with ``other 
identifiers'' to be more precise in when counterparties are identified 
by other means.
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    \36\ The Commission is not changing the examples the existing 
definition provides: A counterparty change resulting from an 
assignment or novation; a partial or full termination of the swap; a 
change to the end date for the swap; a change in the cash flows or 
rates originally reported; availability of an LEI for a swap 
counterparty previously identified by name or by some other 
identifier; or a corporate action affecting a security or securities 
on which the swap is based (e.g., a merger, dividend, stock split, 
or bankruptcy).
    \37\ The Commission discusses this change to Sec.  45.3 in 
section II.C below.
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    The Commission is changing the definition of ``non-SD/MSP 
counterparty'' in Sec.  45.1. Existing Sec.  45.1 defines ``non-SD/MSP 
counterparty'' to mean a swap counterparty that is neither an SD nor an 
MSP. The Commission is changing the defined term to ``non-SD/MSP/DCO 
counterparty.'' \38\ ``Non-SD/MSP/DCO counterparty'' means a swap 
counterparty that is not an SD, MSP, or DCO. This change conforms to 
the changes to the term ``non-SD/MSP/DCO reporting counterparty'' 
explained in section II.A.1 above.
---------------------------------------------------------------------------

    \38\ The Commission is updating all references to ``non-SD/MSP 
counterparty'' to ``non-SD/MSP/DCO counterparty'' throughout part 
45. To limit repetition, the Commission will not discuss each update 
of the phrase throughout this release.
---------------------------------------------------------------------------

    The Commission is changing the definition of ``required swap 
continuation data'' in Sec.  45.1. Existing Sec.  45.1 defines 
``required swap continuation data'' to mean all of the data elements 
that must be reported during the existence of a swap to ensure that all 
data concerning the swap in the SDR remains current and accurate, and 
includes all changes to the PET terms of the swap occurring during the 
existence of the swap. The definition further specifies that required 
swap continuation data includes: (i) All life-cycle-event data for the 
swap if the swap is reported using the life cycle reporting method, or 
all state data for the swap if the swap is reported using the snapshot 
reporting method; and (ii) all valuation data for the swap.
    First, the Commission is removing the reference to ``[PET] of the 
swap.'' \39\ Second, the Commission is removing the reference to 
snapshot reporting to reflect the removal of the concept of snapshot 
reporting from Sec.  45.4.\40\ Third, the Commission is adding a 
reference to margin and collateral data.\41\ As amended, ``required 
swap continuation data'' means all of the data elements that must be 
reported during the existence of a swap to ensure that all swap data 
concerning the swap in the SDR remains current and accurate, and 
includes all changes to the required swap creation data occurring 
during the existence of the swap. For this purpose, required swap 
continuation data includes: (i) All life-cycle-event data for the swap; 
and (ii) all swap valuation, margin, and collateral data for the swap.
---------------------------------------------------------------------------

    \39\ As explained above, the Commission is removing the concept 
of PET data reporting from Sec.  45.3.
    \40\ The Commission discusses the changes to Sec.  45.4 in 
section II.D below.
    \41\ The Commission discussed new margin and collateral data 
reporting in section II.D below.
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    The Commission is changing the definition of ``required swap 
creation data'' in Sec.  45.1. Existing Sec.  45.1 defines ``required 
swap creation data'' to mean all PET data for a swap in the swap asset 
class in question and all confirmation data for the swap. The 
Commission is replacing the reference to PET data and confirmation data 
with a reference to the swap data elements in appendix 1 to part 45, to 
reflect the Commission's update of the swap data elements in existing 
appendix 1.\42\
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    \42\ The Commission discusses the changes to appendix 1 in 
section V below.
---------------------------------------------------------------------------

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

    \43\ 7 U.S.C. 6s(h)(3)(B)(iii).

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[[Page 75508]]

3. Removed Definitions
    The Commission is removing the following definitions from Sec.  
45.1: ``credit swap;'' ``designated contract market;'' ``foreign 
exchange forward;'' ``foreign exchange instrument;'' ``foreign exchange 
swap;'' ``interest rate swap;'' ``major swap participant;'' ``other 
commodity swap;'' ``state data;'' ``swap data repository;'' and ``swap 
dealer.'' The Commission wants market participants to use the terms as 
they are already defined in Commission regulation Sec.  1.3 or in CEA 
section 1a.\44\
---------------------------------------------------------------------------

    \44\ 7 U.S.C. 1a.
---------------------------------------------------------------------------

    The Commission is removing the following definitions from Sec.  
45.1: ``confirmation;'' ``confirmation data;'' ``electronic 
confirmation;'' ``non-electronic confirmation;'' ``primary economic 
terms;'' and ``primary economic terms data.'' The definitions are 
unnecessary due to the Commission combining PET data and confirmation 
data into a single data report in Sec.  45.3.\45\
---------------------------------------------------------------------------

    \45\ The Commission discusses the changes to Sec.  45.3 in 
section II.C below.
---------------------------------------------------------------------------

    The Commission is removing the definition of ``quarterly 
reporting'' from Sec.  45.1 because the Commission is removing the 
quarterly reporting requirement for non-SD/MSP reporting counterparties 
from Sec.  45.4(d)(2)(ii).\46\
---------------------------------------------------------------------------

    \46\ The Commission discusses the changes to Sec.  45.4 in 
section II.D below.
---------------------------------------------------------------------------

    The Commission is removing the definitions of ``electronic 
verification,'' ``non-electronic verification,'' and ``verification'' 
from Sec.  45.1 because the Commission is changing the deadlines for 
reporting counterparties to report required swap creation data in Sec.  
45.3 to no longer depend on verification.\47\
---------------------------------------------------------------------------

    \47\ The Commission discusses the changes to Sec.  45.3 in 
section II.C below.
---------------------------------------------------------------------------

    The Commission is removing the definition of ``international swap'' 
from Sec.  45.1. Existing Sec.  45.1 defines ``international swap'' to 
mean a swap required by U.S. law and the law of another jurisdiction to 
be reported both to an SDR and to a different TR registered with the 
other jurisdiction. The Commission is removing the definition because 
the Commission is removing the international swap regulations in Sec.  
45.3(i).\48\
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    \48\ The Commission discusses the changes to Sec.  45.3(i) in 
section II.C.6 below.
---------------------------------------------------------------------------

B. Sec.  45.2--Swap Recordkeeping

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

    \49\ In a separate release, the Commission is relocating the 
recordkeeping requirements for SDRs from Sec.  45.2(f) and (g) to 
Sec.  49.12. 84 FR at 21103 (May 13, 2019).
    \50\ To limit repetition, the Commission will not discuss each 
removal in this release.
---------------------------------------------------------------------------

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

    \51\ COPE at 2.
---------------------------------------------------------------------------

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

    \52\ EEI-EPSA at 3.
    \53\ Chris Barnard at 2.
---------------------------------------------------------------------------

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

C. Sec.  45.3--Swap Data Reporting: Creation Data

    Existing Sec.  45.3 requires SEFs, DCMs, and reporting 
counterparties to report swap data to SDRs upon swap execution. As 
discussed in the sections below, the Commission is adopting four 
significant changes to the regulations for reporting new swaps: (i) 
Requiring a single data report at execution instead of two separate 
reports; (ii) extending the time SEFs, DCMs, and reporting 
counterparties have to report new swaps to SDRs; (iii) removing the 
requirement for SDRs to map allocations; and (iv) removing the 
regulations for international swaps. The remaining changes to Sec.  
45.3 discussed below are non-substantive clarifying, cleanup, or 
technical changes.
1. Introductory Text
    The Commission is removing the introductory text to Sec.  45.3. The 
existing introductory text to Sec.  45.3 provides a broad overview of 
the swap data reporting regulations for registered entities and swap 
counterparties. The Commission believes the introductory text is 
superfluous because the scope of Sec.  45.3 is clear from the operative 
provisions of Sec.  45.3.\54\ Removing the introductory text does not 
impact any regulatory requirements, including those referenced in the 
existing introductory text.
---------------------------------------------------------------------------

    \54\ The Commission is moving the reference in the introductory 
text to required data standards for SDRs in Sec.  45.13(b) to the 
regulatory text of Sec.  45.3(a) and (b) and renumbering Sec.  
45.13(b) as Sec.  45.13(a).
---------------------------------------------------------------------------

    The Commission did not receive any comments on the proposal to 
remove the introductory text to Sec.  45.3.
2. Sec.  45.3(a) through (e)--Swap Data Reporting: Creation Data
a. Sec.  45.3(a)--Swaps Executed on or Pursuant to the Rules of a SEF 
or DCM
    The Commission is adopting several changes to the Sec.  45.3(a) 
required swap creation data reporting regulations for swaps executed on 
or pursuant to the rules of a SEF or DCM. Existing Sec.  45.3(a) 
requires that SEFs and DCMs report all PET data \55\ for swaps ASATP 
after execution. If the swap is not intended to be cleared at a DCO, 
existing Sec.  45.3(a) requires the SEF or DCM also report confirmation 
data \56\ for the swap ASATP after execution.
---------------------------------------------------------------------------

    \55\ PET data reporting includes the reporting of approximately 
sixty swap data elements, varying by asset class, enumerated in 
appendix 1 to part 45. See 17 CFR 45.1 (definition of ``primary 
economic terms''). The Commission discusses the removal of the 
definition of ``primary economic terms'' from Sec.  45.1 in section 
II.A.3 above.
    \56\ Confirmation data reporting includes reporting all of the 
terms of a swap matched and agreed upon by the counterparties in 
confirming a swap. See 17 CFR 45.1 (definition of ``confirmation 
data''). The Commission discusses removing the definition of 
``confirmation data'' from Sec.  45.1 in section II.A.3 above.
---------------------------------------------------------------------------

    First, the Commission is changing Sec.  45.3(a) to require SEFs and 
DCMs to report a single required swap creation data report, regardless 
of whether the swap is intended to be cleared. While the Commission 
intended the initial PET report would ensure SDRs have sufficient data 
on each swap for the Commission to perform its regulatory functions 
while the more complete confirmation data is not yet available,\57\

[[Page 75509]]

the Commission is concerned the separate reports may be encouraging the 
reporting of duplicative information to SDRs. The Commission believes 
this will streamline reporting, remove uncertainty, and reduce 
instances of duplicative required swap creation data reports.
---------------------------------------------------------------------------

    \57\ See 77 FR at 2142, 2148 (Jan. 13, 2012).
---------------------------------------------------------------------------

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

    \58\ The comment associated with this ``catch-all'' data element 
in existing appendix 1 to part 45 instructs reporting 
counterparties, SEFs, DCMs, and DCOs to use as many data elements as 
required to report each such term. 17 CFR part 45 appendix 1.
    \59\ Other regulators have taken different approaches to 
required swap creation data reporting. The Securities and Exchange 
Commission (``SEC'') does not have rules for reporting separate 
confirmation data reports. See 17 CFR 242.901. The European Market 
Infrastructure Regulation (``EMIR'') requires reporting of the 
details of any derivative contract counterparties have concluded and 
of any modification or termination of the contract. European 
Securities and Markets Authority (``ESMA'') then develops the 
specific technical standards and requirements for the implementation 
of reporting. See Regulation (EU) No. 648/2012 of the European 
Parliament and of the Council on OTC derivatives, central 
counterparties and trade repositories, Article 9(1) (July 4, 2012) 
(requiring reporting after execution without reference to separate 
reports); Commission Implementing Regulation (EU) No. 1247/2012 
laying down implementing technical standards with regard to the 
format and frequency of trade reports to trade repositories 
according to Regulation (EU) No. 648/2012 of the European Parliament 
and of the Council on OTC derivatives, central counterparties and 
trade repositories, Article 1 (Dec. 19, 2012) (referencing 
``single'' reports under Article 9 of Regulation (EU) No. 648/2012).
---------------------------------------------------------------------------

    Second, the Commission is changing Sec.  45.3(a) to extend the 
deadline for SEFs and DCMs to report required swap creation data until 
the end of the next business day following the execution date 
(sometimes referred to as ``T+1''). Initially, the Commission believed 
reporting swap data immediately after execution ensured the ability of 
the Commission and other regulators to fulfill their systemic risk 
mitigation, market transparency, position limit monitoring, and market 
surveillance objectives,\60\ but the Commission is concerned the ASATP 
deadline may be causing reporting counterparties to hastily report 
required swap creation data that has contributed to data quality 
issues. The Commission believes an extended reporting timeline will 
help improve data quality while encouraging alignment with reporting 
deadlines set by other regulators.\61\
---------------------------------------------------------------------------

    \60\ See 77 FR 2142 at 2149 (Jan. 13, 2012).
    \61\ The SEC requires primary and secondary trade information be 
reported within 24 hours of execution on the next business day. 17 
CFR 242.901(j). The SEC noted commenters raised concerns that 
unreasonably short reporting timeframes would result in the 
submission of inaccurate transaction information, and that the SEC's 
interim 24-hour reporting timeframe Sec.  901(j) strikes an 
appropriate balance between the need for prompt reporting of 
security-based swap transaction information and allowing reporting 
entities sufficient time to develop fast and robust reporting 
capability. See Regulation SBSR--Reporting and Dissemination of 
Security-Based Swap Information, 80 FR 14564, 14623-64 (Mar. 19, 
2015). ESMA requires reporting no later than the working day 
following execution. Regulation (EU) No. 648/2012 Article 9(1).
---------------------------------------------------------------------------

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

    \62\ LCH at 2; FIA at 14; CEWG at 2; DTCC at 5.
    \63\ DTCC at 5.
    \64\ CEWG at 2.
---------------------------------------------------------------------------

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

    \65\ GFXD at 21, 22; DTCC at 5; Eurex at 2; ISDA-SIFMA at 5; 
Chatham at 2; ICE DCOs at 3; LCH at 2.
    \66\ DTCC at 5.
---------------------------------------------------------------------------

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

    \67\ Markit at 3-4.
    \68\ The Commission discusses the extended deadline for off-
facility swaps in section II.C.2.b below.
---------------------------------------------------------------------------

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

    \69\ Eurex at 2; Chatham at 2.
    \70\ ISDA-SIFMA at 5-7.
    \71\ The Commission discusses the changes to appendix 1 in 
section V below.
    \72\ To limit repetition, the Commission will not discuss each 
removal in this release.
---------------------------------------------------------------------------

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

[[Page 75510]]

b. Sec.  45.3(b) through (e)--Off-Facility Swaps
    The Commission is making several changes to the Sec.  45.3(b) 
through (e) required swap creation data reporting regulations for off-
facility swaps. Most of these changes conform to the changes in Sec.  
45.3(a) because the regulations in Sec.  45.3(b) through (e) for off-
facility swaps are analogous to the regulations in Sec.  45.3(a) for 
swaps executed on SEFs and DCMs.
    In general, for off-facility swaps subject to the Commission's 
clearing requirement, existing Sec.  45.3(b) requires that SD/MSP 
reporting counterparties report PET data ASATP after execution, with a 
15-minute deadline, while non-SD/MSP reporting counterparties report 
PET data ASATP after execution with a one-business-hour deadline.\73\ 
For off-facility swaps not subject to the clearing requirement but have 
an SD/MSP reporting counterparty, existing Sec.  45.3(c)(1) generally 
requires that SD/MSP reporting counterparties report PET data ASATP 
after execution with a 30-minute deadline, and confirmation data for 
swaps that are not intended to be cleared ASATP with a 30-minute 
deadline if confirmation is electronic, or ASATP with a 24-business-
hour deadline if not electronic, for credit, equity, foreign exchange, 
and interest rate swaps.\74\
---------------------------------------------------------------------------

    \73\ 17 CFR 45.3(b)(1)(i), (ii).
    \74\ 17 CFR 45.3(c)(1)(i), (ii).
---------------------------------------------------------------------------

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

    \75\ 17 CFR 45.3(c)(2)(i), (ii).
    \76\ 17 CFR 45.3(d).
---------------------------------------------------------------------------

    Finally, existing Sec.  45.3(e) requires that ASATP after a DCO 
accepts an original swap for clearing, or ASATP after execution of a 
clearing swap that does not replace an original swap, the DCO report 
all required swap creation data for the clearing swap, which includes 
all confirmation data and all PET data.
    First, the Commission is replacing existing Sec.  45.3(b) through 
(e) with Sec.  45.3(b), titled ``Off-facility swaps,'' to restructure 
the regulations.\77\ Second, the Commission is changing the existing 
Sec.  45.3(b) through (e) requirements for reporting counterparties to 
submit separate PET data and confirmation data reports for all off-
facility swaps that are not intended to be cleared at a DCO to report a 
single required swap creation data report. The Commission discusses its 
reasoning for this change in section II.C.2.a above. As with swaps 
executed on SEFs and DCMs, the Commission believes a single report 
would align with the approach taken by other regulators and improve 
data quality.
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    \77\ The Commission is replacing Sec.  45.3(c) through (d) with 
provisions for allocations and multi-asset swaps, respectively, as 
discussed in the following sections. As part of this change, the 
Commission is moving the requirements for reporting required swap 
creation data for clearing swaps from Sec.  45.3(e) to Sec.  
45.3(b).
---------------------------------------------------------------------------

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

    \78\ See comments from DTCC, LCH, FIA, and CEWG.
---------------------------------------------------------------------------

    Third, the Commission is changing the existing Sec.  45.3(b) 
through (e) requirements for reporting counterparties to report 
required swap creation data ASATP after execution with different 
deadlines for off-facility swaps in Sec.  45.3(b)(1) and (2). New Sec.  
45.3(b)(1) requires SD/MSP/DCO reporting counterparties report swap 
creation data to an SDR by T+1 following the execution date. New Sec.  
45.3(b)(2) requires non-SD/MSP/DCO reporting counterparties report swap 
creation data to an SDR not later than T+2 following the execution 
date.
    The Commission discusses the background to these changes in section 
II.C.2.a above. The Commission discusses several comments beyond those 
discussed in section II.C.2.a in this section. CEWG believes a T+2 
deadline for non-SD/MSP/DCO reporting counterparties strikes an 
appropriate balance between giving end-users enough time to report, 
incurring a limited compliance burden, and providing the Commission 
with swap data in a timely manner.\79\ The Commission agrees with CEWG 
and believes the extended deadline reflects the Commission's interest 
in avoiding placing unnecessary burdens on non-SD/MSP/DCO reporting 
counterparties.
---------------------------------------------------------------------------

    \79\ CEWG at 2.
---------------------------------------------------------------------------

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

    \80\ ICE SDR at 7.
---------------------------------------------------------------------------

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

    \81\ CME at 14-15.
---------------------------------------------------------------------------

    In summary, Sec.  45.3(b) will require that for each off-facility 
swap, the reporting counterparty shall report required swap creation 
data electronically to an SDR as provided by Sec.  45.3(b)(1) or (2), 
as applicable. If the reporting counterparty is an SD, MSP, or DCO, 
Sec.  45.3(b)(1) will require the reporting counterparty report 
required swap creation data electronically to an SDR in the manner 
provided in Sec.  45.13(a) not later than the end of the next business 
day following the execution date. If the reporting counterparty is a 
non-SD/MSP/DCO counterparty, the reporting counterparty shall report 
required swap creation data electronically to an SDR in the manner 
provided in Sec.  45.13(a) not later than the end of the second 
business day following the execution date.
3. Sec.  45.3(f)--Allocations \82\
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    \82\ The Commission is re-designating existing Sec.  45.3(f) as 
Sec.  45.3(c) to reflect the consolidation of Sec.  45.3(b) through 
(e) into Sec.  45.3(b).
---------------------------------------------------------------------------

    The Commission is making several changes to the existing Sec.  
45.3(f) regulations for reporting allocations, re-designated as Sec.  
45.3(c). The Commission is making most of the changes to Sec.  45.3(f) 
to conform to the changes in Sec.  45.3(a) through (e). Existing Sec.  
45.3(f)(1) provides that the reporting counterparty to an initial swap 
with an allocation agent reports required swap creation

[[Page 75511]]

data for the initial swap, including a USI. For the post-allocation 
swaps, existing Sec.  45.3(f)(2)(i) provides that the agent tells the 
reporting counterparty the identities of the actual counterparties 
ASATP after execution, with a deadline of eight business hours. 
Existing Sec.  45.3(f)(2)(ii) provides that the reporting counterparty 
must create USIs for the swaps and report all required swap creation 
data for each post-allocation swap ASATP after learning the identities 
of the counterparties. Existing Sec.  45.3(f)(2)(iii) provides that the 
SDR to which the initial and post-allocation swaps were reported must 
map together the USIs of the initial swap and each post-allocation 
swap.
    First, the Commission is making non-substantive changes, including 
specifying required swap creation data for allocations must be reported 
``electronically'' to SDRs in Sec.  45.3(c), (c)(1), and (c)(2)(ii), 
and replacing the reference in existing Sec.  45.3(f)(1) (re-designated 
as Sec.  45.3(c)(1)) to ``Sec.  45.3(a) through (d)'' with a reference 
to paragraph (a) or (b) of Sec.  45.3, to reflect the structural 
revisions to Sec.  45.3(a) through (e). However, because the Commission 
is extending the time to report required swap creation data in Sec.  
45.3(a) and (b), reporting counterparties will have additional time to 
report required swap creation data for the initial swaps for 
allocations as well.
    Second, the Commission is changing existing Sec.  45.3(f)(2)(ii) 
(re-designated as Sec.  45.3(c)(2)(ii)) \83\ to replace the requirement 
to report required swap creation data for post-allocation swaps ASATP 
after learning the identities of the actual counterparties with a 
cross-reference to Sec.  45.3(b). This gives reporting counterparties 
until T+1 or T+2, depending on their status, to report required swap 
creation data for the allocated swaps. Failing to extend the deadline 
for allocations would result in reporting counterparties unnecessarily 
reporting allocations faster than creation and continuation data swap 
reports.
---------------------------------------------------------------------------

    \83\ The Commission is not changing the Sec.  45.3(f)(2)(i) 
requirement (re-designated as Sec.  45.3(c)(2)(i)) for the agent to 
inform the reporting counterparty of the identities of the reporting 
counterparty's actual counterparties ASATP after execution, with an 
eight business hour deadline. Reporting counterparties would still 
need to know their actual counterparties, and the eight-hour 
deadline is consistent with other regulations for allocations. See 
17 CFR 1.35(b)(5)(iv).
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    Finally,\84\ the Commission is removing Sec.  45.3(f)(2)(iii) 
without re-designation. The Commission is requiring an event data 
element in appendix 1.\85\ One of the events in this data element is 
``allocation,'' which requires reporting counterparties indicate 
whether a swap is associated with an allocation. The Commission 
believes this will simplify the current process involving SDRs mapping 
data elements by having reporting counterparties report the information 
about allocations themselves.
---------------------------------------------------------------------------

    \84\ The Commission is adopting several non-substantive and 
technical language edits, but is limiting discussion in this section 
to substantive amendments.
    \85\ The swap data elements required to be reported to SDRs are 
discussed in section V below.
---------------------------------------------------------------------------

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

    \86\ GFXD separately responded to a request for comment on 
whether the changes create issues for SDRs stating it believes the 
changes do not create issues for SDRs. GXFD at 21.
    \87\ GFXD at 21; ISDA-SIFMA at 6-7.
---------------------------------------------------------------------------

    The Commission did not receive additional comments on the proposed 
changes to Sec.  45.3(f), re-designated as Sec.  45.3(c). For the 
reasons discussed above, the Commission is adopting the changes to 
Sec.  45.3(f).
4. Sec.  45.3(g)--Multi-Asset Swaps \88\
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    \88\ The Commission is re-designating Sec.  45.3(g) as Sec.  
45.3(d) to reflect: The consolidation of Sec.  45.3(b) through (e) 
into Sec.  45.3(b); and re-designating Sec.  45.3(f) as Sec.  
45.3(c).
---------------------------------------------------------------------------

    The Commission is making non-substantive changes to the Sec.  
45.3(g) regulations for reporting multi-asset swaps to conform to the 
changes in Sec.  45.3(a) through (f). Existing Sec.  45.3(g) provides 
that for each multi-asset swap, required swap creation data and 
required swap continuation data must be reported to a single SDR that 
accepts swaps in the asset class treated as the primary asset class 
involved in the swap by the SEF, DCM, or reporting counterparty making 
the first report of required swap creation data pursuant to Sec.  45.3. 
Existing Sec.  45.3(g) also provides that the registered entity or 
reporting counterparty making the first report of required swap 
creation data report all PET data for each asset class involved in the 
swap.
    First, the Commission is replacing ``making the first report'' of 
required swap creation data with ``reporting'' required swap creation 
data to reflect the single report for required swap creation data, 
instead of separate PET data and confirmation data reports. Second, the 
Commission is removing the last sentence of the regulation concerning 
all PET data for each asset class involved in the swap. The Commission 
believes this sentence is unnecessary and no longer relevant with the 
Commission's removal of PET data from the regulations.
    The Commission did not receive any comments on the amendments to 
Sec.  45.3(g). The Commission is adopting the amendments to Sec.  
45.3(g), re-designated as Sec.  45.3(d), as proposed.
5. Sec.  45.3(h)--Mixed Swaps \89\
---------------------------------------------------------------------------

    \89\ The Commission is re-designating Sec.  45.3(h) as Sec.  
45.3(e) to reflect: The consolidation of Sec.  45.3(b) through (e) 
into Sec.  45.3(b); re-designating Sec.  45.3(f) as Sec.  45.3(c); 
and re-designating Sec.  45.3(g) as Sec.  45.3(d).
---------------------------------------------------------------------------

    The Commission is making several non-substantive changes to the 
Sec.  45.3(h) regulations for mixed swaps to conform to the changes in 
Sec.  45.3(a) through (g). Existing Sec.  45.3(h)(1) requires that for 
each mixed swap, required swap creation data and required swap 
continuation data shall be reported to an SDR registered with the 
Commission and to a security-based SDR (``SBSDR'') registered with the 
SEC. This requirement may be satisfied by reporting the mixed swap to 
an SDR or SBSDR registered with both Commissions. Existing Sec.  
45.3(h)(2) requires that the registered entity or reporting 
counterparty making the first report of required swap creation data 
under Sec.  45.3(h) ensure that the same USI is recorded for the swap 
in both the SDR and the SBSDR.
    The Commission is replacing ``making the first report'' of required 
swap creation data with ``reporting'' required swap creation data, 
among other non-substantive changes. The Commission did not receive any 
comments on the changes to Sec.  45.3(h), re-designated as Sec.  
45.3(e). The Commission is adopting the changes as proposed.
6. Sec.  45.3(i)--International Swaps
    The Commission is removing the Sec.  45.3(i) regulations for 
international swaps. Existing Sec.  45.3(i) requires that for each 
international swap, the reporting counterparty report to an SDR the 
identity of the non-U.S. TR to which the swap is also reported and the 
swap identifier used by the non-U.S. TR.\90\
---------------------------------------------------------------------------

    \90\ Existing Sec.  45.1 defines ``international swaps'' to mean 
swaps required to be reported by U.S. law and the law of another 
jurisdiction to be reported to both an SDR and to a different TR 
registered with the other jurisdiction. The Commission discusses 
removing the definition of ``international swap'' from Sec.  45.1 in 
section II.A above.

---------------------------------------------------------------------------

[[Page 75512]]

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

    \91\ Swap Data Recordkeeping and Reporting Requirements, 77 FR 
2136, 2151 (Jan. 13, 2012).
    \92\ The Commission discusses USIs and UTIs in section II.E 
below.
---------------------------------------------------------------------------

7. Sec.  45.3(j)--Choice of SDR \93\
---------------------------------------------------------------------------

    \93\ The Commission is re-designating Sec.  45.3(j) as Sec.  
45.3(f) to reflect: The consolidation of Sec.  45.3(b) through (e) 
into Sec.  45.3(b); re-designating Sec.  45.3(f) as Sec.  45.3(c); 
re-designating Sec.  45.3(g) as Sec.  45.3(d); re-designating Sec.  
45.3(h) as Sec.  45.3(d); and removing Sec.  45.3(i).
---------------------------------------------------------------------------

    The Commission is making non-substantive changes to the Sec.  
45.3(j) regulations for reporting counterparties in choosing their SDR. 
Existing Sec.  45.3(j) requires that the entity with the obligation to 
choose the SDR to which all required swap creation data for a swap is 
reported be the entity to make the first report of all data pursuant to 
Sec.  45.3, as follows: (i) For swaps executed on or pursuant to the 
rules of a SEF or DCM, the SEF or DCM choose the SDR; (ii) for all 
other swaps, the reporting counterparty, as determined in Sec.  45.8, 
choose the SDR.
    The Commission is changing the heading of re-designated Sec.  
45.3(f) from ``Choice of SDR'' to ``Choice of swap data repository,'' 
to be consistent with other headings throughout part 45, among other 
technical changes. The Commission did not receive any comments on the 
proposed changes to Sec.  45.3(j), re-designated as Sec.  45.3(f). The 
Commission is adopting the changes to Sec.  45.3(j) as proposed.

D. Sec.  45.4--Swap Data Reporting: Continuation Data

    Existing Sec.  45.4 requires reporting counterparties to report 
updates to existing swap data and swap valuations to SDRs. As discussed 
in the sections below, the Commission is adopting four significant 
changes to these regulations: (i) Removing the option for state data 
reporting; (ii) extending the deadline for reporting required swap 
continuation data to T+1 or T+2; (iii) removing the requirement for 
non-SD/MSP/DCO reporting counterparties to report valuation data 
quarterly; and (iv) requiring SD/MSP reporting counterparties to report 
margin and collateral data daily. The remaining changes to Sec.  45.4 
discussed below are non-substantive clarifying, cleanup, or technical 
changes.
1. Introductory Text
    The Commission is removing the introductory text to existing Sec.  
45.4.\94\ The existing introductory text to Sec.  45.4 provides a broad 
overview of the swap continuation data reporting regulations for 
registered entities and swap counterparties. The Commission believes 
the introductory text is superfluous because the scope of Sec.  45.4 is 
clear from the operative provisions of Sec.  45.4. Removing the 
introductory text would not impact any regulatory requirements, 
including those referenced in the introductory text.
---------------------------------------------------------------------------

    \94\ The introductory text to Sec.  45.4 references: The 
existing Sec.  45.13(b) regulations for required data standards for 
reporting swap data to SDRs; the existing Sec.  49.10 regulations 
for SDRs to accept swap data; the existing part 46 regulations for 
reporting pre-enactment swaps and transition swaps; the existing 
Sec.  45.3 regulations for reporting required swap creation data; 
the existing Sec.  45.6 regulations for the use of LEIs; the real-
time public reporting requirements in existing part 43; and the 
parts 17 and 18 regulations for large trader reporting.
---------------------------------------------------------------------------

    The Commission did not receive any comments on the proposal to 
remove the introductory text to Sec.  45.4.
2. Sec.  45.4(a)--Continuation Data Reporting Method Generally
    The Commission is making several changes to the Sec.  45.4(a) 
regulations for required swap continuation data reporting. Existing 
Sec.  45.4(a) requires reporting counterparties and DCOs \95\ report 
required swap continuation data in a manner sufficient to ensure that 
all data in the SDR for a swap remains current and accurate, and 
includes all changes to the PET data of the swap occurring during the 
existence of the swap. Existing Sec.  45.4(a) further specifies 
reporting entities and counterparties fulfill their obligations by 
reporting, within the applicable deadlines outlined in Sec.  45.4, the 
following: (i) Life-cycle-event data to an SDR that accepts only life-
cycle-event data reporting; (ii) state data to an SDR that accepts only 
state data reporting; or (iii) either life-cycle-event data or state 
data to an SDR that accepts both life-cycle-event data and state data 
reporting.
---------------------------------------------------------------------------

    \95\ SEFs and DCMs do not have reporting obligations with 
respect to required swap continuation data. DCOs are reporting 
counterparties for clearing swaps, and are thus responsible for 
reporting required swap continuation data for these swaps. However, 
DCOs also have required swap continuation data obligations for 
original swaps, to which DCOs are not counterparties. As a result, 
Sec.  45.4(a) must address reporting counterparties and DCOs 
separately.
---------------------------------------------------------------------------

    First, the Commission is changing the first two sentences to state 
that for each swap, regardless of asset class, reporting counterparties 
and DCOs required to report required swap continuation data shall 
report, to improve readability without changing the regulatory 
requirement.
    Second, the Commission is removing state data reporting as an 
option for reporting changes to swaps from Sec.  45.4. State data 
reporting involves reporting counterparties re-reporting the PET terms 
of a swap every day, regardless of whether any changes have occurred to 
the terms of the swap since the last state data report.\96\ In 
contrast, life-cycle-event data reporting involves reporting 
counterparties re-submitting the PET terms of a swap when an event has 
taken place that results in a change to the previously reported terms 
of the swap.\97\
---------------------------------------------------------------------------

    \96\ 17 CFR 45.1 (definition of ``state data''). The Commission 
discusses removing the definition of ``state data'' from Sec.  45.1 
in section II.A.3 above.
    \97\ 17 CFR 45.1 (definition of ``life cycle event''). The 
Commission discusses amending the definition of ``life-cycle-event 
data'' in Sec.  45.1 in section II.A.2 above.
---------------------------------------------------------------------------

    In adopting part 45, the Commission gave reporting counterparties 
the option of reporting changes to swaps by either the state data 
reporting method or life cycle event method to provide flexibility.\98\ 
However, the Commission believes state data reporting may be 
contributing to data quality issues by filling SDRs with unnecessary 
swap messages. As noted in the Proposal, the Commission estimates that 
state data reporting messages represent the vast majority of swap 
reports maintained by SDRs and the Commission.\99\ The Commission 
believes eliminating state

[[Page 75513]]

data reporting will improve data quality without impeding the 
Commission's ability to fulfill systemic risk mitigation, market 
transparency, position limit monitoring, and market surveillance 
objectives.
---------------------------------------------------------------------------

    \98\ See 77 FR at 2153.
    \99\ For instance, an analysis of part 45 data showed that 
during January 2018, SDRs received approximately 30 million state 
data reporting messages, which included over 77% of all interest 
rate swap reports submitted to SDRs during that time period. Since 
reporting began, the Commission estimates SDRs have received and 
made available to the Commission over a billion state data reporting 
messages.
---------------------------------------------------------------------------

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

    \100\ CME at 15.
---------------------------------------------------------------------------

    For the reasons discussed above, the Commission is adopting the 
changes to Sec.  45.4(a) as proposed. Therefore, Sec.  45.4(a) will 
require that for each swap, regardless of asset class, reporting 
counterparties and DCOs required to report required swap continuation 
data shall report life-cycle-event data for the swap electronically to 
an SDR in the manner provided in Sec.  45.13(a) within the applicable 
deadlines outlined in Sec.  45.4.
3. Sec.  45.4(b)--Continuation Data Reporting for Clearing Swaps
    The Commission is making several changes to the existing Sec.  
45.4(b) regulations for required swap continuation data reporting for 
clearing swaps. The Commission is moving the Sec.  45.4(b) required 
swap continuation data reporting regulations for clearing swaps to 
Sec.  45.4(c) as part of structural changes to the regulations.\101\ 
The Commission is re-designating existing Sec.  45.4(c) as Sec.  
45.4(b). Existing Sec.  45.4(c) contains the continuation data 
reporting regulations for original swaps. Re-designated Sec.  45.4(b) 
will be titled ``Continuation data reporting for original swaps.''
---------------------------------------------------------------------------

    \101\ The Commission discusses the revisions to the continuation 
data requirements for clearing swaps and uncleared swaps in section 
II.D.4 below.
---------------------------------------------------------------------------

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

    \102\ The regulation also specifies the information must be 
reported in the manner provided in Sec.  45.13(b) and in Sec.  45.4, 
and must be accepted and recorded by such SDR as provided in Sec.  
49.10. 17 CFR 45.4(c).
---------------------------------------------------------------------------

    First, the Commission is extending the deadline for reporting swap 
continuation data for original swaps in Sec.  45.4(c)(1) to either T+1 
or T+2, depending on the reporting counterparty, to be consistent with 
the new deadlines for reporting required swap creation data in Sec.  
45.3.\103\ As the Commission discusses in section II.C.2.a above, 
though, the Commission is removing the references to 11:59 p.m. eastern 
time that were in the Proposal. The Commission is thus changing the 
reference from 11:59 p.m. eastern time to the end of the next business 
day or the second business day that any life cycle event occurs for the 
swap. Second, the Commission is removing the references to state data 
reporting \104\ in Sec.  45.4(b) and clarifying that required swap 
continuation data must be reported ``electronically,'' among other non-
substantive changes.
---------------------------------------------------------------------------

    \103\ The Commission discusses these changes in sections II.C.2 
above. The Commission also considered the deadlines set by other 
regulators. The SEC requires that any events that would result in a 
change in the information reported to a SBSDR be reported within 24 
hours of the event taking place. 17 CFR 242.900(g); 17 CFR 
242.901(e). EMIR requires that contract modifications be reported no 
later than the working day following the modification. Reg. 648/2012 
Art. 9(1).
    \104\ The Commission discusses removing state data reporting in 
section II.D.2 above.
---------------------------------------------------------------------------

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

    \105\ GFXD at 22; Chatham at 2; ISDA-SIFMA at 5.
    \106\ GFXD at 22.
---------------------------------------------------------------------------

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

    \107\ DTCC at 5.
---------------------------------------------------------------------------

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

    \108\ Eurex 2-3.
    \109\ Id.
    \110\ Id.
    \111\ See Amendments to Swap Data Recordkeeping and Reporting 
Requirements for Cleared Swaps, 81 FR 41736 (June 27, 2016).
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    In summary, Sec.  45.4(b) will require that for each original swap, 
the DCO shall report required swap continuation data, including 
terminations, electronically to the SDR to which the swap that was 
accepted for clearing was reported pursuant to Sec.  45.3 in the manner 
provided in Sec.  45.13(a), and such required swap continuation data 
shall be accepted and recorded by such SDR as provided in Sec.  49.10. 
New Sec.  45.4(b)(1) will provide that the DCO that accepted the swap 
for clearing shall report all life-cycle-event data electronically to 
an SDR in the manner provided in Sec.  45.13(a) not later than the end 
of the next business day following the day that any life cycle event 
occurs with respect to the swap. New Sec.  45.4(b)(2) will require 
that, in addition to all other required swap continuation data, life-

[[Page 75514]]

cycle-event data shall include the LEI of the SDR to which all required 
swap creation data for each clearing swap was reported by the DCO 
pursuant to Sec.  45.3(b); the UTI of the original swap that was 
replaced by the clearing swaps; and the UTI of each clearing swap that 
replaces a particular original swap.
4. Sec.  45.4(c)--Continuation Data for Original Swaps
    The Commission is making several changes to the Sec.  45.4(c) 
regulations for reporting required swap continuation data for original 
swaps. The Commission is moving the required swap continuation data 
reporting requirements for original swaps from existing Sec.  45.4(c) 
to Sec.  45.4(b) as part of structural changes.\112\ The Commission is 
also moving the continuation data reporting requirements for clearing 
swaps from existing Sec.  45.4(b) to Sec.  45.4(c), and combining them 
with the continuation data reporting requirements for uncleared swaps 
in existing Sec.  45.4(d). The Commission is retitling Sec.  45.4(c) 
``Continuation data reporting for swaps other than original swaps'' to 
reflect the combination.
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    \112\ The Commission discusses changes to continuation data 
requirements for original swaps in section II.D.3 above.
---------------------------------------------------------------------------

    The Commission is making several changes to the continuation data 
reporting regulations for clearing swaps and uncleared swaps in Sec.  
45.4(b) and (d), respectively, proposed to be re-designated as Sec.  
45.4(c). Existing Sec.  45.4(b) requires that for all clearing swaps, 
DCOs report: (i) Life-cycle-event data or state data reporting either 
on the same day that any life cycle event occurs with respect to the 
swap, or daily for state data reporting; and (ii) daily valuation data. 
Existing Sec.  45.4(d) requires that for all uncleared swaps, including 
swaps executed on a SEF or DCM, the reporting counterparty report: (i) 
All life-cycle-event data on the same day for SD/MSP reporting 
counterparties, or the second business day if it relates to a corporate 
event of the non-reporting counterparty, or state data daily; (ii) all 
life-cycle-event data on the next business day for non-SD/MSP reporting 
counterparties, or the end of the second business day if it relates to 
a corporate event of the non-reporting counterparty, or state data 
daily; (iii) daily valuation data for SD/MSP reporting counterparties; 
and (iv) the current daily mark of the transaction as of the last day 
of each fiscal quarter, within 30 calendar days of the end of each 
fiscal quarter for non-SD/MSP reporting counterparties.\113\
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    \113\ If a daily mark of the transaction is not available for 
the swap, the reporting counterparty satisfies the requirement by 
reporting the current valuation of the swap recorded on its books in 
accordance with applicable accounting standards. 17 CFR 
45.4(d)(2)(ii).
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    First, the Commission is changing the life cycle event reporting 
deadlines for these swaps to match other T+1 and T+2 deadlines.\114\ 
The Commission is changing the life cycle event reporting deadline for 
SD/MSP/DCO reporting counterparties from the same day to T+1 following 
any life cycle event.\115\ The Commission is changing the exception for 
corporate events of the non-reporting counterparty to T+2. For non-SD/
MSP/DCO reporting counterparties, the Commission is changing the life 
cycle event reporting deadline to T+2 following the life cycle event. 
As explained in section II.C.2.a above, though, the Commission is 
removing the references to 11:59 p.m. eastern time from the proposal. 
As a result, the deadlines will be either the end of the next business 
day or the second business day following the events.
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    \114\ The Commission discusses the T+1 and T+2 deadlines in 
Sec.  45.3(b) and Sec.  45.4(b) in sections II.C.2.b and II.D.3, 
respectively, above.
    \115\ The Commission is not extending the valuation data 
reporting deadline for SD/MSP/DCO reporting counterparties. The 
Commission believes SDs, MSPs, and DCOs are already creating daily 
valuations and tracking margin and collateral for reasons 
independent of their swap reporting obligations.
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    Second, the Commission is removing the references to state data 
reporting in new Sec.  45.4(c).\116\ Third, the Commission is 
clarifying that required swap continuation data must be reported 
``electronically,'' among other non-substantive edits to improve 
readability and update cross-references.
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    \116\ The Commission discusses the removal of state data 
reporting in section II.D.2 above.
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    Fourth, the Commission is changing the swap valuation data 
reporting requirements for all reporting counterparties. DCOs, SDs, and 
MSPs report valuation data daily, while non-SD/MSP reporting 
counterparties report the daily mark of transactions quarterly.\117\ 
For DCO, SD, and MSP reporting counterparties, the Commission is 
keeping the daily reporting requirement. However, the Commission is 
expanding the requirement to include margin and collateral data.\118\ 
Conversely, the Commission is eliminating the requirement for non-SD/
MSP/DCO reporting counterparties to report valuation data and is not 
requiring them to report margin and collateral data.
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    \117\ 17 CFR 45.4(b)(2) and (d)(2).
    \118\ The Commission is adding a definition of ``collateral 
data'' to Sec.  45.1(a), as discussed in section II.A.1 above. 
``Collateral data'' means the data elements necessary to report 
information about the money, securities, or other property posted or 
received by a swap counterparty to margin, guarantee, or secure a 
swap, as specified in appendix 1 to part 45.
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    The Commission decided against requiring collateral data reporting 
when it adopted part 45 in 2012. At the time, both the Commission and 
industry understood collateral data was important for systemic risk 
management, but was not yet possible to include in transaction-based 
reporting since it was calculated at the portfolio level.\119\ In light 
of this limitation, the Commission required the daily mark be reported 
for swaps as valuation data, but not collateral.\120\ However, the 
Commission noted while the industry had not yet developed data elements 
suitable for representing the terms required to report collateral, the 
Commission could revisit the issue in the future if and when industry 
and SDRs develop ways to represent electronically the terms required 
for reporting collateral.\121\
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    \119\ See 77 FR 2136, 2153.
    \120\ 17 CFR 45.1 (definition of ``valuation data''). The 
Commission proposed amending the definition of ``valuation data'' in 
Sec.  45.1(a), as discussed in section II.A.2 above. As amended, 
``valuation data'' would mean the data elements necessary to report 
information about the daily mark of the transaction, pursuant to CEA 
section 4s(h)(3)(B)(iii), and to Sec.  23.431 if applicable, as 
specified in appendix 1 to part 45.
    \121\ See 77 FR 2136, 2154 (Jan. 13, 2012).
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    The Commission is concerned not having margin and collateral data 
at SDRs impedes its ability to fulfill systemic risk mitigation 
objectives. As a result, the Commission revisited this issue in the 
Proposal to determine whether it is now feasible.\122\ The Commission 
believes margin and collateral data is necessary to monitor risk in the 
swaps market. Given that ESMA is already requiring margin and 
collateral reporting, and that the Commission is requiring many of the 
data elements that ESMA requires, the Commission believes certain 
market participants are ready to report this data to SDRs.
---------------------------------------------------------------------------

    \122\ Other regulators have taken different approaches to margin 
and collateral data reporting. ESMA, for instance, requires the 
reporting of many of the same collateral and margin swap data 
elements the Commission proposed requiring, either on a portfolio 
basis or by transaction. Reg. 148/2013 Art. 3(5). With respect to 
valuation data, ESMA requires central counterparties to report 
valuations for cleared swaps as the Commission does. Reg. 148/2013 
Art. 3(4); Reg. 648/2012 Art. 10. EMIR provides an exemption from 
valuation reporting, as well as reporting margin and collateral 
data, for non-financial counterparties, unless they exceed a 
threshold of derivatives activity.
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    However, the Commission is concerned valuation, margin, and 
collateral data reporting could create a significant burden for non-SD/
MSP/DCO reporting counterparties. These entities include those market

[[Page 75515]]

participants that, by virtue of size and extent of activity in the swap 
market, may have fewer resources to devote to reporting this complex 
data. The Commission also recognizes the quarterly valuation data these 
counterparties report is not integral to the Commission's ability to 
monitor systemic risk in the swaps market and may not justify the cost 
to these entities to report it.
    The Commission received 11 comments on expanding daily valuation 
data reporting to include margin and collateral data reporting in Sec.  
45.4(c) for SD/MSP/DCO reporting counterparties. Three commenters 
support the proposal.\123\ In particular, Markit believes it is more 
efficient for reporting counterparties to submit both cleared and 
uncleared margin and collateral data together to SDRs, and states that 
when it comes to valuation or collateral reporting valuation, some 
systems may have limited information (e.g., trade reference 
identification but not clearing status), and therefore it is more 
complex to split valuation or collateral reporting into cleared versus 
uncleared categories.
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    \123\ Chris Barnard at 1; Markit at 6; LCH at 2.
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    Eight commenters oppose the proposal.\124\ CME, Eurex, ISDA-SIFMA, 
and FIA note collateral and margin reporting for DCOs pursuant to part 
45 would be redundant for DCOs that have to report similar data to the 
Commission pursuant to part 39 of the Commission's regulations, which 
could result in burdens on DCOs with questionable benefits to the 
Commission.\125\ In particular, CME believes the Commission should 
consider consolidating its collateral reporting obligations for DCOs 
under part 39.\126\
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    \124\ CME at 15-16; CEWG at 8; Eurex at 3; ICE DCOs at 3-4; 
ISDA-SIFMA at 8; BP at 3; FXPA at 4-5; FIA at 12.
    \125\ CME at 15-16; Eurex at 3; ICE DCOs at 3-4; ISDA-SIFMA at 
8; FIA at 12.
    \126\ CME at 15-16.
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    The Commission received nine comments supporting excluding non-SD/
MSP/DCO reporting counterparties from reporting valuation, margin, and 
collateral data in Sec.  45.4(c).\127\ In particular, IECA notes 
reporting counterparties contract for third-party services to perform 
quarterly valuations of transactions, and the valuation analysis does 
not mitigate systemic risk, and offers only tangential value, at best, 
to the two parties.\128\ Similarly, ISDA-SIFMA strongly support the 
proposal because ISDA-SIFMA do not believe the 2% of swaps reported by 
non-SD/MSP/DCO reporting counterparties represent systemic risk.\129\
---------------------------------------------------------------------------

    \127\ IECA at 3; Chatham at 2-3; Eurex at 3; JBA at 4; NRECA-
APPA at 5; ISDA-SIFMA at 8; FIA at 14; CEWG at 2; COPE at 2.
    \128\ IECA at 3.
    \129\ ISDA-SIFMA at 8.
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    The Commission acknowledges the concerns raised by CME, Eurex, ICE 
DCOs, ISDA-SIFMA, and FIA about duplicative reporting for DCOs 
regarding cleared swaps. While collateral and margin data is reported 
pursuant to part 39 using a different set of data elements than those 
contained in appendix 1, and collateral and margin data is reported for 
end-of-day positions pursuant to part 39 as opposed to a more granular 
transaction-by-transaction basis pursuant to part 45, the Commission 
believes the collateral and margin data reported by DCOs pursuant to 
part 39 is sufficiently similar to data reported pursuant to part 45 to 
meet the Commission's current needs.
    However, the Commission is also open to requiring DCO reporting 
counterparties to report collateral and margin data on a transaction-
by-transaction basis pursuant to part 45 at a future date if a 
Commission need for more granular data emerges in its monitoring of 
systemic risk or if granular data is needed as a condition for global 
jurisdictions to grant substituted compliance and TR access to one 
another. The Commission notes any added costs to DCO reporting 
counterparties to comply with any such future Commission requirement 
would be substantially mitigated by DCOs' existing and future systems 
for transaction-by-transaction reporting of collateral and margin data 
developed to comply with the requirements of other jurisdictions, 
including Europe.
    The Commission received one comment on reporting corporate events. 
FIA suggests that for the reporting of corporate events of non-
reporting counterparties, the Commission measure the reporting deadline 
from the day the non-reporting counterparty informs the reporting 
counterparty of the corporate event.\130\ The Commission believes 
corporate events need to be reported in a timely manner, and is 
concerned FIA's suggestion of leaving the decision of when to inform 
the reporting counterparty could delay the notification for extended 
periods of time, resulting in inaccurate or stale data. As such, the 
Commission declines to adopt FIA's suggestion.
---------------------------------------------------------------------------

    \130\ FIA at 11.
---------------------------------------------------------------------------

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

E. Sec.  45.5--Unique Transaction Identifiers

    The Commission is amending Sec.  45.5 to adopt requirements for 
UTIs, the globally accepted transaction identifier, replacing USIs in 
existing Sec.  45.5. In general, the Commission is amending existing 
Sec.  45.5(a) through (f) to require each swap to be identified with a 
UTI in all recordkeeping and all swap data reporting, and to require 
the UTI be comprised of the LEI of the generating entity and a unique 
alphanumeric code. Before discussing the specific changes to Sec.  
45.5(a) through (f) in sections II.E.1 to II.E.7 below, the Commission 
explains the policy behind adopting UTIs.
    In general, existing Sec.  45.5 requires: (i) Each swap be 
identified with a USI in all recordkeeping and all swap data reporting, 
and (ii) the USI be comprised of a unique alphanumeric code and an 
identifier the Commission assigns to the generating entity. Each swap 
retains its USI from execution until, for instance,

[[Page 75516]]

the swap reaches maturity or the counterparties terminate the contract. 
USIs allow the Commission to identify new swaps in SDR data and track 
changes to swaps by reviewing all reports associated with a USI.
    The Commission implemented the existing USI regulations before 
global consensus was reached on the structure and format for a common 
swap identifier. For entities reporting swap data to multiple 
jurisdictions, this has resulting in conflicting or ambiguous 
generation and transmission requirements across jurisdictions. 
Practically, the Commission is concerned this has resulted in: (i) 
Conflicting responsibilities for generating identifiers and (ii) 
entities reporting different identifiers identifying the same swap to 
different SDRs and TRs.
    The Commission believes amending Sec.  45.5 to require each swap be 
identified with a UTI in all recordkeeping and all swap data reporting, 
and to require that the UTI be comprised of the LEI of the generating 
entity and a unique alphanumeric code, will result in the structure and 
format for the swap identifier being consistent with the UTI Technical 
Guidance, which will reduce cross-border reporting complexity and 
encourage global swap data aggregation.
1. Title and Introductory Text
    The Commission proposed several conforming amendments to the Sec.  
45.5 title and the introductory text. Existing Sec.  45.5 is titled 
``Unique swap identifiers.'' The existing introductory text states that 
each swap subject to the jurisdiction of the Commission shall be 
identified in all recordkeeping and all swap data reporting pursuant to 
part 45 by the use of a USI, which shall be created, transmitted, and 
used for each swap as provided in Sec.  45.5(a) through (f).
    The Commission proposed replacing ``swap'' in the title with 
``transaction'' to reflect the Commission's proposed adoption of the 
UTI. Accordingly, the Commission proposed updating the reference to USI 
with UTI in the introductory text.
    The Commission also proposed updating the reference to paragraphs 
(a) through (f) of existing Sec.  45.5 to (a) through (h) of proposed 
Sec.  45.5. This would reflect the Commission's addition of proposed 
Sec.  45.5(g) and (h), discussed in sections II.E.8 and II.E.9 below.
    The Commission received eight general comments on adopting UTIs in 
Sec.  45.5. Four commenters generally support adopting UTIs in Sec.  
45.5.\131\ In particular, BP also supports using the same UTI across 
jurisdictions and recommends SDRs manage UTI generation and identify 
and coordinate the use of the earliest regulatory reporting deadline 
among jurisdictions.\132\
---------------------------------------------------------------------------

    \131\ Chatham at 3; LCH at 3; GLEIF at 3; BP at 5.
    \132\ BP at 5.
---------------------------------------------------------------------------

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

    \133\ GFXD at 22-23.
---------------------------------------------------------------------------

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

    \134\ Eurex suggests, for example, continuing use of the old 
identifier for open swaps until positions are modified. Eurex at 3-
4.
    \135\ LCH at 3.
---------------------------------------------------------------------------

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

    \136\ JBA at 2-3.
---------------------------------------------------------------------------

    The Commission did not receive any comments on the proposals to 
retitle Sec.  45.5 ``Unique Transaction Identifiers,'' to update the 
reference to paragraphs (a) through (f) of Sec.  45.5 to (a) through 
(h) of Sec.  45.5, or to update the reference to USI with UTI in the 
introductory text and for reasons articulated in the Proposal and 
reiterated above, is adopting the changes to those portions of the 
introductory text as proposed. For the reasons articulated in the 
Proposal and the additional reasons discussed below, the Commission is 
adopting the changes to the remainder of the introductory text to Sec.  
45.5 as proposed.
    The Commission acknowledges the comments supportive of the 
Commission's proposal to adopt UTIs. The Commission agrees with Eurex 
and GFXD that the promise of UTIs can only be realized if jurisdictions 
worldwide adopt the UTI, but the Commission shares the FSB's belief 
that it is not feasible for jurisdictions to have one coordinated 
global implementation date due to differences in the legislative and 
regulatory process across jurisdictions.\137\ However, as discussed in 
section VI below, the Commission is adopting an 18-month compliance 
date for UTIs in an effort to be closer aligned with the estimated 
implementation dates of other jurisdictions and recommends that other 
jurisdictions adopt UTIs as expeditiously as possible.
---------------------------------------------------------------------------

    \137\ FSB, Governance arrangements for the unique transaction 
identifier (UTI) (Dec. 29, 2017) at 16 (``The FSB recognises the 
challenges in coordinating a synchronised regulatory and 
technological implementation across jurisdictions and registered 
entities. As a result, the FSB believes that the most realistic and 
feasible implementation plan is that jurisdictions globally 
implement the requirements to report UTIs as expeditiously as 
possible'').
---------------------------------------------------------------------------

    As to the comments from LCH, GFXD, and JBA on the importance of 
following the UTI Technical Guidance for assigning UTI generation 
responsibilities, the Commission agrees and has cited the specific 
steps from the UTI Technical Guidance generation flowchart in sections 
II.E.2 to II.E.5 below to demonstrate the conformity of Sec.  45.5(a) 
to (d) with the UTI Technical Guidance.
    The Commission declines JBA's request for a rule affording 
flexibility in UTI generation responsibilities, such as allowing 
bilateral agreement between counterparties to override the UTI 
generation responsibilities in Sec.  45.5, because it believes clear 
rules delineating UTI generation responsibilities provide the best 
assurance that only one unique UTI is generated for a trade, a 
necessity for swap data reporting integrity. Allowing UTIs to be 
generated according to bilateral agreement results in the need to reach 
agreement on a trade-by-trade or counterparty-by-counterparty basis, a 
scenario the Commission believes will increase the likelihood, due to 
miscommunication, that no UTI is generated for a swap if each entity 
believes the other agreed to generate or multiple UTIs are generated 
for a swap if each entity believes it agreed to generate.

[[Page 75517]]

2. Sec.  45.5(a)--Swaps Executed on or Pursuant to the Rules of a SEF 
or DCM
    The Commission proposed several conforming amendments to Sec.  
45.5(a) for the creation and transmission of UTIs for swaps executed on 
or pursuant to the rules of SEFs and DCMs. Existing Sec.  45.5(a)(1) 
requires that for swaps executed on or pursuant to the rules of SEFs 
and DCMs, the SEFs and DCMs generate and assign USIs at or ASATP 
following execution, but prior to the reporting of required swap 
creation data, that consist of a single data field.\138\
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    \138\ The single data field must contain: (i) The unique 
alphanumeric code assigned to the SEF or DCM by the Commission for 
the purpose of identifying the SEF or DCM with respect to the USI 
creation; and (ii) an alphanumeric code generated and assigned to 
that swap by the automated systems of the SEF or DCM, which is 
unique with respect to all such codes generated and assigned by that 
SEF or DCM. 17 CFR 45.5(a)(1)(i) and (ii).
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    Existing Sec.  45.5(a)(2) requires that the SEF or DCM transmit the 
USI electronically (i) to the SDR to which the SEF or DCM reports 
required swap creation data for the swap, as part of that report; (ii) 
to each counterparty to the swap ASATP after execution of the swap; and 
(iii) to the DCO, if any, to which the swap is submitted for clearing, 
as part of the required swap creation data transmitted to the DCO for 
clearing purposes.\139\
---------------------------------------------------------------------------

    \139\ 17 CFR 45.5(a)(2)(i) through (iii).
---------------------------------------------------------------------------

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

    \140\ UTI Technical Guidance, Section 3.6.
---------------------------------------------------------------------------

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

    \141\ UTI Technical Guidance, Section 3.5.
---------------------------------------------------------------------------

    The Commission did not receive any comments on the proposed 
amendments to the requirements for the creation and transmission of 
UTIs for swaps executed on or pursuant to the rules of SEFs and DCMs in 
proposed Sec.  45.5(a) and for reasons articulated in the Proposal and 
reiterated above, is adopting the changes as proposed. The Commission 
notes assigning UTI generation responsibilities for swaps executed on 
or pursuant to the rules of SEFs and DCMs to the SEF or DCM adheres to 
the generation flowchart in the UTI Technical Guidance.\142\
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    \142\ UTI Technical Guidance at 12 (Step 3: ``Was the 
transaction executed on a trading platform?'' ``If so, the trading 
platform'').
---------------------------------------------------------------------------

3. Sec.  45.5(b)--Off-Facility Swaps With an SD or MSP Reporting 
Counterparty
    The Commission proposed several amendments to existing Sec.  
45.5(b) for the creation and transmission of UTIs for off-facility 
swaps by SD/MSP reporting counterparties. Existing Sec.  45.5(b)(1) 
requires that, for off-facility swaps with SD/MSP reporting 
counterparties, the reporting counterparty generate and assign a USI 
consisting of a single data field.\143\ The required USI must be 
generated and assigned after execution of the swap and prior to the 
reporting of required swap creation data and the transmission of data 
to a DCO if the swap is to be cleared.
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    \143\ The single data field must contain: (i) The unique 
alphanumeric code assigned to the SD or MSP by the Commission at the 
time of its registration for the purpose of identifying the SD or 
MSP with respect to USI creation; and (ii) an alphanumeric code 
generated and assigned to that swap by the automated systems of the 
SD or MSP, which shall be unique with respect to all such codes 
generated and assigned by that SD or MSP. 17 CFR 45.5(b)(1).
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    Existing Sec.  45.5(b)(2) requires that the reporting counterparty 
transmit the USI electronically: (i) To the SDR to which the reporting 
counterparty reports required swap creation data for the swap, as part 
of that report; and (ii) to the non-reporting counterparty to the swap, 
ASATP after execution of the swap; and (iii) to the DCO, if any, to 
which the swap is submitted for clearing, as part of the required swap 
creation data transmitted to the DCO for clearing purposes.
    First, the Commission proposed expanding the UTI creation and 
transmission requirements for SD/MSP reporting counterparties to 
include reporting counterparties that are financial entities.\144\ The 
Commission explained that it believed extending the responsibility for 
generating off-facility swap UTIs to reporting counterparties that are 
financial entities would reduce the UTI generation burden on non-
financial entities. The Commission also proposed conforming changes. 
These changes replaced ``swap dealer or major swap participant 
reporting counterparty'' in the title to proposed Sec.  45.5(b) with 
``financial entity reporting counterparty'' and replaced ``swap dealer 
or major swap participant'' in the first sentence of Sec.  45.5(b) with 
``financial entity.'' As proposed, the new title of Sec.  45.5(b) would 
be ``Off-facility swaps with a financial entity reporting 
counterparty'' and the first sentence of proposed Sec.  45.5(b) would 
begin with ``For each off-facility swap where the reporting 
counterparty is a financial entity. . . .'' \145\ The Commission 
similarly proposed to replace references to ``swap dealer or major swap 
participant'' in Sec.  45.5(b)(1)(i) and (ii) with ``reporting 
counterparty.'' \146\
---------------------------------------------------------------------------

    \144\ 17 CFR 45.1 (definition of ``financial entity'').
    \145\ See row ``45.5(b)'' of the table in section VIII.3 below.
    \146\ See row ``45.5(b)(1)(ii)'' of the table in section VIII.3 
below.
---------------------------------------------------------------------------

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

    \147\ UTI Technical Guidance, Section 3.6.
---------------------------------------------------------------------------

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

[[Page 75518]]

entity instead of an identifier assigned by individual regulators.
---------------------------------------------------------------------------

    \148\ UTI Technical Guidance, Section 3.5.
---------------------------------------------------------------------------

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

    \149\ 17 CFR 45.8.
    \150\ 17 CFR 45.8(c).
    \151\ 17 CFR 45.5(c).
---------------------------------------------------------------------------

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

    \152\ ISDA-SIFMA at 10.
    \153\ DTCC at 5.
---------------------------------------------------------------------------

    The Commission did not receive any comments opposing the proposed 
amendments to Sec.  45.5(b) expanding the UTI creation and transmission 
requirements for SD/MSP reporting counterparties to include reporting 
counterparties that are financial entities, and for reasons articulated 
in the Proposal and reiterated above, is adopting the proposal with one 
modification relating to transmission. The Commission agrees with ISDA-
SIFMA and believes in light of the proposed changes in Sec.  45.3(b) to 
the deadline for reporting required swap creation data, that 
transmission of the UTI to the non-reporting counterparty should be 
similarly delayed in order to not potentially provide two separate 
confirmations to the non-reporting counterparty. The Commission 
therefore is adopting the changes as proposed, except it replaces ``To 
the non-reporting counterparty to the swap, as soon as technologically 
practicable after execution of the swap; and'' with ``To the non-
reporting counterparty to the swap, no later than the applicable 
deadline in Sec.  45.3(b) for reporting required swap creation data; 
and'' in final Sec.  45.5(b)(2)(ii).
    The Commission notes assigning UTI generation responsibilities for 
off-facility swaps with a financial entity reporting counterparty to 
the reporting counterparty adheres to the generation flowchart in the 
UTI Technical Guidance.\154\
---------------------------------------------------------------------------

    \154\ UTI Technical Guidance at 12 (Step 7: ``Does the 
jurisdiction employ a counterparty-status-based approach (e.g., rule 
definition or registration status) for determining which entity 
should have responsibility for generating the UTI?'' ``If so, see 
step 8.'' Step 8: ``Do the counterparties have the same regulatory 
status for UTI generation purposes under the relevant 
jurisdiction?'' ``Otherwise, see step 9.'' Step 9: ``Do the 
applicable rules determine which entity should have responsibility 
for generating the UTI?'' ``If so, the assigned entity'').
---------------------------------------------------------------------------

4. Sec.  45.5(c)--Off-Facility Swaps With a Non-SD/MSP Reporting 
Counterparty
    The Commission proposed several amendments to existing Sec.  
45.5(c) for the creation and transmission of USIs for off-facility 
swaps by non-SD/MSP reporting counterparties. Existing Sec.  45.5(c)(1) 
requires that, for off-facility swaps with non-SD/MSP reporting 
counterparties, the SDR generates and assigns the USI ASATP after 
receiving the first report of PET data, consisting of a single data 
field.\155\
---------------------------------------------------------------------------

    \155\ The single data field must contain: (i) The unique 
alphanumeric code assigned to the SDR by the Commission at the time 
of its registration for the purpose of identifying the SDR with 
respect to USI creation; and (ii) an alphanumeric code generated and 
assigned to that swap by the automated systems of the SDR, which 
must be unique with respect to all such codes generated and assigned 
by that SDR. 17 CFR 45.5(c)(1).
---------------------------------------------------------------------------

    Existing Sec.  45.5(c)(2) requires that the SDR transmit the USI 
electronically: (i) To the counterparties to the swap ASATP after 
creation of the USI, and (ii) to the DCO, if any, to which the swap is 
submitted for clearing ASATP after creation of the USI.
    First, the Commission proposed replacing ``non-SD/MSP reporting 
counterparty'' in the title of proposed Sec.  45.5(c) with ``non-SD/
MSP/DCO reporting counterparty that is not a financial entity'' and 
replacing ``reporting counterparty is a non-SD/MSP counterparty'' in 
the first sentence of proposed Sec.  45.5(c) with ``reporting 
counterparty is a non-SD/MSP/DCO counterparty that is not a financial 
entity.'' The new title of Sec.  45.5(c) would be ``Off-facility swaps 
with a non-SD/MSP/DCO reporting counterparty that is not a financial 
entity'' and the first sentence of Sec.  45.5(c) would begin with ``For 
each off-facility swap for which the reporting counterparty is a non-
SD/MSP/DCO counterparty that is not a financial entity. . . .'' The 
Commission is expanding UTI generation responsibilities to financial 
entities,\156\ and believes this amendment will clarify that Sec.  
45.5(c) will apply only where a reporting counterparty is a non-SD/MSP/
DCO counterparty that is not a financial entity.
---------------------------------------------------------------------------

    \156\ 17 CFR 45.1 (definition of ``financial entity''). The 
Commission discusses this change in section II.E.3 above.
---------------------------------------------------------------------------

    Second, the Commission proposed amending existing Sec.  45.5(c) to 
provide non-SD/MSP/DCO reporting counterparties that are not financial 
entities with the option to generate the UTI for an off-facility swap 
or to request the SDR to which required swap creation data will be 
reported to generate the UTI. If the non-SD/MSP/DCO reporting 
counterparty that is not a financial entity chooses to generate the UTI 
for an off-facility swap, the reporting counterparty would follow the 
creation and transmission requirements for financial entity reporting 
counterparties in final Sec.  45.5(b)(1) and (2). If the non-SD/MSP/DCO 
reporting counterparty that is not a financial entity chooses to 
request the SDR generates the UTI, the SDR would follow the creation 
and transmission requirements for SDRs in proposed Sec.  45.5(c)(1) and 
(2). The Commission proposed amendments to the requirements for SDRs in 
proposed Sec.  45.5(c)(1), as discussed below.
    The Commission participated in the preparation of the UTI Technical 
Guidance, which includes guidance to authorities for allocating 
responsibility for UTI generation, including a generation flowchart 
that places SDRs at the end.\157\ The UTI Technical Guidance also notes 
``[n]ot all factors'' in the flowchart for allocating responsibility 
for UTI generation ``will be relevant for all jurisdictions.'' \158\
---------------------------------------------------------------------------

    \157\ UTI Technical Guidance at 12-14.
    \158\ UTI Technical Guidance at 12.
---------------------------------------------------------------------------

    Because the UTI Technical Guidance was produced with the need to 
accommodate the different trading patterns and reporting rules in 
jurisdictions around the world, the Commission explained certain 
factors included in the UTI Technical Guidance generation flowchart are 
not applicable for the Commission (e.g., factors relating to the 
principal clearing model \159\ or

[[Page 75519]]

electronic confirmation platforms),\160\ and that therefore the 
Commission was unable to adopt the UTI Technical Guidance without 
modification. However, the Commission explained in the Proposal that 
none of the provisions of proposed Sec.  45.5 would conflict with the 
UTI Technical Guidance, including maintaining the existing obligations 
for SDRs to generate and transmit UTIs. While UTI generation and 
transmission responsibilities by SDRs remain in proposed Sec.  45.5(c), 
the Commission also believed the proposed alignment of the UTI 
generation and reporting counterparty determination for financial 
entities in final Sec.  45.5(b) and the proposed reporting option for 
reporting counterparties that are neither DCOs nor financial entities 
in proposed Sec.  45.5(c) would result in reduced overall UTI 
generation and transmission burdens for SDRs.
---------------------------------------------------------------------------

    \159\ UTI Technical Guidance at 12 (Step 2: ``Is a counterparty 
to this transaction a clearing member of a CCP, and if so is that 
clearing member acting in its clearing member capacity for this 
transaction?'').
    \160\ UTI Technical Guidance at 12 (Step 6: ``Has the 
transaction been electronically confirmed or will it be and, if so, 
is the confirmation platform able, willing and permitted to generate 
a UTI within the required time frame under the applicable rules?'').
---------------------------------------------------------------------------

    The Commission explained in the Proposal that amending Sec.  
45.5(c) to provide the reporting counterparty with the option to 
generate the UTI for an off-facility swap where the reporting 
counterparty is neither a DCO nor financial entity or, if the reporting 
counterparty elects not to generate the UTI, to request the SDR to 
which required swap creation data will be reported generate the UTI 
would provide a reporting counterparty that is neither a DCO nor 
financial entity with the flexibility to generate the UTI should it 
choose to do so. Simultaneously, the Commission believed the proposal 
would reduce the number of swaps where an SDR is assigned UTI 
generation responsibilities, while also maintaining the existing SDR 
role as a guarantee that every off-facility swap will be identified 
with a UTI.
    Third, the Commission proposed amendments to conform to the 
Commission's proposed adoption of the UTI.\161\ The Commission also 
proposed deleting the phrase in the second half of the sentence stating 
``by the Commission at the time of its registration as such, for the 
purpose of identifying the [SDR] with respect to the [USI] creation,'' 
because, according to the UTI Technical Guidance, an LEI should be used 
to identify the UTI generating entity instead of an identifier assigned 
by individual regulators.
---------------------------------------------------------------------------

    \161\ The Commission proposed replacing all references to 
``USIs'' with ``UTIs'' in proposed Sec.  45.5(c)(1) and (2). In 
addition, the Commission proposed updating the phrase in proposed 
Sec.  45.5(c)(1) that required the USI to consist of a single data 
``field'' that contains two components to a single data ``element 
with a maximum length of 52 characters'' so that the length of the 
UTI is consistent with the UTI Technical Guidance. UTI Technical 
Guidance, Section 3.6. The Commission proposed amending the Sec.  
45.5(c)(1)(i) description of the first component of the UTI's single 
data element to replace ``unique alphanumeric code assigned to'' the 
SDR with ``legal entity identifier of'' the SDR so that the 
identifier used to identify the UTI generating entity is consistent 
with the UTI Technical Guidance. UTI Technical Guidance, Section 
3.5.
---------------------------------------------------------------------------

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

    \162\ CME at 15.
    \163\ DTCC at 5.
    \164\ Chatham at 3.
    \165\ BP at 5.
---------------------------------------------------------------------------

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

    \166\ CME at 16-17.
---------------------------------------------------------------------------

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

    \167\ DTCC at 5.
    \168\ ICE SDR at 5.
    \169\ ICE SDR at 5.
---------------------------------------------------------------------------

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

    \170\ ISDA-SIFMA at 9.
---------------------------------------------------------------------------

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

[[Page 75520]]

to the generation flowchart in the UTI Technical Guidance.\171\
---------------------------------------------------------------------------

    \171\ UTI Technical Guidance at 12-13 (Step 7: ``Does the 
jurisdiction employ a counterparty-status-based approach . . . for 
determining which entity should have responsibility for generating 
the UTI?'' ``If so, see step 8.'' Step 8: ``Do the counterparties 
have the same regulatory status for UTI generation purposes[ ]?'' 
``If so, see step 11.'' Step 11: ``Do the counterparties have an 
agreement governing which entity should have responsibility for 
generating the UTI for this transaction?'' ``Otherwise, see step 
12.'' Step 12 ``Has the transaction been electronically confirmed or 
will it be and, if so, is the confirmation platform able, willing 
and permitted to generate a UTI within the required time frame under 
the applicable rules?'' ``Otherwise, see step 13.'' Step 13: ``Is 
there a single TR to which reports relating to the transaction have 
to be made, and is that TR able, willing and permitted to generate 
UTIs under the applicable rules?'' ``If so, the TR'').
---------------------------------------------------------------------------

    In addition to adhering to the UTI Technical Guidance, the 
Commission also believes the adopted rule appropriately balances the 
burdens between reporting counterparties and SDRs by providing 
optionality to a non-SD/MSP/DCO reporting counterparty that is not a 
financial entity to elect to generate a UTI if it so chooses, and 
lowers costs for both SDRs and non-SD/MSP/DCO reporting counterparties. 
SDR costs would be lowered due to fewer transaction identifiers that 
SDRs would be required to generate under final Sec.  45.5(c) compared 
to existing Sec.  45.5(c). Costs on non-SD/MSP/DCO reporting 
counterparties who choose not to generate UTIs would be lowered due to 
their ability to leverage the existing transaction identifier 
generation infrastructure of SDRs rather than expenditures to develop 
their own UTI generation systems.
    In response to the several comments indicating that the proposed 
amendments to Sec.  45.5(c) do not follow the UTI Technical Guidance, 
the Commission notes Commission staff was heavily involved in the 
preparation of the UTI Technical Guidance generation flowchart, and 
disagrees that assigning UTI generation to SDRs contravenes the UTI 
Technical Guidance for the following reasons. Section 45.5(c) would 
apply only for off-facility trades where both counterparties are of 
equal status (i.e., non-financial entities), and in this scenario, UTI 
Technical Guidance flowchart step 8 directs to step 11, which instructs 
inquiring about whether the counterparties have an agreement as to UTI 
generation. Since no agreement exists, the flowchart leads to step 12, 
which instructs inquiring about whether electronic confirmation 
platforms are able, willing, and permitted to generate UTIs, the step 
ICE SDR suggests the Commission set as the last step in assigning UTI 
generation responsibilities. However, the Commission is unable to 
assign electronic confirmation platforms with UTI generation 
responsibilities, as it has no jurisdiction over such platforms, nor 
does the Commission deem it desirable to require counterparties who do 
not use such platforms to specifically contract with platforms or other 
third parties solely for the purpose of UTI generation. As a result, 
step 12 is not applicable, leading to step 13 where the SDR is the 
entity responsible for generating UTIs. As demonstrated above, the 
Commission believes each step of the UTI Technical Guidance generation 
flowchart leading up to step 13 matches the conditions under which an 
SDR is required to generate UTIs pursuant to Sec.  45.5(c).
    While the optionality to generate UTIs for non-SD/MSP/DCO reporting 
counterparties that are not financial entities is not a step in the UTI 
Technical Guidance generation flowchart, the Commission does not 
believe the optionality conflicts with an SDR's responsibility for 
serving as UTI generator of last resort. Under the optionality, an SDR 
continues to be the entity that has legal responsibility for UTI 
generation for this type of off-facility trade should the non-SD/MSP/
DCO reporting counterparty that is not a financial entity elect not to, 
and at no point would a non-SD/MSP/DCO reporting counterparty that is 
not a financial entity that is unwilling or unable to generate the UTI 
be forced to generate the UTI. Additionally, no commenters oppose 
providing non-SD/MSP/DCO reporting counterparties that are not 
financial entities with the ability to generate UTIs.
    The Commission acknowledges ICE SDR's request to remove the 
requirement to transmit the UTI to the non-reporting counterparty due 
to a potential lack of relationship between an SDR and the non-
reporting counterparty, but declines to adopt the suggestion for two 
reasons. First, the Commission notes the requirement for an SDR 
generator to transmit USIs to both counterparties has been in existing 
Sec.  45.5(c)(2)(i) that SDRs have complied with since part 45 was 
adopted in 2012, and based on experience with compliance by SDRs since 
2012, the Commission has seen no evidence that lack of relationship 
presents a problem in need of being addressed. In addition, the 
Commission is adopting three amendments to Sec.  45.5 that will result 
in SDRs generating fewer UTIs than USIs and mitigate any burden placed 
on SDRs to transmit the UTIs they generate to non-reporting 
counterparties, including: (i) All financial entities, not just SD/
MSPs, being required to generate UTIs pursuant to final Sec.  45.5(b); 
(ii) the optionality provided to non-SD/MSP/DCO reporting 
counterparties that are not financial entities to generate UTIs in 
final Sec.  45.5(c); and (iii) as described in section II.E.8 below, 
the requirement in final Sec.  45.5(g) for entities using third-party 
service providers to ensure that the third-party service providers 
generate UTIs.
    Finally, the Commission declines to adopt the SDRs' suggestion to 
end the UTI generation responsibilities with the reporting counterparty 
as the last step of the hierarchy, since this would result in 
incomplete UTI generation logic. A natural person reporting 
counterparty, who by definition is a non-SD/MSP/DCO reporting 
counterparty that is not a financial entity, will highly likely be 
unable to generate UTIs due to the inability of most natural persons to 
obtain an LEI \172\ that is necessary to generate UTIs. As a result, 
the SDRs' suggestion would not ensure that an entity capable of 
generating UTIs is assigned with the responsibility to generate the UTI 
for every swap.
---------------------------------------------------------------------------

    \172\ CME itself notes the inability of natural person reporting 
counterparties to obtain LEIs in a separate portion of its comment 
letter. See CME at 25 (``For individuals that qualify as an Eligible 
Contract Participant, they will not be able to obtain an LEI and 
hence will be unable to report if [counterparty 1] allowable value 
is an LEI'').
---------------------------------------------------------------------------

    The Commission also acknowledges--but does not find persuasive--
DTCC's comment that reporting counterparties should be the entity 
responsible for generating UTIs because they are in the best position 
to collect information such as LEI from a non-reporting counterparty 
necessary to generate a UTI. The Commission notes no information about 
the non-reporting counterparty is necessary for an entity to generate 
UTIs, as the UTI is composed using the LEI of the UTI generating 
entity, not the LEI of the non-reporting counterparty. Accordingly, 
because proposed Sec.  45.5(c)(1)(i) requires the UTI to be composed of 
the ``legal entity identifier of the swap data repository'' and SDRs do 
not need the LEI of any other entity to generate the UTI, the 
Commission does not believe DTCC's reasoning supports its request for 
the Commission not to assign UTI generation responsibilities to SDRs.
5. Sec.  45.5(d)--Clearing Swaps
    The Commission proposed several amendments to the existing Sec.  
45.5(d) regulations for the creation and transmission of USIs for 
clearing swaps. Existing Sec.  45.5(d) requires that for each clearing 
swap, the DCO that is a

[[Page 75521]]

reporting counterparty to such swap shall create and transmit a USI 
upon, or ASATP after, acceptance of an original swap for clearing, or 
execution of a clearing swap that does not replace an original swap, 
and prior to the reporting of required swap creation data for the 
clearing swap. Existing Sec.  45.5(d)(1) requires that the USI consist 
of a single data field.\173\
---------------------------------------------------------------------------

    \173\ The single data field must contain: (i) The unique 
alphanumeric code assigned to the DCO by the Commission for the 
purpose of identifying the DCO with respect to USI creation; and 
(ii) an alphanumeric code generated and assigned to that clearing 
swap by the automated systems of the DCO, which shall be unique with 
respect to all such codes generated and assigned by that DCO. 17 CFR 
45.5(d)(1).
---------------------------------------------------------------------------

    Existing Sec.  45.5(d)(2) requires that the DCO transmit the USI 
electronically to: (i) The SDR to which the DCO reports required swap 
creation data for the clearing swap; and (ii) to the counterparty to 
the clearing swap, ASATP after accepting the swap for clearing or 
executing the swap, if the swap does not replace an original swap.
    First, the Commission proposed to retitle proposed Sec.  45.5(d) as 
``Off-facility swaps with a [DCO] reporting counterparty.'' The 
Commission also proposed rephrasing the introductory text in Sec.  
45.5(d) to reflect this shift in terminology.
    Second, the Commission proposed amendments to conform to the 
Commission's proposed adoption of the UTI.\174\ The Commission also 
proposed deleting the phrase in the second half of the sentence stating 
``by the Commission at the time of its registration as such, for the 
purpose of identifying the [DCO] with respect to the [USI] creation,'' 
because, according to the UTI Technical Guidance, an LEI should be used 
to identify the UTI generating entity instead of an identifier assigned 
by individual regulators.
---------------------------------------------------------------------------

    \174\ The Commission proposed replacing all references to 
``USIs'' with ``UTIs'' in proposed Sec.  45.5(d)(1) and (2). In 
addition, the Commission proposed updating the phrase in proposed 
Sec.  45.5(d)(1) that requires that the USI shall consist of a 
single data ``field'' that contains two components to a single data 
``element with a maximum length of 52 characters,'' so that the 
length of the UTI is consistent with the UTI Technical Guidance. UTI 
Technical Guidance, Section 3.6. The Commission proposed amending 
Sec.  45.5(d)(1)(i) to describe the first component of the UTI's 
single data element to replace ``unique alphanumeric code assigned'' 
to the DCO reporting counterparty with ``legal entity identifier 
of'' the DCO reporting counterparty so that the identifier used to 
identify the UTI generating entity is consistent with the UTI 
Technical Guidance. UTI Technical Guidance, Sec.  3.5.
---------------------------------------------------------------------------

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

    \175\ LCH at 3.
    \176\ ISDA-SIFMA at 9.
---------------------------------------------------------------------------

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

    \177\ UTI Technical Guidance at 12 (Step 1: ``Is a CCP a 
counterparty to this transaction?'' ``If so, the CCP'').
---------------------------------------------------------------------------

    The Commission appreciates the comment from ISDA-SIFMA recommending 
that the Commission issue a clarification that exempt DCOs, SEFs, and 
DCMs have the same reporting and UTI generation responsibilities as 
their non-exempt equivalents. The Commission did not propose including 
exempt DCOs, SEFs, and DCMs in Sec.  45.5 and has not had enough time 
to study the range of effects that any inclusion of these exempt 
entities in Sec.  45.5 would have on other provisions of the Act and 
the Commission's regulations, and as a result, the Commission declines 
to adopt alternative amendments relating to UTI generation for exempt 
entities such as exempt DCOs, SEFs, and DCMs at this time. However, the 
Commission notes despite exempt DCOs, SEFs, and DCMs not being assigned 
with formal UTI generation responsibilities in Sec.  45.5, exempt 
entities wishing to generate UTIs on behalf of their clients could do 
so voluntarily by entering into agreements with their clients to act as 
their third-party service provider pursuant to Sec.  45.5(g).
6. Sec.  45.5(e)--Allocations
    The Commission proposed several amendments to the existing Sec.  
45.5(e) regulations for the creation and transmission of USIs for 
allocations. The Commission proposed replacing references to USIs with 
UTI throughout proposed Sec.  45.5(e) to conform to the Commission's 
proposed adoption of the UTI. The Commission also proposed non-
substantive technical and language edits to update cross-references and 
improve readability.
    The Commission did not receive any comments on the proposed changes 
to existing Sec.  45.5(e) is adopting the changes to Sec.  45.5(e) as 
proposed.
7. Sec.  45.5(f)--Use
    The Commission proposed several amendments to the existing Sec.  
45.5(f) regulations for the use of UTIs by registered entities and swap 
counterparties. Existing Sec.  45.5(f) requires that registered 
entities and swap counterparties subject to the jurisdiction of the 
Commission include the USI for a swap in all of their records and all 
of their swap data reporting concerning that swap, from the time they 
create or receive the USI, throughout the existence of the swap, and 
for as long as any records concerning the swap are required to be kept 
by the CEA or Commission regulations, regardless of any life cycle 
events or any changes to state data concerning the swap, including, 
without limitation, any changes with respect to the counterparties to 
or the ownership of the swap.
    Existing Sec.  45.5(f) also specifies that this requirement shall 
not prohibit the use by a registered entity or swap counterparty in its 
own records of any additional identifier or identifiers internally 
generated by the automated systems of the registered entity or swap 
counterparty, or the reporting to an SDR, the Commission, or another 
regulator of such internally generated identifiers in addition to the 
reporting of the USI.
    First, the Commission proposed amendments to conform proposed Sec.  
45.5(f) to the Commission's proposed adoption of the UTI. The 
Commission proposed replacing all references to ``USIs'' with ``UTIs'' 
in proposed Sec.  45.5(f). The Commission also proposed removing the 
reference to state data in part 45, and to make minor technical 
language edits, including removing reference to ownership of the swap, 
which is not needed given the reference to counterparties.
    Second, the Commission proposed removing the existing Sec.  45.5(f) 
provision permitting the reporting of any additional identifier or 
identifiers internally generated by the automated systems of the 
registered entity or swap counterparty to an SDR, the Commission, or 
another regulator. The Commission explained this amendment would 
improve consistency in the swap data reported to SDRs, and further the 
goal of harmonization of SDR data across FSB member jurisdictions.

[[Page 75522]]

    Proposed Sec.  45.5(f) would therefore require that registered 
entities and swap counterparties include the UTI for a swap in all of 
their records and all of their swap data reporting concerning that 
swap, from the time they create or receive the UTI, throughout the 
existence of the swap, and for as long as any records are required to 
be kept concerning the swap by the CEA or Commission regulations, 
regardless of any life cycle events concerning the swap, including, 
without limitation, any changes to the counterparties to the swap.
    The Commission received one request for clarification on the 
proposal. ISDA-SIFMA believe, due to the requirement for a UTI to 
persist through ``changes with respect to the counterparty,'' the 
Commission should be clearer that these counterparty changes, when 
related to corporate events such as name change, are not considered 
novations or assignments, as current market practice is to create a new 
USI for a swap created through the novation process.\178\ The 
Commission declines to adopt the suggestion, as the Commission notes, 
in light of the Commission's adoption of the new definition of 
``novation'' in Sec.  45.1(a) described in section II.A above, market 
participants should refer to the newly adopted definition as to what 
constitutes a novation.
---------------------------------------------------------------------------

    \178\ ISDA-SIFMA at 7.
---------------------------------------------------------------------------

    The Commission received no additional comments on proposed Sec.  
45.5(f) and for reasons articulated in the Proposal and reiterated 
above in this section, is adopting Sec.  45.5(f) as proposed.
8. Sec.  45.5(g)--Third-Party Service Provider
    The Commission proposed adding new Sec.  45.5(g) to its 
regulations, titled ``Third-party service provider.'' Proposed Sec.  
45.5(g) would create requirements for registered entities and reporting 
counterparties--when contracting with third-party service providers to 
facilitate reporting under Sec.  45.9--to ensure that the third-party 
service providers create and transmit UTIs.\179\
---------------------------------------------------------------------------

    \179\ See generally 17 CFR 45.9.
---------------------------------------------------------------------------

    The Commission explained in the Proposal that it had encountered 
inconsistencies in the format and standard of USIs for swaps reported 
using third-party service providers, which is detrimental to the 
Commission's ability to use swap data for its regulatory purposes. The 
Commission believed proposed Sec.  45.5(g) would help ensure 
consistency with the UTI Technical Guidance in the format and standard 
of UTIs for swaps reported by third-party service providers. The 
Commission further explained that proposed Sec.  45.5(g) would also 
reinforce that a registered entity or reporting counterparty is 
responsible for the data reported on its behalf by a third-party 
service provider.
    The Commission received one comment supporting the proposal. Markit 
supports Sec.  45.5(g) UTI generation by third-party service providers 
and believes this is an important clarification, but advises the 
Commission to monitor SDRs' implementation of this requirement as some 
SDRs have struggled to capture third-party service provider LEIs as 
part of the transaction record, especially when reporting on behalf of 
SEFs.\180\
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    \180\ Markit at 3.
---------------------------------------------------------------------------

    The Commission received no additional comments on proposed Sec.  
45.5(g) and for reasons articulated in the Proposal and reiterated 
above in this section, is adopting Sec.  45.5(g) as proposed.
9. Sec.  45.5(h)--Cross-Jurisdictional Swaps
    The Commission proposed adding new Sec.  45.5(h) to its 
regulations, titled ``Cross-jurisdictional swaps.'' Proposed Sec.  
45.5(h) would clarify that, notwithstanding Sec. Sec.  45.5(a) through 
(g), if a swap is also reportable to one or more other jurisdictions 
with a regulatory reporting deadline earlier than the deadline set 
forth in Sec.  45.3, the same UTI generated according to the rules of 
the jurisdiction with the earliest regulatory reporting deadline is to 
be transmitted pursuant to Sec. Sec.  45.5(a) through (g) and used in 
all recordkeeping and all swap data reporting pursuant to part 45.
    The Commission explained in the Proposal that the benefits 
resulting from global swap data aggregation and harmonization are 
realizable only if each swap is identified in all regulatory reporting 
worldwide with a single UTI to avoid double- or triple-counting of the 
swap. While the existing requirement in part 45 (for swap creation data 
to be reported ASATP after execution) results in the Commission having 
the earliest reporting deadline, changes to the reporting deadline in 
proposed amendments to Sec.  45.3 may result in the reporting of a 
cross-jurisdictional swap to another jurisdiction earlier than to the 
Commission. Further, given the critical importance of a unique UTI used 
to identify each swap, the Commission proposed that, if a cross-
jurisdictional swap is reportable to another jurisdiction earlier than 
required under part 45, the UTI for such swap reported pursuant to part 
45 be generated according to the rules of the jurisdiction with the 
earliest regulatory reporting deadline.
    The Commission explained in the Proposal that the new proposed 
provision would: (i) Ensure consistency with the UTI Technical 
Guidance; \181\ (ii) assist the Commission, SDRs, and swap 
counterparties to avoid potentially identifying a single cross-
jurisdictional trade with multiple UTIs; and (iii) eliminate the 
potential for market participants to be faced with a situation of 
attempting to comply with conflicting UTI generation rules.
---------------------------------------------------------------------------

    \181\ UTI Technical Guidance at 13 (Step 10: ``UTI generation 
rules of the jurisdiction with the sooner reporting deadline should 
be followed'').
---------------------------------------------------------------------------

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

    \182\ ISDA-SIFMA at 10-11.
    \183\ Id.
    \184\ Id.
---------------------------------------------------------------------------

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

    \185\ JBA at 2-3.
    \186\ BP at 5.
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    The Commission is adopting the proposed provisions relating to 
cross-jurisdictional swaps in Sec.  45.5(h) as proposed, with one 
clarification relating

[[Page 75523]]

to the CFTC reporting deadlines to be considered for cross-
jurisdictional swaps, as discussed below. In the technical 
specification, UTIs are required to be reported (but are not publicly 
disseminated) pursuant to parts 43 and 45 to allow the Commission to 
link and reconcile the two reports for each swap, requiring the 
deadline to be measured in terms of both parts 43 and 45. Therefore, 
the Commission is adopting, in Sec.  45.5(h), the requirement that, 
notwithstanding Sec. Sec.  45.5(a) through (g), if a swap is also 
reportable to one or more other jurisdictions with a regulatory 
reporting deadline earlier than the deadline set forth in Sec.  45.3 or 
in part 43, the same UTI generated according to the rules of the 
jurisdiction with the earliest regulatory reporting deadline is to be 
transmitted pursuant to Sec. Sec.  45.5(a) through (g) and used in all 
recordkeeping and all swap data reporting pursuant to part 45, a 
modification from the proposal's consideration of only the deadline 
outlined in Sec.  45.3.
    The Commission declines to adopt ISDA-SIFMA's suggestion regarding 
nexus obligations, as the Commission has no requirements for nexus 
reporting and how the jurisdictions requiring nexus reporting mandate 
UTI generation is outside of the Commission's jurisdiction. As 
discussed above, the Commission expects the vast majority of cross-
jurisdictional swaps reportable to both the CFTC and one or more 
additional jurisdictions will result in the CFTC having the earliest 
regulatory reporting deadline due to the CFTC being one of the few 
jurisdictions with real-time reporting requirement and UTIs being 
required to be generated ASATP for part 43 reporting. However, the 
Commission recognizes the potential concern that market participants 
may have in complying with similar rules that other jurisdictions may 
adopt to ensure consistency with the UTI Technical Guidance, and 
recommends that market participants and the LEI ROC work 
collaboratively on additional guidance relating to cross-jurisdictional 
swaps. The Commission also recognizes that the UTI Technical Guidance 
did not address which jurisdiction's UTI generation rules to follow if 
two jurisdictions hypothetically have the same reporting deadline, and 
similarly recommends that market participants and the LEI ROC work 
collaboratively on guidance to address this scenario.
    The Commission appreciates JBA's comment regarding the potential 
difficulties if other jurisdictions with a regulatory reporting 
deadline earlier than the Commission's do not mandate the UTI, but the 
Commission does not believe this hypothetical is likely to occur. As 
discussed above, the Commission's ASATP reporting deadline under part 
43 will result in the UTIs for most, if not all, swaps reportable to 
the Commission and another jurisdiction being generated according to 
Sec.  45.5. Furthermore, the Commission also acknowledges JBA's concern 
that other jurisdictions may require an identifier different from the 
UTI, but the Commission notes authorities in the major swap markets 
have all indicated through the FSB and CPMI-IOSCO harmonization 
initiatives of their intention to adopt the UTI and the other 
harmonized identifiers, and the Commission does not believe inaction by 
a holdout authority should hinder the Commission's fulfillment of its 
commitments on UTI.
    The Commission also acknowledges BP's desire for SDRs to coordinate 
identification of the jurisdiction with the earliest regulatory 
reporting deadline and conform to that jurisdiction's UTI requirements, 
but the Commission declines to adopt the suggestion. SDRs lack 
information to determine on their own the jurisdiction(s) that a SEF, 
DCM, DCO, or counterparty for each swap is subject to, and therefore 
the Commission believes requiring entities without such information 
such as SDRs to serve as the entity responsible for determining the 
earliest regulatory reporting deadline would not serve the Commission's 
interest in seeing that each swap is identified in all regulatory 
reporting worldwide with a single UTI.

F. Sec.  45.6--Legal Entity Identifiers \187\
---------------------------------------------------------------------------

    \187\ The Commission is re-numbering the requirements of 
existing Sec.  45.6 to correct extensive numbering errors.
---------------------------------------------------------------------------

    Existing Sec.  45.6 requires counterparties to be identified in all 
recordkeeping and swap data reporting under part 45 by an LEI. As 
discussed in the sections below, the Commission is revising the Sec.  
45.6 LEI regulations in two ways: (i) Cleanup changes removing 
unnecessary outdated regulatory text concerning LEIs and (ii) changes 
to the LEI regulations for SEFs, DCMs, DCOs, SDRs, and reporting and 
non-reporting counterparties.
1. Introductory Text
    The Commission proposed amending the introductory text of the Sec.  
45.6 regulations for LEIs. The existing introductory text states that 
each counterparty to any swap subject to the jurisdiction of the 
Commission shall be identified in all recordkeeping and all swap data 
reporting under part 45 through a single LEI as specified in Sec.  
45.6.
    First, to improve the section's precision, the Commission proposed 
replacing ``each counterparty'' with each SEF, DCM, DCO, SDR, entity 
reporting pursuant to Sec.  45.9, and counterparty to any swap. Second, 
the Commission proposed revising the introductory text to require each 
relevant entity (SEF, DCM, DCO, SDR, entity reporting pursuant to Sec.  
45.9, and counterparty to any swap that is eligible to receive an LEI) 
to ``obtain,'' as well as be identified in, all recordkeeping and swap 
data reporting by a single LEI.
    The Commission received two comments on proposed Sec.  45.6. ISDA-
SIFMA, while recognizing that SEF trades are not specifically addressed 
in Sec.  45.6, suggest clarifying that SEFs must require any entity 
allowed to execute a trade on a SEF under part 45 to obtain an LEI 
prior to reporting by the SEF.\188\ The Commission appreciates ISDA-
SIFMA's comment; however, the Commission did not propose substantive 
amendments to regulations relating to SEF trading and has not had 
enough time to study the range of effects that ISDA-SIFMA's proposal 
would have on SEF trading or market liquidity. Accordingly, it would be 
inappropriate to finalize such an amendment at this time.
---------------------------------------------------------------------------

    \188\ ISDA-SIFMA at 13.
---------------------------------------------------------------------------

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

    \189\ XBRL at 2.
---------------------------------------------------------------------------

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

[[Page 75524]]

and encourage global swap data aggregation.
    For reasons discussed above, the Commission is adopting the 
proposed changes to the introductory text of the Sec.  45.6 regulations 
for LEIs as proposed, with one clarification relating to the 
maintenance of LEI reference data. As discussed in section II.F.8 
below, the Commission is adding ``maintain'' to the introductory text 
of final Sec.  45.6 to clarify that each SEF, DCM, DCO, SDR, entity 
reporting under Sec.  45.9, and counterparty to any swap that is 
eligible to receive an LEI is required to ``maintain,'' as well as 
obtain and be identified in, all recordkeeping and swap data reporting 
by a single LEI.
2. Sec.  45.6(a)--Definitions
a. Proposal
    The Commission proposed several changes to the definitions for the 
LEI regulations in Sec.  45.6(a). As background, existing Sec.  45.6(a) 
provides definitions for ``control,'' ``legal identifier system,'' 
``level one reference data,'' ``level two reference data,'' ``parent,'' 
``self-registration,'' ``third-party registration,'' and ``ultimate 
parent.''
    The Commission proposed moving certain definitions pertaining to 
LEIs to Sec.  45.1(a). The Commission explained in the Proposal these 
definitions should be in Sec.  45.1(a) because they are used in 
regulations outside of Sec.  45.6. These definitions were: ``Global 
Legal Entity Identifier System,'' \190\ ``legal entity identifier'' or 
``LEI,'' and ``Legal Entity Identifier Regulatory Oversight 
Committee.'' These definitions are discussed in section II.A.1 above.
---------------------------------------------------------------------------

    \190\ ``Global Legal Entity Identifier System'' and ``local 
operating unit'' would be updated versions of the existing 
definition of ``legal identifier system.''
---------------------------------------------------------------------------

    The Commission proposed removing certain definitions pertaining to 
LEIs from Sec.  45.6(a). The Commission explained that these 
definitions would no longer be necessary in light of the proposed 
amendments to the LEI regulations, discussed in sections II.F.3 to 
II.F.8 below. These definitions were: ``control,'' ``level one 
reference data,'' ``level two reference data,'' ``parent,'' and 
``ultimate parent.''
    The Commission proposed amending certain definitions pertaining to 
LEIs in Sec.  45.6(a). Specifically, the Commission proposed amending 
the definition of ``self-registration'' in several respects. First, the 
Commission proposed removing the specific reference to ``level one or 
level two'' reference data, and the accompanying specifier ``as 
applicable.'' The amendment reflected the Commission's proposal to 
remove the definitions of ``level one reference data'' and ``level two 
reference data.'' \191\
---------------------------------------------------------------------------

    \191\ Instead, as discussed below, the Commission proposed 
adding a definition of ``reference data.'' The proposed amendment to 
``self-registration'' would be consistent with the new definition.
---------------------------------------------------------------------------

    Second, the Commission proposed adding a reference to 
``individuals,'' to reflect the fact that swap counterparties may be 
individuals who need to obtain LEIs. As amended, ``self-registration'' 
would mean submission by a legal entity or individual of its own 
reference data.
    Separately, the Commission proposed amending the definition of 
``third-party registration.'' In this regard, the Commission proposed 
removing the specific references to ``level one or level two'' 
reference data, and the accompanying specifier ``as applicable.'' This 
amendment reflected the Commission's proposal to remove the definitions 
of ``level one reference data'' and ``level two reference data.'' \192\
---------------------------------------------------------------------------

    \192\ Instead, as discussed below, the Commission proposed 
adding a definition of ``reference data.'' The proposed amendment to 
``self-registration'' would be consistent with the new definition.
---------------------------------------------------------------------------

    Further, the Commission proposed adding references to 
``individuals,'' to reflect that swap counterparties may be individuals 
who need to obtain LEIs. As amended, ``third-party registration'' would 
mean submission of reference data for a legal entity or individual that 
is or may become a swap counterparty, made by an entity or organization 
other than the legal entity or individual identified by the submitted 
reference data. Examples of third-party registration include, without 
limitation, submission by an SD or MSP of reference data for its swap 
counterparties, and submission by a national numbering agency, national 
registration agency, or data service provider of reference data 
concerning legal entities or individuals with respect to which the 
agency or service provider maintains information.
    Finally, the Commission proposed adding two definitions pertaining 
to LEIs to Sec.  45.6(a). First, the Commission proposed adding a 
definition of ``local operating unit.'' As proposed, ``local operating 
unit'' would mean an entity authorized under the standards of the 
Global Legal Entity Identifier System to issue legal entity 
identifiers. Second, the Commission proposed adding a definition of 
``reference data.'' As proposed, ``reference data'' would mean all 
identification and relationship information, as outlined in the 
standards of the Global Legal Entity Identifier System, of the legal 
entity or individual to which an LEI is assigned. The terms ``local 
operating unit'' and ``reference data'' are explained in a discussion 
of the proposed amendments to Sec.  45.6(e) in section II.F.7 below.
b. Comments on the Proposal
    As also noted in section II.A.1 above, GLIEF suggests moving 
proposed definitions to Sec.  45.1(a) from Sec.  45.6(a) for ``local 
operating unit'' and ``legal entity reference data.'' \193\
---------------------------------------------------------------------------

    \193\ Id. The Commission notes the term proposed is ``reference 
data,'' not ``legal entity reference data.'' See 85 FR at 21632.
---------------------------------------------------------------------------

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

    \194\ GLEIF at 2.
---------------------------------------------------------------------------

ii. Definition: ``Self-registration''
    The Commission received one comment on the definition of ``self-
registration.'' GLEIF supports the proposed definition revisions in 
Sec.  45.6(a), including removal of references to ``level one'' and 
``level two.'' \195\
---------------------------------------------------------------------------

    \195\ Id.
---------------------------------------------------------------------------

c. Final Rule
    The Commission did not receive any comments on the proposed 
definitions for ``local operating unit'' and ``third-party 
registration'' and for reasons articulated in the Proposal and 
reiterated in section II.F.2.a above, is adopting those two definitions 
as proposed. The only comment submitted on the proposed definition of 
``self-registration'' supports the proposal and for reasons articulated 
in the Proposal and reiterated in section II.F.2.a above, the 
Commission is adopting the definition as proposed.
    GLEIF does not explain why its suggested alternative for 
``reference data'' is preferred to the Commission's proposal. Based on 
the analysis of the proposed text, the Commission believes the GLEIF 
definition's references to ``data as defined by the currently valid 
common data file formats'' and ``related to corresponding [LEI ROC] 
policies'' are unnecessarily detailed, and may not account for 
potential future changes to the Global Legal Entity Identifier System. 
The Commission believes

[[Page 75525]]

references in its proposed definition to ``all identification and 
relationship information'' and ``the standards of the Global Legal 
Entity Identifier System'' are more general and better-suited to 
account for potential future changes in the Global Legal Entity 
Identifier System (e.g., a hypothetical future shift away from common 
data files in setting reference data standards) and is adopting the 
definition as proposed, rather than the more-specific GLEIF suggestion.
    As the four definitions proposed in Sec.  45.6(a) are only used in 
Sec.  45.6, the Commission declines to adopt GLEIF's suggestion to move 
the proposed definitions to Sec.  45.1(a).
3. Sec.  45.6(b)--International Standard for the Legal Entity 
Identifier
    The Commission proposed several changes to Sec.  45.6(b) 
regulations for the international standards for LEIs. The amendments 
would reflect changes that have taken place since the Commission 
adopted the existing LEI regulations in Sec.  45.6 in 2012. Existing 
Sec.  45.6(b) states that the LEI used in all recordkeeping and all 
swap data reporting required by part 45, following designation of the 
legal entity identifier system as provided in Sec.  45.6(c)(2), shall 
be issued under, and shall conform to, International Organization for 
Standardization (``ISO'') Standard 17442, Legal Entity Identifier 
(LEI), issued by the ISO.
    The Commission proposed removing the phrase ``following designation 
of the [LEI] system as provided in [Sec.  45.6(c)(2)].'' The Commission 
explained in the Proposal that governance of the Global Legal Entity 
Identifier System was designed by the FSB with the contribution of 
private sector participants and was fully in place.\196\ The Commission 
further explained that LEI ROC establishes policy standards, such as 
the definition of the eligibility to obtain an LEI and conditions for 
obtaining an LEI; the definition of reference data and any extension 
thereof, such as the addition of information on relationships between 
entities; the frequency of update for some or all of the reference 
data; the nature of due diligence and other standards necessary for 
sufficient data quality; or high-level principles governing data and 
information access.\197\
---------------------------------------------------------------------------

    \196\ While at the beginning of the Global Legal Entity 
Identifier System, LEI issuers were operating under a temporary 
endorsement of the LEI ROC, all active LEI issuers have now been 
accredited. Progress report by the LEI ROC, The Global LEI System 
and regulatory uses of the LEI, 2 (Apr. 30, 2018), available at 
https://www.leiroc.org/publications/gls/roc_20180502-1.pdf.
    \197\ Id.
---------------------------------------------------------------------------

    The Commission did not receive any comments on the proposed changes 
to Sec.  45.6(b) and for reasons articulated in the Proposal and 
reiterated above, is adopting the changes to Sec.  45.6(b) as proposed.
4. Sec.  45.6(b)--Technical Principles for the Legal Entity Identifier
    The Commission proposed removing this redundantly-numbered Sec.  
45.6(b) for the technical principles for the LEI.\198\ Regulations for 
LEI reference data are currently located in Sec.  45.6(e), which the 
Commission proposed moving to Sec.  45.6(c). The Commission discusses 
revisions to the existing Sec.  45.6(e) reference data regulations in 
section II.F.7 below.
---------------------------------------------------------------------------

    \198\ This Sec.  45.6(b) was numbered in error, as there is 
already a Sec.  45.6(b), discussed in section II.F.3 above.
---------------------------------------------------------------------------

    Existing Sec.  45.6(b) enumerates the six technical principles for 
the legal entity identifier to be used in all recordkeeping and all 
swap data reporting: (i) Uniqueness; (ii) neutrality; (iii) 
reliability; (iv) open source; (v) extensibility; and (vi) persistence.
    The Commission proposed removing the technical principles from 
Sec.  45.6(b). The Commission explained in the Proposal that it adopted 
Sec.  45.6(b) before global technical principles for the LEI were 
developed. The Commission further explained that it has participated in 
the Global Legal Entity Identifier System and the LEI ROC since their 
establishment in 2013, through which global technical principles have 
been developed and a functioning LEI system introduced. The Commission 
believed removing the technical principles from Sec.  45.6(b) for the 
LEI to be used in all recordkeeping and all swap data reporting was 
warranted because the global technical principles that have been 
developed and adopted by the Global Legal Entity Identifier System 
already conform to the technical principles in Sec.  45.6(b).
    The Commission did not receive any comments on the changes to Sec.  
45.6(b) and for reasons articulated in the Proposal and reiterated 
above, is adopting the changes to Sec.  45.6(b) as proposed.
5. Sec.  45.6(c)--Governance Principles for the Legal Entity Identifier
    The Commission proposed removing the existing Sec.  45.6(c) 
regulations for the governance principles for the LEI.\199\ Regulations 
for the use of the LEI are currently located in Sec.  45.6(f), which 
the Commission proposed moving to Sec.  45.6(d), which would be 
correctly renumbered as Sec.  45.6(d). The Commission discusses the 
revisions to existing Sec.  45.6(f) section II.F.8 below.
---------------------------------------------------------------------------

    \199\ Existing Sec.  45.6(c) was also numbered in error because 
of the duplicate Sec.  45.6(b) sections.
---------------------------------------------------------------------------

    Existing Sec.  45.6(c) enumerates the five governance principles 
for the LEI to be used in all recordkeeping and all swap data 
reporting: International governance; reference data access; non-profit 
operation and funding; unbundling and non-restricted use; and 
commercial advantage prohibition.
    The Commission proposed removing the governance principles from 
Sec.  45.6(c). The Commission explained in the Proposal that it adopted 
Sec.  45.6(c) before global governance principles for the LEI were 
developed. The Commission further explained that it has participated in 
the Global Legal Entity Identifier System and the LEI ROC since their 
establishment in 2013, through which global governance principles have 
been developed and a functioning LEI system introduced. The Commission 
believed deleting existing Sec.  45.6(c) to remove the governance 
principles for the legal entity identifier to be used in all 
recordkeeping and all swap data reporting was warranted because the 
global governance principles that have been developed and adopted by 
the Global Legal Entity Identifier System already conform to the 
governance principles in Sec.  45.6(c).
    The Commission did not receive any comments on the proposed changes 
to Sec.  45.6(c) and for reasons articulated in the Proposal and 
reiterated above, is adopting the changes to Sec.  45.6(c) as proposed.
6. Sec.  45.6(e)--Designation of the Legal Entity Identifier System
    The Commission proposed removing the Sec.  45.6(e) regulations for 
the designation of the legal entity identifier system. Existing Sec.  
45.6(e) enumerates the procedures for determining whether a legal 
entity identifier system meets the Commission's requirements and the 
procedures for designating the legal entity identifier system as the 
provider of LEIs to be used in all recordkeeping and all swap data 
reporting.
    The Commission explained in the Proposal that it adopted Sec.  
45.6(e) before a global legal entity identifier system was developed. 
The Commission further explained that it has participated in the Global 
Legal Entity Identifier System and the LEI ROC since their 
establishment in 2013, through which a functioning LEI system has been 
introduced, overseeing the issuance of LEIs by local operating units. 
The Commission believed deleting existing

[[Page 75526]]

Sec.  45.6(e) to remove the procedures for designating a legal entity 
identifier system was warranted because such determination and 
designation procedures were no longer needed due to the establishment 
of the Global Legal Entity Identifier System and the standards adopted 
by the Global Legal Entity Identifier System under which a local 
operating unit is authorized to issue LEIs.
    The Commission did not receive any comments on the proposed changes 
to Sec.  45.6(e) and for reasons articulated in the Proposal and 
reiterated above, is adopting the changes to Sec.  45.6(e) as proposed.
7. Sec.  45.6(e)--Reference Data Reporting (Re-Designated as Sec.  
45.6(c))
    The Commission proposed changes to the Sec.  45.6(e) regulations 
for LEI reference data reporting.\200\ First, the Commission proposed 
moving the requirements for reporting LEI reference data in Sec.  
45.6(e) to correctly renumbered Sec.  45.5(c).
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    \200\ This Sec.  45.6(e) was numbered in error, as there is 
already a Sec.  45.6(e) directly preceding it.
---------------------------------------------------------------------------

    Second, the Commission proposed changing the requirements for 
reporting LEI reference data in existing Sec.  45.6(e) to be moved to 
Sec.  45.6(c). Existing Sec.  45.6(e)(1) requires level one reference 
data for each counterparty to be reported via self-registration, third-
party registration, or both, and details the procedures for doing so, 
including the requirement to update level one reference data in the 
event of a change or discovery of the need for a correction. Existing 
Sec.  45.6(e)(2) contains the requirement, once the Commission has 
determined the location of the level two reference database, for level 
two reference data for each counterparty to be reported via self-
registration, third-party registration, or both, and the procedures for 
doing so, including the requirement to update level two reference data 
in the event of a change or discovery of the need for a correction.
    The Commission proposed removing the distinction between level one 
and level two reference data now found in Sec.  45.6(e). Instead, 
proposed new Sec.  45.6(c) would require that all reference data for 
each SEF, DCM, DCO, SDR, entity reporting under Sec.  45.9, and 
counterparty to any swap be reported via self-registration, third-party 
registration, or both, to a local operating unit in accordance with the 
standards set by the Global Legal Entity Identifier System. Proposed 
new Sec.  45.6(c) would retain the requirement in existing Sec.  
45.6(e) to update the reference data in the event of a change or 
discovery of the need for a correction.
    The Commission explained in the Proposal that it adopted Sec.  
45.6(e) before a global legal entity identifier system was developed. 
The Commission further explained that it has participated in the Global 
Legal Entity Identifier System and the LEI ROC since their 
establishment in 2013, through which a functioning LEI system has been 
introduced that sets, and updates as needed, the standards governing 
the identification and relationship reference data required to be 
provided to obtain an LEI. The Commission believed amending existing 
Sec.  45.6(e) to remove the distinction between level one and level two 
reference data, and proposed a new Sec.  45.6(c) to require that all 
reference data is reported to a local operating unit in accordance with 
the standards set by the Global Legal Entity Identifier System was 
warranted because the establishment of Global Legal Entity Identifier 
System removes the role of individual authorities in determining the 
standards governing LEI reference data.
    The Commission explained in the Proposal that while existing Sec.  
45.6(e) requires that reference data for only the counterparties to a 
swap be reported, the extension of the requirement to be identified in 
all recordkeeping and swap data reporting by a single LEI to all SEFs, 
DCMs, DCOs, entities reporting pursuant to Sec.  45.9, and SDRs 
described in section II.F.1 above also necessarily requires that all 
SEFs, DCMs, DCOs, entities reporting pursuant to Sec.  45.9, and SDRs 
report their LEI reference data.
    The Commission did not receive any comments on the proposed changes 
to Sec.  45.6(e) and for reasons articulated in the Proposal and 
reiterated above in this section, is adopting the changes to Sec.  
45.6(e) as proposed.
8. Sec.  45.6(f)--Use of the Legal Entity Identifier System by 
Registered Entities and Swap Counterparties (Re-designated as Sec.  
45.6(d))
    The Commission proposed changing the Sec.  45.6(f) regulations for 
the use of LEIs by registered entities and swap counterparties. 
Existing Sec.  45.6(f)(1) requires that when a legal entity identifier 
system has been designated by the Commission pursuant to Sec.  45.6(e), 
each registered entity and swap counterparty shall use the LEI provided 
by that system in all recordkeeping and swap data reporting pursuant to 
part 45. Existing Sec.  45.6(f)(2) requires that before a legal entity 
identifier system has been designated by the Commission, each 
registered entity and swap counterparty shall use a substitute 
counterparty identifier created and assigned by an SDR in all 
recordkeeping and swap data reporting pursuant to part 45.\201\
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    \201\ The requirements for the substitute identifier were set 
forth in Sec.  45.6(f)(2)(i) through (iv). As the Global Legal 
Entity Identifier System has been introduced that oversees the 
issuance of LEIs by local operating units, these requirements are no 
longer applicable, and the Commission will limit the detail of their 
discussion in this release.
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    Existing Sec.  45.6(f)(3) requires that for swaps reported pursuant 
to part 45 prior to Commission designation of a legal entity identifier 
system, after such designation each SDR shall map the LEIs for the 
counterparties to the substitute counterparty identifiers in the record 
for each such swap. Existing Sec.  45.6(f)(4) requires that prior to 
October 15, 2012, if an LEI has been designated by the Commission as 
provided in Sec.  45.6, but a reporting counterparty's automated 
systems are not yet prepared to include LEIs in recordkeeping and swap 
data reporting pursuant to part 45, the counterparty shall be excused 
from complying with Sec.  45.6(f)(1), and shall instead comply with 
Sec.  45.6(f)(2), until its automated systems are prepared with respect 
to LEIs, at which time it must commence compliance with Sec.  
45.6(f)(1).\202\
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    \202\ The regulation specified that this paragraph would have no 
effect on or after October 15, 2012. 17 CFR 45.6(f)(4).
---------------------------------------------------------------------------

    The Commission proposed retitling the section ``Use of the legal 
entity identifier,'' because, as discussed below, the LEI will no 
longer be used only by registered entities and swap counterparties. The 
Commission proposed moving the requirements for the use of LEIs from 
existing Sec.  45.6(f) to correctly renumbered Sec.  45.6(d),\203\ as a 
result, the Commission's proposed amendments to the requirements for 
the use of LEIs in existing Sec.  45.6(f) discussed below will be 
captured in new Sec.  45.6(d).
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    \203\ As previously noted, existing Sec.  45.6(c) was numbered 
in error because of the duplicate Sec.  45.6(b) sections.
---------------------------------------------------------------------------

    The Commission proposed removing the sections of existing Sec.  
45.6(f) that are no longer operative, either because the Commission has 
designated a legal entity identifier system, or the provisions have 
expired. For these reasons, the Commission proposed removing existing 
Sec.  45.6(f)(2) and (4). As a result, the substantive requirements of 
existing Sec.  45.6(f)(2) and (4) were not proposed to be moved to 
Sec.  45.6(d).
    The Commission explained in the Proposal that while the provisions 
of existing Sec.  45.6(f)(3) relating to substitute counterparty 
identifiers are no longer applicable for new swaps, the substantive 
requirements in Sec.  45.6(f)(3), which are still applicable for swaps

[[Page 75527]]

previously reported pursuant to part 45 using substitute counterparty 
identifiers assigned by an SDR before Commission designation of a legal 
entity identifier system, would be moved to final Sec.  45.6(d)(4). The 
Commission considered this change to be non-substantive.
    The Commission proposed the following substantive changes to the 
regulations requiring the use of LEIs. First, the Commission proposed 
revisions to the existing Sec.  45.6(f)(1) regulations for the use of 
LEIs. The revised regulations would be moved to final Sec.  45.6(d)(1), 
as discussed below.
    The Commission proposed deleting the introductory clause ``[w]hen a 
legal entity identifier system has been designated by the Commission 
pursuant to paragraph (e) of this section'' in existing Sec.  
45.6(f)(1) because it was no longer relevant due to the establishment 
of the Global Legal Entity Identifier System and the LEI ROC in 2013. 
In addition, while existing Sec.  45.6(f)(1) requires ``each registered 
entity and swap counterparty'' to use LEIs in all recordkeeping and 
swap data reporting pursuant to part 45, the Commission proposed to 
replace ``each registered entity and swap counterparty'' with ``[e]ach 
[SEF], [DCM], [DCO], [SDR], entity reporting pursuant to Sec.  45.9, 
and swap counterparty'' to, as described in section II.F.1 above, 
ensure consistency with the CDE Technical Guidance, allow for 
standardization in the identification in recordkeeping and swap data 
reporting, and encourage global swap data aggregation. The Commission 
also proposed to add ``to identify itself and swap counterparties'' 
immediately after ``use [LEIs]'' in this section to clarify the 
intended use of LEIs. Finally, the Commission proposed to add a new 
sentence in this section to clarify that if a swap counterparty is not 
eligible to receive an LEI, such counterparty should be identified in 
all recordkeeping and all swap data reporting pursuant to part 45 with 
an alternate identifier pursuant to Sec.  45.13(a). Because some 
counterparties, including many individuals, are currently ineligible to 
receive an LEI based on the standards of the Global Legal Entity 
Identifier System, the Commission believed this sentence would provide 
clarity as to how LEI-ineligible counterparties should be identified.
    Second, the Commission proposed Sec.  45.6(d)(2) to require each 
SD, MSP, SEF, DCM, DCO, and SDR to maintain and renew its LEI in 
accordance with the standards set by the Global Legal Entity Identifier 
System (as opposed to the requirement for other entities to only 
maintain its LEI). Existing Sec.  45.6(e) requires that reference data 
be updated in the event of a change or discovery of the need for a 
correction, which will continue to be required under final Sec.  
45.6(c).
    The Commission explained in the Proposal that pursuant to the 
Global Legal Entity Identifier System, established in 2013, a person or 
entity is issued an LEI after: (1) Providing its identification and 
relationship reference data to a local operating unit and (2) paying a 
fee, currently as low as approximately $65, to the local operating unit 
to validate the provided reference data. After initial issuance, an LEI 
holder is asked to certify the continuing accuracy of, or provide 
updates to, its reference data annually, and pay a fee, currently as 
low as approximately $50, to the local operating unit. LEIs that are 
not renewed annually are marked as lapsed. Existing Sec.  45.6 does not 
require annual LEI renewal because part 45 was drafted and implemented 
before the establishment of the Global Legal Entity Identifier System. 
The Commission further explained that since the implementation of 
existing Sec.  45.6, the Commission has received consistent feedback 
from certain market participants and industry groups that the 
Commission should require at least some LEI holders to annually renew 
their LEIs.
    The Commission explained in the Proposal that it was aware that 
some LEI holders have not updated reference data as required by 
existing Sec.  45.6(e), and imposing an annual renewal requirement may 
increase the accuracy of their reference data. The Commission also 
recognized that other LEI holders comply with the continuing 
requirement to update reference data, and imposing an annual renewal 
requirement may impose costs on those LEI holders without necessarily 
increasing the accuracy of their reference data. The Commission further 
explained that it has participated in the Global Legal Entity 
Identifier System since its inception, and values the functionality of 
the LEI reference data collected, including the introduction of level 
two reference data.
    The Commission explained in the Proposal that it considers the 
activities of SDs, MSPs, SEFs, DCMs, DCOs, and SDRs to have the most 
systemic impact affecting the Commission's ability to fulfill its 
regulatory mandates. Accordingly, in light of the introduction of LEI 
level two reference data, the Commission believed requiring each SD, 
MSP, SEF, DCM, DCO, and SDR to maintain and renew its LEI in accordance 
with the standards set by the Global Legal Entity Identifier System in 
Sec.  45.6(d)(2) struck the appropriate balance between the 
Commission's interest in accurate LEI reference data and cost to LEI 
holders.
    Third, the Commission proposed a new Sec.  45.6(d)(3) that would 
obligate each DCO and each financial entity reporting counterparty 
executing a swap with a counterparty that does not have an LEI but is 
eligible for one to cause, before reporting any required swap creation 
data for such swap, an LEI to be assigned to the counterparty, 
including if necessary, through third-party registration.
    The Commission explained in the Proposal that it was aware that 
some counterparties have not obtained an LEI. While proposed amendments 
to Sec.  45.6 clarify the requirement that a counterparty required to 
be identified with an LEI in swap data reporting also has an associated 
affirmative requirement to obtain an LEI, the Commission explained that 
it anticipates a small percentage of counterparties nonetheless will 
not have obtained an LEI before executing a swap. The Commission 
further explained that swap data that does not identify eligible 
counterparties with an LEI hinders the Commission's fulfillment of its 
regulatory mandates, including monitoring systemic risk, market 
monitoring, and market abuse prevention. The Commission believed new 
Sec.  45.6(d)(3) to require each DCO and each financial entity 
reporting counterparty executing a swap with a counterparty that does 
not have an LEI to cause an LEI to be assigned to the non-reporting 
counterparty would further the objective of identifying each 
counterparty to a swap with an LEI.
    Proposed Sec.  45.6(d)(3) did not prescribe the initial manner in 
which a DCO or financial entity reporting counterparty causes an LEI to 
be assigned to the non-reporting counterparty, though if initial 
efforts are unsuccessful, proposed Sec.  45.6(d)(3) required the DCO or 
financial entity reporting counterparty to obtain an LEI for the non-
reporting counterparty. The Commission explained in the Proposal that 
having a DCO or financial entity reporting counterparty serving as a 
backstop under new Sec.  45.6(d)(3) to ensure the identification of the 
non-reporting counterparty with an LEI was appropriate because: (i) 
Each DCO and financial entity reporting counterparty already had 
obtained, via its ``know your customer'' and anti-money laundering 
compliance processes, all identification and relationship reference 
data of the non-reporting counterparty

[[Page 75528]]

required by a local operating unit to issue an LEI for the non-
reporting counterparty; (ii) multiple local operating units offered 
expedited issuance of LEI in sufficient time to allow reporting 
counterparties to meet their new extended deadline in Sec.  45.3(a) 
through (b) for reporting required swap creation data; and (iii) the 
Commission anticipated that third-party registration in these instances 
would be infrequent, as the Commission expected most non-reporting 
counterparties to be mindful of their direct obligation to obtain their 
own LEIs pursuant to Sec.  45.6.\204\
---------------------------------------------------------------------------

    \204\ ESMA also issued temporary relief to investment firms 
transacting with a client without an LEI on the condition that they 
``[obtain] the necessary documentation from this client to apply for 
an LEI code on his behalf,'' available at https://www.esma.europa.eu/press-news/esma-news/esma-issues-statement-lei-implementation-under-mifid-ii.
---------------------------------------------------------------------------

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

    \205\ CME at 17-18.
---------------------------------------------------------------------------

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

    \206\ GLEIF at 3.
---------------------------------------------------------------------------

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

    \207\ DTCC at 6; Eurex at 4; LCH at 3; GFXD at 23-24; GLEIF at 
1-2; Chatham at 3.
    \208\ GFXD at 23-24.
    \209\ LCH at 3.
    \210\ GLEIF at 1-2. GLEIF mentions that costs related to LEIs 
continue to decline and today average $60 versus $150 five years 
ago, and its ``validation agent'' framework pilot program provides a 
new operating model where financial institutions, and not 
registrants, have the responsibility of obtaining and maintaining an 
LEI, but that the program could take 1-2 years to complete.
---------------------------------------------------------------------------

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

    \211\ Chatham at 3.
    \212\ Id.
    \213\ Id.
---------------------------------------------------------------------------

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

    \214\ GLEIF at 2; Data Coalition at 2; Chatham at 3; Eurex at 4.
    \215\ GLEIF at 2.
    \216\ Chatham at 3.
---------------------------------------------------------------------------

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

    \217\ GFXD at 23-24.
    \218\ Id.
    \219\ Id.
---------------------------------------------------------------------------

    JBA believes obtaining an LEI on behalf of the counterparty is 
impractical and costly.\220\ JBA requests changing this requirement and 
suggests that DCO and financial entities ``recommend'' the counterparty 
to obtain an LEI, or take other similar actions.\221\
---------------------------------------------------------------------------

    \220\ JBA at 5-6.
    \221\ Id.
---------------------------------------------------------------------------

    ISDA-SIFMA have concerns about a reporting counterparty's ability 
to comply with such a requirement because a DCO or financial entity 
reporting counterparty cannot obtain an LEI on behalf of a non-
reporting counterparty without the non-reporting counterparty's 
permission, and ISDA-SIFMA anticipate that some counterparties would be 
resistant to obtaining an LEI.\222\ ISDA-SIFMA request clarification 
that a DCO or financial entity reporting counterparty may act as an 
agent for third-party registration to obtain LEIs on a counterparty's 
behalf only if it chooses to do so, instead of being mandated to do 
so.\223\ ISDA-SIFMA suggest adding a clarification that the LEI 
registrant (i.e., the non-reporting counterparty), has the regulatory 
obligation to obtain and maintain its own LEI, and that the maintenance 
obligation be placed on the entity to whom the LEI is issued, instead 
of a third-party.\224\ ISDA-SIFMA consider a non-reporting counterparty 
to include an investment manager executing a transaction for, and on 
behalf of, a swap counterparty (e.g., funds), and wants the Commission 
to clarify that an investment manager executing a transaction on behalf 
of a counterparty is required to obtain and maintain its own LEI and 
that an investment manager is required to obtain its own LEI 
sufficiently in advance of executing pre-allocation swaps, so that the 
reporting counterparty can report the investment manager LEI within the 
reporting counterparty's part 45 timing obligations.\225\
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    \222\ ISDA-SIFMA at 14-15.
    \223\ Id.
    \224\ Id.
    \225\ Id.
---------------------------------------------------------------------------

    ICE DCOs believe it is inappropriate for DCOs to backstop the 
compliance functions of other participants, especially since this may 
include clients of clearing members with which a DCO has no 
relationship, requests the

[[Page 75529]]

Commission to either remove the LEI backstop entirely or exempt DCOs 
from the backstop.\226\
---------------------------------------------------------------------------

    \226\ ICE DCOs at 4-5.
---------------------------------------------------------------------------

    For reasons articulated in the Proposal and informed by comments 
and analysis as further discussed below, the Commission is adopting the 
changes to Sec.  45.6(f), re-designated as Sec.  45.6(d), largely as 
proposed, with certain modifications in response to commenters and 
other considerations.
    The Commission did not receive any comments on the proposals to 
retitle Sec.  45.6(f) ``Use of the legal entity identifier'' or to 
remove Sec.  45.6(f)(2) and (4) and for reasons articulated in the 
Proposal and reiterated above, is adopting the changes as proposed. The 
Commission also did not receive any comments on the proposals to move 
the requirements for the use of LEIs from Sec.  45.6(f) to renumbered 
Sec.  45.6(d) or to move the substantive requirements in Sec.  
45.6(f)(3) relating to substitute counterparty identifiers to Sec.  
45.6(d)(4) and for reasons articulated in the Proposal and reiterated 
above, is adopting the changes as proposed.
    The Commission is adopting the changes to the Sec.  45.6(f)(1) 
regulations for the use of LEIs as proposed and the move to Sec.  
45.6(d)(1) as proposed. The Commission believes a change to the ``all 
recordkeeping and all swap data reporting'' language in Sec.  
45.6(f)(1) would only lead to confusion due to the term being used 
extensively elsewhere in Sec.  45.6 and other sections of part 45, and 
therefore declines to adopt CME's suggestion. The Commission notes the 
requirement to identify entities using an LEI in ``all recordkeeping 
and swap data reporting'' has existed in Sec.  45.6(f)(1) that all 
entities have complied with since part 45 was adopted in 2012, and the 
Commission has seen no evidence that any entity has encountered 
difficulty complying with this provision. The Commission notes nothing 
prevents an entity from supplementing the LEI with a human-readable 
alternative in its records.
    The Commission also declines to adopt GLEIF's suggestion to 
rephrase the second sentence of Sec.  45.6(f)(1) to state that 
alternative identifiers may only be used for natural persons who are 
not eligible for an LEI, as the Commission lacks sufficient knowledge 
of all entity structures and legal systems worldwide to know for 
certain that every non-natural person is eligible for an LEI.\227\ Even 
though the legal entities that have faced questions regarding their 
eligibility for LEIs are admittedly very small in number, GLEIF's 
suggested rephrasing of Sec.  45.6(f)(1) would result in those few 
legal entities currently ineligible for LEIs to also not be allowed to 
be identified using alternative identifiers, and the resulting lack of 
acceptable identifier would hinder the Commission's ability to 
aggregate the total exposure of those entities.
---------------------------------------------------------------------------

    \227\ For example, the Commission is aware that certain European 
banking groups with unconventional legal structures have encountered 
difficulties obtaining LEIs. The Commission also notes a recent LEI 
ROC consultation covered, among other topics, ``[p]otential 
difficulties for identification of general government entities in 
the [Global Legal Entity Identifier System] current framework''; see 
LEI ROC, LEI Eligibility for General Government Entities (Oct. 25, 
2019), available at https://www.leiroc.org/publications/gls/roc_20191025-1.pdf.
---------------------------------------------------------------------------

    The Commission did not receive any comments opposing the proposed 
requirements in Sec.  45.6(d)(2) for each SD, MSP, SEF, DCM, DCO, and 
SDR to maintain and renew its LEI in accordance with the standards set 
by the Global Legal Entity Identifier System and for reasons 
articulated in the Proposal and reiterated above, is adopting Sec.  
45.6(d)(2) as proposed.
    The Commission acknowledges LCH's request to clarify in Sec.  45.6 
that SDRs should not reject LEIs that have not been renewed, but 
declines to adopt this suggestion in the text of Sec.  45.6, as the 
Commission has delegated to the DMO Director in Sec.  45.15 to issue 
guidance on the form and manner of the technical specification 
governing reporting to SDRs. Nevertheless, the Commission notes DMO has 
not asked SDRs to validate the renewal status of LEIs in the technical 
specification being published concurrent with adoption of the revisions 
to part 45.
    The Commission acknowledges GFXD's comment regarding the duty to 
renew should apply to a reporting counterparty's own LEIs and not that 
of the non-reporting counterparty, but believes GFXD conflates two 
separate requirements: The LEI renewal requirement for SDs, MSPs, SEFs, 
DCMs, DCOs, and SDRs in Sec.  45.6(d)(2) and the requirements described 
in Sec.  45.6(d)(3) below regarding efforts to obtain LEIs for 
counterparties without LEIs. The Commission believes Sec.  45.6(d)(2) 
is clear that the renewal requirement applies only to an entity's own 
LEI. By definition, an LEI has to be issued before it can be renewed, 
so Sec.  45.6(d)(3) would not apply to LEI renewals.
    The Commission also acknowledges the alternative suggestions of 
expanding the LEI renewal requirement to either all reporting 
counterparties or all counterparties, but declines to adopt an 
expansion of the LEI renewal requirement, as the Commission continues 
to believe requiring each SD, MSP, SEF, DCM, DCO, and SDR to maintain 
and renew its LEI strikes the appropriate balance between the 
Commission's interest in accurate LEI reference data and the current 
cost to LEI holders. The Commission acknowledges and appreciates the 
reduction in the cost to LEI holders to obtain and renew LEIs since the 
start of the Global Legal Entity Identifier System, but does not 
believe further expansion of the renewal requirement and the resulting 
increased costs on LEI holders now premised solely on GLEIF's promises 
of future cost reductions and/or shifts of the LEI renewal fee to 
financial institutions resulting from Global Legal Entity Identifier 
System operating model changes is appropriate. Before the Commission 
mandates such a requirement, it will seek additional information to 
gain a better understanding what the benefits or costs of such a 
requirement will be. While the Commission declines to expand the 
renewal mandate in this release, it is open to considering expansions 
of the LEI renewal requirement in future releases upon further 
enhancements in LEI reference data or realized reductions in cost to 
LEI holders.
    In response to Chatham's request for clarification, the Commission 
notes the requirements of Sec.  45.6 would not apply retroactively to 
swap data reports previously reported before the adoption of the 
amendments to part 45, but do apply to creation data and continuation 
data submitted after the adoption of the amendments to part 45.
    For reasons articulated in the Proposal and informed by comments 
and analysis as further discussed below, the Commission is adopting 
Sec.  45.6(d)(3) largely as proposed, with certain modifications in 
response to commenters and other considerations.
    Section 45.6(d)(3) of the final rule removes DCOs from the 
obligation, as DCOs may not have information regarding customers 
clearing trades through futures commission merchants. Section 
45.6(d)(3) of the final rule also reflects the addition of ``use best 
efforts to'' before ``cause a legal entity identifier to be assigned to 
the counterparty'' to clarify that the obligation relates to actions 
within a financial entity reporting counterparty's control, instead of 
the obligation to ensure an outcome that may be outside of a financial 
entity reporting counterparty's control. Section 45.6(d)(3) of the 
final rule also removes the phrase ``including if necessary, through 
third-party registration.'' Finally, as the Commission still has a need 
to know the identity of the non-

[[Page 75530]]

reporting counterparty despite the non-reporting counterparty's failure 
to obtain its own LEI pursuant to Sec.  45.6, the Commission is 
adopting in Sec.  45.6(d)(3) of the final rule a requirement for the 
financial entity reporting counterparty to promptly provide to the 
Commission the identity and contact information of the counterparty for 
whom the financial entity reporting counterparty's efforts to cause an 
LEI to be issued were unsuccessful.\228\
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    \228\ The Commission recognizes that if the non-reporting 
counterparty refuses to obtain an LEI or refuses to provide 
permission for the reporting counterparty to obtain an LEI on its 
behalf, the lack of LEI may cause the swap data report to fail an 
SDR's validations for the ``Counterparty 2'' data element. To the 
extent a swap data report would otherwise pass an SDR's validations 
but for the refusal by an LEI-eligible non-reporting counterparty to 
obtain an LEI, the Commission will take appropriate steps to address 
such refusal by the LEI-eligible non-reporting counterparty. The 
Commission expects this to be an infrequent situation.
---------------------------------------------------------------------------

    As discussed in the Proposal, swap data that does not identify 
eligible counterparties with an LEI hinders the Commission's 
fulfillment of its regulatory mandates. However, the Commissioner 
declines to adopt a ``no LEI, no trade'' requirement that GFXD suggests 
due to concerns of the potential impact of such a requirement may have 
on market liquidity, as a ``no LEI, no trade'' rule would result in 
market participants without an LEI not being permitted to transact in 
the market. The Commission also notes part 45 relates to the reporting 
of swaps that already have been executed, whereas ``no LEI, no trade'' 
relates to who is eligible to engage in swap transactions, a completely 
different topic than the reporting of executed swaps and outside of the 
scope of the part 45 swap data reporting rule. With regards to GFXD's 
operational concerns, the Commission does not believe operational 
issues such as multiple LEI being issued to a counterparty are likely 
to arise, as checks in the Global Legal Entity Identifier System 
prohibit multiple LEIs being issued to an entity. The Commission also 
does not believe GFXD's concerns that the provision will result in a 
material shifting of costs for obtaining an LEI onto reporting 
counterparties are particularly realistic due to: (i) Most 
counterparties having already obtained an LEI due to significant LEI 
adoption by other authorities whose jurisdictions the counterparties 
may be subject to, (ii) the relatively sophisticated nature of 
counterparties in the swaps market, (iii) the financial due diligence 
that reporting counterparties such as GFXD's members perform on their 
counterparties, and (iv) the unlikelihood that those relatively 
sophisticated counterparties with adequate financial resources would 
willingly and knowingly disregard their own separate obligation to 
obtain their own LEIs pursuant to Sec.  45.6 just so they may realize a 
one-time savings of $65.
    The Commission also recognizes the concerns noted by commenters 
that obtaining an LEI for a counterparty via third-party registration 
requires the consent of the counterparty, consent that may potentially 
not be obtained despite a financial entity reporting counterparty's 
best efforts. The Commission believes Sec.  45.6(d)(3) of the final 
rule addresses those concerns, as financial entities will only be 
required to ``use best efforts to cause [an LEI] to be assigned to the 
counterparty,'' so financial entities would not be required to obtain 
an LEI for a non-consenting counterparty. It was never the Commission's 
intent for anyone other than the entity to which an LEI is issued to be 
responsible for maintaining the reference data for that LEI, and the 
Commission has, in response to ISDA-SIFMA's suggestion, added a 
clarification in the introductory text of Sec.  45.6 that each entity 
is responsible for maintaining its LEI, in addition to obtaining and 
being identified with an LEI.
---------------------------------------------------------------------------

    \229\ The Commission proposed minor, non-substantive amendments 
to Sec.  45.7.
---------------------------------------------------------------------------

G. Sec.  45.8 229 --Determination of Which Counterparty 
Shall Report

    The Commission is changing the introductory text to the Sec.  45.8 
reporting counterparty determination regulations. The existing 
introductory text states the determination of which counterparty is the 
reporting counterparty for all swaps, except clearing swaps, shall be 
made as provided in Sec.  45.8(a) through (h), and that the 
determination of which counterparty is the reporting counterparty for 
all clearing swaps shall be made as provided in Sec.  45.8(i).
    The Commission is changing the introductory text to state that the 
determination of which counterparty is the reporting counterparty for 
each swap shall be made as provided in Sec.  45.8. The Commission 
believes this language is clearer, as much of the introductory text is 
superfluous given that the scope of what Sec.  45.8 covers is clear 
from the operative provisions of Sec.  45.8. The Commission is making 
non-substantive amendments to the rest of existing Sec.  45.8.
    The Commission received two comments beyond the non-substantive 
changes the Commission proposed. ICE SDR recommends the Commission 
allow swap counterparties to determine which entity is best suited to 
report swap data where both counterparties are non-SDs/MSPs and only 
one counterparty is a financial entity and where both counterparties 
are non-SDs/MSPs and only one counterparty is a U.S. person.\230\ The 
Commission declines to adopt ICE SDR's recommendation, as financial 
entities, being more active in the swaps market, are better suited to 
report swap data to SDRs than non-SD/MSP counterparties. In addition, 
between two non-SD/MSP/DCO reporting counterparties, the U.S. person 
counterparty should report swap data to SDRs given their stronger 
connection to the U.S.
---------------------------------------------------------------------------

    \230\ ICE SDR at 6.
---------------------------------------------------------------------------

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

    \231\ ISDA-SIFMA at 15-16.
---------------------------------------------------------------------------

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

H. Sec.  45.10 232 - Reporting to a Single Swap Data 
Repository
---------------------------------------------------------------------------

    \232\ The Commission is making minor, non-substantive amendments 
to Sec.  45.9.
---------------------------------------------------------------------------

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

[[Page 75531]]

introductory text states that all swap data for a given swap, which 
includes all swap data required to be reported pursuant to parts 43 and 
45, must be reported to a single SDR, which must be the SDR to which 
the first report of required swap creation data is made pursuant to 
part 45.
    First, the Commission is clarifying all ``swap transaction and 
pricing data and swap data'' (both terms that the Commission proposed 
to newly define and add to Sec.  45.1(a)) \233\ for a given swap must 
be reported. As newly defined, ``swap transaction and pricing data'' 
and ``swap data'' would expressly refer, respectively, to data subject 
to parts 43 and 45, making the existing Sec.  45.10 introductory text's 
reference to the two parts redundant. Second, the Commission is adding 
a qualifier to the end of the introductory text specifying that all 
swap data and swap transaction and pricing data for a swap must be 
reported to a single SDR ``unless the reporting counterparty changes 
the [SDR] to which such data is reported'' pursuant to the new 
regulations proposed in Sec.  45.10(d).\234\ Third, the Commission is 
making non-substantive changes in the introductory text to improve 
readability.
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    \233\ The Commission's addition of terms for ``swap data'' and 
``swap transaction and pricing data'' to Sec.  45.1(a) is discussed 
in section II.A.1 above.
    \234\ The Commission discusses Sec.  45.10(d) in section II.H.5 
below.
---------------------------------------------------------------------------

    The Commission did not receive any comments on the changes to the 
introductory text in Sec.  45.10. The Commission is adopting the 
changes as proposed.
2. Sec.  45.10(a)--Swaps Executed On or Pursuant to the Rules of a SEF 
or DCM
    The Commission is amending the Sec.  45.10(a) regulations for 
reporting swaps executed on or pursuant to the rules of a SEF or DCM to 
a single SDR. Existing Sec.  45.10(a) requires that to ensure all swap 
data, including all swap data required to be reported pursuant to parts 
43 and 45, for a swap executed on or pursuant to the rules of a SEF or 
DCM is reported to a single SDR: (i) The SEF or DCM that reports 
required swap creation data as required by Sec.  45.3 shall report all 
such data to a single SDR, and ASATP after execution shall transmit to 
both counterparties to the swap, and to any DCO, the identity of the 
SDR and the USI for the swap; and (ii) thereafter, all required swap 
creation data and all required swap continuation data reported for the 
swap reported by any registered entity or counterparty must be reported 
to that same SDR (or to its successor in the event that it ceases to 
operate, as provided in existing part 49).
    First, the Commission is removing the phrase ``(or to its successor 
in the event that it ceases to operate, as provided in part 49)'' from 
Sec.  45.10(a)(2).\235\ Second, the Commission is updating all 
references to swap data throughout proposed Sec.  45.10(a) with ``swap 
transaction and pricing data and swap data.'' The Commission believes 
using the new defined terms for ``swap data'' and ``swap transaction 
and pricing data'' will provide clarity for market participants.
---------------------------------------------------------------------------

    \235\ This change is due to the new regulations the Commission 
is adding for changing SDRs in Sec.  45.10(d). The Commission 
discusses Sec.  45.10(d) in section II.H.5 below.
---------------------------------------------------------------------------

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

    \236\ Id.
---------------------------------------------------------------------------

    The Commission did not receive any comments on the changes to Sec.  
45.10(a). For the reasons discussed above, the Commission is adopting 
the changes as proposed.
3. Sec.  45.10(b)--Off-Facility Swaps with an SD or MSP Reporting 
Counterparty
    The Commission is amending the Sec.  45.10(b) regulations for 
reporting swaps executed off-facility with an SD/MSP reporting 
counterparty to a single SDR. Existing Sec.  45.10(b)(1) requires that 
to ensure that all swap data, including all swap data required to be 
reported pursuant to parts 43 and 45, for off-facility swaps with an SD 
or MSP reporting counterparty is reported to a single SDR: (i) If the 
reporting counterparty reports PET data to an SDR as required by Sec.  
45.3, the reporting counterparty shall report PET data to a single SDR 
and ASATP after execution, but no later than as required pursuant to 
Sec.  45.3, shall transmit to the other counterparty to the swap both 
the identity of the SDR to which PET data is reported by the reporting 
counterparty, and the USI for the swap created pursuant to Sec.  45.5; 
and (ii) if the swap will be cleared, the reporting counterparty shall 
transmit to the DCO at the time the swap is submitted for clearing both 
the identity of the SDR to which PET data is reported by the reporting 
counterparty, and the USI for the swap created under Sec.  45.5.
    Thereafter, Sec.  45.10(b)(2) requires that all required swap 
creation data and all required swap continuation data reported for the 
swap, by any registered entity or counterparty, shall be reported to 
the SDR to which swap data has been reported pursuant to Sec.  
45.10(b)(1) or (2) (or to its successor in the event that it ceases to 
operate, as provided in part 49).
    First, the Commission is combining the requirements for SD/MSP 
reporting counterparties in Sec.  45.10(b) for off-facility swaps with 
the requirements for non-SD/MSP reporting counterparties in Sec.  
45.10(c) for off-facility swaps. The Commission believes combining the 
requirements for SD/MSP reporting counterparties and non-SD/MSP 
reporting counterparties in Sec.  49.10(b) and (c) will simplify the 
regulations in Sec.  45.10. The Commission is re-titling Sec.  45.10(b) 
``Off-facility swaps that are not clearing swaps.'' \237\
---------------------------------------------------------------------------

    \237\ The Commission discusses the requirements of existing 
Sec.  45.10(c) in section II.H.4 below.
---------------------------------------------------------------------------

    Second, the Commission is removing the phrase ``(or to its 
successor in the event that it ceases to operate, as provided in part 
49)'' from Sec.  45.10(b)(2).\238\ Third, the Commission is updating 
all references to swap data throughout Sec.  45.10(b) by replacing all 
references to ``swap data'' with ``swap transaction and pricing data 
and swap data.''
---------------------------------------------------------------------------

    \238\ This change is due to the new regulations the Commission 
is adopting for changing SDRs in Sec.  45.10(d). The Commission 
discusses Sec.  45.10(d) in section II.H.5 below.
---------------------------------------------------------------------------

    Fourth, the Commission is removing existing Sec.  45.10(b)(1) and 
combining the regulations in existing Sec.  45.10(b)(1)(i) through 
(iii) into Sec.  45.10(b)(1). The Commission believes existing Sec.  
45.10(b)(1) is unnecessary, as all reporting counterparties must report 
required swap creation data to an SDR pursuant to Sec.  45.3 for off-
facility swaps. Fifth, the Commission is removing the requirement in 
existing Sec.  45.10(b)(1)(ii) for the reporting counterparty to 
transmit the USI to the non-reporting counterparty to the swap. The 
requirement in Sec.  45.10(b)(1) is unnecessary, as it is already 
located in Sec.  45.5(b)(2) and (c)(2), depending on the type of 
counterparty.
    Finally, the Commission is adding the qualifier to the end of Sec.  
45.10(b)(2) that all swap data and swap transaction and pricing data 
for a swap must be reported to a single SDR ``unless the reporting 
counterparty changes the [SDR] to

[[Page 75532]]

which such data is reported'' pursuant to proposed Sec.  45.10(d).\239\
---------------------------------------------------------------------------

    \239\ The Commission discusses new Sec.  45.10(d) in section 
II.H.5 below.
---------------------------------------------------------------------------

    The Commission did not receive any comments on the proposed changes 
to Sec.  45.10(b). For the reasons discussed above, the Commission is 
adopting the changes as proposed.
4. Sec.  45.10(c)--Off-Facility Swaps With a Non-SD/MSP Reporting 
Counterparty
    The Commission is moving the requirements in Sec.  45.10(d) to 
Sec.  45.10(c). The Commission discusses the requirements of existing 
Sec.  45.10(d) in the following section, II.H.5. The Commission 
discusses the requirements of existing Sec.  45.10(c) that it proposed 
moving to Sec.  45.10(b) in section II.H.3 above.
5. Sec.  45.10(d)--Clearing Swaps
a. Amendments to Existing Sec.  45.10(d) \240\
---------------------------------------------------------------------------

    \240\ The Commission is moving the requirements for reporting 
clearing swaps to a single SDR from Sec.  45.10(d) to Sec.  
45.10(c). The Commission is replacing Sec.  45.10(d) with new 
requirements for reporting counterparties to change SDRs. This 
section discusses the changes to the requirements for reporting 
clearing swaps to a single SDR in newly re-designated Sec.  45.10(c) 
(existing Sec.  45.10(d)), followed by a discussion of the new 
regulations permitting reporting counterparties to change SDRs.
---------------------------------------------------------------------------

    Existing Sec.  45.10(d)(1) requires that to ensure that all swap 
data for a given clearing swap, and for clearing swaps that replace a 
particular original swap or that are created upon execution of the same 
transaction and that do not replace an original swap, is reported to a 
single SDR the DCO that is a counterparty to the clearing swap report 
all required swap creation data for that clearing swap to a single SDR, 
and ASATP after acceptance of an original swap by a DCO for clearing or 
execution of a clearing swap that does not replace an original swap, 
the DCO transmit to the counterparty to each clearing swap the LEI of 
the SDR to which the DCO reported the required swap creation data for 
that clearing swap.
    Thereafter, existing Sec.  45.10(d)(2) requires the DCO report all 
required swap creation data and all required swap continuation data 
reported for that clearing swap to the SDR to which swap data has been 
reported pursuant to Sec.  45.10(d)(1) (or to its successor in the 
event that it ceases to operate, as provided in part 49). Existing 
Sec.  45.10(d)(3) requires that for clearing swaps that replace a 
particular original swap, and for equal and opposite clearing swaps 
that are created upon execution of the same transaction and that do not 
replace an original swap, the DCO report all required swap creation 
data and all required swap continuation data for such clearing swaps to 
a single SDR.
    Newly re-designated Sec.  45.10(c) would include several changes to 
the requirements in existing Sec.  45.10(d). First, the Commission is 
removing the phrase ``(or to its successor in the event that it ceases 
to operate, as provided in part 49)'' in existing Sec.  45.10(d)(2) 
from re-designated Sec.  49.10(c)(2).\241\
---------------------------------------------------------------------------

    \241\ This change is due to the new regulations the Commission 
is adopting for changing SDRs in Sec.  45.10(d). The Commission 
discusses Sec.  45.10(d) in section II.H.5.b below.
---------------------------------------------------------------------------

    Second, the Commission is updating all references to swap data now 
found throughout existing Sec.  45.10(d) with references to ``swap 
transaction and pricing data and swap data.'' Third, the Commission is 
adding the following qualifier: ``unless the reporting counterparty 
changes the [SDR] to which such data is reported'' pursuant to the new 
regulations in Sec.  45.10(d). Finally, the Commission is making 
numerous language edits to improve readability and to update certain 
cross-references.
    The Commission did not receive any comments on the proposed changes 
to Sec.  45.10(d), as moved to Sec.  45.10(c). For the reasons 
discussed above, the Commission is adopting the changes as proposed.
b. New Regulations for Changing SDRs
    The Commission is adding new Sec.  45.10(d) to permit reporting 
counterparties to change the SDR to which they report swap data and 
swap transaction and pricing data. Existing Sec.  45.10 provides all 
swaps must be reported to a ``single [SDR].'' \242\
---------------------------------------------------------------------------

    \242\ 17 CFR 45.10(a) through (d).
---------------------------------------------------------------------------

    The Commission is titling new Sec.  45.10(d) ``Change of [SDR] for 
swap transaction and pricing data and swap data reporting.'' The 
introductory text to Sec.  45.10(d) states a reporting counterparty may 
change the SDR to which swap transaction and pricing data and swap data 
is reported as outlined in Sec.  45.10(d).
    New Sec.  45.10(d)(1) will require that at least five business days 
prior to changing the SDR to which the reporting counterparty reports 
swap transaction and pricing data and swap data for a swap, the 
reporting counterparty provide notice of such change to the other 
counterparty to the swap, the SDR to which swap transaction and pricing 
data and swap data is currently reported, and the SDR to which swap 
transaction and pricing data and swap data will be reported going 
forward. Such notification will include the UTI of the swap and the 
date on which the reporting counterparty will begin reporting such swap 
transaction and pricing data and swap data to a different SDR.
    New Sec.  45.10(d)(2) will require that after providing 
notification, the reporting counterparty: (i) Report the change of SDR 
to the SDR to which the reporting counterparty is currently reporting 
swap transaction and pricing data and swap data as a life cycle event 
for such swap pursuant to Sec.  45.4; (ii) on the same day that the 
reporting counterparty reports required swap continuation data as 
required by Sec.  45.10(d)(2)(i), the reporting counterparty also 
report the change of SDR to the SDR to which swap transaction and 
pricing data and swap data will be reported going forward, as a life 
cycle event for such swap pursuant to Sec.  45.4, and the report 
identify the swap using the same UTI used to identify the swap at the 
previous SDR; (iii) thereafter, all swap transaction and pricing data, 
required swap creation data, and required swap continuation data for 
the swap be reported to the new SDR, unless the reporting counterparty 
for the swap makes another change to the SDR to which such data is 
reported pursuant to Sec.  45.10(d).
    When the Commission adopted Sec.  45.10 in 2012, it believed 
regulators' ability to see necessary information concerning swaps could 
be impeded if data concerning a swap was spread over multiple 
SDRs.\243\ However, since then, the Commission has come to recognize it 
can aggregate swap data from different SDRs, and the Commission has 
received requests to permit reporting counterparties to change 
SDRs.\244\
---------------------------------------------------------------------------

    \243\ See 77 FR 2136, 2168 (Jan. 13, 2012).
    \244\ See, e.g., Joint letter from Bloomberg SDR LLC, Chicago 
Mercantile Exchange Inc., and ICE Trade Vault, LLC (Aug. 21, 2017) 
at 15.
---------------------------------------------------------------------------

    However, the ability to change SDRs cannot frustrate the 
Commission's ability to use swap data due to duplicative swap reports 
housed at multiple SDRs. For this reason, the Commission is permitting 
reporting counterparties to change SDRs in Sec.  49.10(d), subject to 
certain notification procedures described below to ensure swaps are 
properly transferred between SDRs.
    The Commission received five comments supporting new Sec.  
45.10(d).\245\ In particular, GFXD does not believe counterparties 
changing SDRs raises any operational issues and does not believe any 
additional requirements should be adopted.\246\
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    \245\ GFXD at 24; Eurex at 4; JBA at 5; DTCC at 7; Markit at 6.
    \246\ GFXD at 24.

---------------------------------------------------------------------------

[[Page 75533]]

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

    \247\ Markit at 6.
---------------------------------------------------------------------------

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

    \248\ ISDA-SIFMA at 16.
---------------------------------------------------------------------------

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

    \249\ Id.
    \250\ DTCC at 7.
---------------------------------------------------------------------------

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

    The Commission is making non-substantive changes to the Sec.  45.11 
regulations for reporting swaps in an asset class not accepted by any 
SDR. Existing Sec.  45.11(a) requires that, should there be a swap 
asset class for which no SDR registered with the Commission currently 
accepts swap data, each registered entity or counterparty required by 
part 45 to report any required swap creation data or required swap 
continuation data with respect to a swap in that asset class report 
that same data to the Commission.
    For instance, the Commission is removing the phrase ``registered 
with the Commission'' following the term SDR. The Commission believes 
this phrase is confusing, as the three SDRs are provisionally 
registered with the Commission pursuant to Sec.  49.4(b) of the 
Commission's regulations. The Commission also believes this phrase is 
unnecessary, as provisionally registered SDRs and fully registered SDRs 
are subject to the same requirements in the CEA and the Commission's 
regulations. The Commission is also replacing ``each registered entity 
or counterparty'' with a reference to SEFs, DCMs, and DCOs, and the 
term ``reporting counterparty.'' The list of entities is more precise 
and does not modify the types of entities to which the requirements of 
Sec.  49.11 would apply.
    Existing Sec.  45.11(c) and (d) contain a delegation of authority 
to the Chief Information Officer of the Commission concerning the 
requirements in Sec.  45.11(a) and (b). The Commission is moving this 
delegation to a new section, Sec.  45.15, for delegations of authority. 
The Commission discusses Sec.  45.15 in section II.L below.
    The Commission did not receive any comments on the proposed changes 
to existing Sec.  45.11. For the reasons discussed above, the 
Commission is adopting the changes as proposed.

J. Sec.  45.12--Voluntary Supplemental Reporting

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

    \251\ 17 CFR 45.12(b) through (e). Existing Sec.  45.12(d) 
requires voluntary supplemental reports contain an indication the 
report is voluntary, a USI, the identity of the SDR to which 
required swap creation data and required swap continuation data were 
reported, if different from the SDR to which the voluntary 
supplemental report was reported, the LEI of the counterparty making 
the voluntary supplemental report, and an indication the report is 
made pursuant to laws of another jurisdiction, if applicable.
    \252\ 17 CFR 45.12(a).
---------------------------------------------------------------------------

    When it adopted Sec.  45.12 in 2012, the Commission believed 
voluntary supplemental reporting could have benefits for data accuracy 
and counterparty business processes, especially for counterparties that 
were not the reporting counterparty to a swap.\253\ The Commission 
recognized Sec.  45.12 would lead to the submission of duplicative 
reports for the same swap,\254\ but believed an indication voluntary 
supplemental reports were voluntary would prevent double-counting of 
the same swaps within SDRs.\255\
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    \253\ 77 FR at 2169 (Jan. 13, 2012).
    \254\ Id.
    \255\ Id.
---------------------------------------------------------------------------

    In practice, the Commission is concerned voluntary supplemental 
reports compromise data quality and provide no clear regulatory 
benefit. In analyzing reports that have been marked as ``voluntary 
reports,'' it is not immediately apparent to the Commission why 
reporting counterparties mark the reports as voluntary. In some cases, 
it appears these reports can be related to products outside the 
Commission's jurisdiction. The Commission believes it should not accept 
duplicative or non-jurisdictional reports at the expense of the 
Commission's technical and staffing resources with no clear regulatory 
benefit. The Commission adopted existing Sec.  45.12 in 2012 without 
the benefit of having swap data available to consider the practical 
implications of existing Sec.  45.12. However, after years of use by 
Commission staff, the Commission now believes existing Sec.  45.12 has 
led to swap data reporting that inhibits the Commission's use of the 
swap data. The Commission believes eliminating Sec.  45.12 will help 
improve data quality.
    The Commission received three comments on the removal of Sec.  
45.12. NRECA-APPA and ISDA-SIFMA support removing Sec.  45.12.\256\ 
Eurex believes this removal would lead non-U.S. DCOs to only report 
part 45 data for swap transactions involving SDs, MSPs, and other U.S. 
counterparties.\257\ Furthermore, Eurex agrees that this removal would 
significantly lessen the operational cost currently incurred from 
reporting data for all cleared swaps.\258\ However, Eurex requests a 
list of SDs, MSPs, and other U.S. counterparties so, as a non-U.S. DCO, 
Eurex can appropriately filter out swap transactions that do not fall 
under the jurisdiction of the Commission.\259\ The Commission believes 
Eurex is confusing

[[Page 75534]]

voluntary supplemental reporting with cross-border reporting, possibly 
due to the Commission's example of some voluntary reports being non-
jurisdictional. The Commission clarifies that removing the regulations 
for voluntary supplemental reporting does not impact cross-border 
reporting requirements, and non-U.S. DCOs should continue reporting 
swap data to SDRs, to the extent the Commission's cross-border rules 
and guidance require it.
---------------------------------------------------------------------------

    \256\ NRECA-APPA at 5; ISDA-SIFMA at 16.
    \257\ Eurex at 5.
    \258\ Id.
    \259\ Id.
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K. Sec.  45.13--Required Data Standards

1. Sec.  45.13(a)--Data Maintained and Furnished to the Commission by 
SDRs
    The Commission is changing the Sec.  45.13(a) regulations for data 
maintained and furnished to the Commission by SDRs. Existing Sec.  
45.13(a) requires each SDR maintain all swap data reported to it in a 
format acceptable to the Commission, and transmit all swap data 
requested by the Commission to the Commission in an electronic file in 
a format acceptable to the Commission.
    The Commission is removing existing Sec.  45.13(a), and moving 
existing Sec.  45.13(b) to Sec.  45.13(a)(3). The May 2019 notice of 
proposed rulemaking relating to the Commission's SDR regulations in 
parts 23, 43, 45, and 49 (the ``2019 Part 49 NPRM'') \260\ proposed 
moving the requirements of Sec.  45.13(a) to Sec.  49.17(c).\261\ The 
Commission did not propose corresponding modifications to Sec.  45.13 
in that release.\262\ Therefore, the Commission is changing Sec.  
45.13(a) in this release by removing language that the 2019 Part 49 
NPRM proposed incorporating in Sec.  49.17(c). The Commission discusses 
the changes to Sec.  45.13(b), including moving the requirement to 
Sec.  45.13(a)(3), in this section.
---------------------------------------------------------------------------

    \260\ See Certain Swap Data Repository and Data Reporting 
Requirements, 84 FR 21044 (May 13, 2019).
    \261\ 84 FR at 21060 (May 13, 2019).
    \262\ Id. at n.132 (noting the Commission's expectation to 
modify Sec.  45.13 in a subsequent Roadmap rulemaking).
---------------------------------------------------------------------------

    Existing Sec.  45.13(b) requires that in reporting swap data to an 
SDR as required by part 45, each reporting entity or counterparty shall 
use the facilities, methods, or data standards provided or required by 
the SDR to which the entity or counterparty reports the data. Existing 
Sec.  45.13(b) further provides that an SDR may permit reporting 
entities and counterparties to use various facilities, methods, or data 
standards, provided that its requirements in this regard enable it to 
meet the requirements of Sec.  45.13(a) with respect to maintenance and 
transmission of swap data.
    In new Sec.  43.13(a)(1), the Commission is requiring that in 
reporting required swap creation data and required swap continuation 
data to an SDR, each reporting counterparty, SEF, DCM, and DCO shall 
report the swap data elements in appendix 1 in the form and manner 
provided in the technical specifications published by the Commission 
pursuant to Sec.  45.15. This requirement is implied in the current 
regulations through the requirements in the introductory text to Sec.  
45.3 and Sec.  45.4, the definitions of ``required swap creation data'' 
and ``required swap continuation data,'' and Sec.  45.13(b) and (c), 
but new Sec.  45.13(a)(1) would make the existing requirement explicit.
    In new Sec.  45.13(a)(2), the Commission is requiring that in 
reporting required swap creation data and required swap continuation 
data to an SDR, each reporting counterparty, SEF, DCM, and DCO making 
such report satisfy the swap data validation procedures of the SDR 
receiving the swap data. The Commission is adopting companion 
requirements for SDRs to validate swap data in Sec.  49.10.\263\ New 
Sec.  45.13(a)(2) will establish the regulatory requirement for 
reporting counterparties, SEFs, DCMs, and DCOs to satisfy the data 
validation procedures established by SDRs pursuant to Sec.  49.10. The 
Commission is specifying the requirements for the validation messages 
in Sec.  45.13(b). The Commission discusses these requirements, and 
comments received, in section IV.C.3 below.
---------------------------------------------------------------------------

    \263\ The Commission discusses Sec.  49.10 in section IV.C 
below.
---------------------------------------------------------------------------

    Finally, the Commission is moving existing Sec.  45.13(b) to Sec.  
45.13(a)(3) and changing the regulatory requirements. Existing Sec.  
45.13(b) requires that in reporting swap data to an SDR as required by 
part 45, each reporting entity or counterparty use the facilities, 
methods, or data standards provided or required by the SDR to which the 
entity or counterparty reports the data. An SDR may permit reporting 
entities and counterparties to use various facilities, methods, or data 
standards, provided its requirements in this regard enable it to meet 
the requirements of Sec.  45.13(a) with respect to maintenance and 
transmission of swap data.
    First, the Commission is replacing ``each reporting entity or 
counterparty'' with ``each reporting counterparty [SEF, DCM, and DCO]'' 
to be more precise. Second, the Commission is removing the second 
sentence in existing Sec.  45.13(b) because it pertains to the 
requirements of Sec.  45.13(a), which the Commission is moving to part 
49.
    The Commission did not receive any comments on the changes to Sec.  
45.13(a) and (b). For the reasons discussed above, the Commission is 
adopting the changes as proposed.
2. New Regulations for Data Validation Messages
    The Commission is specifying the requirements for data validation 
acceptance messages for SDRs, SEFs, DCMs, DCOs, and reporting 
counterparties. New Sec.  45.13(b)(1) will require that for each 
required swap creation data or required swap continuation data report 
submitted to an SDR, an SDR notify the reporting counterparty, SEF, 
DCM, DCO, or third-party service provider submitting the report whether 
the report satisfied the swap data validation procedures of the SDR. 
The SDR will have to provide such notification ASATP after accepting 
the required swap creation data or required swap continuation data 
report. An SDR satisfies these requirements by transmitting data 
validation acceptance messages as required by proposed Sec.  49.10.
    New Sec.  45.13(b)(2) will require that if a required swap creation 
data or required swap continuation data report to an SDR does not 
satisfy the data validation procedures of the SDR, the reporting 
counterparty, SEF, DCM, or DCO required to submit the report has not 
yet satisfied its obligation to report required swap creation or 
continuation data in the manner provided by paragraph (a) within the 
timelines set forth in Sec. Sec.  45.3 and 45.4. The reporting 
counterparty, SEF, DCM, or DCO has not satisfied its obligation until 
it submits the required swap data report in the manner provided by 
paragraph (a), which includes the requirement to satisfy the data 
validation procedures of the SDR, within the applicable time deadline 
outlined in Sec. Sec.  45.3 and 45.4.
    The Commission did not receive any comments on the new validations 
requirements in Sec.  45.13(b). As the new regulations for data 
validations in Sec.  45.13(b) are analogous to new regulations for SDRs 
to validate data in Sec.  49.10, the Commission discusses its reasoning 
behind requiring validations in one section in section IV.C.3, below.
3. Sec.  45.13(c)--Delegation of Authority to the Chief Information 
Officer
    Existing Sec.  45.13(c) and (d) contain a delegation of authority 
to the Chief Information Officer of the Commission concerning the 
requirements in existing Sec.  45.13(a) and (b). The Commission is 
deleting Sec.  45.13(c) and (d) and moving

[[Page 75535]]

the delegation to new Sec.  45.15 and delegating authority to the DMO 
Director. The Commission believes the updated delegation will enhance 
efficiency by including DMO. The Commission discusses new Sec.  45.15 
in the next section.

L. Sec.  45.15 264 - Delegation of Authority
---------------------------------------------------------------------------

    \264\ The Commission proposed amendments to Sec.  45.14 in the 
2019 Part 49 NPRM. Therefore, Sec.  45.14 will not be discussed in 
this release. See 84 FR at 21067 (May 13, 2019).
---------------------------------------------------------------------------

1. New Regulation for Delegations of Authority
    The Commission is adding a new regulation to part 45 for 
delegations of authority. New Sec.  45.15 is titled ``Delegation of 
authority'' and contains the delegation of authority in existing Sec.  
45.11(c) and (d) and Sec.  45.13(c) and (d) with a new delegation to 
the DMO Director regarding reporting under Sec.  45.13.
    Existing Sec.  45.11(c) delegates to the Chief Information Officer 
of the Commission, or another such employee he or she designates, with 
respect to swaps in an asset class not accepted by any SDR, the 
authority to determine the manner, format, coding structure, and 
electronic data transmission standards and procedures acceptable to the 
Commission; whether the Commission may permit or require use by 
reporting entities or counterparties in reporting pursuant to Sec.  
45.11 of one or more particular data standards (such as FIX, FpML, ISO 
20022, or some other standard), in order to accommodate the needs of 
different communities of users; and the dates and times at which 
required swap creation data or required swap continuation data must be 
reported to the Commission.
    Existing Sec.  45.11(d) requires the Chief Information Officer to 
publish from time to time in the Federal Register and on the website of 
the Commission, the format, data schema, electronic data transmission 
methods and procedures, and dates and times for reporting acceptable to 
the Commission with respect to swap data reporting pursuant to Sec.  
45.11.
    Separately, existing Sec.  45.13(c) delegates to the Chief 
Information Officer, until the Commission orders otherwise, the 
authority to establish the format by which SDRs maintain swap data 
reported to them, and the format by which SDRs transmit the data to the 
Commission. The authority includes the authority to determine the 
manner, format, coding structure, and electronic data transmission 
standards and procedures acceptable to the Commission for Sec.  
45.13(a); and the authority to determine whether the Commission may 
permit or require use by reporting entities or counterparties, or by 
SDRs, of one or more particular data standards (such as FIX, FpML, ISO 
20022, or some other standard), to accommodate the needs of different 
communities of users, or to enable SDRs to comply with Sec.  45.13(a).
    Existing Sec.  45.13(d) requires the Chief Information Officer to 
publish from time to time in the Federal Register and on the website of 
the Commission the format, data schema, and electronic data 
transmission methods and procedures acceptable to the Commission.
    The Commission is moving the delegations in existing Sec. Sec.  
45.11(c) and (d) and 45.13(c) and (d) to new Sec.  45.15(a) and (b). 
The Commission is also updating the delegations to reflect the changes 
to the cross-references resulting from the Commission's other proposed 
amendments to part 45, and changing the delegation in Sec.  45.13 from 
the Chief Information Officer to the Director of the Division of Market 
Oversight due to different responsibilities over swap data within the 
Commission.
    The Commission received one comment on new Sec.  45.15. NRECA-APPA 
support the delegation to DMO.\265\ The Commission agrees with NRECA-
APPA and believes delegation to DMO will benefit data element 
harmonization. The Commission did not receive any other comments on new 
Sec.  45.15. The Commission is adopting the regulation as proposed.
---------------------------------------------------------------------------

    \265\ NRECA-APPA at 6.
---------------------------------------------------------------------------

2. Request for Comment on Data Standards
    The Proposal solicited comment on whether the Commission should 
mandate a specific data standard for reporting swap data to SDRs, and 
whether that standard should be ISO 20022. Existing Sec.  45.13(c) 
delegates to the Commission's Chief Information Officer the authority 
to determine whether the Commission may permit or require use by 
reporting entities or counterparties, or by SDRs, of one or more 
particular data standards, including ISO 20022, in order to accommodate 
the needs of different communities of users. The Commission is 
retaining this delegation but moving the authority to Sec.  45.15(b)(2) 
and transferring it to the DMO Director.
    While the Commission would mandate any standards via the delegated 
authority in Sec.  45.15(b)(2), the Commission took the opportunity 
presented by the Proposal to solicit public comment on the topic.\266\ 
As explained in the Proposal, the Commission is currently part of an 
effort to develop a standardized ISO message for the data elements in 
the CDE Technical Guidance. The Commission sought comment on whether 
market participants believe mandating ISO 20022 would be beneficial.
---------------------------------------------------------------------------

    \266\ The Commission last solicited comment on the topic in 2012 
when it adopted Sec.  45.13. 77 FR 2136 at 2169-70.
---------------------------------------------------------------------------

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

    \267\ GFXD at 25; Chatham at 3-4; Eurex at 5; Data Coalition at 
2; XBRL at 2.
    \268\ GFXD at 25.
    \269\ XBRL at 2.
---------------------------------------------------------------------------

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

    \270\ ISDA-SIFMA at 16-18.
---------------------------------------------------------------------------

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

    \271\ ICE SDR at 6, 10.
---------------------------------------------------------------------------

    The Commission received four comments supporting mandating the ISO 
20022 standard specifically.\272\ In particular, GFXD believes 
including the CDE data elements in the ISO 20022 data dictionary would 
reduce the

[[Page 75536]]

mapping required by market participants and third parties, but believes 
the Commission should coordinate with fellow international regulators 
to coordinate the adoption of CDE data elements.\273\ GFXD also 
believes it is ``extremely advisable'' for the Commission and ESMA to 
come to the same determination on the adoption of the ISO 20022 
messaging scheme and coordinate on implementation to reduce operational 
complexity and risk to data quality from mapping different message 
schemes in the interim.\274\ DTCC also encourages the Commission to 
``adopt a messaging methodology that is broadly consistent and aligned 
with the methodology adopted and used in other jurisdictions'' and 
notes ESMA has proposed ISO 20022 in its EMIR REFIT consultation 
published in March 2020.\275\
---------------------------------------------------------------------------

    \272\ GFXD at 25; Eurex at 5-6; JBA at 5; DTCC at 7.
    \273\ GFXD at 25.
    \274\ Id.
    \275\ DTCC at 7. See Regulation (EU) 2019/834 of the European 
Parliament and of the Council of 20 May 2019 amending Regulation 
(EU) No 648/2012 as regards the clearing obligation, the suspension 
of the clearing obligation, the reporting requirements, the risk-
mitigation techniques for OTC derivative contracts not cleared by a 
central counterparty, the registration and supervision of trade 
repositories and the requirements for trade repositories (``EMIR 
REFIT'').
---------------------------------------------------------------------------

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

    \276\ CME at 21.
    \277\ ISDA-SIFMA at 18-20.
    \278\ ICE SDR at 10.
    \279\ Id.
---------------------------------------------------------------------------

    The Commission agrees with some commenters that mandating one 
standard for reporting swap data to SDRs is necessary to ensure data 
quality. The Commission believes if the data is reported using 
different standards or protocols, the data is then subject to 
interpretation by the SDRs, as it is transformed or translated into the 
SDRs' systems and further transformed when it is reported to the 
Commission. These successive layers of transformation inject ambiguity 
and data quality issues into the life cycle of the data. Such layers of 
transformation are unnecessary if the reporting solution is straight 
through processing. Consistency of data from the source, in a common 
format, regardless of SDR, will lead to better quality data.
    Several commenters note aligning with other jurisdictions will help 
reduce burden on market participants. Staff supports the idea that 
having a consistent standard for reporting, such as ISO 20022, across 
the globe would reduce reporting burden, streamline processing and 
allow industry to leverage scaled solutions bringing down the cost of 
changes and updates. As previously noted by a commenter, ESMA has 
proposed ISO 20022 in its EMIR REFIT consultation published in March 
2020 and has implemented ISO 20022 for other reporting regimes, 
including SFTR.
    As discussed in the Proposal, CPMI-IOSCO assigned ISO to execute 
the maintenance functions for the CDE Technical Guidance because ISO 
has significant experience maintaining financial data standards and 
almost half of the CDE data elements in the CDE Technical Guidance are 
already tied to an ISO standard. CPMI-IOSCO also decided that the CDE 
data elements should be included in the ISO 20022 data dictionary and 
the development of an ISO 20022-compliant message for CDE data elements 
is in progress. Further, a majority of the data elements in the 
technical specification are from the CDE Technical Guidance. For these 
reasons, and because comprehensive and unambiguous rules regarding 
reporting format will ensure the quality and usefulness of the data, 
the Commission will mandate ISO 20022 for reporting to SDRs according 
to Sec.  45.15(b)(2) when the standard is developed.

III. Amendments to Part 46

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

    \280\ See 7 U.S.C. 6r(a)(2)(A) and 7 U.S.C. 2(h)(5); see also 17 
CFR 46.1 (defining ``pre-enactment swap'' as any swap entered into 
prior to enactment of the Dodd-Frank Act of 2010 (July 21, 2010), 
the terms of which have not expired as of the date of enactment of 
that Act, and ``transition swap'' as any swap entered into on or 
after the enactment of the Dodd-Frank Act of 2010 (July 21, 2010) 
and prior to the applicable compliance date on which a registered 
entity or swap counterparty subject to the jurisdiction of the 
Commission is required to commence full compliance with all 
provisions of part 46).
---------------------------------------------------------------------------

A. Sec.  46.1--Definitions

    Existing Sec.  46.1 contains the definitions for terms used 
throughout the regulations in part 46. The Commission is separating 
Sec.  46.1 into two paragraphs: Sec.  46.1(a) for definitions and Sec.  
46.1(b), which would state that terms not defined in part 46 have the 
meanings assigned to the terms in Sec.  1.3, to be consistent with the 
same change in Sec.  45.1.
    The Commission is adding a definition of ``historical swaps'' to 
Sec.  46.1(a). ``Historical swaps'' means pre-enactment swaps or 
transition swaps. This term will provide clarity as it is already used 
in part 46.
    The Commission is adding a definition of ``substitute counterparty 
identifier'' to Sec.  46.1(a). ``Substitute counterparty identifier'' 
means a unique alphanumeric code assigned by an SDR to a swap 
counterparty prior to the Commission designation of an LEI identifier 
system on July 23, 2012. The term ``substitute counterparty 
identifier'' is already used throughout Sec.  46.4.
    The Commission is making non-substantive minor technical changes to 
``asset class'' and ``required swap continuation data.''
    The Commission is amending the definition of ``non-SD/MSP 
counterparty'' in Sec.  46.1(a) to conform to the amendments proposed 
to the corresponding term in Sec.  45.1(a).\281\ The Commission is 
updating the term throughout part 46.
---------------------------------------------------------------------------

    \281\ The Commission discusses the changes to the term in Sec.  
45.1(a) in section II.A.2 above.
---------------------------------------------------------------------------

    The Commission is amending the definition of ``reporting 
counterparty'' to update the reference to ``swap data.'' Currently, 
``reporting counterparty'' means the counterparty required to report 
swap data pursuant to part 46, selected as provided in Sec.  46.5. As 
discussed in section II.A.1 above, the Commission is defining ``swap 
data'' to mean swap data reported pursuant to part 45. As a result, the 
Commission is changing the reference to ``data for a pre-enactment swap 
or transition swap'' to reflect the reference is to part 46 data.
    The Commission is removing the following definitions from Sec.  
46.1. The Commission has determined that the

[[Page 75537]]

following definitions are redundant because the terms are already 
defined in either Commission regulation Sec.  1.3 or CEA section 1a: 
``credit swap;'' ``foreign exchange forward;'' ``foreign exchange 
instrument;'' ``foreign exchange swap;'' ``interest rate swap;'' 
``major swap participant;'' ``other commodity swap;'' ``swap data 
repository;'' and ``swap dealer.''
    The Commission is removing the definition of ``international 
swap,'' as there are no regulations for international swaps in part 46.
    The Commission did not receive any comments on the changes to Sec.  
46.1.

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

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

    \282\ The Commission is not making substantive amendments 
outside of Sec.  46.3(a)(2)(i).
---------------------------------------------------------------------------

    The Commission is amending Sec.  46.3(a)(2)(i) to remove the 
exception from PET data reporting for pre-enactment and transition 
swaps to specify that reporting counterparties would report updates to 
pre-enactment and transition swaps according to part 45. The Commission 
believes this is current practice and would not result in any 
significant change for the entities reporting updates to historical 
swaps.
    The Commission received one comment supporting the proposal. ISDA-
SIFMA believe SDs should benefit from more limited part 46 reporting 
obligations. The Commission is adopting the changes as proposed.

C. Sec.  46.10--Required Data Standards

    Existing Sec.  46.10 requires that in reporting swap data to an SDR 
as required by part 46, each reporting counterparty use the facilities, 
methods, or data standards provided or required by the SDR to which 
counterparty reports the data.
    The Commission is adding a provision that in reporting required 
swap continuation data as required by this part, each reporting 
counterparty shall comply with the required data standards outlined in 
part 45 of this chapter, including those set forth in Sec.  45.13(a) of 
this chapter. As discussed above in the previous section, the 
Commission believes this is current practice for reporting 
counterparties and should not result in any significant change for 
reporting counterparties. The Commission did not receive any comments 
on the changes to Sec.  46.10. The Commission is adopting the changes 
as proposed.

D. Sec.  46.11--Reporting of Errors and Omissions in Previously 
Reported Data

    Consistent with the Commission's removal of the option to report 
required swap continuation data by the state data reporting method, 
discussed in section II.D.2 above, the Commission is removing the 
option in Sec.  46.11(b) for pre-enactment/transition swaps reporting. 
Specifically, existing Sec.  46.11(b) provides that for pre-enactment 
or transition swaps for which part 46 requires reporting of 
continuation data, reporting counterparties reporting state data as 
provided in part 45 may fulfill the requirement to report errors or 
omissions by making appropriate corrections in their next daily report 
of state data pursuant to part 45. Further to the removal of existing 
Sec.  46.11(b), the Commission is re-designating existing Sec.  
46.11(c) and (d) as new Sec.  46.11(b) and (c), respectively.
    The Commission received two comments supporting the proposal. 
Consistent with its position supporting removing state data reporting 
in Sec.  45.4, Chatham believes this will significantly reduce the 
number of reports as life cycle data reporting provides the same 
critical information as state data reporting.\283\ CEWG believes the 
proposal will improve the effectiveness and efficiency of 
reporting.\284\ The Commission agrees removing state data reporting 
from part 46 will be beneficial for the reasons described above 
relating to Sec.  45.4. The Commission did not receive any other 
comments on the proposed changes to Sec.  46.11. The Commission is 
adopting the changes as proposed.
---------------------------------------------------------------------------

    \283\ Chatham at 2.
    \284\ CEWG at 3.
---------------------------------------------------------------------------

IV. Amendments to Part 49

A. Sec.  49.2--Definitions

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

    \285\ The Commission also proposed defining ``SDR data'' in the 
2019 Part 49 NPRM. As proposed, ``SDR data'' would mean the specific 
data elements and information required to be reported to an SDR or 
disseminated by an SDR, pursuant to two or more of parts 43, 45, 46, 
and/or 49, as applicable. See 84 FR at 21047. The term ``SDR data'' 
is also used in the amendments to Sec.  49.10 in this release.
---------------------------------------------------------------------------

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

B. Sec.  49.4--Withdrawal From Registration

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

    \286\ The Commission is not making substantive amendments to 
Sec.  49.4(a)(1)(i) through (iii). The Commission is limiting the 
discussion in this release to Sec.  49.4(a)(1)(iv).
---------------------------------------------------------------------------

    Existing Sec.  49.4(a)(2) requires that before filing a request to 
withdraw, a registered SDR shall file an amended Form SDR to update any 
inaccurate information. A withdrawal of registration shall not affect 
any action taken or to be taken by the Commission based upon actions, 
activities, or events occurring during the time that the facility was 
designated by the Commission.
    First, the Commission is removing the Sec.  49.4(a)(1)(iv) 
requirement for SDRs to submit a statement to the Commission that the 
custodial SDR is authorized to make the withdrawing SDR's data and 
records available in accordance with Sec.  1.44. The reference to Sec.  
1.44 is erroneous. Existing Sec.  1.44 requires ``depositories'' to 
maintain all books, records, papers, and memoranda relating to the 
storage and warehousing of commodities in such warehouse,

[[Page 75538]]

depository or other similar entity for a period of 5 years from the 
date thereof.\287\ The recordkeeping requirements for SDRs are located 
in Sec.  49.12.\288\ The Commission is removing erroneous Sec.  
49.4(a)(1)(iv) to avoid confusion.
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    \287\ 17 CFR 1.44(d).
    \288\ The Commission proposed amendments to Sec.  49.12 in the 
2019 Part 49 NPRM. However, these amendments do not impact the 
substance of the SDR recordkeeping requirements. See 84 FR at 21055 
(May 13, 2019). Pursuant to Sec.  49.12(b), SDRs must maintain swap 
data, including historical positions, throughout the existence of 
the swap and for five years following final termination of the swap, 
during which time the records must be readily accessible to the 
Commission via real-time electronic access; and in archival storage 
for which the swap data is retrievable by the SDR within three 
business days.
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    Second, the Commission is removing the Sec.  49.4(a)(2) requirement 
that prior to filing a request to withdraw, a registered SDR file an 
amended Form SDR to update any inaccurate information.\289\ The 
Commission is adding a new requirement in Sec.  49.4(a)(2) for SDRs to 
execute an agreement with the custodial SDR governing the custody of 
the withdrawing SDR's data and records prior to filing a request to 
withdraw with the Commission. New Sec.  49.4(a)(2) will also specify 
that the custodial SDR retain such records for at least as long as the 
remaining period of time the SDR withdrawing from registration would 
have been required to retain such records pursuant to part 49.
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    \289\ Existing Sec.  49.4(a)(2) further provides that a 
withdrawal of registration shall not affect any action taken or to 
be taken by the Commission based upon actions, activities or events 
occurring during the time that the facility was designated by the 
Commission. The Commission is removing this part of Sec.  49.4(a)(2) 
as well.
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    The Commission did not receive any comments on the changes to Sec.  
49.4. The Commission believes the existing Sec.  49.4(a)(2) requirement 
is unnecessary and does not help the Commission confirm the successful 
transfer of data and records to a custodial SDR. The Commission has a 
significant interest in ensuring that the data and records of an SDR 
withdrawing from registration are successfully transferred to a 
custodial SDR. In addition, the Commission needs confirmation that the 
custodial SDR will retain the data and records for at least the 
remainder of the time that records are required to be retained 
according to the Commission's recordkeeping rules. When an SDR is 
withdrawing from registration, the Commission would no longer have a 
regulatory need for the information in Form SDR to be updated. The 
Commission believes Sec.  49.4(a)(2) will better address the 
Commission's primary concerns in an SDR withdrawal from registration.
    The Commission is adopting the changes to Sec.  49.4 as proposed.

C. Sec.  49.10--Acceptance and Validation of Data

    The Commission is changing the Sec.  49.10(a) through (d) \290\ and 
(f) requirements for the acceptance of data. As part of these changes, 
the Commission is re-titling the section to reflect new requirements 
for SDRs to validate data proposed in Sec.  49.10(c) as ``Acceptance 
and validation of data.''
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    \290\ The Commission proposed amendments to the Sec.  49.10(e) 
requirements for correction of errors and omissions in SDR data in 
the 2019 Part 49 NPRM. See 84 FR at 21050.
---------------------------------------------------------------------------

1. Sec.  49.10(a)--General Requirements
    The Commission is making non-substantive amendments to the general 
requirements in existing Sec.  49.10(a) for SDRs to have policies and 
procedures to accept swap data and swap transaction and pricing data. 
Existing Sec.  49.10(a) requires that registered SDRs establish, 
maintain, and enforce policies and procedures for the reporting of swap 
data to the registered SDR and shall accept and promptly record all 
swap data in its selected asset class and other regulatory information 
that is required to be reported pursuant to parts 43 and 45 by DCMs, 
DCOs, SEFs, SDs, MSPs, or non-SD/MSP counterparties.
    The non-substantive amendments include titling Sec.  49.10(a) 
``General requirements'' to distinguish it from the rest of Sec.  49.10 
and renumbering the sections. The Commission is revising the first 
sentence to specify that SDRs shall maintain and enforce policies and 
procedures reasonably designed to facilitate the complete and accurate 
reporting of SDR data. The Commission is removing the last phrase of 
Sec.  49.10(a) beginning with ``all swap data in its selected asset 
class'' and create a second sentence requiring SDRs to promptly accept, 
validate, and record SDR data. Finally, the Commission is correcting 
references to defined terms.
    Together, the amendments to Sec.  49.10(a)(1) through (2) will 
improve the readability of Sec.  49.10(a) while updating the 
terminology to use the proposed ``SDR data'' term for the data SDRs are 
required to accept, validate, and record pursuant to Sec.  49.10.\291\
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    \291\ The background for the validations is discussed in section 
IV.C.3 below.
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    The Commission did not receive any comments on the proposed changes 
to Sec.  49.10(a). For reasons discussed above, the Commission is 
adopting the changes as proposed.
2. Sec.  49.10(b)--Duty To Accept SDR Data
    The Commission is adopting non-substantive amendments to the Sec.  
49.10(b) requirements for SDRs to accept SDR data. Existing Sec.  
49.10(b) requires a registered SDR set forth in its application for 
registration as described in Sec.  49.3 the specific asset class or 
classes for which it will accept swaps data. If an SDR accepts swap 
data of a particular asset class, then it shall accept data from all 
swaps of that asset class, unless otherwise prescribed by the 
Commission.
    The non-substantive changes include titling Sec.  49.10(b) ``Duty 
to accept SDR data'' and updating references to data in Sec.  49.10(b) 
to ``SDR data'' to use the correct defined term. The Commission did not 
receive any comments on the changes. For the reasons discussed above, 
the Commission is adopting the changes as proposed.
3. Sec.  49.10(c)--Duty To Validate SDR Data
    The Commission is adding new regulations for the SDR validation of 
SDR data in Sec.  49.10(c). The Commission is moving the requirements 
in existing Sec.  49.10(c) to Sec.  49.10(d).\292\ In Sec.  49.10(c), 
the Commission is requiring SDRs to apply validations and inform the 
entity submitting the swap report of any associated rejections. SDRs 
will be required to apply the validations approved in writing by the 
Commission. The Commission is also adopting regulations for SDRs to 
send validation messages to SEFs, DCMs, and reporting counterparties in 
Sec.  45.13(b).\293\ The Commission discusses Sec.  49.10(c) and Sec.  
45.13(b) together in this section.
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    \292\ The amendments to the existing requirements of Sec.  
49.10(c), to be moved to Sec.  49.10(d), are discussed in section 
IV.C.4 below.
    \293\ The Commission is adopting regulations for reporting 
counterparties, SEFs, and DCMs to address the validations messages 
sent by SDRs and to resubmit any rejected swap reports in time to 
meet their obligations to report creation and continuation data. The 
requirements for reporting counterparties, SEFs, and DCMs to comply 
with SDR validations are proposed in Sec.  45.13(b).
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    The Commission believes the consistent application of validation 
rules across SDRs will lead to an improvement in the quality of swap 
data maintained at SDRs. SDRs currently check each swap report for 
compliance with a list of rules specific to each SDR. However, the 
Commission is concerned SDRs apply different validation rules that 
could be making it difficult for SDR data to either be reported to the 
SDR or the SDRs' real-time public data feeds. The SDRs applying 
different validations to swap reports creates numerous challenges for 
the Commission and

[[Page 75539]]

market participants. While one SDR may reject a report based on an 
incorrect value in a particular data element, another SDR may accept 
reports containing the same erroneous value in the same data element. 
Further, the Commission is concerned responses to SDR validation 
messages vary across reporting counterparties, given the lack of 
current standards.
    ESMA has published specific validations for TRs to perform to 
ensure that derivatives data meets the requirements set out in their 
technical standards pursuant to EMIR.\294\ ESMA's validations, for 
instance, set forth when data elements are mandatory, conditional, 
optional, or must be left blank, and specify conditions for data 
elements along with the format and content of allowable values for 
almost 130 data elements.\295\ The Commission believes similarly 
consistent SDR validations will help improve data quality.
---------------------------------------------------------------------------

    \294\ See ``EMIR Reporting'' at https://www.esma.europa.eu/policy-rules/post-trading/trade-reporting.
    \295\ See id.
---------------------------------------------------------------------------

    The Commission received two comments supporting data validations 
regulations in Sec.  45.13. FIA believes the validations should 
strengthen data accuracy and appreciates using the SDRs' current 
processes.\296\ Markit believes validation requirements will enable 
third-party service providers to develop data validation mechanisms 
that will substantially reduce the cost of complying with new SDR data 
validation procedures.\297\
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    \296\ FIA at 7.
    \297\ Markit at 3.
---------------------------------------------------------------------------

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

    \298\ NRECA-APPA at 5.
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    GFXD believes limited exceptions to the validation requirements 
should be in place but believes such exceptions may have limited 
use.\299\ The Commission agrees, and believes the regulations, along 
with the existing delegations of authority that the Commission is 
moving to Sec.  45.15, give the Commission the discretion to specify 
validations exceptions in the case of new products or changes that 
require flexibility.
---------------------------------------------------------------------------

    \299\ GFXD at 25.
---------------------------------------------------------------------------

    The Commission did not receive any additional comments on Sec.  
49.10(c) or Sec.  45.13(b). The Commission is adopting the regulations 
as proposed.
4. Sec.  49.10(d)--Policies and Procedures To Prevent Invalidation or 
Modification
    As described above, the Commission is moving the requirement in 
Sec.  49.10(c) for SDRs to have policies and procedures to prevent 
invalidations or modifications of swaps to Sec.  49.10(d). As a result, 
the Commission is re-designating Sec.  49.10(d) as new Sec.  
49.10(f).\300\ Existing Sec.  49.10(c) requires registered SDRs to 
establish policies and procedures reasonably designed to prevent any 
provision in a valid swap from being invalidated or modified through 
the confirmation or recording process of the SDR.\301\
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    \300\ The amendments to the existing requirements of Sec.  
49.10(d), re-designated as Sec.  49.10(f), are discussed in section 
IV.C.5 below.
    \301\ Existing Sec.  49.10(c) further provides that the policies 
and procedures must ensure that the SDR's user agreements must be 
designed to prevent any such invalidation or modification. 17 CFR 
49.10(c).
---------------------------------------------------------------------------

    The Commission is making non-substantive amendments to existing 
Sec.  49.10(c), moved to Sec.  49.10(d). For instance, the Commission 
is titling Sec.  49.10(c) ``Policies and procedures to prevent 
invalidation or modification'' to distinguish it from the other 
requirements in Sec.  49.10.
    The Commission did not receive any comments on the non-substantive 
changes to Sec.  49.10(d). For the reasons discussed above, the 
Commission is adopting the changes as proposed.
5. Sec.  49.10(f)--Policies and Procedures for Resolving Disputes 
Regarding Data Accuracy
    As described above, the Commission is re-designating Sec.  49.10(d) 
as Sec.  49.10(f).\302\ The Commission is making non-substantive 
amendments to the requirements in existing Sec.  49.10(d), re-
designated as Sec.  49.10(f). Existing Sec.  49.10(d) requires that 
registered SDRs establish procedures and provide facilities for 
effectively resolving disputes over the accuracy of the swap data and 
positions that are recorded in the SDR.
---------------------------------------------------------------------------

    \302\ The Commission's proposed revisions to Sec.  49.10(e) are 
discussed in the 2019 Part 49 NPRM. See 84 FR at 21050 (May 13, 
2019).
---------------------------------------------------------------------------

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

V. Swap Data Elements Reported to Swap Data Repositories

A. Proposal

    The Commission is updating and standardizing the data elements in 
appendix 1 to part 45. The Commission's minimum PET for swaps in each 
swap asset class are found in existing appendix 1 to part 45. The 
existing PET for swaps contain a set of ``data categories and fields'' 
followed by ``comments'' instead of specifications such as allowable 
values, formats, and conditions.\303\ In some cases, these comments 
include directions, such as to use ``yes/no'' indicators for certain 
data elements.\304\ In others, the comments reference Commission 
regulations (e.g., to report the LEI of the non-reporting counterparty 
``[a]s provided in Sec.  45.6'').\305\
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    \303\ See generally 17 CFR part 45 appendix 1.
    \304\ Id.
    \305\ Id.
---------------------------------------------------------------------------

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

    \306\ See 77 FR at 2149 (Jan. 13, 2012).
---------------------------------------------------------------------------

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

[[Page 75540]]

improve the harmonization of SDR data across FSB member jurisdictions. 
This international harmonization, when widely implemented, would allow 
market participants to report swap data to several jurisdictions in the 
same format, allowing for potential cost-savings. This harmonization, 
when widely implemented, would also allow the Commission to potentially 
receive more standardized information regarding swaps reported to TRs 
regulated by other authorities. For instance, such standardization 
across SDRs and TRs could support data aggregation for the analysis of 
global systemic risk in swaps markets.
    As part of this process, the Commission also reviewed the part 43 
swap transaction and pricing data and part 45 swap data elements to 
determine whether any differences could be reconciled.\307\ Having 
completed this assessment, the Commission proposed listing the swap 
data elements required to be reported to SDRs pursuant to part 45 in 
appendix 1 to part 45. In a separate proposal, the Commission proposed 
listing the swap transaction and pricing data elements required to be 
reported to, and then publicly disseminated by, SDRs pursuant to part 
43 in appendix A to part 43. The swap transaction and pricing data 
elements will be a harmonized subset of the swap data elements in 
appendix 1 to part 45.
---------------------------------------------------------------------------

    \307\ The Commission intended the data elements in appendix A to 
part 43 would be harmonized with the data elements required to be 
reported to an SDR for regulatory purposes pursuant to part 45. See 
77 FR at 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, there is no existing 
regulatory requirement linking the two sets of data elements.
---------------------------------------------------------------------------

    At the same time as the Commission proposed updating the swap data 
elements in appendix 1, DMO published draft technical specifications 
for reporting the swap data elements in appendix 1 to part 45 to SDRs, 
and for reporting and publicly disseminating the swap transaction and 
pricing data elements in appendix A to part 43 described in a separate 
proposal. Once finalized, DMO would then publish the technical 
specification in the Federal Register pursuant to the delegation of 
authority proposed in Sec.  45.15(b). Overall, DMO is establishing a 
technical specification for certain swap data elements according to the 
CDE Technical Guidance, where possible.
    The swap data elements to be reported to SDRs will therefore 
consist of: (i) The data elements implemented in the CDE Technical 
Guidance; and (ii) additional CFTC-specific data elements that support 
the Commission's regulatory responsibilities.\308\ While much of this 
swap data is already being reported to SDRs according to each SDR's 
technical specifications, as explained below, the technical 
specification and validation conditions will be new. A discussion of 
the swap data elements and comments on the technical specification 
follows below. Data elements specific to part 43 are discussed in a 
separate part 43 final rule.
---------------------------------------------------------------------------

    \308\ The update of appendix 1 and the technical specification 
are expected to represent a significant reduction in the number of 
swap data elements that could be reported to an SDR by market 
participants.
---------------------------------------------------------------------------

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

    \309\ 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/.
    \310\ 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 is adopting the CDE Technical Guidance 
data elements as closely as possible. Where the Commission adopts a CDE 
Technical Guidance data element, the Commission adopts the terms used 
in the CDE Technical Guidance. This means that some terms may be 
different for certain concepts. For instance, ``derivatives clearing 
organization'' is the Commission's term for registered entities that 
clear swap transactions, but the CDE Technical Guidance uses the term 
``central counterparty.''
    To help clarify, DMO includes footnotes in the technical 
specification to explain these differences as well as provide examples 
and jurisdiction-specific requirements. However, the Commission is not 
including these footnotes in appendix 1. In addition, the definitions 
from CDE Technical Guidance data elements included in appendix 1 
sometimes include references to allowable values in the CDE Technical 
Guidance, which may not be included in appendix 1, but are in the 
technical specification.
    Finally, the CDE Technical Guidance did not harmonize many data 
elements that would be particularly relevant for commodity and equity 
swap asset classes (e.g., unit of measurement for commodity swaps). 
CPMI and IOSCO, in the CDE Governance Arrangements, address both 
implementation and maintenance of CDE, together with their oversight. 
One area of the CDE Governance Arrangements includes updating the CDE 
Technical Guidance, including the harmonization of certain data 
elements and allowable values that were not included in the CDE 
Technical Guidance (e.g., data elements related to events and allowable 
values for the following data elements: Price unit of measure, Quantity 
unit of measure, and Custom basket constituents' unit of measure).
    The Commission anticipates addressing implementation issues through 
the international working groups to help ensure that authorities follow 
the established processes for doing so. In addition, the Commission 
anticipates updating its rules to adopt any new or updated CDE 
Technical Guidance, as necessary.

B. Comments on the Proposal and Commission Determination

1. Category: Clearing
    The Commission proposed requiring reporting counterparties report 
12 clearing data elements.\311\ The Commission received two comments on 
whether it should require a data element for indicating whether a swap 
is subject to the Commission's clearing requirement in Sec.  50.4 and 
the trade execution requirement in CEA section 2(h)(8). ISDA-SIFMA do 
not believe the Commission should add these data elements because it is 
static data and the Commission already gets all the data elements 
necessary to determine whether a swap is subject to the clearing 
requirement or trade execution

[[Page 75541]]

requirement.\312\ They believe the data elements would be burdensome 
due to their granularity and the prescriptiveness of the clearing 
mandates under Sec.  50.4, and that the Commission will ultimately be 
able to use the global UPI to analyze data related to swaps subject to 
clearing.\313\ Chatham believes the Commission can determine whether a 
product is subject to the clearing requirement or the trade execution 
requirement by other related data elements in the report.\314\ The 
Commission agrees with Chatham and ISDA-SIFMA and is declining to add 
the mandatory clearing and trade execution indicators in appendix 1 at 
this time.\315\
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    \311\ In appendix 1, these data elements are: Cleared (1); 
Central counterparty (2); Clearing account origin (3); Clearing 
member (4); Clearing swap USIs (5); Clearing swap UTIs (6); Original 
swap USI (7); Original swap UTI (8); Original swap SDR identifier 
(9); Clearing receipt timestamp (10); Clearing exceptions and 
exemptions--Counterparty 1 (11); and Clearing exceptions and 
exemptions--Counterparty 2 (12).
    \312\ ISDA-SIFMA at 21.
    \313\ Id.
    \314\ Chatham at 4.
    \315\ The Commission acknowledges that it can determine which 
swaps are subject to the clearing requirement or the trade execution 
requirement, but notes there have been certain difficulties with 
obtaining all of the necessary information in the past due to data 
quality concerns. The Commission expects significant data quality 
improvements in response to this final rule to make that process 
easier.
---------------------------------------------------------------------------

    The Commission is adopting the clearing data elements for clearing 
in appendix 1 as proposed. Nearly all of this information is currently 
being reported to SDRs. Three of these data elements are consistent 
with the CDE Technical Guidance. Four of these data elements would 
transition clearing swap and original swap USIs to UTIs. All of these 
data elements help the Commission monitor the cleared swaps market.
2. Category: Counterparty
    The Commission proposed requiring reporting counterparties to 
report ten counterparty data elements.\316\ The Commission received 
eight comments on whether it should require an ultimate parent data 
element. GLEIF support the proposed addition of ultimate parent data 
elements, but acknowledges that the Commission could instead retrieve 
this information through its LEI data search engine.\317\ GFXD, ISDA-
SIFMA, BP, CEWG, DTCC, Chatham, and FIA all oppose requiring this 
information at a transaction level, with most commenters pointing out 
that the Commission could obtain this information from the Global Legal 
Entity Identifier System.\318\ The Commission agrees with GFXD, ISDA-
SIFMA, BP, CEWG, DTCC, Chatham, and FIA that the Commission can obtain 
this information outside of SDR data. As a result, the Commission is 
declining to adopt any parent/ultimate parent swap data elements.
---------------------------------------------------------------------------

    \316\ In appendix 1, these data elements are: Counterparty 1 
(reporting counterparty) (13); Counterparty 2 (14); Counterparty 2 
identifier source (15); Counterparty 1 financial entity indicator 
(16); Counterparty 2 financial entity indicator (17); Buyer 
identifier (18); Seller identifier (19); Payer identifier (20); 
Receiver identifier (21); and Submitter identifier (22).
    \317\ GLEIF at 3.
    \318\ GFXD at 27; ISDA-SIFMA at 23; BP at 5-6; CEWG at 8; DTCC 
at 6; Chatham at 4; FIA at 4-6.
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    Reflecting input received from the Department of Treasury, the 
Commission is adopting two counterparty swap data elements that were 
not in the Proposal: Counterparty 1 federal entity indicator and 
Counterparty 2 federal entity indicator.\319\ The Commission believes 
these swap data elements will help identify swaps use by federal 
entities. The Commission is adopting the rest of the counterparty data 
elements in appendix 1 as proposed. Nearly all of this information is 
currently being reported to SDRs. Six of these data elements are 
consistent with the CDE Technical Guidance.
---------------------------------------------------------------------------

    \319\ https://www.cftc.gov/LawRegulation/DoddFrankAct/ExternalMeetings/dfmeeting_060320_1568.
---------------------------------------------------------------------------

3. Category: Events
    The Commission proposed requiring reporting counterparties to 
report four event data elements.\320\ The Commission received four 
comments on the event model generally. GFXD encourages the Commission 
harmonize the event model with ESMA.\321\ CME and DTCC point out the 
differences between the Commission's event model and ESMA's.\322\ The 
Commission has worked to harmonize its event model with ESMA's as much 
as possible. Any remaining differences between its and ESMA's event 
models reflect differences in regulations referenced by the event model 
in the two jurisdictions.
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    \320\ In appendix 1, these data elements are: Action type (26); 
Event type (27); Event identifier (29); Event timestamp (30);
    \321\ GFXD at 28.
    \322\ CME at 18; DTCC at 3.
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    The Commission is adopting the event data elements as proposed, 
with one modification. The Commission is adding an Amendment indicator 
data element to flag changes to a previously submitted transaction due 
to a newly negotiated modification. The Amendment indicator will notify 
the public a swap is being amended on the public tape pursuant to part 
43, to indicate that the change to the previously disseminated swap 
transaction is price-forming.
    The Commission is adopting the rest of the events swap data 
elements as proposed. Nearly all of this information is currently being 
reported to SDRs. Event data elements were not included in the CDE 
Technical Guidance. This information is, however, critical for the 
Commission to be able to properly utilize swap data. Without it, the 
Commission would be unable to discern why each swap event is reported 
following the initial required swap creation data report.
4. Category: Notional Amounts and Quantities
    The Commission proposed requiring reporting counterparties report 
12 notional data elements.\323\ The Commission requested comment on 
whether it should adopt the CDE Technical Guidance data elements for 
notional schedules. ISDA-SIFMA support the inclusion of ``Notional 
Amount Schedule'' data elements.\324\ They explain that the Notional 
amount data element does not provide a way to report changes (if 
applicable) in notional amounts, such as for amortizing swaps.\325\ The 
Commission agrees with ISDA-SIFMA that the Notional amount schedule 
data elements would remedy an issue with reporting changing notionals. 
As such, the Commission is adding the notional amount schedule data 
elements to appendix 1.
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    \323\ In appendix 1, these data elements are: Notional amount 
(31); Notional currency (32); Delta (109); 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).
    \324\ Notional amount schedule is three data elements in the CDE 
Technical Guidance.
    \325\ ISDA-SIFMA at 25.
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    The Commission also requested comment on whether it should require 
the reporting of a USD equivalent notional amount data element. Four 
commenters oppose the data element on the grounds it would impose an 
unnecessary burden on reporting counterparties.\326\ The Commission 
agrees with commenters that the USD equivalent notional amount data 
element would be burdensome to compute and is declining to add the swap 
data element to appendix 1.
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    \326\ CME at 19-20; GFXD at 29; ISDA-SIFMA at 25-26; FIA at 4-6.
---------------------------------------------------------------------------

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

[[Page 75542]]

extensively by, the Commission to monitor activity and risk in the 
swaps market.
5. Category: Packages
    The Commission proposed requiring reporting counterparties report 
four package transaction data elements.\327\ The Commission received 
three comments related to package data elements. GFXD supports the 
decision to implement package transaction elements, but GFXD requests 
the Commission coordinate with ESMA to ensure that implementation is 
consistent across jurisdictions.\328\ ISDA-SIFMA do not support 
additional package data elements because they are exceptionally complex 
and there is no consistent approach to decomposing a package 
transaction or their associated definitions.\329\ Markit opposes 
package transaction data elements because it believes they are too 
complex to provide a benefit to the Commission.\330\
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    \327\ In appendix 1, these data elements are: Package identifier 
(46); Package transaction price (47); Package transaction price 
currency (48); and Package transaction price notation (49).
    \328\ GFXD at 29.
    \329\ ISDA-SIFMA at 26.
    \330\ Markit at 5.
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    The Commission believes package transaction data is necessary for 
the Commission to monitor the exposure of its registrants to these 
complex transactions. As a result, despite the objections of ISDA-SIFMA 
and Markit, the Commission is adding three package transaction swap 
data elements to appendix 1 from the CDE Technical Guidance: Package 
transaction spread; Package transaction spread currency; and Package 
transaction spread notation. The Commission is also adding Package 
indicator data element to appendix 1. The Commission agrees with GFXD 
that it should harmonize with ESMA to ensure consistent implementation 
across jurisdictions, and that is why the Commission adopted the 
package data elements according to the CDE Technical Guidance where 
possible. The Package indicator will alert the public on the part 43 
tape that the swap is part of a package, so the public will know the 
price is impacted by factors beyond the swap.
    The Commission is adopting the rest of the package data elements as 
proposed. Some of this information is currently being reported to SDRs. 
Seven of these data elements are consistent with the CDE Technical 
Guidance. The Commission anticipates using this information to better 
understand risk in the swaps market, as the Commission understands that 
many swaps are executed as part of packages.
6. Category: Payments
    The Commission proposed requiring reporting counterparties to 
report 12 data elements related to payments.\331\ The Commission did 
not receive any comments on adding or removing the payments data 
elements in appendix 1 and is adopting the data elements as proposed. 
Nine of these data elements are consistent with the CDE Technical 
Guidance. Nearly all of this information is currently being reported to 
SDRs.
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    \331\ In appendix 1, these data elements are: Day count 
convention (53); Fixing date (54); 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); Other payment date (60); Other payment payer (61); 
Other payment receiver (62); Payment frequency period (63); and 
Payment frequency period multiplier (64).
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7. Category: Prices
    The Commission proposed requiring reporting counterparties to 
report 18 data elements related to swap prices.\332\ The Commission 
received two comments on whether the Commission should continue to 
require the reporting of the Non-standardized pricing indicator. ISDA-
SIFMA and GFXD oppose the indicator \333\ and raise a concern that it 
could lead to reporting counterparties reporting additional terms to 
address the vague direction the data element provides. The Commission 
disagrees with ISDA-SIFMA and GFXD and is declining to remove this data 
element from appendix 1. While broad, the Non-standardized term 
indicator alerts the public a price may be due to unique terms when 
SDRs disseminate it to the public. The Commission does not share ISDA-
SIFMA's concerns about additional terms, as the data element is just an 
indicator to flag terms of the swap that may not be reported to an SDR.
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    \332\ In appendix 1, 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); Option premium payment 
date (81); and First exercise date (82).
    \333\ GFXD at 31; ISDA-SIFMA at 29.
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    The Commission is adopting the price data elements in appendix 1 as 
proposed. Nearly all of this information is currently being reported to 
SDRs. Seventeen of these data elements are consistent with the CDE 
Technical Guidance. This information is critical for, and used by, the 
Commission in understanding pricing in the swaps market.
8. Category: Product
    The Commission proposed requiring reporting counterparties to 
report five product-related data elements.\334\ The Commission received 
two comments on its approach to product data elements until the UPI is 
available. GFXD and ISDA-SIFMA support the Commission's approach.\335\
---------------------------------------------------------------------------

    \334\ In appendix 1, these data elements are: CDS index 
attachment point (83); CDS index detachment point (84); Index factor 
(85); Embedded option type (86); and Unique product identifier (87).
    \335\ ISDA-SIFMA at 26-27; GFXD at 30.
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    The Commission is adopting the product data elements in appendix 1 
as proposed. Product data elements are currently being reported to 
SDRs. The Commission has determined these data elements are critical 
for monitoring risk in the swaps market, even though the Commission 
expects any additional product data elements to remain unstandardized 
until the UPI is introduced.
9. Category: Settlement
    The Commission proposed requiring reporting counterparties to 
report two settlement data elements.\336\ The Commission received two 
comments on additional settlement data elements. GFXD and ISDA-SIFMA 
recommend the Commission consider including the Settlement location 
data element in the CDE Technical Guidance, as it would be an efficient 
option to collect additional information on trades involving offshore 
currencies.\337\ The Commission agrees with GFXD and ISDA-SIFMA that 
the Settlement location data element would help the Commission collect 
information on trades involving offshore currencies. As a result, the 
Commission is adding the CDE Technical Guidance data element for 
Settlement location to appendix 1. For reasons articulated in the 
Proposal and reiterated above, the Commission is adopting the rest of 
the settlement data elements in appendix 1 as proposed.
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    \336\ In appendix 1, these data elements are: Final contractual 
settlement date (88) and Settlement currency (89).
    \337\ GFXD at 30; ISDA-SIFMA at 27.
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10. Category: Transaction-Related
    The Commission proposed requiring reporting counterparties to 
report 15 data elements that provide information about each swap 
transaction.\338\ The

[[Page 75543]]

Commission received one comment on whether the Commission should 
include the data element for Jurisdiction indicator. ISDA-SIFMA oppose 
the indicator as the reporting counterparty would need to reach out to 
each of its counterparties for each transaction at or shortly after 
execution.\339\ They also question whether and how the list of 
jurisdictions could change and whether they would be subject to the 
public rulemaking process, and note this is not a CDE data 
element.\340\ The Commission is adopting the data element with one 
change to address ISDA-SIFMA's concerns about complicated 
implementation: the data element will be named Jurisdiction and will 
include limited allowable values.
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    \338\ In appendix 1, these data elements are: Allocation 
indicator (91); Non-standardized term indicator (92); Block trade 
election indicator (93); Effective date (94); Expiration date (95); 
Execution timestamp (96); Reporting timestamp (97); Platform 
identifier (98); Prime brokerage transaction identifier (89 in the 
Proposal); Prime brokerage transaction indicator (99); Prior USI 
(for one-to-one and one-to-many relations between transactions) 
(100); Prior UTI (for one-to-one and one-to-many relations between 
transactions) (101); Unique swap identifier (USI) (102); Unique 
transaction identifier (UTI) (103); and Jurisdiction (104).
    \339\ ISDA-SIFMA at 28.
    \340\ Id.
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    The Commission received one comment on whether the Commission 
should add a Prime brokerage transaction identifier data element in 
appendix 1. ISDA-SIFMA have significant concerns with the Prime 
brokerage transaction identifier data element and opposes its 
adoption.\341\ ISDA-SIFMA point out that the Commission can require any 
SD to provide any information relating to a swap, including asking any 
prime broker to map swaps that result from a trigger swap and to which 
such SD is a party.\342\ In addition, the Prime brokerage transaction 
indicator data element should help identify prime broker intermediated 
transactions in SDR data.\343\ The Commission agrees with ISDA-SIFMA 
that the identifier would be too complex to implement at this time. As 
such, the Commission is declining to add Prime brokerage transaction 
identifier to appendix 1.
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    \341\ ISDA-SIFMA at 27-28.
    \342\ Id.
    \343\ Id.
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    The Commission is adopting the rest of the transaction data 
elements in appendix 1 as proposed. Most of this information is 
currently being reported to SDRs and the Commission requires data 
elements like transaction identifiers to properly track new and amended 
swaps.
11. Category: Transfer
    The Commission proposed requiring reporting counterparties to 
report one data element related to changing SDRs.\344\ The Commission 
did not receive any comments on the New SDR identifier data element and 
is adopting the data element as proposed. This data element is 
necessary as the Commission is adopting Sec.  45.10(d) permitting 
reporting counterparties to change the SDR to which they report data 
for a given swap. Without this data element, the Commission is 
concerned there would be swaps in the SDR that would appear open but 
not updated because the reporting counterparty reports to a different 
SDR.
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    \344\ In appendix 1, this data element is: New SDR identifier 
(105).
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12. Category: Valuation
    The Commission proposed requiring reporting counterparties to 
report six valuation data elements.\345\ The Commission received 
several comments on the valuation data elements. ISDA-SIFMA, GFXD, and 
Markit generally oppose the valuation data elements. GFXD and ISDA-
SIFMA do not support any valuation data elements outside of those 
required by the CDE Technical Guidance.\346\ Markit opposes the 
valuation data elements as it would be difficult for firms to report 
them each day because (i) valuation data comes from systems separate 
from risk management systems that hold the transaction information; and 
(ii) daily valuation reporting that is prepared for other jurisdictions 
only involves minimum transaction information (trade reference, USI or 
UTI) that are used to link the valuation to the right trade.\347\
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    \345\ In appendix 1, these data elements are: Last floating 
reference value (107); Last floating reference reset date (108); 
Valuation amount (110); Valuation currency (111); Valuation method 
(112); and Valuation timestamp (113).
    \346\ ISDA-SIFMA at 30-31; GFXD at 31-32.
    \347\ Markit at 7.
---------------------------------------------------------------------------

    The Commission is adopting Next floating reference reset date, 
along with the other valuation data elements in appendix 1. Nearly all 
of this information is currently being reported to SDRs. Five data 
elements are consistent with the CDE Technical Guidance. Valuation 
information is critical for, and currently used by, the Commission to 
monitor risk in the swaps market.
13. Category: Collateral and Margins
    The Commission proposed requiring reporting counterparties to 
report 14 collateral and margins data elements.\348\ In light of the 
importance of this information, the Commission is adopting the margin 
and collateral data elements as proposed, with one change. The proposed 
Collateral portfolio code is now two separate data elements, Initial 
margin collateral portfolio code and Variation margin collateral 
portfolio code. This information is not currently being reported to 
SDRs. Eleven of these data elements are consistent with the CDE 
Technical Guidance. One data element, Affiliated counterparty for 
margin and capital indicator (114), will help the Commission monitor 
compliance with the uncleared margin requirements. The three remaining 
CFTC-specific data elements are indicators and codes that will help the 
Commission understand how the margin and collateral data is being 
reported by reporting counterparties. Margin and collateral information 
is critical for the Commission to monitor risk in the swaps market. 
When other jurisdictions implement the CDE Technical Guidance, sharing 
this information with other regulators will permit regulators to create 
a global picture of swaps risk.
---------------------------------------------------------------------------

    \348\ In appendix 1, these data elements are: Affiliated 
counterparty for margin and capital indicator (114); 
Collateralisation category (115); collateral portfolio code (105 in 
the Proposal); Portfolio containing non-reportable component 
indicator (117); Initial margin posted by the reporting counterparty 
(post-haircut) (118); Initial margin posted by the reporting 
counterparty (pre-haircut) (119); Currency of initial margin posted 
(120); Initial margin collected by the reporting counterparty (post-
haircut) (121); Initial margin collected by the reporting 
counterparty (pre-haircut) (122); Currency of initial margin 
collected (123); Variation margin posted by the reporting 
counterparty (pre-haircut) (125); Currency of variation margin 
posted (126); Variation margin collected by the reporting 
counterparty (pre-haircut) (127); and Currency of variation margin 
collected (128).
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14. Category: Miscellaneous
    CME requests clarification on whether SDRs can add proprietary data 
elements to its technical specification or whether an SDR can reject 
submissions due to validation failures of these data elements, and gave 
two examples of certain data elements for internal processing purposes 
(e.g., billing) and data elements to satisfy its regulatory obligations 
(e.g., implementation of certain data elements at the leg level).\349\ 
The Commission understands SDRs may have data elements for internal 
processing, and the Commission does not want to interrupt an SDR's 
ability to efficiently function. Beyond that, the Commission opposes 
SDRs adding data elements outside of those mandated by the Commission 
to satisfy the Commission's rules to avoid creating the issue SDRs and 
the Commission currently face of each SDR creating their own data 
elements according to different standards and thus inhibiting data 
quality.
---------------------------------------------------------------------------

    \349\ CME at 20.
---------------------------------------------------------------------------

    ISDA-SIFMA request the Commission follows EMIR's process on the 
data elements in the future: ESMA publishes the data validation table 
on an ``EMIR Reporting'' web landing page, while

[[Page 75544]]

only the data elements required to be reported, format and applicable 
types of derivatives contracts appear in the rule text.\350\ The 
approach would allow for public comment on any future changes to the 
data required to be reported to the SDRs, but would provide greater 
flexibility to make adjustments (e.g., due to industry feedback or 
completion of developing the ISO message for example) that do not 
change the data elements required to be reported.\351\ The Commission 
has endeavored to follow ESMA's approach as reflected by the steps 
taken to solicit public comment on the data elements and have DMO 
publish its technical specification.
---------------------------------------------------------------------------

    \350\ ISDA-SIFMA at 34-35.
    \351\ Id.
---------------------------------------------------------------------------

VI. Compliance Date

    In the Proposal, the Commission acknowledged that market 
participants will need a sufficient implementation period to 
accommodate the changes proposed in the three Roadmap proposals that 
would be adopted by the Commission. The Commission expected to finalize 
all rules at the same time, even though the three Roadmap proposals 
were approved separately. The Commission also expected that the 
compliance date for the Roadmap rules that the Commission adopts other 
than the rules on UTIs in Sec.  45.5 would be one year from the date 
the final rulemakings are published in the Federal Register.
    The Commission expected that the compliance date for the rules on 
UTIs in Sec.  45.5 would be December 31, 2020, according to the UTI 
implementation deadline recommended by the FSB.\352\
---------------------------------------------------------------------------

    \352\ See Financial Stability Board, Governance Arrangements for 
the Unique Transaction Identifier (UTI), Conclusions and 
Implementation Plan (Dec. 2017), section 5.2.
---------------------------------------------------------------------------

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

    \353\ ISDSA-SIFMA at 36.
---------------------------------------------------------------------------

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

    \354\ LCH at 2 and 4.
---------------------------------------------------------------------------

    ICE SDR suggests the Commission allow voluntary early 
implementation before the compliance effective date, and points out 
that having SDRs and market participants implement immediately after 
publication would be advantageous to the market and would eliminate the 
need for reporting counterparties to report valuation data.\355\
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    \355\ ICE SDR at 2 and 5.
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    The Commission received five comments opposing the proposed 
implementation period. GFXD suggests 12 months from publication of 
final rules should be the minimum implementation period and that GFXD 
believes the changes to the technical specification in parts 43 and 45 
should be implemented and allowed to imbed before the validation 
changes under part 49 are implemented.\356\
---------------------------------------------------------------------------

    \356\ GFXD at 35.
---------------------------------------------------------------------------

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

    \357\ CME at 22-23.
---------------------------------------------------------------------------

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

    \358\ DTCC at 8.
---------------------------------------------------------------------------

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

    \359\ ICE DCOs at 1-2.
    \360\ FIA at 10-11.
---------------------------------------------------------------------------

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

    \361\ GFXD at 34-35.
    \362\ CME at 22.
---------------------------------------------------------------------------

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

    \363\ JBA at 1-2.
---------------------------------------------------------------------------

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

    \364\ CS at 2.
---------------------------------------------------------------------------

    FIA believes the USI and UTI compliance changes will have to be 
addressed and should occur in tandem with the rest of the reporting 
rule requirements. It recommends eliminating the December 30, 2020

[[Page 75545]]

compliance date for UTIs and instead imposing one date for compliance 
for all final rules.\365\
---------------------------------------------------------------------------

    \365\ FIA at 10-11.
---------------------------------------------------------------------------

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

    \366\ ISDA-SIFMA at 36.
    \367\ DTCC at 5.
---------------------------------------------------------------------------

    Based on the many comments that requested one compliance date for 
all aspects of the Proposal and all of the Roadmap proposals, including 
final Sec.  45.5, and the many comments that requested a compliance 
date that is more than one year from the date the proposals are 
finalized, the Commission has determined to adopt a unified compliance 
date that is 18 months from the date of publication of the final rule 
amendments in the Federal Register. The Commission agrees with the 
suggestion from ICE SDR that market participants should be able to 
adopt the rule changes ahead of the compliance date.
    Regarding the UTI implementation, the Commission clarifies that UTI 
implementation should be on a going-forward basis. This means that all 
new swaps entered into after the compliance date should have UTIs 
according to final Sec.  45.5. As a result, SDRs will need to 
accommodate both USIs and UTIs for a certain amount of time after the 
compliance date, but the Commission anticipates SDRs would be able to 
phase it out at a certain point after swaps using USIs are terminated 
or reach maturity.
    Part 20 of the Commission's regulations governing large trader 
reporting for physical commodity swaps contains a ``sunset provision'' 
in Sec.  20.9 that would take effect upon a Commission finding that, 
through the issuance of an order, operating SDRs are processing 
positional data and that such processing will enable the Commission to 
effectively surveil trading in paired swaps and swaptions and paired 
swap and swaption markets.\368\ In the Proposal, the Commission asked 
whether in conjunction with the Commission's proposals to update its 
swap reporting regulations, should the Commission review part 20 to 
determine whether it would be appropriate to sunset part 20 reporting 
according to the Sec.  20.9? \369\
---------------------------------------------------------------------------

    \368\ 17 CFR 20.9.
    \369\ Swap Data Recordkeeping and Reporting Requirements, 85 FR 
21578, 21614 (Apr. 17, 2020).
---------------------------------------------------------------------------

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

    \370\ BP at 6.
    \371\ CEWG at 9.
    \372\ FIA at 14.
---------------------------------------------------------------------------

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

VII. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') requires federal agencies, 
in promulgating rules, to consider the impact of those rules on small 
entities.\373\ The Commission has previously established certain 
definitions of ``small entities'' to be used by the Commission in 
evaluating the impact of its rules on small entities under the 
RFA.\374\ The changes to parts 45, 46, and 49 adopted herein would have 
a direct effect on the operations of DCMs, DCOs, MSPs, reporting 
counterparties, SDs, SDRs, and SEFs. The Commission has previously 
certified that DCMs,\375\ DCOs,\376\ MSPs,\377\ SDs,\378\ SDRs, \379\ 
and SEFs \380\ are not small entities for purpose of the RFA.
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    \373\ See 5 U.S.C. 601-604.
    \374\ See Policy Statement and Establishment of ``Small 
Entities'' for purposes of the Regulatory Flexibility Act, 47 FR 
18618 (Apr. 30, 1982).
    \375\ See id.
    \376\ See Derivatives Clearing Organization General Provisions 
and Core Principles, 76 FR 69334, 69428 (Nov. 8, 2011).
    \377\ See 77 FR at 20194 (basing determination in part on 
minimum capital requirements).
    \378\ See Swap Trading Relationship Documentation Requirements 
for Swap Dealers and Major Swap Participants, 76 FR 6715 (Feb. 8, 
2011).
    \379\ See Swap Data Repositories; Proposed Rule, 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).
    \380\ Core Principles and Other Requirements for Swap Execution 
Facilities, 78 FR 33476, 33548 (June 4, 2013).
---------------------------------------------------------------------------

    Various changes to parts 45, 46, and 49 would have a direct impact 
on all reporting counterparties. These reporting counterparties may 
include SDs, MSPs, DCOs, and non-SD/MSP/DCO counterparties. Regarding 
whether non-SD/MSP/DCO reporting counterparties are small entities for 
RFA purposes, the Commission notes CEA section 2(e) prohibits a person 
from entering into a swap unless the person is an eligible contract 
participant (``ECP''), except for swaps executed on or under the rules 
of a DCM.\381\ The Commission has previously certified that ECPs are 
not small entities for purposes of the RFA.\382\
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    \381\ See 7 U.S.C. 2(e).
    \382\ See Opting Out of Segregation, 66 FR 20740, 20743 (Apr. 
25, 2001). The Commission also notes this determination was based on 
the definition of ECP as provided in the Commodity Futures 
Modernization Act of 2000. The Dodd-Frank Act amended the definition 
of ECP as to 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 higher than was in place 
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 than when the Commission first made the 
determination.
---------------------------------------------------------------------------

    The Commission has analyzed swap data reported to each SDR \383\ 
across all five asset classes to determine the number and identities of 
non-SD/MSP/DCOs that are reporting counterparties to swaps under the 
Commission's jurisdiction. A recent Commission staff review of swap 
data, including swaps executed on or under the rules of a DCM, 
identified nearly 1,600 non-SD/MSP/DCO reporting counterparties.

[[Page 75546]]

Based on its review of publicly available data, the Commission believes 
the overwhelming majority of these non-SD/MSP/DCO reporting 
counterparties are either ECPs or do not meet the definition of ``small 
entity'' established in the RFA. Accordingly, the Commission does not 
believe the rules would affect a substantial number of small entities.
---------------------------------------------------------------------------

    \383\ 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, 98,145 
credit swaps, 357,851 commodities swaps, 603,864 equities swaps, and 
276,052 interest rate swaps.
---------------------------------------------------------------------------

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

B. Paperwork Reduction Act

    The Paperwork Reduction Act (``PRA'') \384\ imposes certain 
requirements on federal agencies, including the Commission, in 
connection with their conducting or sponsoring any collection of 
information, as defined by the PRA. The rule amendments adopted herein 
will result in the revision of three information collections, as 
discussed below. The Commission has previously received control numbers 
from the Office of Management and Budget (``OMB'') for each of the 
collections impacted by this rulemaking: OMB Control Numbers 3038-0096 
(relating to part 45 swap data recordkeeping and reporting); 3038-0089 
(relating to part 46 pre-enactment swaps and transition swaps); and 
3038-0086 (relating to part 49 SDR regulations).
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    \384\ See 44 U.S.C. 3501.
---------------------------------------------------------------------------

    The Commission did not receive any comments regarding its PRA 
burden analysis in the preamble to the Proposal. The Commission is 
revising the three information collections to reflect the adoption of 
amendments to parts 45, 46, and 49, as discussed below, including 
changes to reflect adjustments that were made to the final rules in 
response to comments on the Proposal (not relating to the PRA). In 
addition, the Commission is revising the information collections for 
part 45 to include estimates of the burden hours that SDRs, SEFs, DCMs, 
and reporting counterparties could incur to report updated swap data 
elements in appendix 1 to part 45 in the form and manner provided in 
the technical specification published by the Commission, as discussed 
below, which were not included in the Proposal. The Commission has re-
evaluated its analysis of the one-time costs that SDRs, SEFs, DCMs, and 
reporting counterparties could incur to modify their systems for part 
45. These estimates have been updated to include software developer 
labor costs for amended Sec.  45.3 related to the technical 
specification, as developed by staff in its Offices of the Chief 
Economist and Data and Technology. The Commission does not expect any 
ongoing costs after the initial builds. Further, the Commission 
previously included estimates for proposed Sec.  45.4 of costs for SDRs 
and reporting counterparties to update systems for reporting required 
swap continuation data. However, after further analysis, the Commission 
is removing the estimates for Sec.  45.4 to avoid double-counting, 
since the costs relate to reporting certain swap data elements that are 
included in the estimated one-time start-up costs for Sec.  45.3. The 
Commission does not believe the rule amendments as adopted impose any 
other new collections of information that require the approval of OMB 
under the PRA.
    Under the PRA, Federal agencies must obtain approval from OMB for 
each collection of information they collect or sponsor. ``Collection of 
information'' is defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3 and 
includes agency requests or requirements that members of the public 
submit reports, keep records, or provide information to a third party. 
Section 3506(c)(2)(A) of the PRA, 44 U.S.C. 3506(c)(2)(A), requires 
Federal agencies to provide a 60-day notice in the Federal Register for 
each proposed collection of information before submitting the 
collection to OMB for approval. The Commission is publishing a 60-day 
notice (``60-day Notice'') in the Federal Register concurrently with 
the publication of this final rule in order to solicit comment on 
burden estimates for part 45 that were not included in the Proposal.
1. Part 45: Revisions to Collection 3038-0096 (Swap Data Recordkeeping 
and Reporting Requirements)
a. Sec.  45.3--Swap Creation Data Reports
    Existing Sec.  45.3 requires SEFs, DCMs, and reporting 
counterparties to report confirmation data reports and PET data reports 
when entering into new swaps. The Commission is adopting changes that 
will remove the requirement for SEFs, DCMs, and reporting 
counterparties \385\ to report confirmation data reports, and instead 
report a single swap creation data report. Commission staff estimates 
that for these entities, the change will reduce the number of swap 
creation data reports sent to SDRs from 10,000 reports per 1,732 
respondents to 7,000 reports per 1,732 respondents, or 12,124,000 
reports in the aggregate. The annual hourly burden is estimated to 
remain .01 average hours per report for the remaining reports, and the 
gross annual reporting burden is estimated to be 121,240 hours.
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    \385\ The current requirement for SEFs and DCMs is in Sec.  
45.3(a), and the current requirement for off-facility swaps is in 
Sec. Sec.  45.3(b) through (d).
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    The Commission is also adopting changes that will remove the Sec.  
45.3(i) requirement for SEFs, DCMs, and reporting counterparties to 
report TR identifiers and swap identifiers for international swaps. The 
changes remove the requirement to report two pieces of information 
within a required swap creation data report without impacting the 
number of reports themselves. The requirement to report swap 
identifiers is duplicative, and will not change the burden estimate, as 
SEFs, DCMs, and reporting counterparties are required to report swap 
identifiers for all swaps pursuant to Sec.  45.5. However, the removal 
of the requirement to report TR identifiers will slightly reduce the 
amount of time required to make each report, as SEFs, DCMs, and 
reporting counterparties will not need to report this information 
anymore.
    The Commission estimates the removal of this requirement will lower 
the burden hours by .01 hour per report. However, at the same time, as 
discussed further below in section VII.B.1.c, the Commission is 
adopting changes to require the reporting of UTIs instead of USIs, 
which are currently reported in every required swap creation data 
report. The Commission estimates the new rules requiring SEFs, DCMs, 
and reporting counterparties to report UTIs will impact the burden 
calculations for Sec.  45.3 by increasing the burden hours by .01 hour 
per report. As a result, the Commission estimates there will be no net 
change to the .01 burden hours per report for Sec.  45.3 required swap 
creation data reporting resulting from the amendments to Sec.  45.3(i).
    The aggregate burden estimate for Sec.  45.3 required swap creation 
data reports is as follows:
    Estimated number of respondents: 1,732.
    Estimated number of reports per respondent: 7,000.
    Average number of hours per report: .01.
    Estimated gross annual reporting burden: 121,240.
    In addition, the Commission estimates SDRs, SEFs, DCMs, and 
reporting counterparties will incur capital/start-up costs related to 
adopting the changes proposed in Sec.  45.3. The Commission

[[Page 75547]]

estimates that SDRs will incur one-time initial costs in a range of 
$144,000 to $1,010,000 per SDR to update their systems, with each SDR 
spending approximately 3,000 to 5,000 hours on the updates. The 
Commission estimates SEFs, DCMs, and reporting counterparties will 
incur one-time initial costs in a range of $24,000 to $73,225 per 
reporting entity, with each reporting entity spending approximately 500 
to 725 hours per reporting entity on the updates.\386\ The cost per 
entity is estimated to be $28,923 for a total cost across entities of 
$50,094,636.
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    \386\ The Commission is updating its estimates of the capital/
start-up costs that SDRs, SEFs, DCMs, and reporting counterparties 
will incur related to adopting the changes in Sec.  45.3 to provide 
a more-accurate range of expected costs. In doing so, the Commission 
includes the costs associated with updates to Sec.  45.4, discussed 
below, as they would be captured in the costs of updating systems to 
adopt the updated data elements in appendix 1 to part 45.
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b. Sec.  45.4--Swap Continuation Data Reports
    Existing Sec.  45.4 requires reporting counterparties to report 
data to SDRs when swap terms change, as well as daily and quarterly 
swap valuation data, depending on the type of reporting counterparty. 
As a preliminary matter, the Commission is correcting the estimated 
number of respondents for Sec.  45.4 from 1,732 SDRs, SEFs, DCMs, and 
reporting counterparties to 1,705 SDRs and reporting counterparties to 
reflect that SEFs and DCMs do not report required swap continuation 
data.
    Existing Sec.  45.4(a) permits reporting counterparties to report 
changes to swap terms when they occur (life cycle reporting), or to 
provide a daily report of all of the swap terms (state data reporting). 
The Commission is adopting changes that will remove the option for 
state data reporting for reporting counterparties. The Commission 
estimates that this will reduce the number of Sec.  45.4 continuation 
data reports that reporting counterparties report from 207,543 reports 
per respondent to 103,772 reports per respondent.
    The Commission is also adopting changes to remove the requirement 
for non-SD/MSP/DCO reporting counterparties to report quarterly 
valuation data. For the 1,585 non-SD/MSP/DCO reporting counterparties, 
the Commission estimates this will further reduce the number of Sec.  
45.4 swap continuation data reports they send to SDRs by four quarterly 
reports per 1,585 non-SD/MSP/DCO reporting counterparties. This is 
estimated to reduce the number of Sec.  45.4 continuation data reports 
sent by reporting counterparties from 103,772 reports per respondent to 
97,431 reports per respondent.
    Separately, the Commission is adopting changes to expand the daily 
valuation data reporting requirement for SD/MSP reporting 
counterparties to report margin and collateral data in addition to 
valuation data. This is a change from the Proposal, in which the 
Commission proposed requiring DCO counterparties to report the 
information as well. The frequency of the report will not change for 
SD/MSP reporting counterparties, but the Commission estimated SD/MSP/
DCO reporting counterparties would require more time to prepare each 
report. However, since all of this information is reported 
electronically, the Commission expected the increase per report to be 
small, from .003 to .004 hours per report. Since the Commission is not 
requiring DCO reporting counterparties to report the information, the 
Commission is revising its estimate to .0035 hours per report. The 
reduction in this estimate from .004 hours in the Proposal reflects the 
Commission adopting a less burdensome rule than was proposed.
    The aggregate burden estimate for Sec.  45.4 required swap 
continuation data is as follows:
    Estimated number of respondents: 1,705.
    Estimated number of reports per respondent: 97,431.
    Average number of hours per report: .0035.
    Estimated gross annual reporting burden: 581,419.
    In addition, in the Proposal, the Commission estimated SDRs and 
reporting counterparties would incur capital/start-up costs and ongoing 
operational/maintenance costs related to adopting the changes proposed 
in Sec.  45.4. In reevaluating its analysis in the Proposal, the 
Commission recognizes the reporting costs created by the changes to 
Sec.  43.4 relate to reporting swap data elements, which the Commission 
has included in the estimated costs for Sec.  45.3. To avoid double-
counting costs, the Commission is not estimating separate initial and 
ongoing costs for Sec.  43.4 and removing the estimate that was 
included in the Proposal.
c. Sec.  45.5--Unique Swap Identifier Reporting
    Existing Sec.  45.5 requires SEFs, DCMs, reporting counterparties, 
and SDRs to generate and transmit USIs, and include USIs in all of 
their Sec.  45.3 creation data and Sec.  45.4 continuation data reports 
to SDRs. As a preliminary matter, the Commission is correcting the 
estimated number of respondents and the estimated number of reports per 
each respondent. Currently, SDRs, SDs, MSPs, SEFs, and DCMs are 
required to generate USIs, but the Commission inadvertently had 
included the 1,585 non-SD/MSP/DCO reporting counterparties in the 
current estimated number of respondents. The Commission is updating the 
number of respondents to 147 SDs, MSPs, SEFs, DCMs, DCOs, and SDRs. 
However, these entities generate USIs on behalf of non-SD/MSP/DCO 
reporting counterparties for all swaps, so the estimated number of 
reports per each respondent will increase proportionately to 115,646 
reports per 147 respondents to account for the 17,000,000 new swaps 
reported each year with USIs.
    Existing Sec.  45.5 requires SDRs to generate and transmit USIs for 
off-facility swaps with a non-SD/MSP reporting counterparty. The 
Commission is adopting changes that will require non-SD/MSP/DCO 
reporting counterparties that are financial entities to generate and 
transmit UTIs for off-facility swaps. The Commission estimates that 
approximately half of non-SD/MSP/DCO reporting counterparties are 
financial entities. Therefore, the Commission estimates that the number 
of respondents will increase from 147 SDs, MSPs, SEFs, DCMs, DCOs, and 
SDRs to 940 respondents with the addition of financial entities. At the 
same time, however, this will lower the number of UTIs generated per 
respondent to account for the increase in the number of respondents 
generating UTIs. The Commission estimates the estimated number of 
reports per respondent will decrease from 115,646 reports per 147 
respondents to 18,085 reports per 940 respondents.
    The aggregate burden estimate for Sec.  45.5 is as follows:
    Estimated number of respondents: 940.
    Estimated number of reports per respondent: 18,085.
    Average number of hours per report: .01.
    Estimated gross annual reporting burden: 169,999.
    In addition, the Commission estimates that Sec.  45.5 will create 
costs for entities required to generate USIs to update their systems to 
generate UTIs. The Commission estimates that SDRs and reporting 
counterparties required to generate UTIs will incur a one-time initial 
burden of one hour per entity to modify their systems to adopt the 
changes described below, for a total estimated hours burden of 940 
hours. The cost per entity is estimated to be

[[Page 75548]]

$72.23 for a total cost across entities of $67,896. The Commission 
additionally estimates one hour per entity annually to perform any 
needed maintenance or adjustments to reporting systems, at a cost of 
$72.23 per entity and $67,896 across entities.
d. Sec.  45.6--Legal Entity Identifier Reporting
    Existing Sec.  45.6 requires reporting entities to have LEIs and 
report them to SDRs as part of their Sec.  45.3 creation data and Sec.  
45.4 continuation data reports. As a preliminary matter, the Commission 
is revising the burden estimate for Sec.  45.6. LEIs are reported in 
required swap creation data and required swap continuation data 
reports, which are separately accounted for in the estimates for 
Sec. Sec.  45.3 and 45.4. The current estimate for Sec.  45.6 double-
counts the estimates for Sec. Sec.  45.3 and 45.4 by calculating the 
burden per data report. Instead, the burden for Sec.  45.6 should be 
based on the requirement for each counterparty to obtain an LEI. The 
Commission is revising the estimate to state that there are 1,732 
entities required to have one LEI per respondent, and revise the burden 
hours based on this change.\387\
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    \387\ The Commission is similarly revising the estimate for 
Sec.  45.7, which requires reporting counterparties to use UPIs. 
Until the Commission designates a UPI, reporting counterparties use 
the product fields unique to each SDR. As a result, until the 
Commission designates a UPI, the burden estimates for the product 
fields are accounted for in Sec. Sec.  45.3 and 45.4. To avoid 
double-counting until there is a UPI, the Commission is removing the 
burden estimate for Sec.  45.7 until the Commission designates a 
UPI.
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    The Commission is also adopting amendments to Sec.  45.6 to require 
SDs, MSPs, SEFs, DCMs, DCOs, and SDRs to renew their LEIs annually. The 
change will increase the burden estimates for these entities, but will 
not affect the burden for the majority of entities required to have 
LEIs. Nonetheless, the Commission expects the burden associated with 
these changes to increase from .01 to .02 hours per report, and 17 
hours in the aggregate.
    The aggregate burden estimate for Sec.  45.6 is as follows:
    Estimated number of respondents: 1,732.
    Estimated number of reports per respondent: 1.
    Average number of hours per report: .02.
    Estimated gross annual reporting burden: 35.
e. Sec.  45.10--Reporting Changing SDRs
    The Commission is adopting new regulations in Sec.  45.10(d) that 
require reporting counterparties to send SDRs and non-reporting 
counterparties notifications if they change the SDR to which they 
report swap data and swap transaction and pricing data. This is a new 
reporting burden that is not covered in the current collection.
    The Commission estimates that no more than 15 reporting 
counterparties will choose to change the SDR to which they report data. 
As a result, the Commission estimates these 15 reporting counterparties 
will each send one report annually, with an average response time of 
.01 hours per report and a gross annual burden of .15 hours.
    The aggregate burden estimate for Sec.  45.10 is as follows:
    Estimated number of respondents: 15.
    Estimated number of reports per respondent: 1.
    Average number of hours per report: .01.
    Estimated gross annual reporting burden: .15.
2. Revisions to Collection 3038-0086 (Swap Data Repositories: 
Registration and Regulatory Requirements)
a. SDR Withdrawal from Registration Amendments
    Existing Sec.  49.4 requires SDRs to follow certain requirements 
when withdrawing from registration with the Commission. These 
requirements involve filing paperwork with the Commission. The 
Commission does not believe any of the changes the Commission is 
adopting will require any one-time or ongoing system updates for SDRs. 
In addition, the Commission notes it had not previously provided a 
burden estimate for Sec.  49.4, so the Commission provided an estimate 
with the Proposal.
    Existing Sec.  49.4(a)(1)(iv) requires that an SDR's request to the 
Commission to withdraw from SDR registration specify, among other 
items, a statement that the custodial SDR is authorized to make such 
data and records available in accordance with Sec.  1.44. The 
Commission is adopting changes to remove this requirement from Sec.  
49.4(a)(1)(iv).
    Existing Sec.  49.4(a)(2) requires that before filing a request to 
withdraw, a registered SDR shall file an amended Form SDR to update any 
inaccurate information. The Commission is adopting changes that 
eliminate the requirement for SDRs to file an amended Form SDR prior to 
filing a request to withdraw.
    Separately, the Commission is adopting new Sec.  49.4(a)(2) to 
require SDRs to execute an agreement with the custodial SDR governing 
the custody of the withdrawing SDR's data and records prior to filing a 
request to withdraw with the Commission.
    The Commission estimates that at most one SDR will request to 
withdraw from registration each year pursuant to amended Sec.  49.4. 
The Commission estimates that the SDR will provide one notification to 
the CFTC, which will take an estimated 40 hours for the SDR to 
complete.
    The aggregate burden estimate for Sec.  49.4 is as follows:
    Estimated number of respondents: 1.
    Estimated number of reports per respondent: 1.
    Average number of hours per report: 40.
    Estimated gross annual reporting burden: 40.
b. SDR Data Validation Requirement Amendments
    Existing Sec.  49.10 provides the requirements for SDRs in 
accepting SDR data. As an initial matter, the Commission is correcting 
the estimates for Sec.  49.10 in the Proposal. In the Proposal, the 
Commission misstated the current burden estimate for Sec.  49.10 as 
5,652,000 messages per SDR respondent, for a total of almost 17,000,000 
messages across SDRs. The correct current estimate for Sec.  49.10 is 
2,652,000 messages per SDR, for a total of almost 8,000,000 messages. 
The Commission will discuss the changes to the estimate for Sec.  49.10 
resulting from this rulemaking below according to the corrected 
estimate for Sec.  49.10.
    Existing Sec.  49.10(a) requires SDRs to accept and promptly record 
all swap data. In the 2019 Part 49 NPRM, the Commission proposed 
amending the requirements in Sec.  49.10 by detailing separate Sec.  
49.10(e) requirements for correcting swap errors. The Commission is 
adopting those changes in a separate release. In this release, the 
Commission is adopting separate Sec.  49.10(c) requirements for 
validating swap messages. These changes further specify that SDRs must 
send validation acceptance and rejection messages after validating SDR 
data. The Commission estimates that this will increase the number of 
reports SDRs will need to send reporting entities.
    The Commission estimates that the new requirement to send 
validation messages in Sec.  49.10(c) will add 3,000,000 messages to 
each SDR's current burden estimate, at .00055 hours per message, or 
4,950 aggregate burden hours for all three SDRs.
    When added to the current estimate for Sec.  49.10, the aggregate 
burden estimate for Sec.  49.10 is as follows:
    Estimated number of respondents: 3.

[[Page 75549]]

    Estimated number of reports per respondent: 5,652,000.
    Average number of hours per report: .00055.
    Estimated gross annual reporting burden: 9,326. \388\
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    \388\ The Commission is correcting an incorrect estimate from 
the Proposal of 9,750 hours, due to an error in another Supporting 
Statement accompanying a different rulemaking.
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    In addition, the Commission estimates that SDRs will incur capital/
start-up costs and ongoing operational/maintenance costs related to 
adopting the changes proposed in Sec.  49.10(c). The Commission 
estimates that SDRs will incur a one-time initial burden of 100 hours 
per entity to modify their systems to adopt the changes described 
above, for a total estimated hours burden of 300 hours, and that SDRs 
will additionally spend 100 hours per entity annually to perform any 
needed maintenance or adjustments to reporting systems. Based on a 
labor cost of $72.23 per hour, the total cost of the one-time initial 
burden is estimated at $21,669 across all three SDRs, and the total 
cost to perform any additional needed maintenance or adjustments to 
reporting systems annually is estimated at $21,669 across all three 
SDRs.
3. Revisions to Collection 3038-0089 (Pre-Enactment Swaps and 
Transition Swaps)
    Existing Sec.  46.11 provides that for pre-enactment or transition 
swaps for which part 46 requires reporting of continuation data, 
reporting counterparties reporting state data as provided in part 45 
may fulfill the requirement to report errors or omissions by making 
appropriate corrections in their next daily report of state data 
pursuant to part 45. Since the Commission is adopting changes to remove 
the option for state data reporting from Sec.  45.4, the Commission is 
also adopting changes to remove the option for state data reporting 
from Sec.  46.11.
    Because reporting counterparties will no longer be able to send 
daily state data reports for their part 46 historical swaps, the 
Commission estimates the changes adopted in Sec.  46.11 will reduce the 
number of continuation data reports reporting counterparties send SDRs 
for historical swaps by 50%. As a result, the Commission estimates that 
the 125 \389\ SD/MSP reporting counterparties that the Commission 
estimates are reporting historical swaps will each spend five hours on 
these reports annually instead of the previous estimate of 10 hours, 
and the 500 non-SD/MSP reporting counterparties will spend .64 hours on 
these reports annually, instead of the previous estimate of 1.275 
hours.
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    \389\ The Commission had erroneously stated there were 500 SD, 
MSP, and non-SD/MSP reporting counterparties in the Proposal.
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    The aggregate burden estimate for reporting historical swaps to 
SDRs under part 46 is as follows:
    Estimated number of respondents: 625.
    Estimated number of reports per respondent: 151.
    Average number of hours per report: .01.
    Estimated gross annual reporting burden: 945. \390\
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    \390\ In the Proposal, the Commission estimated that to comply 
with proposed amended Sec.  46.11, 500 SD, MSP, and non-SD/MSP 
reporting counterparties that the Commission estimated are reporting 
historical swaps would each submit 200 reports under part 46 with an 
average burden of .01 hours per report, for a burden of 2 hours per 
respondent or 1,000 burden hours in the aggregate. The correct 
aggregate burden hours estimate, which was reflected in the 
supporting statement filed with OMB in connection with the Proposal, 
is 945 (consisting of 625 aggregate annual burden hours for the 125 
SD/MSP reporting counterparties and 320 aggregate burden hours for 
the 500 non-SD/MSP reporting counterparties). The Commission is also 
revising the estimated number of reports filed per respondent under 
part 46 from 200 reports to 151.
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    The Commission does not believe the changes to Sec.  46.11 being 
adopted will require SDRs or reporting counterparties to make any one-
time or ongoing updates to their systems.

C. Cost-Benefit Considerations

1. Introduction
    Since issuing the first swap reporting rules in 2012, the 
Commission has gained a significant amount of experience with swaps 
markets and products based on studying and monitoring swap data.\391\ 
As a result of this work, the Commission has identified ways to improve 
the existing swap data reporting rules. Limitations with the 
regulations have, in some cases, encouraged the reporting of swap data 
in a way that has made it difficult for the Commission to aggregate and 
analyze. As a result, the Commission is amending its rules to improve 
data quality and standardization to achieve the Group of Twenty 
(``G20'') goal for trade reporting to improve transparency, mitigate 
systemic risk, and prevent market abuse.\392\
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    \391\ The Commission has used swap data in various rulemakings, 
research, and reports. See, e.g., ``Introducing ENNs: A Measure of 
the Size of Interest Rate Swap Markets,'' Haynes R., Roberts J. 
Sharma R., and Tuckman B., January 2018; CFTC Weekly Swaps Report, 
available at www.cftc.gov/MarketReports/SwapsReports/index.htm.
    \392\ See G20, Leader's Statement Pittsburgh Summit September 
24-25, 2009, (Sept. 2009), available at https://www.treasury.gov/resource-center/international/g7-g20/Documents/pittsburgh_summit_leaders_statement_250909.pdf.
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    While the Commission believes the amendments will meaningfully 
benefit market participants and the public, some costs could result as 
well. Section 15(a) of the CEA requires the Commission to consider the 
costs and benefits of its actions before promulgating rules under the 
CEA.\393\ Section 15(a) specifies that the Commission evaluates costs 
and benefits in light of five broad areas of market and public concern: 
(1) Protection of market participants and the public; (2) the 
efficiency, competitiveness, and financial integrity of markets; (3) 
price discovery; (4) sound risk management practices; and (5) other 
public interest considerations.\394\ The Commission considers the costs 
and benefits resulting from its discretionary determinations concerning 
the section 15(a) factors.
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    \393\ 7 U.S.C. 19(a)(1).
    \394\ 7 U.S.C. 19(a)(2).
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    In this release, the Commission is adopting revisions to existing 
regulations in parts 45, 46, and 49. The Commission is also adopting 
new requirements in parts 45, 46, and 49. Together, these revisions and 
additions should further specify and streamline swap data reporting and 
improve the quality of swap data reporting. The Commission is making 
most of the changes to existing systems and processes, so nearly all 
costs considered are incremental additions or updates to systems 
already in place. The Commission believes many of the amendments, which 
are non-substantive or technical, will not have material cost-benefits 
implications.\395\
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    \395\ The Commission believes there are no cost-benefit 
implications for amendments to Sec. Sec.  45.1, 45.2, 45.7, 45.8, 
45.9, 45.11, 45.15, 46.1, 46.2, 46.4, 46.5, 46.8, 46.9, and 49.2.
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    The Commission is adopting multiple changes to harmonize the 
Commission's reporting regulations with those of other regulators as 
part of the FSB and CPMI-IOSCO harmonization efforts. As these efforts 
have incorporated industry feedback, and the Commission has been vocal 
about its support and participation,\396\ the Commission expects many 
market participants have been planning and preparing for updates to 
accommodate these

[[Page 75550]]

important changes in efficient, cost-effective manners.
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    \396\ See, e.g., Testimony of Chairman J. Christopher Giancarlo 
before the House Committee on Agriculture, Washington, DC, July 25, 
2018, available at https://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlo50 (``I believe the CFTC needs to be a leading 
participant in IOSCO and other international bodies. The CFTC 
currently chairs the following international committees and groups 
and serves as a member of many other ones: . . . Co-Chair, CPMI-
IOSCO Data Harmonization Group[, and] Co-Chair, FSB Working Group on 
UTI and UPI Governance'').
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    Many jurisdictions have committed to these harmonization efforts 
for which the Commission is adopting standards. If the Commission did 
not adopt these standards, but other jurisdictions--consistent with the 
technical guidance and implementation deadlines recommended by the 
FSB--did, SDRs and reporting entities could experience unnecessary 
costs due to unharmonized reporting infrastructures for CFTC reporting, 
while market participants in other jurisdictions enjoyed harmonization 
efficiencies.
    The Commission discusses reasonably quantifiable costs and benefits 
in this section; the Commission discusses them qualitatively if they 
are not reasonably quantifiable. Throughout this release, the 
Commission estimates the cost-benefit impact of its changes using swap 
data, such as the prevalence of state data reporting and duplicative 
required swap creation data reports. Most of the changes affect 
reporting requirements for reporting counterparties, SDRs, SEFs, and 
DCMs. As a result, there will likely be some reasonably quantifiable 
costs related to either: (a) Creating new data reporting systems; (b) 
reprogramming existing data reporting systems to meet the new reporting 
requirements; or (c) canceling data streams, which might lead to 
archiving data and maintaining legacy systems. These estimates focus on 
the costs and benefits of the amended rules market participants are 
likely to encounter with an emphasis on technical details, 
implementation, and market-level impacts. Where software changes are 
expected, these costs reflect software developer labor costs only, not 
a blend of different occupations. Costs and benefits quantified at the 
respondent level are estimated in the PRA section in section VII.B 
above. Those costs are not repeated in this section, but where 
appropriate, quantified costs reflected in the PRA are noted below to 
reflect PRA costs have been taken into account in the cost-benefit 
analysis.
    These costs are quantifiable if entities covered by the final 
regulations can price-out the changes to the information technology 
architecture to adopt the reporting requirement changes. These 
quantifiable costs, however, will likely vary because the 
sophistication of reporting entities varies. For example, some 
reporting entities operate their own data reporting systems and employ 
in-house developers and analysts to plan, design, code, test, 
establish, and monitor systems. Other reporting entities pay fees to 
third-party vendors. The quantitative costs associated with the 
reporting rules in this release will vary depending on the reporting 
entities' operations and number of swaps they execute. The Commission 
provides a monetary range for quantifiable costs as they relate to each 
change discussed below where possible.
    This consideration of costs and benefits is based on the 
understanding that the swaps market functions internationally. Many 
swaps transactions involving U.S. firms occur across international 
borders and some Commission registrants are organized outside of the 
U.S., including many SDs. Many of the largest market participants often 
conduct operations both within and outside the U.S. Where the 
Commission does not always refer to location, the discussion of costs 
and benefits refers to the rules' effects on all swaps activity, 
whether by virtue of the activity's physical location in the U.S. or by 
virtue of the activity's connection with or effect on U.S. commerce 
under CEA section 2(i).\397\
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    \397\ See 7 U.S.C. 2(i). CEA section 2(i) provides that the swap 
provisions enacted by the Dodd-Frank Act, and Commission regulations 
promulgated under those provisions, shall not apply to activities 
outside 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.
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2. Background
    The Commission has issued several rulemakings related to swaps 
reporting where it has considered the benefits and costs.\398\ Among 
others, the Commission has identified benefits such as increased 
transparency to both market participants and regulators; improved 
regulatory understanding of risk distributions and concentrations in 
derivatives markets; more effective monitoring of risk profiles by 
regulators and regulated entities through the use of unique 
identifiers; and improved regulatory oversight and more robust data 
management systems.\399\ The Commission also identified two main areas 
where costs may be incurred: recordkeeping and reporting.\400\
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    \398\ In 2012, the Commission provided a detailed cost-benefit 
discussion on its final swap reporting rules to ensure that market 
participants reported cleared and uncleared swaps to SDRs. See 77 FR 
at 2176-2193 (Jan. 13, 2012). In 2012, the Commission also issued 
final rules for reporting pre-enactment and transition swaps. See 
generally Swap Data Recordkeeping and Reporting Requirements: Pre-
Enactment and Transition Swaps, 77 FR 35200 (June 12, 2012). In 
2016, the Commission amended its regulations to clarify the 
reporting obligations for DCOs and swap counterparties with respect 
to cleared swaps. See generally Amendments to Swap Data 
Recordkeeping and Reporting Requirements for Cleared Swaps, 81 FR 
41736 (June 27, 2016).
    \399\ See, e.g., 77 FR at 2176-2193 (Jan. 13, 2012); 77 FR at 
35217-35225 (June 12, 2012); 81 FR at 41758-41770 (June 27, 2016).
    \400\ See, e.g., id.
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    Based on its experience with swap data and extensive feedback from 
market participants, the Commission believes improving data quality 
will significantly enhance the utility of the swap data while also 
reducing burdens on reporting entities and SDRs through harmonizing, 
streamlining, and clarifying data requirements. In this release, the 
Commission focuses on the swap data reporting workflows, the swap data 
elements reporting counterparties report to SDRs, and the validations 
SDRs apply to help ensure the swap data they receive is accurate. The 
Commission is also modifying several other regulations for clarity and 
consistency.
    Three SDRs are currently provisionally registered with the 
Commission: CME, DTCC, and ICE. The changes the Commission is adopting 
should apply equally to all three SDRs. The current reporting 
environment also involves third-party service providers that help 
market participants fulfill their reporting requirements, though the 
reporting requirements do not apply directly to them. The Commission 
estimates that third-party service providers do not account for a large 
portion of the overall record submissions to SDRs, but provide an 
important service for entities that use them.
    Finally, the current reporting environment depends on reporting 
counterparties. The Commission estimates reporting counterparties 
include 107 provisionally registered SDs, 24 SEFs, 3 DCMs, 13 DCOs, and 
approximately 1,585 non-SD/MSP/DCO reporting counterparties. Each of 
these reporting counterparty types varies as to size and activity. The 
Commission believes most SDs and nearly all SEFs, DCMs, DCOs, and SDRs 
have sophisticated technology dedicated to data reporting because of 
the frequency with which they enter into or facilitate swaps execution 
or accept swap data from reporting entities. The Commission also 
believes these entities have greater access to resources to update 
these systems as regulatory requirements change. Further, the 
Commission estimates that SDs will incur much of the costs and benefits 
associated with the Commission's changes, given they are the most 
sophisticated participants with the most experience reporting under the 
EU and U.S. reporting regimes. For instance, SDs accounted for

[[Page 75551]]

over 70% of records submitted to SDRs in December 2019.\401\
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    \401\ Analyzing SDR data from December 2019, CFTC staff found 
over 70% of all records submitted to the SDRs came from SDs. Between 
15% and 20% came from DCOs, 4% came from SEFs, and the remaining 
came from non-SD reporting counterparties.
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    Non-SD/MSP/DCO reporting counterparties account for a small 
fraction of SDR reports. The Commission believes there is a wide 
variation in the reporting systems maintained by these entities and the 
resources available to them. These reporting counterparties can be 
large, sophisticated financial entities, including banks, hedge funds, 
and asset management firms, but a significant number are smaller, less-
sophisticated swap end-users entering into swaps less frequently to 
hedge commercial risk.
    The Commission has a significant interest in ensuring these 
smaller, less-sophisticated entities can access the U.S. swaps market 
without unnecessary costs or burdens, but the Commission has difficulty 
accurately estimating the cost impact of the changes on them. The 
challenge stems from the wide range of complexity of firms in this 
group: A large asset manager with billions of dollars in assets under 
management and a large swaps portfolio could have a reporting system as 
complex and sophisticated as an SD while a small hedge fund with a 
limited swaps portfolio might rely on third-party service providers to 
handle its reporting obligations. Commenters did not provide 
information to help the Commission quantify the costs to these smaller 
entities, notwithstanding the Proposal's request for data and other 
information to assist the Commission's quantification effort.\402\
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    \402\ 85 FR at 21628 (Apr. 17, 2020).
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    Swap data reports submitted under the existing regulations have 
posed data quality challenges. For example, the existing appendix 1 to 
part 45 provides no standards, formats, or allowable values for the 
swap data that reporting counterparties report to SDRs and there is no 
technical specification or other guidance associated with the existing 
rule. Since the industry has not identified a standard for all market 
participants to use, market participants have reported information in 
many different ways, often creating difficulties in data harmonization, 
or even identification, within and across SDRs.
    It is not uncommon for Commission staff to find discrepancies 
between open swaps information available to the Commission and swap 
transaction data reported for the same swaps. In the processing of swap 
data to generate the CFTC's Weekly Swaps Report,\403\ for example, 
there are instances when the notional amount differs between the 
Commission's open swaps information and the swap transaction data 
reported for the same swap. While infrequent errors can be expected, 
the wide variation in standards among SDRs has increased the challenge 
of swap data analysis and often has required significant data cleaning 
and data validation prior to any data analysis effort. This has meant 
that the Commission has, in some but not all cases, determined that 
certain data analyses were not feasible, harming its ability to oversee 
market activity.
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    \403\ See CFTC's Weekly Swaps Report, available at https://www.cftc.gov/MarketReports/SwapsReports/index.htm.
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    In addition to the lack of standardization across SDRs, the 
Commission is concerned the current timeframes for reporting swap data 
may have contributed to the prevalence of errors. Common examples of 
errors include incorrect references to underlying currencies, such as a 
notional value incorrectly linked to U.S. dollars instead of Japanese 
Yen. Among others, these examples strongly suggest a need for 
standardized, validated swap data as well as additional time to review 
the accuracy of the data report.
    Based on its experience with data reporting, the Commission is 
amending certain regulations, particularly in parts 45, 46, and 49, to 
improve swap data accuracy and completeness. This release also adopts 
one amendment to part 49 to improve the process for an SDR's withdrawal 
from registration. Many of the final regulations have costs and 
benefits that must be considered. The Commission discusses these below.
    The Commission summarizes the amendments \404\ and identifies and 
discusses the costs and benefits attributable to the amendments below. 
Where significant software development costs are expected, CFTC staff 
estimated the hourly wages market participants will likely pay software 
developers to implement each change to be between $48 and $101 per 
hour.\405\ Relevant amendments below will list a low-to-high range of 
potential cost as determined by the number of developer hours estimated 
by technical subject matter experts (``SMEs'') in the Commission's 
Office of Data and Technology. The Commission did not receive any 
comments on its hourly wage estimates. Finally, the Commission 
considers the costs and benefits of all of the amendments jointly in 
light of the five public interest considerations in CEA section 15(a).
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    \404\ As described throughout this release, the Commission is 
adopting a number of non-substantive changes, such as renumbering 
provisions and modifying the wording of existing provisions. The 
Commission may acknowledge these non-substantive amendments, but 
they present no costs or benefits to consider.
    \405\ Hourly wage rates came 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 CFTC has used for 
similar purposes in other final rules adopted under the Dodd-Frank 
Act. See, e.g., 77 FR at 2173 (using an adjustment factor of 1.3 for 
overhead and other benefits). These estimates are intended to 
capture and reflect U.S. developer hourly rates market participants 
are likely to pay when complying with the changes. Individual 
entities may, based on their circumstances, incur costs 
substantially greater or less than the estimated averages.
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3. Baselines
    There are multiple baselines for the costs and benefits that might 
arise from the regulations in this release. The Commission believes the 
baseline for measurement of costs and benefits attributable to the 
amendments to Sec. Sec.  45.3, 45.4, 45.5, 45.6, 45.10, 45.12, 46.3, 
46.10, 46.11, and 49.4 are the costs and benefits realized under 
current regulations, as discussed above in sections II, III, and IV. 
The baseline for Sec.  49.10 is current practice, which is that SDRs 
may be performing validations according to their own specifications, as 
discussed above in section IV.C.
4. General Cost-Benefit Comments
    The Commission received no comments on the general costs and 
benefits of the Proposal overall. The Commission received a few 
comments on the costs and benefits of the proposed amendments to 
individual sections, which are discussed in the relevant sections 
below. To the extent the Commission did not receive comments objecting 
to the Proposal's general cost-benefit consideration, or to its cost-
benefit consideration of specific sections, the Commission views the 
absence of comment as affirmation that the Proposal's consideration of 
costs and benefits was sound, unless otherwise stated below.
    The Commission also notes, with one exception discussed in section 
VII.C.5.a below, it did not receive specific data or information 
regarding costs and benefits from commenters in response to its 
requests for such information in the Proposal.\406\ The Commission 
therefore did not receive additional information

[[Page 75552]]

making it reasonably feasible for the Commission to quantify overall 
costs and benefits, or costs and benefits for specific proposed 
amendments, to a degree beyond that presented in the Proposal, except 
as otherwise noted below.
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    \406\ See 85 FR at 21628 (Apr. 17, 2020).
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5. Costs and Benefits of Amendments to Part 45
a. Sec.  45.3--Swap Data Reporting: Creation Data
    The Commission is changing Sec.  45.3 to (i) remove the requirement 
for SEFs, DCMs, and reporting counterparties to report separate PET and 
confirmation data reports; (ii) extend the deadline for reporting 
required swap creation data and allocations to T+1 or T+2, depending on 
the reporting counterparty; (iii) remove the requirement for SDRs to 
map allocations; and (iv) remove the international swap reporting 
requirements.
    The Commission believes: (i) Single required creation data report 
will reduce complexity for reporting counterparties, as well as for the 
Commission; (ii) extending the deadline to report required swap 
creation data and allocations will improve data quality without 
impacting the Commission's ability to perform its regulatory 
responsibilities; (iii) the requirements for SDRs to map allocations 
and the international swap requirements are unnecessary.
    The Commission is also updating the swap data elements in appendix 
1, which existing and amended Sec.  45.3 require SEFs, DCMs, and 
reporting counterparties report to SDRs in the manner provided in Sec.  
45.13(b).\407\ The Commission believes this will improve data quality 
at SDRs and help market participants by removing ambiguity around what 
data they need to report to SDRs.
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    \407\ The Commission is moving Sec.  45.13(b) to Sec.  
45.13(a)(3) and updating the reference in Sec.  45.3.
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i. Benefits
    Requiring a single confirmation data report for SEFs, DCMs, and 
reporting counterparties will benefit SDRs, SEFs, DCMs, and reporting 
counterparties by reducing the number of swap data reports being sent 
to and stored by SDRs. An analysis of SDR data by Commission staff 
found this change is likely to significantly reduce reported messages, 
which benefits the reporting parties sending data, and the SDRs who 
ingest, validate and store the data. The analysis showed 26% of all 
swap messages received by the Commission from DTCC, ICE, and CME in 
December of 2019 (48 million records in total) were separate PET and 
confirm messages, which means this amendment could reduce overall 
messages reported to and stored by SDRs by approximately 13% overall.
    Extending the deadline to report required swap creation data will 
benefit SDRs, SEFs, DCMs, and reporting counterparties by giving SEFs, 
DCMs, and reporting counterparties more time to report swap data to 
SDRs, likely reducing the number of errors SDRs would need to follow-up 
on with reporting entities. Since reporting data ASATP requires 
reporting systems to monitor activity and report in real-time, the new 
deadline will also benefit SDRs, SEFs, DCMs, and reporting 
counterparties by allowing them to implement a simpler data reporting 
workflow that assembles and submits data once per day.
    Removing the requirements to map allocations and international 
swaps will benefit SDRs by removing the need to manage separate 
processes to maintain this information. SEFs, DCMs, and reporting 
counterparties will benefit from reporting allocations directly via 
swap data reporting, and no longer reporting information about 
international swaps that will be rendered unnecessary given the UTI 
standards.
    Through updating and further specifying the swap data elements 
required to be reported to SDRs, the Commission will benefit from 
having swap data that is more standardized, accurate, and complete 
across SDRs. As discussed in section V above, the Commission's use of 
the data to fulfill its regulatory responsibilities has been 
complicated by varying degrees of compliance with swap data standards 
both within and across SDRs.
ii. Costs
    The Commission expects the initial cost of updating systems to 
adopt the changes in Sec.  45.3--outside of updating the data elements 
in appendix 1--to be small.\408\ Most SEFs, DCMs, and reporting 
counterparties should have systems to report swap data to SDRs ASATP 
after execution, as well as systems that report separate PET and 
confirmation swap reports and information about international swaps. 
SDRs likewise have systems to accept both PET data and confirmation 
data reports, possibly separately or combined, as well as systems to 
map allocations and ingest information about international swaps.
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    \408\ The Commission estimates for PRA purposes that there would 
be a decrease in the burden incurred by reporting counterparties, as 
discussed in the PRA estimates.
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    In both cases, the changes will reduce complexity and software 
functionality. Reporting entities will no longer have to generate and 
submit multiple messages, which will require limited cost and effort to 
implement. SDRs will also require few, if any, updates to ingest fewer 
messages and will see data storage costs decline over time.
    The Commission expects market participants to further mitigate 
costs by the fact they involve updates to current systems, rather than 
having to create new systems as most firms had to do when the CFTC 
first required swaps reporting. CFTC SMEs estimate the cost of these 
changes to be small, but not zero, for large reporting entities and 
SDRs due to the reduction in complexity and system features. However, 
over time, after entities implement these one-time system updates, the 
Commission expects SDRs, SEFs, DCMs, and reporting counterparties will 
recognize significant benefits through reduced costs and complexity 
associated with reporting streamlined data to SDRs.
    The Commission received comments supporting its expectation that 
the changes to Sec.  45.3 will improve data quality and reduce 
compliance and cost burdens. Specifically, DTCC believes these changes 
will improve data quality by reducing the number of corrections sent to 
the SDRs and streamline reporting for market participants.\409\ ISDA-
SIFMA believe the extended timeline for reporting swap data will 
improve data quality \410\ and CEWG comments that these changes will 
reduce the compliance burden on market participants.\411\ The 
Commission requested comments on the proposed cost-benefit analysis for 
Sec.  45.3, but did not receive any providing data, significant cost-
benefit alternatives, or opposing views on the costs and benefits.
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    \409\ DTCC at 5.
    \410\ ISDA-SIFMA 5-7.
    \411\ CEWG at 2.
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    Conversely, the Commission expects SEFs, DCMs, SDRs, and reporting 
counterparties will incur greater costs in response to the changes to 
the appendix 1 data elements in order to comply with Sec.  45.3. Beyond 
the changes to appendix 1, the Commission expects SEFs, DCMs, SDRs, and 
reporting counterparties will update systems according to DMO's 
technical specification on website at www.cftc.gov, resulting in 
additional costs, even though the technical specifications help these 
entities

[[Page 75553]]

implement reporting for the data elements in appendix 1.
    The three SDRs will need to update their systems to accept the 
updated swap data elements in appendix 1. SEFs, DCMs, and reporting 
counterparties will need to update systems to report the swap data 
elements in appendix 1 to SDRs. SDRs will also need to update systems 
to validate swap data pursuant to the validations requirements in Sec.  
49.10(c). The costs are likely to differ across entities but, depending 
on current systems, as indicated in the estimates detailed below, could 
be significant, before accounting for likely mitigating factors, also 
discussed below.
    The Commission believes some factors will mitigate the costs to 
these entities. First, most of the swap data the Commission is further 
standardizing with updated appendix 1 is currently being reported to 
SDRs. Commission staff recognizes that data quality has improved over 
the past years as SDRs adopted more technical standards on their own. 
However, for certain assets classes, the Commission expects the changes 
from current practice could be more pronounced. Costs to standardize 
data elements that had not previously been standardized in certain 
asset classes like commodities, or adding new data elements would be 
costlier; although the reporting entity could mitigate costs if it 
already saves this information but either does not currently send it to 
an SDR or sends it in a non-standard format.
    To the extent SDRs operate in multiple jurisdictions, ESMA already 
requires many of the swap data elements the Commission is adopting. An 
SDR presumably will spend fewer resources updating its systems for the 
changes in appendix 1 if it has already made these changes for European 
markets. Similarly, SEFs, DCMs, and reporting counterparties reporting 
to European TRs may have to spend fewer resources.
    Additionally, after the updates are made, the Commission expects 
SDRs, SEFs, DCMs, and reporting counterparties will see an offsetting 
reduction in costs through reporting a more streamlined data set than 
what is currently being reported to SDRs. In addition, entities 
reporting in multiple jurisdictions will be able to report more 
efficiently as jurisdictions adopt the CDE Technical Guidance data 
elements.
    Finally, the changes adopted to the swap data elements makes the 
part 43 swap transaction and pricing data elements a subset of the part 
45 swap data elements. This means the changes to parts 43 and 45 will 
require technological changes that could merge two different data 
streams into one. For example, SDRs will have to adjust their 
extraction, transformation, and loading (``ETL'') process to accept 
feeds that comply with the new technical specification and validation 
conditions, but these changes will apply to data elements in both parts 
43 and 45.
    Because many of the changes SDRs will make to comply with part 45 
will likely also help them comply with part 43, the Commission 
anticipates significantly lower aggregate costs for complying with both 
rules relative to the costs for parts 43 and 45 separately. For this 
reason, the costs described below may most accurately represent the 
full technological cost of satisfying the requirements for both final 
rules but for purposes of this section focus on the part 45 swap data 
elements.
    Based on conversations with ODT SMEs experienced in designing data 
reporting, ingestion, and validation systems, Commission staff 
estimates the cost per SDR to be in a range of $144,000 to 
$505,000.\412\ Staff based this estimate on several assumptions and 
covers the set of tasks required for an SDR to design, test, and 
implement a data system based on the list of swap data elements in 
appendix 1 and the technical specification.\413\ These numbers assume 
that each SDR will spend approximately 3,000-5,000 hours to establish 
ETL processes into a relational database on such a data stream.\414\
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    \412\ To generate the included estimates, a bottom-up estimation 
method was used based on internal CFTC expertise. In brief, and as 
seen in the estimates, staff anticipates the task for the SDRs will 
be significantly more complex than it is for reporters. On several 
occasions, the CFTC has developed an ETL data stream similar to the 
parts 43 and 45 data streams. These data sets consist of 100-200 
data elements, similar to the number of data elements in appendix 1. 
This past Commission experience has been used to derive the included 
estimates.
    \413\ These assumptions include: (1) At a minimum, the SDRs will 
be required to establish a data extraction transformation and 
loading (ETL) process. This implies that either the SDR is using a 
sophisticated ETL tool, or will be implementing a data staging 
process from which the transformation can be implemented. (2) The 
SDR would require 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) The SDR would need to implement a data 
validation regime typical of data sets of this size and magnitude. 
(5) 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.
    \414\ The lower estimate of $144,000 represents 3,000 working 
hours at the $48 rate. The higher estimate of $505,000 represents 
5,000 working hours at the $101 rate.
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    For reporting entities, the Commission estimates the cost per 
reporting entity to be in a range of $24,000 to $73,225.\415\ This cost 
estimate is based on several assumptions and covers a number of tasks 
required by the reporting entities to design, test, and implement an 
updated data system based on the swap data elements, technical 
specification, and validation conditions.\416\ These tasks include 
defining requirements, developing an extraction query, developing an 
interim extraction format (e.g., comma-separated values (``CSV'')), 
developing validations, developing formatting conversions, developing a 
framework to execute tasks on a repeatable basis, and finally, 
integration and testing. Staff estimates it would take a reporting 
entity 200 to 325 hours to implement the extraction. Including 
validations and conversions would add another 300 to 400 hours, 
resulting in an estimated total of 500 to 725 hours per reporting 
entity.\417\
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    \415\ To generate the included estimates, a bottom-up estimation 
method was used based on internal CFTC expertise. On several 
occasions, the CFTC has created data sets transmitted to outside 
organizations. These data sets consist of 100-200 data elements, 
similar to the number of data elements in appendix 1. This past 
experience has been used to derive the included estimates.
    \416\ These assumptions include: (1) The data that will be 
provided to the SDRs from this group of reporters largely exists in 
their environment. 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; it is 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; and (5) there is no cost to disable 
reporting streams that will be made for obsolete by the change in 
part 43.
    \417\ The lower estimate of $24,000 represents 500 working hours 
at the $48 rate. The higher estimate of $73,225 represent 725 
working hours at the $101 rate.
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    The Commission received one comment, from CME, addressing these 
estimates.\418\ CME notes it expects the costs for its organization to 
be 8,000 to 10,000 developer hours, which is approximately double the 
3,000 to 5,000 developer-hour estimate listed above. The costs CME 
references are specific to its organization. The costs may not directly 
apply to other SDRs and do not apply to the reporting counterparties, 
but provide useful information on the level of effort needed to comply 
with these amendments. Accordingly, the

[[Page 75554]]

Commission deems it appropriate to expand the range of potential costs 
per SDR before mitigation upwards to between $144,000 and $1,010,000 
for purposes of its cost-benefit assessment. Additionally, CME 
acknowledges they expect maintenance costs to decline over time due to 
the streamlined reporting requirements. The Commission did not receive 
any other comments related to the amendments to the data elements in 
appendix 1 that provided additional data, significant cost-benefit 
alternatives, or other opposing or critical views.
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    \418\ CME at 22.
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    In sum, for reasons discussed above and taking into account 
relevant comments, the Commission believes the expected benefits 
justify the final rule amendments notwithstanding their expected 
mitigated costs.\419\
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    \419\ Note the costs associated with reporting daily collateral 
and margin information required by Sec.  45.4 for SD/MSP/DCO 
reporting counterparties as detailed in section VII.C.5.b.ii are 
fully reflected in the costs detailed in this section.
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b. Sec.  45.4--Swap Data Reporting: Continuation Data
    The Commission is amending Sec.  45.4 to (i) remove the option for 
state data reporting; (ii) extend the deadline for reporting required 
swap continuation data to T+1 or T+2; (iii) remove the requirement for 
non-SD/MSP/DCO reporting counterparties to report valuation data 
quarterly; and (iv) require SD/MSP reporting counterparties to report 
margin and collateral data daily.
    The Commission believes: (i) Removing state data reporting will 
reduce the number of messages being sent to and stored by SDRs; (ii) 
extending the deadline to report required swap continuation data will 
improve data quality without impacting the Commission's ability to 
perform its regulatory responsibilities; (iii) removing the valuation 
data reporting for non-SD/MSP/DCO reporting counterparties will reduce 
burdens for these counterparties, which tend to be smaller and less 
active in the swaps market; and (iv) requiring SD/MSP reporting 
counterparties to report margin and collateral daily is reasonable 
given the sophistication of their trading and reporting systems, 
especially on a T+1 timeline, and essential for the Commission to 
monitor risk.
i. Benefits
    Removing state data reporting will benefit reporting counterparties 
by reducing the number of messages they report to SDRs. This will also 
benefit SDRs by reducing the number of messages they need to ingest, 
validate, process, and store. In 2019, CFTC staff estimates the 
Commission received over 557 million swap messages from CME, DTCC, and 
ICE. Staff analysis from December 2019 shows over 50% of all records 
submitted were state data messages.
    Extending the deadline to report required swap continuation data 
will benefit SDRs and reporting counterparties by reducing the number 
of validation errors SDRs must notify reporting counterparties about. 
Removing the requirement for non-SD/MSP/DCO reporting counterparties to 
report quarterly valuation data will reduce reporting costs for these 
estimated 1,585 counterparties, which tend to be smaller and less 
active in the swaps market. Because of their size, the Commission does 
not expect the lack of valuation data to inhibit the Commission's 
market oversight responsibilities.
    ISDA-SIFMA note approximately 98% of uncleared swaps involve at 
least one SD. As such, this change will affect 2% of reported swaps, 
which they agree do not present systemic risk issues.\420\ Requiring 
SD/MSP reporting counterparties to report margin and collateral daily 
will benefit the swaps market by improving the Commission's ability to 
monitor swap markets and systemic risk within and across markets, 
particularly for uncleared swaps. In contrast, because existing part 45 
reports do not include collateral information, while the Commission is 
often able to identify the level of risk inherent to a swap (or set of 
swaps), it may not fully understand the amount of collateral protection 
a counterparty holds to mitigate this risk.
---------------------------------------------------------------------------

    \420\ ISDA-SIFMA at 8.
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ii. Costs
    The Commission expects the initial costs of updating systems to 
adopt the changes in Sec.  45.4 to range from low to moderate, offset 
by the decreased reporting burden for all reporting entities.\421\ For 
instance, the Commission understands many reporting counterparties have 
systems to report swap data, including snapshot data, to SDRs according 
to the current timelines. Extending the deadline reduces some of this 
complexity and removes a message type that accounts for over 50% of the 
existing message traffic, which will significantly reduce reporting 
burdens. Based on CFTC SME experience with similar systems, SDRs should 
require minimal updates to their systems that accept snapshot data and 
should ultimately experience reduced data storage costs.
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    \421\ The Commission estimates for PRA purposes that there would 
be a moderate increase in the burden incurred by market 
participants, as discussed in the PRA section.
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    Non-SD/MSP/DCO reporting counterparties will need to update their 
systems to stop sending valuation data to SDRs. In contrast, SD/MSP 
reporting counterparties will need to program systems to begin 
reporting margin and collateral data in addition to valuation data. The 
T+1 reporting timeline mitigates this by allowing end-of-day data 
integration and validation processes as opposed to near-real-time 
integration, which, according to CFTC SMEs and staff conversations with 
industry participants, provides flexibility in how and when system 
resources are used to produce the reports and better aligns trade and 
collateral and margin data reporting streams. The Commission 
understands SD/MSP reporting counterparties currently have access to 
the data they need to report collateral and margin data and the costs 
lie in integrating that information with the swap data reporting 
stream. The cost of implementing these changes is expected to be fully 
contained in and a subset of the costs associated with implementing the 
updated data elements in appendix 1 detailed in section VII.C.5.a 
above. As a result, the Commission expects the cost of reporting daily 
collateral and margin data for SD/MSP reporting counterparties on a T+1 
basis to be fully encapsulated by the effort to implement the updated 
data elements in appendix 1.
    Additionally, over time, after these one-time system updates, the 
Commission expects SDRs, SEFs, DCMs, and reporting counterparties will 
recognize the full benefits of the reduced costs associated with 
reporting streamlined data to SDRs in a more reasonable time frame. 
While the Commission understands reporting margin and collateral data 
to SDRs will likely involve costs for the estimated 107 SD/MSP 
reporting counterparties, it is unlikely to occasion significant, if 
any material, additional costs for the SDRs serving EU jurisdictions. 
This is because ESMA currently requires the reporting of much of the 
same information to EU-registered TRs.
    The Commission expects this could also mitigate the costs for most 
of the 107 SD/MSP reporting counterparties given that they are likely 
active in European swap markets and thus already comply with similar 
requirements. The Commission also expects, for the smaller remaining 
group of reporting entities not active in European swaps markets, each 
entity already has access to the collateral and margin information. 
Accordingly, for

[[Page 75555]]

them, the primary cost will be in integrating existing collateral data 
streams into SDR reporting workflows, which is less costly and 
burdensome than acquiring additional or outside data to integrate. CFTC 
SMEs estimate the cost of these changes to be small to moderate for 
large reporting entities and SDRs due to the reduction in complexity 
and system features, as well as the extended timeline to integrate 
potentially disparate data streams.
    The Commission received comments supporting its expectation these 
amendments will benefit the market and mitigate costs incurred. FIA 
agrees the quarterly valuation data reported by non-SD/MSP/DCO 
reporting counterparties is not integral to the CFTC's systemic risk 
monitoring and the benefit of collecting this data do not justify the 
cost incurred by the impacted market participants.\422\ CEWG believes 
the burden of collecting the quarterly valuation data is not 
proportional to the limited value the data provides.\423\ Additionally, 
IECA notes many small counterparties contract with third-party 
reporting services to report the required quarterly valuations and the 
value derived from the data does not justify the cost.\424\
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    \422\ FIA at 14.
    \423\ CEWG at 2.
    \424\ IECA at 3.
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    The Commission received 12 comments related to the daily collection 
of collateral and margin data from SD/MSP/DCO counterparties, with four 
in favor and eight opposed. Of the supportive comments, Markit 
addresses the expected costs by noting the daily submission of both 
cleared and uncleared collateral and margin data is more streamlined 
and efficient (and therefore cost-effective) than making reporting for 
cleared trades optional.\425\ Other supportive commenters emphasize the 
need to harmonize collateral and margin data elements to the greatest 
extent possible across jurisdictions in order to not create unnecessary 
costs for market participants.\426\ Several of the opposing comments 
note the additional regulatory costs associated with reporting 
collateral and margin data,\427\ which as noted above is mitigated by 
the T+1 reporting deadline.
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    \425\ Markit at 6.
    \426\ FXPA at 4-5.
    \427\ See, e.g., CEWG at 8 and Eurex at 3.
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    CME, Eurex, ICE DCOs, ISDA-SIFMA, and FIA raise concerns about 
duplicative reporting for DCOs regarding cleared swaps. Further, as 
noted in section II.D.4 above, the Commission acknowledges these 
concerns but believes the costs are warranted for uncleared swaps 
reported by SD/MSP reporting counterparties, as this information is not 
available elsewhere and is critical for monitoring systemic risk. For 
cleared swaps reported by DCOs, however, the Commission acknowledges 
the potential duplication with collateral and margin data reported by 
DCOs pursuant to part 39. While collateral and margin data is reported 
pursuant to part 39 using a different set of data elements than those 
contained in appendix 1, and collateral and margin data is reported for 
end-of-day positions pursuant to part 39 as opposed to a more granular 
transaction-by-transaction basis pursuant to part 45, the Commission 
believes the collateral and margin data reported by DCOs pursuant to 
part 39 is sufficiently similar to data reported pursuant to part 45 to 
meet the Commission's current needs.
    In sum, for reasons discussed above and taking into account 
relevant comments, the Commission believes the expected benefits 
justify the final rule amendments notwithstanding their expected 
mitigated costs.
c. Sec.  45.5--Unique Swap Identifiers
    The Commission is amending Sec.  45.5 to (i) require reporting 
parties use UTIs instead of USIs for new swaps; (ii) require financial 
entities to generate UTIs for off-facility swaps; and (iii) permit non-
SD/MSP/DCO reporting counterparties that are not financial entities to 
generate UTIs themselves or ask their SDR to generate UTIs for off-
facility swaps. In general, the Commission believes transitioning to 
the globally standardized UTI system will benefit SDRs, SEFs, DCMs, and 
reporting counterparties by reducing the complexity associated with 
reporting swaps to multiple jurisdictions.
i. Benefits
    The Commission believes amending Sec.  45.5 will benefit SDRs by 
providing one identifier for multiple regulators to adopt to reduce the 
burdens associated with multiple jurisdictions requiring different, and 
possibly conflicting, identifiers. The Commission believes requiring 
SD/MSP and other financial entity reporting counterparties to generate 
UTIs for off-facility swaps will benefit SDRs by reducing the frequency 
with which they would be responsible for UTI generation, as compared to 
the current frequency with which they generate USIs.
    The Commission believes permitting non-SD/MSP/DCO reporting 
counterparties that are not financial entities to either generate UTIs 
or ask their SDR to generate UTIs for off-facility swaps will benefit 
smaller, less-active swaps market participants by relieving them of the 
burden to generate UTIs unless they choose to do so. Non-financial 
entities may include end-users more likely to not maintain systems that 
automatically generate UTIs. Therefore, this group will benefit 
proportionally more from this change.
    Permitting these entities to ask the SDRs to generate UTIs will 
maintain, but lower, an ancillary cost for the three SDRs that are 
currently required to generate USIs for off-facility swaps with non-SD/
MSP reporting counterparties. The Commission believes giving these 
reporting counterparties the option, rather than a mandate, strikes the 
appropriate balance between avoiding undue costs for SDRs and 
significant burdens for the least-sophisticated market participants.
ii. Costs
    In general, the Commission expects the initial costs of updating 
systems to adopt UTIs will be small to moderate for most reporting 
entities and SDRs.\428\ For instance, the Commission expects reporting 
counterparties and SDRs have systems that generate, report, accept, 
validate, process, and store USIs. CFTC SMEs estimate the cost of these 
changes to be small for large reporting entities and small to moderate 
for SDRs. However, over time, the Commission expects market 
participants will recognize the reduced costs associated with reporting 
a globally-standardized UTI.
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    \428\ The Commission estimates for PRA purposes that there would 
be a moderate increase in the burden incurred by market 
participants, as discussed in the PRA section.
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    In addition, the Commission understands ESMA mandates UTIs. The 
Commission views this as a significant mitigating factor when assessing 
what, if any, additional burden SDRs serving multiple jurisdictions as 
well as reporting counterparties active in the European markets, will 
experience, since they have likely already updated their systems to 
meet the European standards.
    Commenters support the Commission's expectation implementing the 
global standard would streamline reporting across jurisdictions, reduce 
costs overall, and benefit markets by facilitating more accurate global 
swap data aggregation.\429\ LCH notes implementing the UTI will reduce 
cross-border reporting complexity, further

[[Page 75556]]

encouraging global aggregation.\430\ Many commenters also support 
expanding the ability to generate UTIs to non-SD/MSP/DCO reporting 
counterparties that are not financial entities for off-facility swaps 
since they are in the best position to collect the required information 
(such as the LEI) from the non-reporting counterparty \431\ and it 
removes a disparity between trade identifiers used by internal record-
keeping systems and data reported to SDRs.\432\
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    \429\ GLEIF at 3; see also GFXD at 22-23.
    \430\ LCH at 3.
    \431\ DTCC at 5.
    \432\ CME at 16.
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    Some commenters disagree with keeping SDRs as the UTI ``generator 
of last resort.'' \433\ However, other commenters recognize the need 
for it in some cases.\434\ Further, keeping SDRs at the bottom of the 
UTI generation hierarchy is consistent with the UTI Technical Guidance 
and is currently required by the Commission's regulations.
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    \433\ CME at 16-17, DTCC at 5, and ICE SDR at 5.
    \434\ Chatham at 3.
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    In sum, for reasons discussed above and taking into account 
relevant comments, the Commission believes the expected benefits 
justify the final rule amendments notwithstanding their expected 
mitigated costs.
d. Sec.  45.6--Legal Entity Identifiers
    The Commission is amending Sec.  45.6 to (i) require SDs, MSPs, 
DCOs, SEFs, DCMs, and SDRs to maintain and renew LEIs; (ii) require 
financial entity reporting counterparties to use best efforts to cause 
LEIs to be issued for swap counterparties that do not have one and if 
those efforts fail, to promptly provide the identity and contact 
information of the counterparty to the Commission; and (iii) update 
unnecessary and outdated regulatory text. The Commission believes 
accurate LEIs are essential for the Commission to use swap data to 
fulfill its regulatory responsibilities.
i. Benefits
    Mandating LEI renewal will benefit the swaps market by improving 
the Commission's ability to analyze activity in the swaps market. 
Reference data provide valuable identification and relationship 
information about swap counterparties. Accurate reference data allow 
for robust analysis of risk concentration within and across entities, 
as well as a way to identify the distribution or transfer of risk 
across different legal entities under the same parent. The Commission 
believes accurate reference data is essential for it to satisfy its 
regulatory responsibilities because it clearly identify entities 
involved in the swaps market, as well as how these entities relate to 
one another--both key requirements for monitoring systemic risk and 
promoting fair and efficient markets. In addition, LEIs have already 
been broadly adopted in swaps markets and have reduced ambiguity for 
market participants previously using various unstandardized 
identifiers.
ii. Costs
    LEI renewals will impose some costs.\435\ Currently, the Commission 
understands registering a new LEI costs $65 and renewals cost each 
holder $50 per year.\436\ One comment notes the mitigating fact these 
costs have fallen by more than 50% over the last 5 years due to 
increased efficiency as market adoption increased.\437\ To limit 
burdens, the Commission is limiting the renewal requirement to the 
estimated 150 SDs, MSPs, SEFs, DCMs, DCOs, and SDRs, resulting in an 
aggregate cost of approximately $7,500 for this requirement. The 
Commission believes these entities have the most systemic impact on the 
Commission's ability to fulfill its regulatory mandates and thus 
warrant this small additional cost. The Commission will consider 
expanding the renewal requirement in future releases upon further 
enhancements in LEI reference data or realized reductions in cost to 
LEI holders.
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    \435\ The Commission estimates for PRA purposes that there would 
be a slight increase in the burden incurred by market participants, 
as discussed in the PRA section.
    \436\ LEI registration and renewal costs from Bloomberg LLP, 
retrieved on September 16, 2020. https://lei.bloomberg.com/docs/faq#what-fees-are-involved.
    \437\ GLEIF at 1-2.
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    Requiring financial entities to endeavor to cause LEIs to be issued 
for swap counterparties that do not have one (and, if those efforts 
fail, to report the identity and contact information of the 
counterparty to the Commission) will both further the Commission's 
objective of monitoring risk in the swaps market and incentivize LEI 
registration for counterparties that have not yet obtained LEIs. 
However, the Commission recognizes this requirement imposes some costs 
on both the entity encouraged to obtain an LEI and the financial entity 
in verifying that its counterparties have valid LEIs and encouraging 
them to obtain one (or obtaining an LEI for them) if they do not and 
informing the Commission if the financial entity's efforts fail. As 
mentioned above, the cost to an entity to obtain an LEI is minor, and 
has trended down over time. Further, financial entities collect the 
same information during the onboarding process when entering into a 
swap contract with a new counterparty that is needed to obtain an LEI 
for the counterparty, a mitigating factor for the financial entities to 
the extent they must be required to encourage their counterparties to 
obtain LEIs (or obtain an LEI for them). The cost to notify the 
Commission if the financial entity's efforts fail is also expected to 
be low. The Commission expects both cases to impose a limited burden on 
swaps markets as the widespread adoption of the LEI standard continues.
    The number of current swap counterparties without LEIs is difficult 
to estimate because of the lack of standardization of non-LEI 
identifiers. The Commission cannot determine whether non-LEI 
identifiers represent an entity that has already been assigned an LEI 
or whether two non-LEI identifiers are two different representations of 
the same entity. However, the Commission expects the number of 
counterparties currently without LEIs to be small, given the results of 
an analysis from December 2019 that showed 90% of all records reported 
had LEIs for both counterparties. More generally, any swap data that 
does not identify eligible counterparties with an LEI hinders the 
Commission's fulfillment of its regulatory mandates, including systemic 
risk monitoring. Given the low cost of registering for a new LEI listed 
above, the small number of remaining entities engaging in swap 
transactions without an LEI, and the limited amount of additional 
effort financial entities need to exert so that every LEI-eligible 
counterparty has an LEI, the Commission expects the overall cost of 
this amendment to be minimal.
    The Commission received comments supporting its expectation that 
requiring the most systemically important swaps market participants to 
maintain and renew their LEIs will facilitate better aggregation of 
entities and more accurate analysis of swaps market activity, market 
concentration, risk transfer, and systemic risk. Commenters, including 
DTCC, GLEIF, XBRL, LCH, Chatham, and Eurex, all support the requirement 
for SDs, MSPs, DCOs, SEFs, DCMs, and SDRs to maintain and renew their 
LEIs to ensure their accuracy noting this improves transparency and 
aligns with the global adoption of LEIs.\438\ While the existing 
requirement for all LEI holders to update their LEI reference data 
remains, the Commission believes the confirmation of the

[[Page 75557]]

accuracy of their reference data provided by LEI holders during LEI 
renewal serves as an additional assurance of data quality for the most 
systematically important entities, and therefore warrants the annual 
renewal requirement for SDs, MSPs, DCOs, SEFs, DCMs, and SDRs.
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    \438\ DTCC at 6, GLEIF at 1-2, XBRL at 2, LCH at 3, Chatham at 
3, Eurex at 4.
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    In sum, for reasons discussed above and taking into account 
relevant comments, the Commission believes the expected benefits 
justify the final rule amendments notwithstanding their expected 
mitigated costs.
e. Sec.  45.10--Reporting to a Single SDR
    The Commission is amending Sec.  45.10 to permit reporting 
counterparties to transfer swap data and swap transaction and pricing 
data between SDRs in revised Sec.  45.10(d). To do so, reporting 
counterparties will need to notify the current SDR, new SDR, and non-
reporting counterparty of the UTIs for the swaps being transferred and 
the date of transfer at least five business days before the transfer. 
Reporting counterparties will then need to report the change of SDR to 
the current SDR and the new SDR, and then begin reporting to the new 
SDR. The Commission believes the ability to change SDRs will benefit 
reporting counterparties by permitting them to choose the SDR that best 
fits their business needs.
i. Benefits
    The amendments to Sec.  45.10(d) will benefit reporting 
counterparties by giving them the freedom to select the SDR that 
provides the best services, pricing, and functionality to serve their 
business needs instead of having to use the same SDR for the entire 
life of the swap. The Commission believes reporting counterparties 
could benefit through reduced costs if they had the ability to change 
to an SDR that provided services better calibrated to their business 
needs.
ii. Costs
    The amendments will impose costs on the three SDRs. SDRs will need 
to update their systems to permit reporting counterparties to transfer 
swap data and swap transaction pricing data in the middle of a swap's 
life cycle, rather than at the point of swap initiation. However, the 
Commission believes SDRs will be able to accommodate these changes 
after initial system updates since they are only slightly more 
burdensome than current onboarding practices for new clients at 
SDRs.\439\
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    \439\ The Commission estimates for PRA purposes that there would 
be a minimal increase in the burden incurred by reporting 
counterparties, as discussed in the PRA section.
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    The Commission received comments supporting its expectation that 
market participants will benefit from the flexibility to change SDRs 
and the SDRs themselves will be able to accommodate the changes with 
minimal additional burden.\440\ The Commission requested comments on 
the costs and benefits of the amendments to Sec.  45.10, but did not 
receive any comments that provided additional data, significant cost-
benefit alternatives, or other opposing or critical views on the costs 
and benefits.
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    \440\ GFXD at 24, DTCC at 7.
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    In sum, for reasons discussed above and taking into account 
relevant comments, the Commission believes the expected benefits 
justify the rule amendments notwithstanding their expected mitigated 
costs.
f. Sec.  45.12--Data Reporting for Swaps in a Swap Asset Class Not 
Accepted by Any SDR
    The Commission is removing the Sec.  45.12 regulations permitting 
voluntary supplemental reporting. Existing Sec.