Certain Swap Data Repository and Data Reporting Requirements, 75601-75678 [2020-21570]

Download as PDF 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 75602 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations modify existing requirements for SDRs to establish policies and procedures to confirm the accuracy of swap data with both counterparties to a swap and require reporting counterparties to verify the accuracy of swap data pursuant to those SDR procedures. The amendments also update existing requirements related to corrections for data errors and certain provisions related to SDR governance. DATES: Effective date: The effective date for this final rule is January 25, 2021. Compliance date: The compliance date for all amendments and additions under this final rule is May 25, 2022. FOR FURTHER INFORMATION CONTACT: Benjamin DeMaria, Special Counsel, Division of Market Oversight, (202) 418– 5988, bdemaria@cftc.gov; Eliezer Mishory, Special Counsel, Division of Market Oversight, (202) 418–5609, emishory@cftc.gov; Israel Goodman, Special Counsel, Division of Market Oversight, (202) 418–6715, igoodman@ cftc.gov; Mark Fajfar, Assistant General Counsel, Office of the General Counsel, (202) 418–6636, mfajfar@cftc.gov; and Gloria Clement, Senior Special Counsel, Office of the Chief Economist, (202) 418–5122, gclement@cftc.gov; Commodity Futures Trading Commission, Three Lafayette Centre, 1151 21st Street NW, Washington, DC 20581. SUPPLEMENTARY INFORMATION: jbell on DSKJLSW7X2PROD with RULES2 Table of Contents I. Background II. Amendments to Part 49 A. § 49.2—Definitions B. § 49.3—Procedures for Registration C. § 49.5—Equity Interest Transfers D. § 49.6—Request for Transfer of Registration E. § 49.9—Open Swaps Reports Provided to the Commission F. § 49.10—Acceptance of Data G. § 49.11—Verification of Swap Data Accuracy H. § 49.12—Swap Data Repository Recordkeeping Requirements I. § 49.13—Monitoring, Screening, and Analyzing Data J. § 49.15—Real-Time Public Reporting by Swap Data Repositories K. § 49.16—Privacy and Confidentiality Requirements of Swap Data Repositories L. § 49.17—Access to SDR Data M. § 49.18—Confidentiality Arrangement N. § 49.20—Governance Arrangements (Core Principle 2) O. § 49.22—Chief Compliance Officer P. § 49.24—System Safeguards Q. § 49.25—Financial Resources R. § 49.26—Disclosure Requirements of Swap Data Repositories S. § 49.28—Operating Hours of Swap Data Repositories T. § 49.29—Information Relating to Swap Data Repository Compliance VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 U. § 49.30—Form and Manner of Reporting and Submitting Information to the Commission V. § 49.31—Delegation of Authority to the Director of the Division of Market Oversight Relating to Certain Part 49 Matters III. Amendments to Part 45 A. § 45.1—Definitions B. § 45.2—Swap Recordkeeping C. § 45.14—Correcting Errors in Swap Data and Verification of Swap Data Accuracy IV. Amendments to Part 43 § 43.3—Method and Timing for Real-Time Public Reporting A. § 43.3(e)—Correction of Errors B. Removal of § 43.3(f) and (g) V. Amendments to Part 23 § 23.204—Reports to Swap Data Repositories, and § 23.205—Real-Time Public Reporting VI. Compliance Date VII. Related Matters A. Regulatory Flexibility Act B. Paperwork Reduction Act C. Cost-Benefit Considerations D. Antitrust Considerations I. Background Section 727 of the Dodd-Frank Act added section 2(a)(13)(G) to the Commodity Exchange Act (‘‘CEA’’ or ‘‘Act’’), which requires each swap— whether cleared or uncleared—to be reported to an SDR,1 a type of registered entity created by section 728 of the Dodd-Frank Act.2 CEA section 21 3 requires each SDR to register with the Commission and directs the Commission to adopt rules governing SDRs. To register and maintain registration with the Commission, an SDR must comply with specific duties and core principles enumerated in CEA section 21 as well as other requirements that the Commission may prescribe by rule. In particular, CEA section 21(c) mandates that an SDR: (1) Accept data; (2) confirm with both counterparties the accuracy of submitted data; (3) maintain data according to standards prescribed by the Commission; (4) provide direct electronic access to the Commission or any designee of the Commission 1 Section 721 of the Dodd-Frank Act amended section 1a of the CEA to add the definition of SDR. See Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111–203, 124 Stat. 1376 (2010), available at https://www.gpo.gov/fdsys/pkg/ PLAW-111publ203/pdf/PLAW-111publ203.pdf. Pursuant to CEA section 1a(48), the term SDR 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. 7 U.S.C. 1a(48). 2 The Commission notes that there are currently three SDRs provisionally registered with the Commission: CME Inc., DTCC Data Repository (U.S.) LLC (‘‘DDR’’), and ICE Trade Vault, LLC (‘‘ICE’’). 3 7 U.S.C. 24a. PO 00000 Frm 00182 Fmt 4701 Sfmt 4700 (including another registered entity); (5) provide public reporting of data in the form and frequency required by the Commission; (6) establish automated systems for monitoring, screening, and analyzing data (including the use of end-user clearing exemptions) at the direction of the Commission; (7) maintain data privacy; (8) make data available to other specified regulators, on a confidential basis, pursuant to CEA section 8,4 upon request and after notifying the Commission; and (9) establish and maintain emergency and business continuity-disaster recovery (‘‘BC–DR’’) procedures. CEA section 21(f)(4)(C) further requires the Commission to establish additional duties for SDRs to minimize conflicts of interest, protect data, ensure compliance, and guarantee the safety and security of the SDR.5 CEA section 21(b) also directs the Commission to prescribe standards for data recordkeeping and reporting that apply to both registered entities and reporting counterparties.6 Part 49 of the Commission’s regulations implements the requirements of CEA section 21.7 Part 49 sets forth the specific duties an SDR must comply with to be registered and maintain registration as an SDR, including requirements under § 49.11 for an SDR to confirm the accuracy of data reported to the SDR. Since the Commission adopted its part 49 regulations in 2011, Commission staff has led many efforts to evaluate and improve the reporting of swap data and its accuracy. Commission staff leads or participates in several international regulatory working groups concentrating on harmonization of data reporting. Commission staff’s efforts have also included the formation of an interdivisional staff working group to identify, and make recommendations to resolve, reporting challenges associated with certain swap data recordkeeping and reporting provisions.8 The Commission has also requested comments from the public on reporting issues.9 47 U.S.C. 12(e). to this provision, the Commission may develop one or more additional duties applicable to SDRs. 7 U.S.C. 24a(f)(4). 6 See 7 U.S.C. 24a(b)(1)(B). 7 Swap Data Repositories: Registration Standards, Duties and Core Principles, 76 FR 54538 (Sept. 1, 2011) (‘‘Part 49 Adopting Release’’). 8 See Press Release, CFTC to Form an Interdivisional Working Group to Review Regulatory Reporting (Jan. 21, 2014), available at http://www.cftc.gov/PressRoom/PressReleases/ pr6837-14. 9 See, e.g., Review of Swap Data Recordkeeping and Reporting Requirements, Request for Comment, 79 FR 16689 (Mar. 26, 2014). 5 Pursuant E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Based on its efforts, the Commission determined that three conditions work in concert to achieve a higher degree of data accuracy: (i) SDR processes confirming the accuracy of data submitted; (ii) data reconciliation exercises by entities that reported data; and (iii) the prompt reporting of errors and omissions when discovered.10 With the goal of advancing in these three areas to improve data accuracy, Commission staff conducted a comprehensive review of swap reporting regulations and released the Roadmap to Achieve High Quality Swap Data (‘‘Roadmap’’).11 The Roadmap’s overall goals were to improve the quality, accuracy, and completeness of swap data reported to the Commission, streamline swap data reporting, and clarify obligations for market participants.12 Within these overall goals, the Roadmap’s SDR Operations Review aimed to assure a high degree of accuracy of swap data and swap transaction and pricing data,13 improve the clarity and consistency of regulations governing SDRs, and bolster the Commission’s oversight of SDRs. The Roadmap solicited public comment on how to improve data reporting and achieve the Commission’s regulatory goals without imposing unnecessary burdens on market participants. Commission staff received numerous comments in response to the Roadmap that addressed data accuracy and confirmation of data reported to SDRs, among other subjects.14 Based in part on these public comments and the Commission staff’s review of these issues, the Commission issued a notice of proposed rulemaking (‘‘Proposal’’) on May 13, 2019 to address the Roadmap’s SDR Operations Review goals.15 The Proposal was the first of three Roadmap rulemakings that 10 See id. at 16695. CFTC 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/csl/17-33/download; Roadmap to Achieve High Quality Swap Data, available at http://www.cftc.gov/idc/groups/public/@newsroom/ documents/file/dmo_swapdataplan071017.pdf. 12 See id. at 3 (describing the Commission’s goals for the review of reporting regulations). 13 See Roadmap at 6 (stating the Commission’s intent to ‘‘Identify the most efficient and effective solution for swap counterparty(ies) to confirm the accuracy and completeness of data held in an SDR.’’). 14 These comment letters are available at https:// comments.cftc.gov/PublicComments/CommentList. aspx?id=1824. 15 Certain Swap Data Repository and Data Reporting Requirements, 84 FR 21044 (May 13, 2019). jbell on DSKJLSW7X2PROD with RULES2 11 See VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 together aim to achieve the Roadmap’s overall goals.16 In the Proposal, the Commission set forth a new swap data verification regime to replace existing requirements for swap data confirmation and proposed amendments to error correction requirements in parts 43, 45, and 49 of the Commission’s regulations. The primary components of the proposed verification regime included: A requirement for an SDR to regularly distribute to reporting counterparties an open swaps report containing the data maintained by the SDR for a relevant reporting counterparty’s open swaps; a requirement that a reporting counterparty reconcile the data in the open swaps reports with the reporting counterparty’s own data; a requirement that a reporting counterparty provide the SDR with a verification of the data’s accuracy or a notice of discrepancy; and a requirement that, in the event of a discrepancy, a reporting counterparty submit corrected data to the SDR within a specified time frame or, if it is unable to do so, inform Commission staff of the error, its scope, and the reporting counterparty’s initial remediation plan. In this final rulemaking, the Commission has determined to adopt the amendments as proposed, with certain exceptions. The Commission has determined, based, in part, on public comments,17 not to adopt, or to adopt with modifications, certain elements of the Proposal relating to data verification and error correction. More specifically, the final rule eliminates the proposed requirement for an SDR to distribute 16 The other two notices of proposed rulemakings are Amendments to the Real-Time Public Reporting Requirements, 85 FR 21516 (April 17, 2020) and Swap Data Recordkeeping and Reporting Requirements, 85 FR 21578 (April 17, 2020). 17 The Commission received 25 responsive comment letters addressing the Proposal from the following entities: American Public Power Association/Edison Electric Institute/National Rural Electric Cooperative Association (‘‘Joint Associations’’), Chatham Financial (‘‘Chatham’’), Chris Barnard, CME Group Inc. (‘‘CME’’), CME Group Inc./DTCC Data Repository (U.S.) LLC/ICE Trade Vault LLC (‘‘Joint SDR’’), Coalition of Physical Energy Companies (‘‘COPE’’), Commercial Energy Working Group (‘‘CEWG’’), Credit Suisse (‘‘CS’’), Data Coalition, DTCC Data Repository (U.S.) LLC (‘‘DDR’’), Eurex Clearing AG (‘‘Eurex’’), Federal Home Loan Mortgage Corporation (‘‘Freddie Mac’’), Futures Industry Association August 2019 letter (‘‘FIA August’’), Futures Industry Association May 2020 letter (‘‘FIA May’’), Global Financial Markets Association (‘‘GFMA’’), Global Legal Entity Identifier Foundation (‘‘GLEIF’’), ICE Clear Credit LLC/ICE Clear Europe Limited (‘‘ICE Clear’’), ICE Trade Vault (‘‘ICE TV’’), IHS Markit (‘‘Markit’’), Institute for Agriculture and Trade Policy (‘‘IATP’’), International Swaps and Derivatives Association, Inc./Securities Industry and Financial Markets Association (‘‘ISDA/SIFMA’’), Investment Company Institute (‘‘ICI’’), LCH Ltd/LCH SA (‘‘LCH’’), Natural Gas Supply Association (‘‘NGSA’’), and Prudential Global Funding LLC (‘‘Prudential’’). PO 00000 Frm 00183 Fmt 4701 Sfmt 4700 75603 open swaps reports to a reporting counterparty, and the requirement for a counterparty to submit notices of verification or discrepancy in response. Instead, under the final rules, an SDR must provide a mechanism for a reporting counterparty to access swap data maintained by the SDR for the reporting counterparty’s open swaps. Further, the final rules require a reporting counterparty to verify the SDR’s data by using the mechanism provided by the SDR to compare the swap data for open swaps maintained by the SDR with the reporting counterparty’s own books and records for the swap data, and to submit corrected swap data, if necessary, to the SDR. The reporting counterparty must perform the verification at specified intervals and maintain a verification log that sets forth any errors discovered and corrections made by the reporting counterparty. The final rule also extends the time frame within which a reporting counterparty must correct an error or notify the Commission. The Proposal also included various amendments and new regulations aimed at eliminating unduly burdensome requirements, streamlining and consolidating the provisions of part 49 and other Commission regulations applicable to SDRs, and enhancing the Commission’s ability to fulfill its oversight obligations with respect to SDRs. The Commission is generally adopting those rules as proposed, with limited modifications in some cases to address public comments. Additionally, for the reasons discussed below, the Commission has determined not to finalize at this time its proposed amendments to § 49.13 and § 49.22 and its proposed additions to part 23. Where possible, in developing the Proposal and in adopting final rules as set forth herein, the Commission has taken into consideration certain pertinent rules adopted by other regulators, including the European Securities and Markets Authority and the U.S. Securities and Exchange Commission (‘‘SEC’’). This is particularly the case for the SEC’s regulations relating to the registration requirements, duties, and core principles applicable to security-based swap data repositories (‘‘SBSDRs’’) 18 and reporting requirements for securitybased swaps (‘‘SBSs’’) set forth in Regulation SBSR (‘‘Regulation 18 See generally Security-Based Swap Data Repository Registration, Duties and Core Principles, 80 FR 11438 (Mar. 19, 2015). The SEC adopted Rules 13n–1 through 13n–12 (17 CFR 240.13n–1 through 240.13n–12) under the Securities Exchange Act of 1934 (‘‘Exchange Act’’) relating to the registration and operation of SBSDRs. E:\FR\FM\25NOR2.SGM 25NOR2 75604 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations SBSR’’).19 The Commission notes that there are similarities between the regulatory framework for SBSDRs and the SDR regulations that are the subject of this final rulemaking. Finally, the Commission notes that this final rulemaking incorporates lessons learned from the undertakings described above and the best practices of the international regulatory community. II. Amendments to Part 49 A. § 49.2—Definitions 1. General Formatting Changes The Commission proposed a general formatting change to the definitions in § 49.2(a). The defined terms in § 49.2(a) currently are numbered and arranged in alphabetical order. The Commission proposed to remove the numbering while still arranging the terms in § 49.2(a) in alphabetical order. Eliminating the numbering of defined terms in § 49.2(a) will reduce the need for the Commission to make conforming amendments to § 49.2(a) and other regulations when it amends § 49.2(a) in future rulemaking by adding or removing defined terms.20 The Commission did not receive any comments on the proposed formatting changes to § 49.2(a). The Commission is adopting the formatting amendments to § 49.2(a) as proposed, with nonsubstantive editorial changes to conform the format to the current style conventions. jbell on DSKJLSW7X2PROD with RULES2 2. Non-Substantive Amendments to Definitions The Commission proposed nonsubstantive editorial and conforming amendments to certain definitions to provide clarity and for consistency with other Commission regulations.21 The Commission believes the proposed amendments are non-substantive and 19 See generally Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information, 80 FR 14740 (Mar. 19, 2015). The SEC adopted Regulation SBSR (Rules 900 through 909, 17 CFR 242.900 through 909) to create a reporting framework for SBSs. The SEC has also adopted additional regulations regarding the reporting and dissemination of certain information related to SBSs. See generally 81 FR 53546 (Aug. 12, 2016). 20 The Office of the Federal Register prefers the solely alphabetical approach to definitions sections. See Office of the Federal Register, Document Drafting Handbook May 2017 Update, Revision 5, 2–31 (2017) (‘‘Definitions. In sections or paragraphs containing only definitions, we recommend that you do not use paragraph designations if you list the terms in alphabetical order.’’). 21 Other than removing subsection numbering as discussed above in section II.A.1, the Commission did not propose any substantive changes to the definitions of ‘‘affiliate,’’ ‘‘control,’’ ‘‘foreign regulator,’’ ‘‘independent perspective,’’ ‘‘position,’’ or ‘‘section 8 material,’’ as those terms are defined in current § 49.2(a). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 will increase clarity and consistency across the Commission’s regulations. The comments were generally supportive of the Commission’s efforts to streamline definitions and increase consistency.22 The Commission did not receive comments opposed to the proposed amendments described above. The Commission accordingly adopts these amended definitions as proposed. Specifically, the Commission adopts the following amendments to definitions in § 49.2(a): • Asset class: Modify the definition to conform the wording to the definition of ‘‘asset class’’ used in part 43.23 • Commercial use: Modify the definition to use active instead of passive voice, and to change ‘‘use of swap data for regulatory purposes and/ or responsibilities’’ to ‘‘use of SDR data for regulatory purposes and/or to perform its regulatory responsibilities.’’ • Market participant: Change the term ‘‘swaps execution facilities’’ to ‘‘swap execution facilities,’’ to conform to CEA section 5h and other Commission regulations, and make the word ‘‘counterparties’’ singular. • Non-affiliated third party: Clarify paragraph (3) to identify ‘‘a person jointly employed’’ by an SDR and any affiliate. • Person associated with a swap data repository: Clarify that paragraph (3) includes a ‘‘jointly employed person.’’ • Swap data: Modify the definition to more closely match the related definitions of ‘‘SDR data’’ and ‘‘swap transaction and pricing data’’ that are being added to § 49.2(a) and to incorporate the requirements to provide swap data to the Commission pursuant to part 49. The Commission also is removing the word ‘‘capitalized’’ from § 49.2(b), to reflect that most defined terms used in part 49 are not capitalized in the text of part 49. The Commission is also removing the term ‘‘registered swap data repository’’ from the definitions in § 49.2. In the Proposal, the Commission explained that the term ‘‘registered swap data repository’’ is not needed in part 49 because the defined term ‘‘swap data repository’’ already exists in § 1.3.24 The 22 See, e.g., IATP at 4–5. 17 CFR 43.2. 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. 24 See 17 CFR 1.3. Swap data repository is defined as any person that collects and maintains information or records with respect to transactions or positions in, or the terms and conditions of, 23 See PO 00000 Frm 00184 Fmt 4701 Sfmt 4700 definition of ‘‘swap data repository’’ in § 1.3 is identical to the definition contained in CEA section 1a(48).25 This definition of ‘‘swap data repository’’ therefore already applies, and would continue to apply, to part 49 and all other Commission regulations and, when combined with § 49.1,26 removes the need for a separate defined term for ‘‘registered swap data repository.’’ The Commission further explained that the inclusion of the word ‘‘registered’’ in ‘‘registered swap data repository’’ and the definition of the term 27 also may create doubt whether the requirements of part 49 apply to entities that are in the process of registering as SDRs or are provisionally registered as SDRs under the requirements of § 49.3(b).28 The requirements of part 49 apply to provisionally-registered SDRs and any entity seeking to become an SDR must comply with the same requirements in order to become a provisionallyregistered or fully-registered SDR. Finally, the removal of the term ‘‘registered swap data repository’’ would increase consistency in terms within part 49 and would also increase consistency between part 49 and other Commission regulations, which overwhelmingly use the term ‘‘swap data repository.’’ The Commission emphasized that removing the defined term ‘‘registered swap data repository’’ is a non-substantive amendment that would not in any way modify the requirements applicable to current or future SDRs. 3. Additions and Substantive Amendments a. Definition of As Soon as Technologically Practicable The Commission proposed to add the term ‘‘as soon as technologically practicable’’ as a defined term in § 49.2. The Proposal defined the term to mean ‘‘as soon as possible, taking into consideration the prevalence, swaps entered into by third parties for the purpose of providing a centralized recordkeeping facility for swaps. 25 See 7 U.S.C. 1a(48). 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. 26 See 17 CFR 49.1. The provisions of part 49 apply to any swap data repository as defined under section 1a(48) of the CEA which is registered or is required to register as such with the Commission pursuant to Section 21(a) of the CEA. 27 See 17 CFR 49.2(a)(11). Registered swap data repository means a swap data repository that is registered under section 21 of the CEA. 28 See 17 CFR 49.3(b) (creating standards for granting provisional registration to an SDR). E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations implementation, and use of technology by comparable market participants.’’ This addition would standardize the meaning and use of this term across the Commission’s swap reporting regulations and is intended to be identical to the term as it is used in parts 43 and 45 of the Commission’s regulations.29 The Commission received several comments on the proposed definition. One comment generally supported standardizing definitions across the Commission’s regulations.30 One comment recommended that the definition should be expanded to clarify what are considered comparable market participants.31 The Commission declines to adopt this recommendation. The Commission proposed to add the term ‘‘as soon as technologically practicable’’ merely to create consistency in defined terms across the swap reporting regulations, not to modify or interpret the term. The Commission also does not believe this final rulemaking is the appropriate venue to provide guidance on the parameters of comparable market participants, as any guidance would need to evaluate and impose standards for many different market participants and scenarios, without the opportunity for the affected market participants to comment on the guidance. The Commission also notes that the defined term has been in use through the application of the Commission’s swap reporting regulations since the inception of swap reporting, without the need for additional guidance. The Commission is adopting the addition of ‘‘as soon as technologically practicable’’ as a defined term as proposed. The Commission notes that concomitant with adopting these final rules, the Commission is adopting final rules for § 43.2 and § 45.1, which both include the identical definition for this term. b. Definition of Non-Swap Dealer/Major Swap Participant/Derivatives Clearing Organization Reporting Counterparty jbell on DSKJLSW7X2PROD with RULES2 The Commission proposed to add the term ‘‘non-swap dealer/major swap participant/derivatives clearing organization reporting counterparty’’ as a defined term in § 49.2. The Commission is not adopting this 29 See 17 CFR 43.2 (defining of as soon as technologically practicable). Part 45 of the Commission’s regulations also uses the term ‘‘as soon as technologically practicable’’ in the same way as part 43 and as defined in proposed § 49.2. 30 ISDA/SIFMA at 38. 31 IATP at 4. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 proposed definition.32 This defined term was intended to clarify the meaning of the term in part 49, specifically in proposed § 49.11(b)(3). As discussed below in section II.G, the Commission is not finalizing proposed § 49.11(b)(3) and this term does not otherwise appear in part 49. Accordingly, the inclusion of the defined term is not necessary and Commission is not adopting this proposed definition. c. Definition of Open Swap The Commission proposed to add the term ‘‘open swap’’ as a defined term in § 49.2. The Proposal defined the term to mean an executed swap transaction that has not reached maturity or the final contractual settlement date, and has not been exercised, closed out, or terminated. Under this definition, the term ‘‘open swap’’ refers to swaps that are often colloquially called ‘‘alive.’’ The Commission noted in the Proposal that the definition is intended to have the same function as the definitions of ‘‘open swap’’ 33 and ‘‘closed swap’’ 34 in part 20. The Commission received several comments on the proposed definition. One comment supported standardizing definitions across the Commission’s rules, and supported the proposed definition for ‘‘open swap.’’ 35 One comment noted that there is no market practice of reporting a ‘‘final contractual settlement date.’’ 36 Instead, the comment stated, market practice is to report expiration, maturity date, or termination date. The comment further recommended that the definition be amended to allow for events to affect parts of a trade. The commenter recommended that the Commission define ‘‘open swap’’ to mean ‘‘an executed swap transaction that has not reached maturity or expiration date, and has not been fully exercised, closed out, or terminated.’’ 37 The Commission agrees with this comment and is adopting the recommended changes to the definition, with a slight modification for grammar. Accordingly, final § 49.2 includes the term ‘‘open swap’’ as a defined term, which means an executed swap transaction that has 32 The Proposal defined the term to mean a reporting counterparty that is not a swap dealer (‘‘SD’’), major swap participant (‘‘MSP’’), derivatives clearing organization (‘‘DCO’’), or exempt derivatives clearing organization. 33 See 17 CFR 20.1. An open swap or swaption means a swap or swaption that has not been closed. 34 See 17 CFR 20.1. A closed swap or closed swaption means a swap or swaption that has been settled, exercised, closed out, or terminated. 35 DDR at 2. 36 ISDA/SIFMA at 38. 37 Id. PO 00000 Frm 00185 Fmt 4701 Sfmt 4700 75605 not reached maturity or expiration, and has not been fully exercised, closed out, or terminated.38 The Commission notes that, as with the definition in the Proposal, the final definition of ‘‘open swap’’ is intended to mean swaps, or the remaining portion of a swap, that would be commonly thought of as ‘‘alive.’’ d. Definition of Reporting Counterparty and the Removal of Reporting Entity The Commission proposed to add the term ‘‘reporting counterparty’’ as a defined term to § 49.2. This term would mean the counterparty responsible for reporting SDR data to an SDR pursuant to part 43, 45, or 46 of the Commission’s regulations. The Proposal explained that this would standardize its meaning and use across the Commission’s swap reporting regulations. The Commission also proposed to remove the term ‘‘reporting entity’’ from the definitions in § 49.2 because it is no longer necessary with the addition of ‘‘reporting counterparty’’ as a defined term.39 Concomitant with the adoption of these final rules, the Commission also is adopting final rules amending § 43.2 and § 45.1. Those final rules both include a definition for the term ‘‘reporting counterparty’’ specific to part 43 and part 45, respectively. Current § 46.1 also includes a definition for the term.40 The definitions of the term ‘‘reporting counterparty’’ in §§ 43.2, 45.1, and 46.1 are more narrow than the proposed definition in § 49.2. While the definitions do not have identical wording, the defined terms have a standardized meaning that follows a consistent format and is appropriate for each context. The Commission notes that the reporting counterparty may not always be the entity reporting SDR data to the SDR, particularly for transactions executed on a swap execution facility (‘‘SEF’’) or designated contract market (‘‘DCM’’), but it is the counterparty responsible for the initial and/or subsequent SDR data reporting, pursuant to part 43, 45, or 46 of the Commission’s regulations, as applicable to a particular swap. SEFs and DCMs are 38 As discussed below in section III.A, the Commission is also adding an identical definition for ‘‘open swap’’ to part 45 of this chapter, in order to create consistency between parts 45 and 49 of the Commission’s regulations and to accommodate the use of the term ‘‘open swap’’ in part 45. 39 See 17 CFR 49.2(a)(12) (defining reporting entity as entities that are required to report swap data to a registered swap data repository, which includes derivatives clearing organizations, swap dealers, major swap participants and certain nonswap dealer/non-major swap participant counterparties). 40 17 CFR 46.1. E:\FR\FM\25NOR2.SGM 25NOR2 75606 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 the only entities not included in the proposed definition of ‘‘reporting counterparty’’ that may have a responsibility to report data. The Commission did not receive any comments on the proposed definition of the term ‘‘reporting counterparty’’ and the related removal of the defined term ‘‘reporting entity.’’ The Commission is adopting these amendments as proposed, with minor, non-substantive editorial changes to conform the definition of ‘‘reporting counterparty’’ in § 49.2 to the definitions in §§ 43.2, 45.1, and 46.1, as discussed above. Accordingly, final § 49.2 includes the term ‘‘reporting counterparty’’ as a defined term, which means the counterparty required to report SDR data pursuant to part 43, 45, or 46 of 17 CFR chapter I. Final § 49.2 no longer includes the term ‘‘reporting entity’’ as a defined term. e. Definition of SDR Data The Commission proposed to add the term ‘‘SDR data’’ as a defined term in § 49.2. The Proposal defined the term to 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 in the context. The Commission noted that in this context, ‘‘disseminated’’ would include an SDR making swap data available to the Commission as required by part 49. In the Proposal, the Commission noted that the proposed definition of ‘‘SDR data’’ would include multiple sources of data reported to the SDR or disseminated by the SDR. For example, ‘‘SDR data’’ could refer to all data reported or disseminated pursuant to parts 43, 45, and 46. It may also refer to data reported or disseminated pursuant to parts 45 and 46, depending on the context in which the term is used. This is in contrast with the proposed term ‘‘swap transaction and pricing data,’’ which, as defined in the Proposal, would only refer to data reported to an SDR or publicly disseminated by an SDR pursuant to part 43. It is also in contrast with the term ‘‘swap data,’’ which, as defined in the Proposal, would only refer to data reported to an SDR or made available to the Commission pursuant to part 45. In the Proposal, the Commission explained that consolidating references to the different types of data that must be reported to an SDR or disseminated by an SDR to the public or to the Commission into a single term would provide clarity throughout part 49. The Commission received several comments on the proposed addition of VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 the defined term ‘‘SDR data’’ and the proposed definition in § 49.2. One comment generally supported the proposed amendment.41 One comment stated that the proposed definition limited ‘‘SDR Data’’ to information that is required to be reported or disseminated pursuant to ‘‘two or more of parts 43, 45, 46 and/or 49,’’ which would exclude information that is required to be reported or disseminated pursuant to one of those parts. The Commenter recommended that the Commission define the term ‘‘SDR Data’’ to include information that is required to be reported or disseminated by one or more of parts 43, 45, 46, and/ or 49. The Commission disagrees with this comment and its interpretation of the term ‘‘SDR data.’’ By definition, ‘‘SDR data’’ will always include at least two sets of data or information that is required reported to an SDR or disseminated by an SDR. The definition is inclusive of all data being referenced, based on the context of the use of the term. When the Commission intends to refer to data that is reported or disseminated pursuant to only one of part 43, 45, 46, or 49, it uses the term or reference that corresponds to that specific set of data, for example ‘‘swap transaction and pricing data’’ for part 43-related data and ‘‘swap data’’ for part 45-related data. The Commission is adopting the addition of the defined term ‘‘SDR data’’ to final § 49.2, as proposed. Accordingly, final § 49.2 includes the defined term ‘‘SDR data,’’ which is defined to mean the specific data elements and information required to be reported to a swap data repository or disseminated by a swap data repository pursuant to two or more of parts 43, 45, 46, and/or 49 of 17 CFR chapter I, as applicable in the context. f. Definition of SDR Information The Commission proposed to amend the existing definition of ‘‘SDR information’’ in § 49.2 to add the clause ‘‘related to the business of the swap data repository that is not SDR data’’ to the end of the definition. This change clarifies that the scope of SDR information is limited to information that the SDR receives or maintains related to its business that is not the SDR data reported to or disseminated by the SDR. SDR information would include, for example, SDR policies and procedures created pursuant to part 49.42 The Commission did not receive 41 ISDA/SIFMA at 41. 42 This clarification is particularly relevant for the SDR recordkeeping obligations in the proposed amendments to § 49.12, discussed below in section II.H. PO 00000 Frm 00186 Fmt 4701 Sfmt 4700 comments on the proposed amendment and the Commission adopts the amendment as proposed. g. Definition of Swap Transaction and Pricing Data The Commission proposed to add ‘‘swap transaction and pricing data’’ as a defined term in § 49.2 to increase consistency in terminology used in the Commission’s swap reporting regulations. The Proposal defined the term to mean the specific data elements and information required to be reported to a swap data repository or publicly disseminated by a swap data repository pursuant to part 43 of this chapter, as applicable. Concomitant with adopting these final rules, the Commission is adopting final rules in § 43.2 that add ‘‘swap transaction and pricing data’’ as a defined term. As defined in final § 43.2, the term means all data elements for a swap in appendix A of this part that are required to be reported or publicly disseminated pursuant to this part. In order to increase consistency throughout its rules, the Commission adopts the addition of the defined term ‘‘swap transaction and pricing data’’ and the definition in § 49.2 as proposed. One commenter stated that the definition of the term in § 49.2 should not include the clause ‘‘or publicly disseminated by a swap data repository.’’ 43 The Commission does not agree with this comment because dissemination is included in the definition of the same term in final § 43.2, and the term is being included in final § 49.2 to increase consistency between Commission regulations. Moreover, to not include the public dissemination requirements would frustrate the purpose of adding the defined term by not allowing the term to be used in reference to an SDR’s public dissemination responsibilities. The Commission believes that the specific context in which the term is used will make clear whether the Commission is referring to the requirements to report the data to an SDR, for an SDR to disseminate the data to the public, or both. Accordingly, final § 49.2 includes ‘‘swap transaction and pricing data’’ as a defined term that means the specific data elements and information required to be reported to a swap data repository or publicly disseminated by a swap data repository pursuant to part 43 of 17 CFR chapter I, as applicable. B. § 49.3—Procedures for Registration Section 49.3 sets forth the procedures and standard of approval for registration 43 DDR E:\FR\FM\25NOR2.SGM at 2. 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 as an SDR.44 Current § 49.3(a)(1) requires a person seeking SDR registration to file an application on Form SDR.45 Form SDR consists of instructions, general questions and a list of exhibits required by the Commission in order to determine whether an applicant for SDR registration is able to comply with the SDR core principles and Commission regulations thereunder.46 Existing § 49.3(a)(5) requires an SDR to promptly file an amended Form SDR to update any information that becomes inaccurate before or after the SDR’s application for registration is granted. In addition, the regulation requires an SDR to annually file an amendment on Form SDR within 60 days after the end of its fiscal year.47 The Commission proposed to amend § 49.3(a)(5) to eliminate the requirements for an SDR that has been granted registration under § 49.3(a) to: (i) file an amended Form SDR if any of the information therein becomes inaccurate, and (ii) annually file an amended Form SDR.48 Thus, proposed § 49.3(a)(5) would only require an SDR to file an amended Form SDR to update information before the Commission grants it registration under § 49.3(a). The Commission also proposed to make conforming amendments to the Form SDR and § 49.22(f)(2) 49 to eliminate references to the annual filing of Form SDR.50 The Commission is adopting the amendments to § 49.3(a)(5) and the conforming amendments to Form SDR and § 49.22(f)(2) as proposed in part and not adopting the amendments as proposed in part. The Commission is adopting the removal of the requirement to file an annual amendment to Form SDR because the Commission believes the annual Form SDR filing requirement is unnecessary and is duplicative of the requirement to file an amended Form SDR if any of the information in the Form SDR becomes inaccurate. The Commission has, however, reconsidered the proposed removal of the requirement to file an amended Form SDR if any of the information in the Form SDR (including the Form SDR exhibits) becomes inaccurate and has determined not to finalize the proposed removal of this requirement. SDRs will continue to be required to file amendments to Form SDR as necessary 44 17 CFR 49.3. Form SDR is set forth in Appendix A to part 49. 45 17 CFR 49.3(a)(1). 46 17 CFR 49.3(a)(2). 47 17 CFR 49.3(a)(5). 48 Proposal at 84 FR 21048 (May 13, 2019). 49 17 CFR 49.22(f)(2). 50 Proposal at 84 FR 21048 (May 13, 2019). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 after being granted registration under § 49.3(a). While the Commission stated in the Proposal that the Commission would have access to the information that would be updated in an amended Form SDR because an SDR would be required to file updates for some of the information with the Commission as a rule change under part 40 of the Commission’s regulations and that, under proposed § 49.29, the Commission could require an SDR to file information demonstrating the SDR’s compliance with its obligations under the CEA and Commission regulations,51 the Commission no longer believes these methods of obtaining access to updated Form SDR information are the most efficient or practicable methods. Instead, the Commission believes that Commission staff would be more effectively alerted to changes to the information in Form SDR for compliance monitoring purposes by maintaining the existing requirement for SDRs to update any Form SDR information that is or that becomes inaccurate. The Commission also believes it would be more efficient for SDRs to continue to send the updated Form SDR information to the Commission as currently required, as opposed to the Commission requesting the SDRs to demonstrate compliance whenever the Commission needs to check whether the Form SDR information remains current. Under the proposed approach, for example, the Commission may need to require SDRs to provide an all-encompassing demonstration of compliance for all of the Form SDR information under § 49.29, as opposed to the SDRs only updating Form SDR information that has changed, as the SDRs regularly do under the existing requirement, because the Commission will not be aware of what information may or may not have changed. The Commission is therefore not adopting the proposed removal of the requirement for an SDR that is registered under § 49.3(a) to file an updated Form SDR when the information in its Form SDR is inaccurate or becomes inaccurate, and this existing requirement in § 49.3(a)(5) remains in effect. The Commission requested comment on all aspects of the proposed changes to § 49.3(a)(5). Two comments supported the proposed amendments to § 49.3(a)(5).52 One comment also suggested the Commission further amend the text of proposed § 49.3(a)(5) to clarify that the requirement to file an amended Form SDR to update inaccurate information does not apply to an SDR provisionally registered under § 49.3(b).53 Existing § 49.3(b) 54 provides that, upon request, the Commission may grant an applicant provisional registration as an SDR if, among other things, the applicant is in ‘‘substantial compliance’’ with the standard for approval for full SDR registration set forth in § 49.3(a)(4). If granted, provisional registration expires on the earlier of: (i) The date the Commission grants or denies full registration of the SDR; or (ii) the date the Commission rescinds the SDR’s provisional registration.55 One comment suggested that the Commission add the legal entity identifier (‘‘LEI’’) of the applicant into the Form SDR, stating that incorporating an applicant’s LEI record in the form would make various information fields unnecessary, while making the information provided more standardized and accurate.56 As explained above, the Commission agrees with the comments that supported the removal of the annual Form SDR update requirement and the Commission disagrees with the comments supporting the removal of the requirement to update Form SDR when the information is inaccurate. The Commission also disagrees with the suggestion regarding provisionallyregistered SDRs. Final § 49.3(a)(5), as adopted, requires a provisionallyregistered SDR to file an amended Form SDR if information in the form becomes inaccurate. The Commission notes that provisional registration is an interim status for applicants for registration, and the accuracy of information in the Form SDR of a provisionally-registered SDR is necessary for the Commission to make a determination regarding the SDR’s application for full registration. The Commission is also declining to adopt the suggestion to use the LEI of the applicant instead of various data fields in the Form SDR. While there may be benefits to doing so, the Commission believes the current format is more useful to Commission staff in reviewing applications for registration by providing the relevant entity names directly, without the need to reference the information underlying an LEI. 51 Id. 52 CME at 2 (‘‘[T]he addition of Part 49.29 is a much more effective and efficient approach for the Commission to ensure it has the information it needs to ensure an SDR’s compliance with the regulations’’); DDR at 3. PO 00000 Frm 00187 Fmt 4701 Sfmt 4700 75607 53 DDR 54 17 at 3. CFR 49.3(b). 55 Id. 56 GLEIF E:\FR\FM\25NOR2.SGM at 1. 25NOR2 jbell on DSKJLSW7X2PROD with RULES2 75608 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations C. § 49.5—Equity Interest Transfers Section 49.5 sets forth requirements for an SDR that enters into an agreement involving the transfer of an equity interest of ten percent or more in the SDR.57 The Commission proposed various amendments to § 49.5 to simplify and streamline the requirements of the regulation. The Commission is adopting the amendments to § 49.5 as proposed. The Commission continues to believe, as stated in the Proposal, that the amendments to § 49.5 will simplify and streamline the requirements of the regulation, and remove unnecessary burdens on SDRs while preserving the Commission’s ability to obtain information regarding transfers of SDR equity interests. Current § 49.5(a) requires an SDR to (i) notify the Commission of the agreement no later than the business day following the date of the agreement and; (ii) amend any information that is no longer accurate on Form SDR.58 Current § 49.5(b) sets forth various agreements, associated documents and information, and representations an SDR must provide the Commission in advance of the equity interest transfer.59 Current 49.5(c) provides that within two business days following the equity interest transfer, an SDR must file with the Commission a certification stating that the SDR is in compliance with CEA section 21 and Commission regulations adopted thereunder, stating whether any changes were made to the SDR’s operations as a result of the transfer, and, if so, identifying such changes.60 The Commission is amending § 49.5 to specify that the regulation applies to both direct and indirect transfers of ten percent or more of an equity interest in an SDR. As the Commission explained in the Proposal, indirect transfers of equity ownership (e.g., the transfer of an equity interest in a parent company of an SDR) also require Commission oversight of the SDR to address any compliance concerns that may arise.61 The Commission is also replacing the documentation and informational requirements in current § 49.5(b) with a provision in § 49.5(a) stating that the Commission may, upon receiving an equity transfer notification, request that the SDR provide supporting documentation for the transaction. The Commission believes reserving the authority to request supporting documentation rather than compelling CFR 49.5. CFR 49.5(a). 59 17 CFR 49.5(b). 60 17 CFR 49.5(c). 61 Proposal at 84 FR 21048 (May 13, 2019). specific production satisfies the Commission’s need for information without placing unnecessary burdens on an SDR. In addition, the Commission is amending § 49.5 to extend the deadline by which an SDR must file an equity transfer notification and to specify that the SDR shall file the notice with the Secretary of the Commission and the Director of the Division of Market Oversight (‘‘DMO’’) via email. The Commission believes an SDR may need additional time to file the necessary documents, and ten business days provides greater flexibility without sacrificing the availability of information the Commission needs to conduct effective oversight of the SDR. The Commission also is removing the requirement for an SDR to amend information that is no longer accurate on Form SDR due to the equity interest transfer because the requirement is duplicative of other requirements. Finally, the Commission is amending § 49.5(c) to simplify the certification and information requirements in the filing an SDR is required to make with the Commission following an equity interest transfer. The Commission believes these amendments provide the Commission with the pertinent information it needs to assess the impact of an equity interest transfer on the SDR’s operations. The Commission requested public comment on all aspects of proposed § 49.5. One comment supported the Commission’s proposal to simplify § 49.5, stating that current requirements of the regulation are overly burdensome, and reserving authority for the Commission to request supporting documentation, rather than compelling specific document production, would satisfy the Commission’s need for information.62 The Commission agrees with this comment and is finalizing § 49.5 as described. D. § 49.6—Request for Transfer of Registration The Commission proposed to amend § 49.6 63 to clarify and streamline the process and procedures for the transfer of an SDR registration to a successor entity.64 The amendments include retitling the section ‘‘Request for transfer of registration,’’ to more accurately reflect the subject of the regulation.65 The Commission has determined to adopt the amendments to § 49.6 as proposed. The Commission believes the amendments to § 49.6 will simplify the 57 17 58 17 VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 62 CME at 2–3. CFR 49.6. 64 Proposal at 84 FR 21049 (May 13, 2019). 65 Id. 63 17 PO 00000 Frm 00188 Fmt 4701 Sfmt 4700 process for requesting a transfer of SDR registration by providing procedures that focus on informing the Commission of changes relevant to the Commission’s oversight responsibilities, as opposed to requiring the successor entity to file a Form SDR, which would likely duplicate most of the transferor’s existing Form SDR. Further, the amendments to § 49.6 provide the Commission with the information it needs in order to determine whether to approve a request for a transfer of an SDR registration. Current § 49.6(a) provides that, in the event of a corporate transaction that creates a new entity as which an SDR operates, the SDR must request a transfer of its registration no later than 30 days after the succession.66 Current § 49.6(a) also specifies that the SDR registration shall be deemed to remain effective as the registration of the successor if the successor, within 30 days after such succession, files a Form SDR application for registration, and the predecessor files a request for vacation. Further, the SDR registration ceases to be effective 90 days after the application for registration on Form SDR is filed by the successor SDR. Final § 49.6(a) instead requires an SDR seeking to transfer its registration to a new legal entity as a result of a corporate change to file a request for approval of the transfer with the Secretary of the Commission in the form and manner specified by the Commission. Examples of such corporate changes may include, but are not limited to, re-organizations, mergers, acquisitions, bankruptcy, or other similar events that result in the creation of a new legal entity for the SDR. Final § 49.6(b) specifies that an SDR shall file a request for transfer of registration as soon as practicable prior to the anticipated corporate change. Final § 49.6(c) sets forth the information that must be included in a request for transfer of registration, including, among other things, the underlying documentation that governs the corporate change, a description of the corporate change and its impact on the SDR and on the rights and obligations of market participants, governance documents of the transferee, and various representations by the transferee related to its ability to operate the SDR and comply with the Act and Commission regulations. Final § 49.6(d) specifies that upon review of a request for transfer of registration, the Commission, as soon as practicable, shall issue an order either 66 17 E:\FR\FM\25NOR2.SGM CFR 49.6(a). 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations approving or denying the request for transfer of registration. The Commission requested public comment on all aspects of proposed § 49.6. One comment opposed the proposed amendments to § 49.6, asserting that the amendments will add uncertainty into the transfer process by making a transfer contingent upon obtaining prior Commission approval without specifying a deadline by which the Commission must approve or deny a request for transfer.67 The Commission has determined to adopt the amendments to § 49.6 as proposed. With respect to the comment, the Commission recognizes that corporation transactions and reorganizations that involve the transfer of an SDR registration may arise without significant notice, and require certainty and prompt action by regulators. The Commission similarly has an interest in facilitating such transfers in order to maintain the operation of SDRs while also ensuring compliance with the applicable statutory and regulatory requirements. To that end, the Commission believes it is important to apply the information and procedural requirements set forth in § 49.6, as proposed and adopted, in order to enable the Commission and its staff to promptly address requests for transfer and to ensure that the transferee entity is fully capable of complying with the Commission’s regulations for SDRs. E. § 49.9—Open Swaps Reports Provided to the Commission The Commission proposed to remove the text of existing § 49.9 68 and replace it with new requirements for SDRs to provide open swaps reports to the Commission.69 Existing § 49.9 lists and briefly summarizes the duties of SDRs, with references to where those duties are found in other sections of part 49.70 The Commission believes existing § 49.9 is superfluous because all of the SDR duties listed in § 49.9 are also contained, in much greater detail, in the other sections of part 49. Removing existing § 49.9 is a non-substantive amendment that does not affect the requirements for SDRs. As part of the Commission’s proposed new requirements in § 49.9 for SDRs to provide open swaps reports to the Commission,71 the Commission jbell on DSKJLSW7X2PROD with RULES2 67 CME at 3. CFR 49.9. 69 Proposal at 84 FR 21050 (May 13, 2019). 70 17 CFR 49.9. As discussed below in section II.Q, the Commission proposed conforming amendments to § 49.25 to remove references to current § 49.9. 71 Section 49.2, as proposed and as adopted in this final rulemaking, defines the term ‘‘open swap’’ 68 17 VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 proposed renaming § 49.9 ‘‘Open swaps reports provided to the Commission’’ and, as discussed above, proposed to add a new definition in § 49.2 for the term ‘‘open swap.’’ 72 The Commission received several comments on the proposed new requirements for open swaps reports under § 49.9, as discussed below. The Commission has determined to adopt the amendments to § 49.9 as proposed. Final § 49.9(a) requires each SDR to provide the Commission with open swaps reports that contain an accurate reflection of the swap data maintained by the SDR for every swap data field required to be reported under part 45 of the Commission’s regulations for every open swap, as of the time the SDR compiles the report. Open swaps reports must be organized by the unique identifier created pursuant to § 45.5 of the Commission’s regulations that is associated with each open swap. SDRs currently send reports that are similar to the proposed open swaps reports to the Commission on a regular basis. The Commission currently uses these reports to produce a weekly swaps report that is made available to the public 73 and for entity-netted notional calculations.74 The Commission also uses these reports to perform market risk and position calculations, and for additional market research projects. However, in formulating these reports, SDRs employ a variety of calculation approaches and differing formats, which reduces the utility of the data for the Commission. The Commission therefore proposed requiring each SDR to regularly provide the Commission with standardized open swaps reports containing accurate and up-to-date information. The Commission continues to believe it is necessary to require SDRs to provide open swaps reports and to require such reports to be standardized, in order to maximize their utility to the Commission and enhance the Commission’s ability to perform its regulatory functions. Final § 49.9(b) requires an SDR to transmit all open swaps reports to the Commission as instructed by the Commission. Such instructions may include, but are not limited to, the to mean an executed swap transaction that has not reached maturity or expiration, and has not been fully exercised, closed out, or terminated. 72 See section II.A above for a discussion of the definitions in final § 49.2. 73 The Commission’s various public reports, including the weekly swaps reports, are available at http://www.cftc.gov/MarketReports/index.htm. 74 See generally ‘‘Introducing ENNs: A Measure of the Size of Interest Rate Swaps Markets,’’ Jan. 2018, available at https://www.cftc.gov/sites/default/files/ idc/groups/public/@economicanalysis/documents/ file/oce_enns0118.pdf. PO 00000 Frm 00189 Fmt 4701 Sfmt 4700 75609 method, timing, and frequency of transmission, as well as the format of the swap data to be transmitted.75 Retaining the flexibility to determine these requirements, and the ability to modify them over time as necessary, allows the Commission to tailor the information that is required to be in the reports to meet the Commission’s needs without imposing undue burdens on SDRs. As stated in the Proposal, the Commission intends to work with SDRs in formulating instructions pursuant to final § 49.9(b) and expects to provide a reasonable amount of time for SDRs to adjust their systems before any instructions regarding open swaps reports take effect. This collaborative process will allow the Commission’s current practice of working with SDRs to implement changes to swaps reports to continue, which provides SDRs time to update their systems as needed. The Commission requested comment on all aspects of proposed § 49.9. One comment generally supported standardizing the open swaps reports.76 Several comments addressed the Commission’s discretion with respect to the transmission of open swaps reports under proposed § 49.9(b). One comment stated that any revisions the Commission makes to the requirements for transmitting open swaps reports should not require revisions to reports provided by the SDR to reporting counterparties, which would increase costs for reporting counterparties.77 Likewise, the requirements should not result in reporting counterparties having to submit additional data, or to submit previously reported data in a different data format.78 One comment stated that the Commission should modify the proposed rule to include ‘‘reasonable constraints’’ on the instruction process by amending the text of proposed § 49.9(b) to include ‘‘as soon as practicable, given the nature of the instructions and the swap data repository’s circumstances’’ at the end of the first sentence.79 The Commission is adopting § 49.9 as proposed, with non-substantive editorial changes for clarity. With regard to the comments on open swaps reports provided by SDRs to reporting counterparties, the Commission notes that, as described in section II.G below, final § 49.11 will not require SDRs to 75 As discussed below in section II.V, proposed § 49.31 delegates to the Director of DMO the Commission’s authority in proposed § 49.9, including the authority to create instructions for transmitting open swaps reports to the Commission. 76 DDR at 3. 77 ISDA/SIFMA at 39. 78 Id. 79 DDR at 3. E:\FR\FM\25NOR2.SGM 25NOR2 75610 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations provide open swaps reports to reporting counterparties as part of the swap data verification process, and therefore the comments are moot. The Commission declines to adopt the suggested revisions related to constraints, which would unnecessarily restrict the Commission’s discretion to issue transmission instructions. The Commission reiterates its intent to work with the SDRs before creating or modifying any instructions pursuant to § 49.9 and to provide a reasonable amount of time for SDRs to adjust their systems before any instructions take effect. The Commission’s existing practice of collaborating with SDRs stems from the recognition that such collaboration will ultimately improve SDRs’ ability to comply with their regulatory obligations and further the Commission’s regulatory objectives. jbell on DSKJLSW7X2PROD with RULES2 F. § 49.10—Acceptance of Data The Commission is adopting new § 49.10(e) generally as proposed, with modifications and textual clarifications in response to the comments received. Final § 49.10(e) complements the error correction requirements in other Commission regulations, including final §§ 43.3(e) and 45.14(b), that apply to the entities that report SDR data to the SDRs. Each SEF, DCM, and reporting counterparty must correct errors in their SDR data by submitting complete and accurate SDR data to the relevant SDR.80 Final § 49.10(e) is intended to ensure that SDRs correct errors in SDR data and disseminate corrected data as soon as possible. As it stated in the Proposal, the Commission believes that clearly delineating an SDR’s obligations to receive and make corrections to SDR data, and to disseminate the corrected SDR data to the public and the Commission, as applicable, will further the Commission’s goal of more accurate and complete SDR data being made available to the public and the Commission. The Commission believes that the steps required by § 49.10(e) will also facilitate, and therefore encourage, compliance by SEFs, DCMs, and reporting counterparties with their regulatory obligation to correct SDR data. The Commission further believes proposed § 49.10(e) is consistent with the current statutory and regulatory requirements for SDRs to correct errors and omissions. Final § 49.10(e)(1) requires an SDR to accept corrections of errors and 80 See section IV below for a discussion of final § 43.3(e) (regarding swap transaction and pricing data) and section III.C below for a discussion of final § 45.14 (regarding swap data). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 omissions 81 reported to the SDR pursuant to part 43, 45, or 46 of the Commission’s regulations. Final § 49.10(e) specifies that the requirements of § 49.10(e) apply to SDR data regardless of the state of the swap that is the subject such data, unless the record retention period for the SDR data under final § 49.12(b)(2) has expired. Thus, final § 49.10(e) requires an SDR to correct and disseminate SDR data for swaps that have matured or were otherwise terminated and are no longer open swaps, if such swaps are still within the required SDR data retention period. Final § 49.10(e)(2) requires an SDR to record corrections as soon as technologically practicable after the SDR accepts the corrections. Final § 49.10(e)(3) requires an SDR to disseminate the corrected SDR data to the public and the Commission, as applicable, as soon as technologically practicable after the SDR records the correction to the SDR data. Lastly, final § 49.10(e)(4) requires each SDR to establish, maintain, and enforce policies and procedures designed for the SDR to fulfill its responsibilities under § 49.10(e). One comment suggested that the final rule should clarify that the only obligation on SDRs under § 49.10(e) is to accept, record, and disseminate corrections to SDR data.82 The Commission notes that this is the scope of proposed § 49.10(e), and is the scope of final § 49.10(e). The comment also stated that applying the requirements of proposed § 49.10(e)(2) to SDR data ‘‘regardless of the state of the swap’’ will require SDRs to make SDR data available for corrections for an unlimited amount of time.83 The comment suggested that the Commission should instead limit the requirements in the regulation with respect to ‘‘dead swaps’’ to the required SDR data recordkeeping retention period.84 The Commission agrees with this comment and final § 49.10(e)(1) 81 The Commission notes that, as described below, final § 45.14 and final § 43.3(e) do not use the word ‘‘omission’’ in the error correction requirements. The word ‘‘omission’’ is not included in those sections because the term ‘‘error’’ is defined to include all omissions in final § 45.14(c) and final § 43.3(e)(4). The Commission is, however, using the word ‘‘omission’’ in final § 49.10(e), because ‘‘error’’ is not defined in final part 49. The Commission emphasizes that this difference between the three sections is merely semantic and does not in any way change the SDRs’ data correction requirements. All omissions of required SDR data are errors, and an SDR is required to correct, in accordance with final § 49.10(e), all errors reported to the SDR, including errors that arise from omissions in SDR data reported to an SDR or the omission of all SDR data for a swap. 82 Joint SDR at 9. 83 Id. 84 Id. PO 00000 Frm 00190 Fmt 4701 Sfmt 4700 provides that the rules in § 49.10(e) apply only if ‘‘the record retention period under § 49.12(b)(2) of this part has not expired as of the time the error correction is reported.’’ Finally, the comment stated that the Commission should make clear that an entity submitting SDR data corrections or previously omitted SDR data must comply with the then current technical specifications of the SDR and that an SDR is not required to make accommodations for data that is unable to comport with the then current technical specifications.85 The Commission does not agree with the recommendation that the regulation be revised to require error corrections to be made using the prevailing validations and technical specifications of the SDR. The Commission notes that final § 49.10(e) provides discretion to SDRs to establish, maintain, and enforce policies and procedures designed for the SDRs to fulfill their responsibilities under final § 49.10(e), which includes the discretion to require error corrections to use prevailing validations and the SDR’s technical specifications. Final §§ 43.3(e) and 45.14(a) contain companion requirements for market participants to conform to these SDR policies and procedures when correcting SDR data. The Commission believes that this discretion provides necessary flexibility to SDRs and market participants. G. § 49.11—Verification of Swap Data Accuracy 1. Background Section 21(c)(2) of the CEA requires SDRs to confirm submitted swap data.86 The Commission implemented this statutory requirement by promulgating current § 49.11.87 Current § 49.11(a) requires an SDR to establish policies and procedures to ensure the accuracy of swap data and other regulatory information reported to the SDR. Current § 49.11(b) sets forth the general requirement that an SDR confirm the accuracy and completeness of all swap data submitted pursuant to part 45. The regulation then sets forth specific confirmation requirements for creation data in § 49.11(b)(1) and for continuation data in § 49.11(b)(2).88 85 Id. at 9–10. 7 U.S.C. 24a(c)(2) (providing that, among other duties, a swap data repository shall confirm with both counterparties to the swap the accuracy of the data that was submitted). 87 See Part 49 Adopting Release at 54547. 88 In both cases, the requirements vary depending on whether the SDR received the data directly from a counterparty or from a SEF, DCM, derivatives clearing organization (‘‘DCO’’), or third-party service provider acting on behalf of the swap counterparty. 86 See E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 For swap creation data, if the swap data was submitted directly by a swap counterparty, such as an SD, MSP, or non-SD/MSP counterparty, an SDR is required to notify both counterparties to the swap and to receive from both counterparties acknowledgement of the accuracy of the swap data and corrections for any errors.89 However, because counterparties do not currently have a corollary obligation to respond to an SDR’s notifications, SDRs have adopted rules based on the concept of negative affirmation: Reported swap data is presumed accurate and confirmed if a counterparty does not inform the SDR of errors or omissions or otherwise make modifications to a trade record for a certain period of time.90 If the swap data was instead submitted by a SEF, DCM, DCO, or third-party service provider acting on behalf of a swap counterparty, the SDR must, among other things, provide both counterparties with a 48-hour correction period after which a counterparty is assumed to have acknowledged the accuracy of the swap data.91 For swap continuation data, an SDR may rely on a 48-hour correction period regardless of the type of entity that submitted the swap data.92 These provisions in existing § 49.11 reflect the Commission’s view in adopting the regulation that an SDR need not always affirmatively communicate with both counterparties to in order to confirm the accuracy of swap data.93 In the Proposal, the Commission stated that, based on the its experience with swap data submitted by SEFs, DCMs, DCOs, and third-party service providers, the current requirements of § 49.11 have failed to ensure swap data accuracy and consistency, which has hampered the Commission’s ability to carry out its regulatory responsibilities.94 As noted in the Proposal, the Commission previously raised these issues in the Roadmap and received 89 See § 49.11(b)(1)(i) (providing that an SDR has confirmed the accuracy of swap creation data that was submitted directly by a counterparty if the swap data repository has notified both counterparties of the data that was submitted and received from both counterparties acknowledgement of the accuracy of the swap data and corrections for any errors) and § 49.11(b)(2)(i). 90 See DTCC Data Repository (U.S.) LLC Rule 3.3.3.3 and ICE Trade Vault Rules 4.6 and 4.7. 91 Additional requirements include the following: (i) The SDR must have formed a reasonable belief that the swap data is accurate; and the swap data that was submitted, or any accompanying information, evidences that both counterparties agreed to the data. See 17 CFR 49.11(b)(1)(ii). 92 See 17 CFR 49.11(b)(2)(ii). 93 See Part 49 Adopting Release at 54547 (describing the requirements of § 49.11). 94 See Proposal at 84 FR 21052 (May 13, 2019). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 many comments in response.95 As discussed in the Proposal, commenters generally held the view that SDRs are not able to confirm swap data with nonreporting counterparties; 96 the obligation to confirm data accuracy should generally reside with the parties to the swap, not SDRs; 97 and confirmation requirements for nonreporting counterparties are generally unnecessary and will not improve data accuracy.98 Based on its experience with swap data reporting and the comments it received in response to the Roadmap, the Proposal set forth a new swap verification scheme for swap data. 2. Summary of the Final Rule The Commission is modifying its approach to verification in final § 49.11, based on comments received on proposed § 49.11. The Commission believes the verification process required by final § 49.11 is less burdensome and more flexible than the verification process set forth in the proposed regulation. As described in detail below, in order for SDRs to verify the accuracy and completeness of swap data, final § 49.11 requires each SDR to provide reporting counterparties that are users of the SDR with a mechanism that allows a reporting counterparty to access the current swap data for all open swaps for which the reporting counterparty is serving as the reporting counterparty, in such a manner that allows the reporting counterparty to fulfill its own verification obligations under final § 45.14.99 This approach is similar to the requirements in proposed § 49.11 in many respects, particularly in that under final § 49.11, SDRs are required to facilitate verification by reporting counterparties of all swap data for all open swaps on a regular basis. However, the Commission believes final § 49.11 provides a less prescriptive and less burdensome method to achieve the Commission’s goals related to swap data verification. In particular, final § 49.11 will not require the SDRs to create and send open swaps reports to reporting counterparties as proposed.100 Also, in place of the requirement that SDRs establish, maintain, and enforce policies and procedures reasonably designed for 95 See id. 96 Id. 97 Id. 98 Id. 99 See section III.C below for a discussion of final § 45.14. 100 The Commission is requiring SDRs to create and send open swaps reports to the Commission under final § 49.9. See section II.E above for a discussion of final § 49.9. PO 00000 Frm 00191 Fmt 4701 Sfmt 4700 75611 the SDR to successfully receive replies to open swaps reports from reporting counterparties in the form of a verification of data accuracy or notice of discrepancy, the SDR’s policies and procedures will be required to address how the SDR will fulfill all of the requirements of § 49.11, including how reporting counterparties and third-party service providers may successfully use the verification mechanism to fulfill the reporting counterparties’ responsibilities under § 45.14. Final § 49.11 will also require reporting counterparties to perform verification on a less frequent basis than proposed, meaning that SDRs will likewise not be required to facilitate verification on as frequent a basis as proposed. a. § 49.11(a) The Commission adopts final § 49.11(a) largely as proposed, with some non-substantive rearrangement of proposed § 49.11(a) into final paragraphs § 49.11(a) and (c). The first sentence of proposed § 49.11(a) is being finalized as final § 49.11(a). Final § 49.11(a) reiterates each SDR’s statutory duty to verify the accuracy of swap data pursuant to CEA section 21(c)(2). The second sentence of proposed § 49.11(a) is now included in final § 49.11(c)(1), with non-substantive rewording to more clearly articulate the requirement for SDRs to establish, maintain, and enforce policies and procedures related to verification and the content requirements for the policies and procedures. b. § 49.11(b)(1) Final § 49.11(b)(1) requires each SDR to provide a mechanism through which each reporting counterparty that is a user of the SDR can access all swap data the SDR maintains for each open swap for which the reporting counterparty serves as the reporting counterparty. The mechanism must allow sufficient access, provide sufficient information, and be in a form and manner to enable each reporting counterparty to perform swap data verification as required under § 45.14 of this chapter. The Commission believes that, together with final § 45.14(b), final § 49.11(b)(1) will create an effective verification process to help ensure that swap data maintained by SDRs is complete and accurate. The Commission notes that, similar to the communication requirements in proposed § 49.11, it is not prescribing the form of mechanism that SDRs must provide in final § 49.11(b)(1), beyond the data access, data scope, frequency, and confidentiality requirements contained in final § 49.11(b). The Commission expects that SDRs and E:\FR\FM\25NOR2.SGM 25NOR2 75612 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 reporting counterparties will be able to work together to devise the most effective and efficient verification mechanism, with particular attention to accommodating non-SD/MSP/DCO reporting counterparties that may have fewer resources to perform verification than their SD/MSP/DCO counterparts. The Commission is also aware that at least one SDR already offers a mechanism that allows counterparties to access their own swap data, which may be readily modified to meet the requirements of final § 49.11(b). c. § 49.11(b)(2) The Commission adopts the substance of the Proposal in final § 49.11(b)(2) in regards to the scope of data that the SDRs must make available to reporting counterparties for verification. Final § 49.11(b)(2) provides that the swap data accessible through the mechanism must accurately reflect the most current swap data maintained by the SDR, as of the time the reporting counterparty accesses the swap data using the mechanism, for each data field that the reporting counterparty was required to report under part 45 for each of the reporting counterparty’s open swaps for which it is serving as the reporting counterparty. Final § 49.11(b)(2) only requires the mechanism to make available the thencurrent swap data for each of the data fields that the SDR maintains for the relevant open swaps. There is no requirement to include swap data contained in any particular messages from the reporting counterparty or any outdated swap data. The Commission notes again that it is not prescribing the particular method by which the mechanism grants access to all of the swap data as required, as long as the mechanism satisfies the requirements in final § 49.11(b)(2), including the general requirement that the swap data accessible through the mechanism provides sufficient information to allow the reporting counterparties utilizing the mechanism to successfully perform their swap data verification responsibilities as required under final § 45.14. The Commission expects that SDRs will work with reporting counterparties to devise the most efficient and effective method by which the mechanism will provide access to all of the required swap data, with particular attention to accommodating non-SD/MSP/DCO reporting counterparties. The Commission also notes that final § 49.11(b)(2) references the limits on providing access to swap data that must be kept confidential under final § 49.11(b)(3). The swap data access provided under final § 49.11(b)(2) must VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 not allow access to data that is required to be kept confidential, as described further below in the discussion of § 49.11(b)(3). d. 49.11(b)(3) Final § 49.11(b)(3) adopts the proposed limits on access to swap data as part of verification for swap data that is required to be kept confidential from reporting counterparties under the Act or other Commission regulations. Notwithstanding the other requirements of final § 49.11(b), final § 49.11(b)(3) explicitly prohibits SDRs from allowing access to swap data that a reporting counterparty is otherwise prohibited to access. The Commission notes that the same confidential swap data is also excluded from the reporting counterparties’ corresponding verification requirements in final § 45.14(b). This confidentiality requirement is particularly relevant for counterparty identity information that is required to be kept confidential under final § 49.17.101 Existing and final § 49.17(f) prohibit SDRs from allowing access to counterparty identifying information for certain anonymously-executed cleared swaps. Under the provisions of final § 49.11(b)(3), nothing in final § 49.11 overrides the confidentiality requirements of § 49.17, or any other confidentiality requirements of the Act or other Commission regulations. This information is also excluded from the verification requirements in the corresponding verification obligation rules in final § 45.14(b). at least two months between verifications.102 The Commission notes that the frequency requirement in final § 49.11(b)(4) is a minimum frequency standard. Nothing prohibits SDRs from allowing reporting counterparties to access swap data through the mechanism more frequently than required and nothing prohibits reporting counterparties from utilizing the mechanism to access their own swap data more frequently than is required. Final § 49.11(b)(4) provides that the mechanism each SDR adopts under final § 49.11(b) must allow sufficiently frequent access for reporting counterparties to perform the required swap data verification under § 45.14(b). This minimum frequency is necessary so that reporting counterparties are able to access all of their relevant swap data every time they are required to perform verification under § 45.14(b), in order to help ensure that reporting counterparties perform a robust verification of all swap data for their relevant open swaps. Final § 45.14(b) requires SD/MSP/DCO reporting counterparties to verify every 30 calendar days and requires non-SD/ MSP/DCO reporting counterparties to verify once every calendar quarter, with f. § 49.11(b)(5) Final § 49.11(b)(5) provides requirements related to SDRs making swap data available to third-party service providers for verification purposes. As with other Commission regulations, reporting counterparties are permitted to utilize third-party service providers to perform verification, and the Commission believes that accommodating the use of diligent third-party services providers may increase the efficiency and effectiveness of the verification process. Accordingly, in order to accommodate the reporting counterparties’ use of third-party service providers, final § 49.11(b)(5) provides that an SDR will satisfy its verification requirements under final § 49.11 by, after a reporting counterparty informs the SDR that the reporting counterparty will utilize a particular third-party service provider for verification purposes, providing the third-party service provider with the same access to the mechanism and the relevant swap data as the SDR is required to provide to the reporting counterparty. As part of this third-party service provider access, final § 49.11(b)(5) also provides that the third-party service provider access is in addition to (i.e., not instead of) the access for the relevant reporting counterparty. Each SDR must still grant the same required level of access to the mechanism and the relevant swap data to the reporting counterparty, regardless of whether a reporting counterparty utilizes a thirdparty service provider. The third-party service provider’s access under final § 49.11(b)(5) must also continue until the reporting counterparty informs the SDR that the third-party service provider should no longer have access to the mechanism and relevant swap data on the reporting counterparty’s behalf. This requirement is necessary to ensure that the third-party service provider can provide services to the 101 The Commission is finalizing a technical correction to § 49.17(f) in this rulemaking, as described below in section II.L. 102 See section III.C below for a discussion of the verification requirements for reporting counterparties under final § 45.14(b). e. § 49.11(b)(4) PO 00000 Frm 00192 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 reporting counterparty without interruption. Finally, § 49.11(b)(5) requires the verification policies and procedures an SDR must create pursuant to final § 49.11(c) to include instructions detailing how each reporting counterparty can successfully inform the SDR so that the SDR will grant or discontinue access for a third-party service provider at the reporting counterparty’s instruction. This requirement is necessary to ensure that third-party service provider access for verification purposes is as efficient and seamless as possible. The Commission notes that these SDR policies and procedures are required to be publicly disclosed under final § 49.26(j).103 g. § 49.11(c) The Commission made several nonsubstantive organizational and editorial modifications in final § 49.11(c), as compared to the Proposal. For example, as described above, the SDR verification policies and procedures requirement from proposed § 49.11(a) is included in final § 49.11(c). The wording in final § 49.11(c)(1) is changed slightly from proposed § 49.11(a) for clarity purposes, but similarly requires SDRs to establish, maintain, and enforce policies and procedures that address how the swap data repository will fulfill all of the applicable requirements of final § 49.11. The policies and procedures must also include instructions on how each reporting counterparty, or third-party service provider acting on behalf of a reporting counterparty, can successfully utilize the mechanism to access swap data in order to perform the reporting counterparty’s verification responsibilities under final § 45.14(b). This requirement is necessary to ensure that reporting counterparties are clearly instructed on how to access the verification mechanism and their relevant swap data, in order to ensure that verification is as efficient and seamless as possible. The Commission notes that the companion verification requirements for reporting counterparties in final § 45.14(b) require reporting counterparties to follow the relevant SDR policies and procedures when performing verification.104 Final § 49.11(c)(2) sets forth the requirements for an SDR that amends its verification policies and procedures, which were previously set forth in proposed § 49.11(d). Final § 49.11(c)(2), like proposed § 49.11(d), requires each 103 See section II.R below for a discussion of final § 49.26(j). 104 See section III.C for a discussion of the verification requirements for reporting counterparties under final § 45.14(b). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 SDR to comply with the requirements of part 40 of the Commission’s regulations in adopting or amending the verification policies and procedures required under final § 49.11(c)(1). The Commission notes that SDRs would be required to comply with part 40 when adopting or amending the verification policies and procedures regardless of whether this requirement is included in § 49.11(c)(2). 3. Comments on the Proposed Rule The Commission received many comments on the verification approach in proposed § 49.11. Many commenters did not distinguish their comments between the verification requirements proposed for SDRs under proposed § 49.11 and the verification requirements proposed for reporting counterparties under proposed § 45.14, but the Commission has organized the discussion between the two different final rules based on its best estimation of whether particular comments applied to one or both of the proposed sections. The discussion of comments relevant to final § 49.11 is contained in this section, while the discussion of comments that pertain to the verification requirements for reporting counterparties is contained in the discussion of final § 45.14(b), unless otherwise noted below.105 Many comments on specific requirements of proposed § 49.11 are now moot, because the Commission is not adopting the proposed requirements. For example, some commenters addressed particular aspects and mechanics of the proposed verification of open swaps reports and the messages the Proposal would require reporting counterparties to send to SDRs related to verification results.106 These comments are no longer applicable, because the Commission is not adopting the proposed requirement that SDRs provide open swaps reports to reporting counterparties or the companion requirement that reporting counterparties verify the data in such reports and send messages to SDRs related to verification results. The Commission acknowledges these comments on specific proposed requirements and thanks the commenters for submitting these comments, but these requirements are not included in the final rule. Many comments were generally supportive of the Commission’s efforts to improve the accuracy of data reported to and maintained by SDRs.107 The Commission agrees with the many commenters and market participants who support the Roadmap rulemakings to improve the quality of swap data, and reiterates the importance of improved data accuracy and completeness. Along with the comments of general support, the Commission received many comments supporting specific requirements in proposed § 49.11. Comments in particular supported limiting data verification to swap data,108 and excluding non-reporting counterparties from data verification requirements.109 The Commission agrees with these comments and is finalizing § 49.11 with requirements that only apply verification to swap data and only require verification for reporting counterparties. Commenters also suggested alternatives for the proposed approach to verification, including alternatives that helped form the basis of the revised verification requirements in final § 49.11. Multiple comments suggested that the Commission adopt a more ‘‘principles based’’ approach to verification.110 As part of a more principles-based approach, one comment suggested monthly verification for SDs and quarterly for non-SDs, while also recommending that SDRs or the Commission should be able to request evidence that verification was conducted as required.111 Another comment advocated for requiring reporting counterparties to implement procedures to periodically reconcile swaps data reported to SDRs.112 The Commission also received one comment related to alternatives to verification of accuracy and notice of discrepancy messaging, which recommended an obligation on reporting counterparties to maintain, and make available to the Commission upon request, evidence that verification was conducted and any necessary corrections were submitted to the SDR.113 The Commission recognizes the comments that provided robust alternatives to the proposed verification requirements that also met the Commission need for swap data to be verified in a thorough and timely manner. The Commission is finalizing § 49.11 with more principles-based requirements that incorporate each of these suggestions, including that reporting counterparties periodically 108 ISDA/SIFMA 109 GFMA 106 See, e.g., GFMA at 4; IATP at 5; ICE TV at 3– 4; ISDA/SIFMA at 40, 43–44; Joint SDR at 2–7. 107 See Freddie Mac at 1, 2; IATP at 1–5; Joint SDR at 1; Markit at 2. Frm 00193 at 39–41, 44. at 4, ISDA/SIFMA at 39, Joint SDR at 2. 105 Id. PO 00000 75613 Fmt 4701 Sfmt 4700 110 CS at 3, FIA at 7–8, ISDA/SIFMA at 45. at 45. 112 CS at 3. 113 Joint SDR at 6–8. 111 ISDA/SIFMA E:\FR\FM\25NOR2.SGM 25NOR2 75614 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 reconcile the open swap data maintained by SDRs with the open swap data in their own books and records; that verification occur on a monthly basis for SD reporting counterparties (though the Commission will also require monthly verification for MSPs and DCOs) and quarterly for other reporting counterparties; and that reporting counterparties maintain and make available to the Commission evidence that verification was conducted properly and any discovered corrections submitted to the relevant SDR(s).114 The Commission also received other comments addressing issues that have been incorporated into the final verification requirements. Though largely included with comments related to the proposed open swaps reports, multiple comments advocated for flexibility in the form and manner that SDRs and reporting counterparties perform verification, as these entities already have established methods for communicating swap data and other information.115 These comments on the proposed open swaps reports also recommended that verification only be required for swap data as current at the time of verification, as opposed to verification on every data message.116 Another comment also requested clarification that the required distribution of open swaps reports is a minimum, not a maximum, and that SDRs are able to provide open swaps reports more frequently than the minimum.117 The Commission recognizes the suggestions included with these comments and agrees with the comments. The Commission originally proposed, and is also now adopting, verification requirements that provide SDRs with flexibility in implementing the verification requirements. Thus, final § 49.11(b) intentionally does not prescribe the form and manner of the verification mechanism and allows SDRs to determine the means for reporting counterparties access to their relevant swap data. The Commission expects that SDRs and reporting counterparties will work together to devise the most efficient and effective mechanism that meets the specific verification requirements in final §§ 49.11 and 45.14. The Commission also proposed, and is now adopting, requirements that only require the 114 See section III.C for a more thorough discussion of the verification requirements for reporting counterparties under final § 45.14(b). 115 GFMA at 5, ISDA/SIFMA at 40, Joint SDR at 6. 116 ISDA/SIFMA at 40, Joint SDR at 6. 117 Joint SDR at 6–7. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 verification of up-to-date swap data, as opposed to verification of all messages. Final § 49.11(b)(2) only requires SDRs to make the relevant ‘‘most current’’ swap data available to reporting counterparties, as opposed to every message regarding swap data. Though no longer related to open swaps reports, the Commission is also adopting verification timing requirements in § 45.14(b) that serve as a minimum frequency requirement, not a maximum. As the Commission detailed above in the discussion of final § 49.11(b)(4), the SDRs must make the verification mechanism available to the reporting counterparties at least as often as needed for the reporting counterparties to perform their verification responsibilities under final § 45.14(b), but that nothing prevents the SDRs from providing proper access more frequently. The Commission anticipates that some SDRs may choose to provide access to the mechanism on a morefrequent, even potentially continuous, basis. The Commission also received a comment related to open swaps reports that observed that SDRs would not be able perform verification with reporting counterparties or third-party service providers that are not members of the SDR. The comment suggested that the Commission modify the verification requirement to limit an SDR’s verification responsibilities to reporting counterparties and third-party service providers that are members of the SDR.118 The Commission agrees with this comment and notes that it would not be practical for an SDR to perform verification with reporting counterparties or third-party service providers that are not connected to the SDR. To address this, the Commission is adopting final § 49.11(b)(1), which specifically requires an SDR to provide a verification mechanism that grants swap data access to each ‘‘reporting counterparty that is a user of the swap data repository,’’ as required under final § 49.11(b). The Commission notes that final § 49.11(b)(5) contains provisions related to access for a third-party service provider working on behalf of a reporting counterparty and that final § 49.11(c) requires SDR verification policies and procedures to address how a third-party service provider can successfully utilize the SDR verification mechanism on behalf of a reporting counterparty. The Commission also received a number of comments that made suggestions that are not being accepted. In the context of open swaps reports, 118 Joint PO 00000 SDR at 4–5. Frm 00194 Fmt 4701 Sfmt 4700 one comment suggested that the Commission should specify that verification timing requirements be clarified as ‘‘business days’’ and ‘‘business hours,’’ as this would facilitate the SDRs including the date and time that an open swap report was sent.119 The Commission is including verification timing requirements for reporting counterparties in final § 45.14(b), but these timing requirements are stated in terms of calendar days, calendar months, and calendar quarters. The Commission notes that the comment is now moot, as there will be no open swaps reports from SDRs to the reporting counterparties that would necessitate a timestamp, but the Commission also believes that the final use of calendar timing instead of business timing will not cause any issues in regards to reporting counterparties and SDRs performing verification and will provide consistent parameters for when verification must be performed. The use of calendar time allows the reporting counterparties to choose the date most convenient for them to accomplish regular verification without the potential confusion arising from business days shifting based on weekends and holidays. One comment suggested that the Commission should remove the requirement in proposed § 49.11(d) that SDRs make a filing under part 40 of the Commission’s regulations when changing their verification policies and procedures, asserting that such a requirement is unnecessary because reporting counterparties will be required to follow SDR verification procedures.120 The Commission disagrees and is adopting the requirement in final § 49.11(c)(2). The Commission notes that the requirements of part 40 of the Commission’s regulations would apply to the SDR verification policies and procedures regardless of whether this provision is included in final § 49.11(c)(2), because the verification policies and procedures are ‘‘rules’’ for the purposes of part 40 of the Commission’s regulations.121 The Commission also believes that requiring SDRs to comply with part 40 to update verification policies and procedures will help alert reporting counterparties and other market participants to when an SDR seeks to change its policies and procedures, which will help ensure compliance with the verification 119 ISDA/SIFMA at 40. SDR at 7. 121 See 17 CFR 40.1(i) (defining ‘‘rule’’ for the purposes of part 40 of the Commission’s regulations). 120 Joint E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations policies and procedures and help prevent errors in the verification process. The Commission also received multiple comments suggesting changes that would narrow the data fields subject to verification. One comment recommended that verification be limited to data fields related to the ‘‘economic terms’’ of the trade only, with the Commission identifying which fields are included in the economic terms.122 Comments also recommended limiting the reported information to information that would improve the Commission’s market surveillance capabilities and promote price transparency, while also limiting optional fields and fields that do not apply to the relevant swaps.123 One comment suggested the Commission clarify the duties relating to static data elements.124 Other comments also suggested streamlining data fields to only those necessary for the Commission’s work and to harmonize data fields with foreign regulators, if possible,125 and clarifying the data fields.126 As described in more detail in the discussion of verification requirements under final § 45.14(b),127 the Commission disagrees with comments suggesting that the Commission adopt any verification requirement that would allow reporting counterparties to verify anything less than all swap data fields for all of the reporting counterparty’s relevant open swaps. All swap data fields are important and are necessary for the Commission to successfully fulfill its regulatory responsibilities, which extend beyond performing robust market surveillance and promoting price transparency. The Commission is adopting verification requirements that require the reporting counterparties to verify every swap data field for all swap data for every one of a reporting counterparty’s relevant open swaps, and is adopting the requirements in final § 49.11(b) that will facilitate this by requiring SDRs to provide a mechanism that allows the reporting counterparties to verify every data field for all relevant swap data. This requirement includes all static data elements, as errors are still possible in swap data maintained by SDRs, even if it is intended to be static. The Commission also notes that jbell on DSKJLSW7X2PROD with RULES2 122 GFMA at 10–11, 13–14. Associations at 4–10, NGSA at 4. 124 Markit at 2–3. 125 Eurex at 1–2, GFMA at 14, Joint Associations at 4–10. 126 CEWG at 2–3. 127 See section III.C for a more thorough discussion of the verification requirements for reporting counterparties under final § 45.14(b). 123 Joint VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 streamlining, clarifying, and harmonizing data fields is one of the express purposes of the Roadmap rulemakings, and that this work on data fields is accomplished in a separate Roadmap rulemaking.128 The Commission received several comments suggesting that verification is unnecessary and that the Commission can instead rely on SDR swap data validation, standardized and harmonized swap data fields, and/or the swap data error corrections requirements to improve data quality.129 As described in more detail in the discussion of verification requirements under final § 45.14(b), the Commission disagrees with the suggestions that verification is unnecessary and that swap data validation, standardized swap data fields, and error correction would be sufficient to meet the Commission’s data quality goals. While swap data validation and standardized data fields are valuable tools to prevent certain types of swap data errors, such as swap data being reported without required data, they do not address the same errors that swap data verification is intended to address. Swap data verification, which is designed to inform and trigger the swap data error correction process, is intended to address plausible but incorrect swap data that would not be identified by validation because the incorrect data meets the technical standards for the standardized fields, such as a swap being reported with a notional value of $1,000,000 instead of the correct $10,000,000. These errors would only be found, and the error correction requirement triggered, by a party to the swap reviewing the data after it has been reported and discovering the error(s), such as through the verification process. The Commission also notes that swap data validation and standardized data fields can only prevent errors in swap data that have not yet been reported, as opposed to swap data verification, which will be useful for finding undiscovered errors in swap data for open swaps that have already been reported. Through its experience administering the data reporting regulations, the Commission is also aware of many examples of significant swap data errors that would not have been prevented by swap data validations, and that, in the absence of an adequate verification requirement, persisted for long periods of time before being discovered and 128 See generally 85 FR 21578, et seq. (Apr. 17, 2020). 129 CEWG at 2–3, Chatham at 3, Eurex at 2, NGSA at 4, Joint Associations at 6–10, Joint SDR at 7–8. PO 00000 Frm 00195 Fmt 4701 Sfmt 4700 75615 corrected. Based on this experience, the Commission determined that swap data validation, standardized data fields, and the error correction requirements are not sufficient to meet the Commission’s data quality goals without the addition of swap data verification. As a result, the Commission is adopting final § 49.11, and the companion requirements in final § 45.14(b), in order to require a robust and effective verification process for SDRs and reporting counterparties that the Commission expects will help ensure significant improvements in swap data quality. H. § 49.12—Swap Data Repository Recordkeeping Requirements Section 49.12 sets forth recordkeeping requirements for SDRs.130 The Commission proposed to amend § 49.12 to incorporate the recordkeeping requirements for SDRs in current § 45.2(f) and (g) 131 into final § 49.12, and to resolve ambiguities and potential inconsistencies between the regulations.132 The Commission has determined to adopt the amendments to §§ 49.12 and 45.2 as proposed, except for a technical change discussed below. Current § 49.12(a) requires an SDR to maintain its books and records in accordance with the recordkeeping requirements of part 45. The Commission proposed to amend § 49.12(a) to incorporate the provisions of current § 45.2(f) and to clarify that the requirement in final § 49.12(a) that an SDR keep records applies to records of all activities relating to the business of the SDR, not just records of swap data reported to the SDR.133 Accordingly, as amended, final § 49.12(a) requires an SDR to keep full, complete, and systematic records, together with all pertinent data and memoranda, of all activities relating to the business of the SDR, including, but not limited to, all SDR information and all SDR data that is reported to the SDR. The amendments to § 49.12(a) do not impose new requirements on an SDR; rather, the amendments incorporate the currentlyapplicable requirements of § 45.2(f). 130 17 CFR 49.12. Current § 49.12 sets forth specific recordkeeping requirements and references the public reporting requirements and recordkeeping requirements for SDRs included in parts 43 and 45. 131 17 CFR 45.2(f) and (g). 132 Proposal at 84 FR 21055 (May, 13, 2019). Consolidating these regulations in part 49 will reduce confusion that may arise from having separate SDR recordkeeping requirements in two different rules. 133 Id. Current § 49.12(a) applies to swap data required to be reported to the SDR, whereas § 45.2(g) applies to records of all activities relating to the business of the SDR and all swap data reported to the SDR. E:\FR\FM\25NOR2.SGM 25NOR2 75616 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Current § 49.12(b) requires an SDR to maintain swap data (including all historical positions) throughout the existence of the swap and for five years following the final termination of the swap, during which time the records must be readily accessible by the SDR, and available to the Commission via real-time electronic access; and in archival storage from which the data is retrievable by the SDR within three business days.134 The Commission is amending § 49.12(b) by incorporating the requirements of § 45.2(g) into final § 49.12(b). Thus, as amended, final § 49.12(b) will: (i) Clarify that the requirements of the regulation apply to all records required to be kept by an SDR, not just swap data reported to an SDR,135 and (ii) incorporate the additional ten-year retention period set forth in current § 45.2(g)(2).136 Final § 49.12(b) sets forth separate recordkeeping requirements for SDR information in final § 49.12(b)(1) and SDR data reported to the SDR in final § 49.12(b)(2). Section 49.12(b)(1) requires an SDR to maintain all SDR information, including, but not limited to, all documents, policies, and procedures required to be kept by the Act and the Commission’s regulations, correspondence, memoranda, papers, books, notices, accounts, and other such records made or received by the SDR in the course of its business. An SDR must maintain such information in accordance with § 1.31 of the Commission’s regulations.137 As amended, final § 49.12(b)(2) requires an SDR to maintain all SDR data and timestamps reported to or created by the SDR, and all messages related to such reporting, throughout the 134 17 CFR 49.12(b). at 84 FR 21055 (May 13, 2019). Current § 49.12(b) applies to swap data, whereas § 45.2(g) applies to all records required to be kept by an SDR. 136 Section 45.2(g)(2) provides that all records required to be kept by an SDR must be kept in archival storage for ten years after the initial 5-year retention period under § 45.2(g)(1). Current § 49.12(b) only sets forth the initial 5-year retention period. 137 Section 1.31 of the Commission’s regulations is the Commission’s general recordkeeping provision, which requires, among other things, that any regulatory records that do not pertain to specific transactions and are not retained oral communications be kept for no less than five years from their creation date. See 17 CFR 1.31(b)(3). As noted in the Proposal, current § 49.12(b) and § 45.2 use the existence of the swap as the basis for the record retention timeframes specified therein, but this offers no guidance on how long to keep a record of SDR information, such as SDR policies and procedures. See Proposal at 21056. Therefore, the Commission is clarify in § 49.12(b)(1) that the record retention period for such records is the generally applicable retention period under § 1.31 of the Commission’s regulations. jbell on DSKJLSW7X2PROD with RULES2 135 Proposal VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 existence of the swap that is the subject of the SDR data and for five years following final termination of the swap, during which time the records must be readily accessible by the SDR and available to the Commission via realtime electronic access, and for a period of at least ten additional years in archival storage from which such records are retrievable by the SDR within three business days.138 The amendments to § 49.12(b) are also intended to help harmonize the Commission’s regulations with the SEC’s regulations.139 The SDR information listed in final § 49.12(b)(1) largely matches the SEC’s requirement for SBSDR recordkeeping 140 and the retention provisions of § 1.31 largely match the requirement for SBSDRs.141 Any SDR that also registers with the SEC as an SBSDR will have to comply with both final § 49.12 and § 240.13n–7, and therefore consistency between the recordkeeping provisions is particularly beneficial to such SDRs. The Commission again notes that the amendments to § 49.12(b) do not change the requirements for SDRs; they merely consolidate existing requirements set forth in current § 45.2(f) and (g) into final § 49.12.142 138 The retention period under § 49.12(b)(2) is the current requirement for SDR records retention under § 45.2(g). 139 The concept of separate recordkeeping requirements for information similar to SDR information and for SDR data reported to an SDR has already been adopted by the SEC in its regulations governing SBSDRs. See 17 CFR 240.13n–7(b) (listing recordkeeping requirements for SBSDRs); 17 CFR 240.13n–7(d) (excluding ‘‘transaction data and positions’’ from the recordkeeping requirements and instead referring to 17 CFR 240.13n–5 for such recordkeeping). 140 See 17 CFR 240.13n–7(b)(1). This rule provides that every security-based swap data repository shall keep and preserve at least one copy of all documents, including all documents and policies and procedures required by the Securities Exchange Act and the rules and regulations thereunder, correspondence, memoranda, papers, books, notices, accounts, and other such records as shall be made or received by it in the course of its business as such. 141 Compare 17 CFR 1.31(b)(3) (providing that a records entity shall keep each regulatory record for a period of not less than five years from the date on which the record was created) and 17 CFR 1.31(b)(4) (providing that a records entity shall keep regulatory records exclusively created and maintained on paper readily accessible for no less than two years, and shall keep electronic regulatory records readily accessible for the duration of the required record keeping period) with 17 CFR 240.13n–7(b)(2) (providing that every SBSDR shall keep all such documents for a period of not less than five years, the first two years in a place that is immediately available to representative of the Securities and Exchange Commission for inspection and examination). 142 See 17 CFR 45.2(f) and (g). Though the term ‘‘swap data’’ is defined in § 49.2(a) to mean the specific data elements and information set forth in 17 CFR part 45, the Commission notes that the term ‘‘swap data’’ is not currently defined in part 45. PO 00000 Frm 00196 Fmt 4701 Sfmt 4700 The Commission is amending existing § 49.12(c) and renumbering it as § 49.12(d).143 In place of existing § 49.12(c), final § 49.12(c) requires an SDR to create and maintain records of SDR validation errors and SDR data reporting errors and omissions. Final § 49.12(c)(1) requires an SDR to create and maintain an accurate record of all reported SDR data that fails to satisfy the SDR’s data validation procedures. The records must include, but are not be limited to, records of all of the SDR data reported to the SDR that failed to satisfy the SDR data validation procedures, all SDR validation errors, and all related messages and timestamps. Final § 49.12(c)(2) requires an SDR to create and maintain an accurate record of all SDR data errors and omissions reported to the SDR and all corrections disseminated by the SDR pursuant to parts 43, 45, 46, and 49 of the Commission’s regulations. Section 49.12(c)(2) also requires SDRs to make the records available to the Commission on request. The Commission believes SDRs already receive the data validation information specified in final § 49.12(c) via regular interaction with SEFs, DCMs, and reporting counterparties. The Commission emphasizes that such data must be maintained in order to allow for assessments of reporting compliance, including the initial reporting and the correction of the SDR data. The Commission notes that while final § 49.12(c) specifies recordkeeping requirements for SDR data validation errors and SDR data reporting errors, these requirements do not in any way limit the applicability of the recordkeeping requirements in final § 49.12 to these records. Thus, since the records specified in final § 49.12(c) are Current § 45.2(f) requires the SDR to keep full, complete, and systematic records, together with all pertinent data and memoranda, of all activities related to the business of the swap data repository and all swap data reported to the swap data repository, as prescribed by the Commission. This expansive requirement for all pertinent data and memoranda for all activities related to the business of the swap data repository and all swap data reported to the swap data repository reflects that § 45.2(f) requires an SDR to keep records of data from activities beyond reporting pursuant to part 45, including, for example, all of the required swap transaction and pricing data reporting pursuant to part 43. The ‘‘full, complete, and systematic records’’ that must be kept for ‘‘all activities related to the business’’ of the SDR also include all messages related to the reported data, including all messages sent from the SDR and to the SDR. This recordkeeping obligation on SDRs is analogous to recordkeeping obligations on DCMs, SEFs, and DCOs. See 17 CFR 38.950, 37.1001, and 39.20(a). 143 As discussed below, as part of the amendments to § 49.12, the Commission is removing current § 49.12(d). E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 comprised of, or relate to, SDR data reported to an SDR, all records created and maintained by an SDR pursuant to final § 49.12(c) are subject to the requirements of final § 49.12(b)(2). Existing § 49.12(d) requires an SDR to comply with the real time public reporting and recordkeeping requirements of existing § 49.15 and part 43. The Commission believes that existing § 49.12(d) 144 is redundant because its requirements that an SDR comply with the real time public reporting and recordkeeping requirements set forth in § 49.15 and part 43 are also required by final § 49.12(b)(2) and § 49.15, as well as part 43. Accordingly, the Commission is moving the text of existing § 49.12(c) to final § 49.12(d) and amending the regulation to provide that (i) all records required to be kept pursuant to part 49 must be open to inspection upon request by any representative of the Commission or any representative of the U.S. Department of Justice; and (ii) an SDR must produce any record required to be kept, created, or maintained by the SDR in accordance with § 1.31 of the Commission’s regulations. Finally, the Commission proposed a technical change to move the existing requirements of § 49.12(e) to proposed § 49.13.145 However, as discussed below, the Commission is not adopting the proposed amendments to § 49.13 at this time. Therefore, the Commission is not moving existing § 49.12(e) to § 49.13. The Commission requested comment on all aspects of proposed § 49.12.146 One comment supported consolidating the SDR recordkeeping requirements in part 45 into part 49.147 Another comment stated that the requirement in proposed § 49.12(b)(2) for an additional ten-year retention period following a five-year period after termination of a swap is excessive.148 This comment recommended that the Commission replace the proposed requirements for record retention in proposed § 49.12 with a seven-year retention period following final 144 See 17 CFR 49.12(d) (providing that a registered swap data repository shall comply with the real time public reporting and recordkeeping requirements prescribed in § 49.15 and in 17 CFR part 43). 145 Current § 49.12(e) requires an SDR to establish policies and procedures to calculate positions for position limits and for any other purpose as required by the Commission. 146 The Commission also invited specific comment on the archival storage requirements of current § 45.2(g)(2) and proposed § 49.12(b)(2). See Proposal at 21057. 147 ISDA/SIFMA at 43. 148 Joint SDR at 11. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 termination of the swap, during which time the records would be readily accessible by the SDR and available to the Commission.149 The Commission has determined to adopt the amendments to §§ 49.12 and 45.2 as proposed, except the Commission is not adopting the technical change of moving § 49.12(e) to § 49.13, as discussed below in Section II.I. With regard to record retention period comments, the Commission notes that retention period in final § 49.12(b)(2) is the current retention period applicable to SDRs, not a new requirement, and that SDRs currently have this unique ten-year retention period because they are the source of all SDR data for the public and the CFTC. Further, the Commission believes the existing 10year retention period has functioned well and did not propose to amend the retention period. Accordingly, the Commission declines to shorten the retention period. I. § 49.13—Monitoring, Screening, and Analyzing Data Existing § 49.13 implements CEA section 21(c)(5), which requires SDRs to, at the direction of the Commission, establish automated systems for monitoring, screening, and analyzing swap data, including compliance and frequency of end-user clearing exemption claims by individuals and affiliated entities.150 Existing § 49.13 requires SDRs to: (i) Monitor, screen, and analyze all swap data in their possession as the Commission may require, including for the purpose of any standing swap surveillance objectives that the Commission may establish as well as ad hoc requests; and (ii) develop systems and maintain sufficient resources as necessary to execute any monitoring, screening, or analyzing functions assigned by the Commission.151 The Commission proposed to amend § 49.13 to provide more detail on the monitoring, screening, and analyzing tasks that an SDR may be required to perform as directed by the Commission. The Commission also proposed to amend § 49.13 to make clear that the requirements of proposed § 49.13 apply to SDR data reported to the SDR pursuant to parts 43, 45, and 46. The Commission received a number of 149 Id. Joint SDR also stated the Commission ‘‘should harmonize the SDR retention periods with that of Europe and other Commission regulated entities such as [DCMs, DCOs and SEFs],’’ and that a 7-year retention period ‘‘gets closer to a harmonized global standard.’’ Id. 150 7 U.S.C. 24a(c)(5). 151 See generally 17 CFR 49.13. PO 00000 Frm 00197 Fmt 4701 Sfmt 4700 75617 comments on the proposed rule, both supporting and recommending against its adoption.152 The Commission has determined not to make any amendments to § 49.13 at this time. The Commission believes it may benefit from further consideration and experience with swap data following the implementation of the requirements of part 49, as amended in this final rule, as well as the implementation of the significantly amended rules in part 45 that the Commission is adopting as final along with this final rule. The Commission may consider the proposed amendments to § 49.13 in a future rulemaking. As part of the Proposal, the Commission also proposed a technical change that would move existing § 49.15(c) to § 49.13.153 The Commission also proposed to move the requirements of existing § 49.12(e) to § 49.13. While moving existing §§ 49.15(c) and 49.12(e) to § 49.13 is not a substantive amendment, the Commission has determined that it would be more efficient to defer these proposed amendments along with the other proposed changes to existing § 49.13, and is therefore not adopting these amendments as part of this final rulemaking. Thus, the current text of § 49.13 will remain in effect after this rulemaking. J. § 49.15—Real-Time Public Reporting by Swap Data Repositories The Commission proposed to amend existing § 49.15 to conform the regulation to the proposed amended definitions in § 49.2. As discussed above, the Commission also proposed to 152 IATP generally supported the proposed rule. IATP at 7. IATP further provided recommendations and support for adopting specific requirements for SDRs, such as a requirement to produce a report regarding ‘‘mortgage swaps risks of reporting counterparties’’ that would be relevant to assessing climate-related financial risks, and to calculate positions for market participants. Id. at 8–9. ISDA/ SIFMA recommended adopting a requirement that SDRs produce rejection statistics reports. ISDA/ SIFMA at 45. Joint SDR generally supported adopting rules that provide more detail about the tasks that the Commission may require an SDR to perform. Joint SDR at 12. However, Joint SDR recommended against adopting the proposed rule, stating that the requirements in the proposed rule exceed those authorized by the Act, would impermissibly require the SDRs to perform regulatory functions, and that it would be impracticable for the SDRs to fulfill the proposed requirements for lack of sufficient data. Joint SDR at 12–15. 153 Existing § 49.15(c) provides that an SDR must notify the Commission of any swap transaction for which the real-time swap data was not received by the SDR in accordance with 17 CFR part 43. In addition to moving existing § 49.15(c) to § 49.13, the Commission proposed to amend the regulation to similarly require an SDR to notify the Commission with regard to data not received by the SDR pursuant to parts 45 and 46. E:\FR\FM\25NOR2.SGM 25NOR2 75618 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations move existing § 49.15(c) to proposed § 49.13(c). Additionally, the Commission proposed to amend existing § 49.15(a) and § 49.15(b) to remove the term ‘‘swap data,’’ which is defined in § 49.2 as part 45 data, and replace it with text clarifying that § 49.15 pertains to swap transaction and pricing data submitted to an SDR pursuant to part 43. These nonsubstantive amendments do not affect the existing requirements of § 49.15. The Commission did not receive any comments on the proposed amendments to § 49.15(b) and is adopting the amendments as proposed, with the exception of the proposed movement of existing § 49.15(c) to proposed § 49.13(c). jbell on DSKJLSW7X2PROD with RULES2 K. § 49.16—Privacy and Confidentiality Requirements of Swap Data Repositories The Commission proposed to amend existing § 49.16 to conform the regulation to the proposed amendments to the definitions in § 49.2.154 Specifically, the Commission proposed to amend § 49.16(a)(1) to clarify that the policy and procedure requirements of § 49.16 apply to SDR information and to any SDR data that is not swap transaction and pricing data disseminated under part 43.155 The requirements include that an SDR have policies and procedures to protect the privacy and confidentiality of any and all SDR information and all SDR data (except for swap transaction and pricing data disseminated under part 43) that the SDR shares with affiliates and nonaffiliated third parties. The proposed amendments also conform the text of § 49.16 with the removal of the term ‘‘reporting entity’’ and the amended definitions of ‘‘SDR data’’ and ‘‘swap data’’ in final § 49.2. The amendments are non-substantive and do not affect the existing requirements or applicability of § 49.16. The Commission did not receive any comments on the proposed conforming amendments to § 49.16 and is adopting the amendments as proposed. L. § 49.17—Access to SDR Data Section 49.17 sets forth the requirements and conditions for an SDR to provide access to SDR data to the Commission, foreign and domestic regulators, and swap counterparties, among others.156 The Commission proposed to amend § 49.17 to clarify some of the requirements in the regulation with respect to the Commission’s access to SDR data. One 154 See section II.A above. at 21059. 156 See generally 17 CFR 49.17. 155 Proposal VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 commenter recommended revisions to the proposed amendments to § 49.17, as discussed below. The Commission has determined to adopt the amendments to § 49.17 as proposed. As discussed in the Proposal, the Commission believes the amendments to the definition of ‘‘direct electronic access’’ in final § 49.17(b)(3) will provide additional flexibility to implement methods for data transfers from SDRs to the Commission, and may facilitate the use of advancing technology and more efficient means of direct electronic access for the Commission. The amendments also make clear that the Commission may decide to accept other methods of access, as long as the method is able to efficiently provide the Commission with real-time access to SDR data and scheduled SDR data transfers to the Commission. 1. Amendments to § 49.17(b)— Definition of Direct Electronic Access Existing § 49.17(c)(1) requires an SDR to provide ‘‘direct electronic access,’’ a term defined in existing § 49.17(b)(3),157 to the Commission or the Commission’s designee, including another registered entity, in order for the Commission to carry out its legal and statutory responsibilities under the Act.158 The Commission is amending the definition of ‘‘direct electronic access’’ in final § 49.17(b)(3) to mean an electronic system, platform, framework, or other technology that provides internet-based or other form of access to real-time SDR data that is acceptable to the Commission and also provides scheduled data transfers to Commission electronic systems. The amended definition expands the potential means by which an SDR may provide direct electronic access to include ‘‘other technology’’ and ‘‘other forms of access.’’ 159 The amendments are intended to provide greater flexibility to SDRs and the Commission by making clear that the Commission may accept other technology or other forms of access that are not internet-based, as long as the access to SDR data is realtime and provides for scheduled SDR data transfers to the Commission. The Commission believes innovation and advances in technology may provide alternative, more-efficient means for data transfer, and the amended 157 17 CFR 49.17(b)(3). CFR 49.17(c)(1). 159 Current § 49.17(b)(3) defines direct electronic access as an electronic system, platform or framework that provides internet or Web-based access to real-time swap transaction data and also provides scheduled data transfers to Commission electronic systems. 158 17 PO 00000 Frm 00198 Fmt 4701 Sfmt 4700 regulation is intended to facilitate the use of such technology by SDRs and the Commission. The revised definition of direct electronic access also adds a condition that the technology or form of access be ‘‘acceptable to the Commission’’ in order to clarify that any form of direct electronic access, including any new technology, must be approved by the Commission. As discussed below, the Commission anticipates working with SDRs to determine acceptable forms of direct electronic access, consistent with the Commission’s current practice of coordinating and collaborating with SDRs to facilitate transfers of, and realtime access to, SDR data. Finally, the amended definition of ‘‘direct electronic access’’ replaces the phrase ‘‘real-time swap transaction data’’ 160 with ‘‘real-time SDR data,’’ to eliminate confusion and maintain consistency with the use of the term ‘‘SDR data’’ in other amended provisions in part 49.161 This nonsubstantive amendment is not intended to change the existing requirements or current SDR practice for providing the Commission with direct electronic access to SDR data. 2. Amendments to § 49.17(c)— Commission Access The Commission is amending § 49.17(c) to incorporate the requirements of current § 45.13(a),162 which relates to the requirements for an SDR to maintain and transmit data to the Commission, and to make additional clarifications in the regulation. The Commission is also making nonsubstantive edits to final § 49.17 to conform terms used in the section with the rest of the Commission’s regulations (e.g., replacing ‘‘swap data and SDR Information’’ with ‘‘SDR data and SDR Information’’). The amendments are intended to consolidate other related requirements into final § 49.17(c) and to improve the regulation’s clarity and 160 17 CFR 49.17(b)(3). Commission notes that the phrase ‘‘realtime’’ is often used to reference swap transaction and pricing data that is publicly reported pursuant to part 43. In this instance, the term refers to direct electronic access requiring that SDR data be available in real time to the entity granted direct electronic access (i.e., the Commission or its designee). 162 While the amendments consolidate the requirements for Commission access to SDR data, the Commission did not propose to modify current § 45.13(a) in the Proposal. See Proposal at 21060, n. 132. The Commission subsequently proposed amendments to current § 45.13(a) that are consistent with final § 49.17(c) in a separate notice of proposed rulemaking related to the Roadmap. See 85 FR at 21633. 161 The E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations consistency with other Commission regulations. Final § 49.17(c) adds introductory text that requires an SDR to provide the Commission with access to all SDR data maintained by the SDR.163 Final § 49.17(c)(1) retains the requirements of current § 49.17(c)(1) and adds a provision to incorporate the requirements of current § 45.13(a), with modifications.164 Specifically, final § 49.17(c)(1) requires an SDR to maintain all SDR data reported to the SDR in a format acceptable to the Commission, and to transmit all SDR data requested by the Commission to the Commission as instructed by the Commission. Section 49.17(c)(1) also includes a new provision not found in current § 45.13(a), stating that the Commission’s instructions may include, but are not limited to, the method, timing, and frequency of transmission, as well as the format and scope of the SDR data to be transmitted. Final § 49.17(c)(1) also revises the requirement in existing § 45.13(a) that an SDR maintain and transmit ‘‘swap data’’ to ‘‘SDR data,’’ to make clear that an SDR must maintain all SDR data reported to the SDR in a format acceptable to the Commission and transmit all SDR data requested by the Commission.165 3. § 49.17(f)(2)—Technical Correction The Commission is amending existing § 49.17 to replace an incorrect reference to ‘‘§ 37.12(b)(7)’’ at the end of paragraph (f)(2) with the correct reference to ‘‘§ 39.12(b)(7).’’ 166 The Commission is also making nonsubstantive amendments to conform the terminology in final § 49.17(f)(2) with the terms listed in final § 49.2. jbell on DSKJLSW7X2PROD with RULES2 4. Delegation of Authority—§ 49.17(i) The Commission is moving the delegation of authority provision in existing § 49.17(i) 167 to final § 49.31(a)(7). Existing § 49.17(i) delegates to the Director of DMO the authority reserved to the Commission in 163 See 17 CFR 49.17(c)(1) (providing that a registered swap data repository shall provide direct electronic access to the Commission or the Commission’s designee, including another registered entity, in order for the Commission to carry out its legal and statutory responsibilities under the Act and related regulations). 164 Section 45.13(a) provides that an SDR shall maintain all swap data reported to it in a format acceptable to the Commission, and shall transmit all swap data requested by the Commission to the Commission in an electronic file in a format acceptable to the Commission. 165 The Commission believes this revision is consistent with current SDR practice. 166 There is no § 37.12(b)(7) in the Commission’s regulations. See 17 CFR 37.12(b). 167 17 CFR 49.17(i). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 existing § 49.17. This includes the authority to instruct an SDR on how to transmit SDR data to the Commission. As discussed below, the Commission proposed to consolidate the delegation of authority provisions in part 49 in final new § 49.31. This amendment is not a substantive change, as all functions delegated to the Director of DMO under existing § 49.17(i) will continue to be delegated under final § 49.31. 5. Comments The Commission requested comment on all aspects of proposed § 49.17. The Commission also requested specific comment on a whether there is a need to further clarify any of the requirements of proposed § 49.17 and whether there are any aspects of existing or proposed § 49.17 that would inhibit or prevent the development of new technological approaches to SDR operations or the provision of SDR data to the Commission.168 The Commission received one comment on the proposed rule. The comment agreed with the Commission that flexibility as to future technological advancements and innovations is an important consideration in an SDR’s provision of direct electronic access to the Commission.169 This comment also, however, recommended a number of textual revisions to proposed § 49.17 that would condition or limit the Commission’s authority and discretion in making determinations regarding an SDR’s maintenance and transfer of data pursuant to the regulation.170 Specifically, the comment asserted that the amended definition of direct electronic access in proposed § 49.17(b)(3) is too broad because the term ‘‘SDR data’’ includes data reported pursuant to part 46 of this chapter, and the Commission should not have a timesensitive need for such data.171 The comment also recommended revising the text of the proposed definition to subject the Commission’s determinations regarding methods of transmission to a reasonableness standard and require the Commission to work with SDRs in making such determinations.172 In addition, the comment recommended the Commission remove 168 Proposal 169 DDR at 21061. at 4. 170 Id. 171 Id. (stating the Commission should replace the term ‘‘SDR data’’ which ‘‘swap data and swap transaction and pricing information’’). 172 Id. (recommending the Commission replace the phrase ‘‘that is acceptable to the Commission’’ with ‘‘that has been agreed to by the Commission, in its reasonable discretion, following consultation with the SDR’’). PO 00000 Frm 00199 Fmt 4701 Sfmt 4700 75619 the phrase ‘‘in a format acceptable to the Commission’’ from the second sentence of proposed § 49.17(c)(1), asserting that the phrase deprives the SDRs of the flexibility and discretion needed with respect to the storage and maintenance of data without a clear regulatory purpose.173 Similarly, the comment recommended amending the text of the second sentence of proposed § 49.17(c)(1) to provide ‘‘reasonable limitations’’ on the Commission’s discretion to instruct an SDR on the transmission of SDR data to the Commission.’’ 174 6. Final Rule The Commission has determined to adopt the amendments to 49.17 as proposed. With regard to the comment that the definition of direct electronic access is too broad and provides the Commission with too much discretion, the Commission believes the amendments to the definition are appropriately tailored to help ensure that the Commission’s direct electronic access, and the data provided through this access, serves the Commission needs to meet its regulatory obligations, and ensures that an SDR does not change the means of direct electronic access in a manner that impairs the Commission’s regulatory functions. The Commission intends to be flexible, when possible, in regards to the methods and forms of direct electronic access an SDR may utilize, especially in the context of technological advancement, and believes that the definition ensures an appropriate level of discretion as to whether a method of direct electronic access is acceptable. The Commission believes final § 49.17(b)(3) will not hinder or prevent an SDR from incorporating new technology for collecting or maintaining SDR data, as long as the SDR data is collected by the SDR and provided to the Commission as required. The Commission does, however, expect an SDR to provide SEFs, DCMs, and reporting counterparties with commonly-used methods for reporting SDR data and to not force SEFs, DCMs, and reporting counterparties to unnecessarily expend resources on technology upgrades by unreasonably limiting available reporting methods. The Commission also expects SDRs to be particularly accommodating of nonSD/MSP/DCO reporting counterparties 173 Id. 174 DDR at 4 (stating that the Commission should add the phrase ‘‘as soon as practicable, given the nature of the instructions and the SDR’s circumstances’’ at the end of the second sentence of proposed § 49.17(c)(1)). E:\FR\FM\25NOR2.SGM 25NOR2 75620 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 that may have limited resources to devote to technology changes. Similarly, final § 49.17(c)(1) is intended to provide clarity and certainty to SDRs regarding their responsibilities and the Commission’s authority with respect to how an SDR maintains and transmits data to the Commission.175 The Commission believes it is critical that it has the ability to instruct SDRs regarding all aspects of SDR data transfers to the Commission, including, but not necessarily limited to, method of transmission (e.g., electronic or nonelectronic transmission and file types used for transmission), the timing of data transmission, the frequency of data transmission, the formatting of the data to be transmitted (e.g., data feeds or batch transmission), and the actual SDR data to be transmitted. As noted above, innovation and advances in technology may provide alternative and more efficient means for data transfer, so this flexibility may facilitate the use of such technology by SDRs and the Commission. Also, the format, frequency, and related matters may well depend on the circumstances of a particular context, so an inflexible rule would not be appropriate. With regard to the comments’ suggested revisions, the Commission believes the revisions would unduly constrain the Commission’s authority. The Commission notes that it currently works with SDRs to facilitate data transfers and implement technology changes.176 The Commission fully expects to continue to collaborate with SDRs to ensure any Commission instructions or changes requested pursuant its authority in § 49.17(c)(1) are practical and reasonable, and provide SDRs with the requisite time for implementation. To do otherwise would be counterproductive and harmful to the 175 While these revisions may appear to broaden the scope of the Commission’s ability to define the terms of data transfer to the Commission, existing § 45.13 provides the Commission broad discretion in instructing SDRs on how to send data to the Commission to enable the Commission to perform its regulatory functions, increase market transparency, and mitigate systemic risk. See Swap Data Recordkeeping and Reporting Requirements 77 FR 2136, 2169 (Jan. 13, 2012) (requiring an SDR to maintain all swap data reported to it in a format acceptable to the Commission, and to transmit all swap data requested by the Commission to the Commission in an electronic file in a format acceptable to the Commission); see also Part 49 Adopting Release at 54552 (stating that the Commission does not believe that SDRs should have the discretion or ability to determine the appropriate data sets that should be provided to the Commission). 176 Current SDR practice also reflects the Commission’s wide discretion in instructing SDRs in how to send data to the Commission, as the SDRs currently send large amounts of data to the Commission on a regular basis in various formats, based on instructions provided by the Commission. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 Commission’s ability to fulfill its regulatory functions. The Commission believes the coordination and collaboration between the Commission and SDRs is, and will be, supported and enhanced by clarity regarding the Commission’s authority in this area. This, in turn, will encourage SDRs and the Commission to work together to devise the most efficient and effective ways for data transfer to the Commission, while ensuring that the Commission has the data it needs to perform its regulatory functions. M. § 49.18—Confidentiality Arrangement The Commission proposed to amend existing § 49.18 177 to move the delegation of authority provision in § 49.18(e) to proposed § 49.31(a)(8).178 Existing § 49.18(e) delegates to the Director of DMO all functions reserved to the Commission in § 49.18, including the authority to specify the form of confidentiality arrangements required prior to disclosure of swap data by an SDR to an appropriate domestic or foreign regulator, and the authority to limit, suspend, or revoke such appropriate domestic or foreign regulator’s access to swap data held by an SDR. This non-substantive amendment does not change the functions delegated by the Commission and, as discussed further below, is intended to enable the Commission to locate most delegations of authority in proposed § 49.31. The Commission did not receive any comments on the proposed amendments to § 49.18 and is adopting amendments as proposed. N. § 49.20—Governance Arrangements (Core Principle 2) The Commission proposed to amend § 49.20 179 to conform the regulation to the amended definitions and related numbering changes in final § 49.2. Specifically, final § 49.20 amends the citations to § 49.2(a)(14) in § 49.20(b)(2)(v) and to § 49.2(a)(1) in § 49.20(c)(1)(ii)(B) to citations to § 49.2(a). The proposed amendments also conform the provisions of § 49.20(b)(2)(vii) to reflect the amendments in final § 49.2 to the definitions of ‘‘SDR data,’’ ‘‘SDR information,’’ ‘‘registered swap data repository,’’ and ‘‘reporting entity.’’ 180 These non-substantive amendments to 177 17 CFR 49.18. at 84 FR 21061 (May 13, 2019). 179 17 CFR 49.20. 180 Id. 178 Proposal PO 00000 Frm 00200 Fmt 4701 Sfmt 4700 final § 49.20 do not affect the existing requirements of the regulation. The Commission did not receive any comments on the proposed amendments to § 49.20 and is adopting the amendments as proposed. O. § 49.22—Chief Compliance Officer Existing § 49.22 sets forth an SDR’s requirements with respect to its chief compliance officer (‘‘CCO’’).181 The Commission proposed to amend § 49.22 to clarify an SDR’s obligations, remove unnecessary requirements, and make technical corrections and nonsubstantive changes. The Commission received a number of comments on the proposed amendments to § 49.22, including on the proposed amendments to existing § 49.22(d)(2) with respect to a CCO’s obligation to resolve conflicts of interest.182 The Commission has determined not to address the proposed amendments in this final rulemaking, with the exception of a number of technical changes to conform § 49.22 to other regulations amended in this final rulemaking.183 The Commission notes that a number of the proposed amendments to § 49.22, including provisions that were the subject of public comment, mirror the Commission’s proposed amendments to the CCO requirements for SEFs under § 37.1501,184 which have not been adopted to date. The Commission believes it may be appropriate to address the proposed amendments to the CCO requirements for SDRs and for SEFs concurrently, in order to maintain consistency in the CCO requirements for different registered entities, to the extent appropriate. The Commission may do so in a future rulemaking. P. § 49.24—System Safeguards The Commission proposed to make non-substantive amendments § 49.24 185 to provide additional detail as to the duties and obligations of an SDR under the regulation and to make other conforming technical changes.186 181 17 CFR 49.22. e.g., IATP at 9–10 (asserting that the proposed amendments that limit a CCO’s obligation to resolve conflicts are not consistent with statutory requirements). 183 As discussed above, the conforming changes include the removal of the reference in § 49.22(f)(2) to the annual filing of a Form SDR, which is not required under final § 49.3(a)(5). The Commission is also making a technical correction to final § 49.22(f)(3) to correct a reference to nonexistent § 49.22(e)(67). The correct reference is to existing § 49.22(e)(6). 184 17 CFR 37.1501. See Swap Execution Facilities and Trade Execution Requirement, 83 FR 61946, 62032 (Nov. 30, 2018). 185 17 CFR 49.24. 186 Proposal at 21063. 182 See, E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 Existing § 49.24(d) requires an SDR’s BC–DR plans, resources, and procedures to enable an SDR to resume operations and meet its regulatory duties and obligations, and sets forth a nonexhaustive list of those duties and obligations.187 The amendments to existing § 49.24 expand the nonexhaustive list of duties and obligations of an SDR under part 49 that are enumerated in final § 49.24(d) to include specific reference to §§ 49.10 to 49.21, § 49.23, and §§ 49.25 to 49.27. The Commission emphasizes that the part 49 provisions listed in the amended regulation are only references intended for clarification, and the amendments to existing § 49.24(d) do not change any requirements applicable to an SDR. The Commission also proposed to make technical amendments to § 49.24(i), to remove a reference to § 45.2. As described above, the Commission is moving the SDR recordkeeping requirements contained in current § 45.2(f) and (g) to § 49.12 for consistency and clarity purposes. This proposed technical change would conform § 49.24(i) to final §§ 45.2 and 49.12, but would not change any of the requirements applicable to SDRs. The Commission did not receive any comments on the proposed amendments to § 49.24 and is adopting the amendments as proposed. Q. § 49.25—Financial Resources As discussed above, the Commission proposed conforming changes to existing § 49.25 188 to remove the reference to existing § 49.9 and to core principle obligations identified in existing § 49.19.189 Proposed § 49.25(a) would instead refer to SDR obligations under ‘‘this chapter,’’ to be broadly interpreted as any regulatory or statutory obligation specified in part 49 of the Commission’s regulations. These technical amendments do not impact any existing obligations of SDRs. The Commission also proposed to amend existing § 49.25(f)(3) to change the deadlines for an SDR to submit the financial resources report under § 49.25.190 Existing § 49.25(f)(3) requires an SDR to submit the report no later than 17 business days after the end of the SDR’s fiscal quarter, or a later time that the Commission permits upon request. The proposed amendment to existing § 49.25(f)(3) provides that an SDR must submit its quarterly financial resources report to the Commission not later than 40 calendar days after the end 187 17 CFR 49.24(d). CFR 49.25. 189 Proposal at 21063. 190 Id. 188 17 VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 of the SDR’s first three fiscal quarters, and not later than 90 calendar days after the end of the SDR’s fourth fiscal quarter, or such later time as the Commission may permit in its discretion. The Commission requested comment on all aspects of proposed § 49.25. One comment supported the extension of the deadline for filings financial reports under § 49.25, stating that the amendment reduces burdens on SDRs without material detriment to the CFTC’s oversight.191 The Commission has determined to adopt the proposed amendments to § 49.25, except for the proposed amendments to 49.25(f)(3),which would align the deadline for an SDR’s fourth quarter financial resources report with the deadline for an SDR to submit its annual CCO report under proposed § 49.22(f)(2). As discussed above, the Commission has determined not to address the proposed changes to the filing deadline for the annual compliance report under § 49.22(f)(2) in this final rulemaking, and accordingly, the Commission is not adopting the related proposed amendment to § 49.25(f)(3). R. § 49.26—Disclosure Requirements of Swap Data Repositories Section 49.26 requires an SDR to furnish SEFs, DCMs, and reporting counterparties with an SDR disclosure document that sets forth the risks and costs associated with using the services of the SDR, and contains the information specified in § 49.26(a) through (i).192 The Commission proposed to add a new § 49.26(j) providing that an SDR disclosure document must set forth the SDR’s policies and procedures regarding the reporting of SDR data to the SDR, including the SDR’s data validation procedures, swap data verification procedures, and procedures for correcting SDR data errors.193 The Commission also proposed to amend existing § 49.26 to conform terms in the regulation to proposed § 49.2.194 The Commission has determined to adopt the amendments to § 49.26 as proposed. The addition of final § 49.26(j) is intended to provide information about an SDR’s operations to market participants in order to assist them in 191 DDR at 5. CFR 49.26. 193 Proposal at 21063–64. 194 Id. at 21063. Specifically, the proposed amendments to the introductory paragraph of § 49.26 reflect updates to the terms ‘‘SDR data,’’ ‘‘registered swap data repository,’’ and ‘‘reporting entity.’’ These non-substantive amendments do not change the current requirements of § 49.26. 192 17 PO 00000 Frm 00201 Fmt 4701 Sfmt 4700 75621 making decisions regarding which SDR to use for swaps reporting.195 Moreover, requiring an SDR to disclose its data reporting policies and procedures, data validation procedures, swap data verification procedures, and SDR data correction procedures should reduce the number of data errors and improve data quality by providing SEFs, DCMs, and reporting counterparties with the information needed to properly design their reporting systems before any reporting occurs.196 The Commission notes that the disclosure requirements in § 49.26(j) apply for all SDR data required to be reported, as applicable. The Commission requested comment on all aspects of proposed § 49.26. The Commission also invited specific comment on whether the Commission should require an SDR to disclose any other information under § 49.26.197 Two comments supported the proposed disclosure requirements under § 49.26(j).198 One of these comments also suggested requiring an SDR to disclose any revisions to the policies specified in proposed 49.26(j) at a reasonable time before implementation.199 Similarly, the other comment suggested that an SDR should be required to provide any revisions to such policies and procedures promptly to a reporting counterparty.200 The Commission has determined to adopt the amendments to § 49.26(j) as proposed. With regard to the suggestions in the comments, the Commission notes that the requirement to make the specified disclosures in § 49.26 is an ongoing requirement that applies to an SDR ‘‘[b]efore accepting any swap data from [the relevant party] . . . ’’ Accordingly, the Commission believes § 49.26(j), as proposed and adopted, requires an SDR to update the required disclosures if the SDR revises the policies or procedures specified in § 49.26(j). Moreover, under part 40, an SDR would be required to file with the Commission revisions to the policies and procedures required to be disclosed § 49.26(j).201 Under part 40, such filings are generally required to be made publicly available.202 195 See id. id. 197 Id. at 21064. 198 ISDA/SIFMA at 43; CS at 3. 199 ISDA/SIFMA at 43. 200 CS at 3. 201 See 17 CFR 40.6(a). 202 See, e.g., 17 CFR 40.6(a)(2) (requiring a registered entity that self-certifies a rule or rule amendment under § 40.6 to post a notice of pending certification with the Commission and a copy of the submission, concurrent with the filing of a submission with the Commission, on the registered entity’s website); See also 17 CFR 40.8(c) (providing 196 See E:\FR\FM\25NOR2.SGM Continued 25NOR2 75622 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 S. § 49.28—Operating Hours of Swap Data Repositories The Commission proposed to add a new § 49.28 to address an SDR’s obligations with respect to its hours of operation, which are currently set forth in existing § 43.3(f) and (g).203 The Commission proposed to (i) move the provisions in existing § 43.3(f) and (g) to proposed § 49.28 and (ii) amend the provisions so that the operating hours requirements also apply with respect to an SDR’s responsibilities under parts 45, 46, and 49.204 The amendments to these requirements reflect the Commission’s belief that SDRs should operate as continuously as possible while still being afforded the opportunity to perform necessary testing, maintenance, and upgrades of their systems. The Commission has determined to adopt § 49.28 as proposed. The Commission continues to believe that the continuous operation of SDRs is critical to the proper functioning of the swaps market and the SDR data reporting process. Moreover, the need for continuous operation of SDRs is not limited to the receipt and dissemination of swap transaction and pricing data pursuant to part 43. Rather, an SDR must be able to continuously perform all of its responsibilities under the Commission’s regulations. To this end, proposed and final § 49.28 expands the obligations of an SDR to continuously accept, promptly record, and publicly disseminate all SDR data reported to the SDR. While the Commission strongly encourages SDRs to adopt redundant systems to allow public reporting during closing hours, final § 49.28 continues to allow SDRs to schedule downtime to perform system maintenance. However, the Commission continues to believe that disruptions to the data reporting process due to closing hours should be as limited as possible, with advance notice of, or, if not possible, notice promptly after, closing. The need for continuous operations of SDRs also mandates that SDRs minimize and mitigate disruptions caused by necessary downtime or unexpected disruptions, to the extent reasonably possible. Therefore, final § 49.28 requires an SDR to have the capacity to that a registered entity’s filing of new rules and rule amendments for Commission review and approval or pursuant to the self-certification procedures in part 40 shall be treated as public information unless accompanied by a request for confidential treatment). 203 Proposal at 21064. The Commission believes that is beneficial to SDRs and market participants to move all SDR operating hours requirements to part 49 from part 43. 204 Id. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 receive and hold in queue data reported to it, and to process and disseminate that data following a resumption in its operations. The Commission emphasizes that it expects SDRs to be able to accept and hold in queue SDR data that is reported during closing hours. The inability to accept and hold in queue SDR data should be a rare occurrence that results from unanticipated emergency situations, and the provisions in final § 49.28(c)(2) are intended as a last resort to prevent data loss. As discussed below, the requirements of final § 49.28 also include many of the requirements of the SEC’s operating hours regulations governing SBSDRs in order to increase consistency between the regulations for SDRs and SBSDRs.205 1. General Requirements—§ 49.28(a) Existing § 43.3(f) requires an SDR to have systems in place to continuously receive and publicly disseminate swap transaction and pricing data in realtime. Existing § 43.3(f) allows an SDR to declare closing hours to perform system maintenance, while requiring that the SDR must, to the extent reasonably possible, avoid scheduling closing hours when, in its estimation, the U.S. market and major foreign markets are most active.206 These provisions were adopted based on the Commission’s belief that the global nature of the swaps market necessitates that SDRs be able to publicly disseminate swap transaction and pricing data at all times and that SDRs should generally be fully operational 24 hours a day, seven days a week.207 Proposed and final § 49.28(a) require an SDR to have systems in place to continuously accept and promptly record all SDR data reported to the SDR, and publicly disseminate swap transaction and pricing data reported to the SDR as required under part 43. 205 The SEC’s operating hours regulations are contained in 17 CFR 242.904. While current § 43.3(f) allows SDRs to schedule closing hours while avoiding the times that, in an SDR’s estimation, U.S. markets and major foreign markets are most active, and requires the SDRs to provide advance notice of closing hours to market participants and the public, current § 43.3(f) does not make a distinction between regular closing hours and special closing hours. The distinction is present, however, in operating hours requirements for SBSDRs, and final § 49.28(a)(1) and (2) largely adopts the SBSDR requirements. These requirements make clear that an SDR may establish both normal and special closing hours and allow an SDR that also registers with the SEC as an SBSDR to effectively follow the same operating hours requirements for both requirements. 206 17 CFR 43.3(f). 207 See Real-Time Public Reporting of Swap Transaction Data, 77 FR 1182, 1204 (Jan. 9, 2012). PO 00000 Frm 00202 Fmt 4701 Sfmt 4700 Final § 49.28(a)(1) allows an SDR to establish normal closing hours to perform system maintenance during periods when, in the SDR’s reasonable estimation, the SDR typically receives the least amount of SDR data.208 Under final § 49.28(a)(1), an SDR must provide reasonable advance notice of its normal closing hours to market participants and to the public. Final § 49.28(a)(2) allows an SDR to declare, on an ad hoc basis, special closing hours to perform system maintenance that cannot wait until normal closing hours. Similar to final § 49.28(a)(1), final § 49.28(a)(2) requires an SDR to schedule special closing hours during periods when, in the SDR’s reasonable estimation, the special closing hours would, to the extent possible given the circumstances prompting the special closing hours, be least disruptive to the SDR satisfying its SDR data-related responsibilities. Final § 49.28(a)(2) also requires an SDR to provide reasonable advance notice of the special closing hours to market participants and the public whenever possible, and, if advance notice is not reasonably possible, to notify market participants and the public as soon as is reasonably possible after declaring special closing hours. 2. Part 40 Requirement for Closing Hours—§ 49.28(b) Proposed and final § 49.28(b) require an SDR to comply with the requirements under part 40 of the Commission’s regulations when adopting or amending normal closing hours and special closing hours.209 This requirement is already applicable to SDRs pursuant to current § 43.3(f)(3).210 The Commission anticipates that, due to the unexpected and emergency nature of special closing hours, rule filings related to special closing hours will likely qualify for the emergency rule certification provisions of § 40.6(a)(6).211 208 This reflects a minor change from the existing requirements of § 43.3(f)(2), which provides that an SDR shall, to the extent reasonably possible, avoid scheduling closing hours when, in its estimation, the U.S. market and major foreign markets are most active. The Commission believes that final § 49.28(a)(1) provides a better measure of when an SDR should schedule closing hours. 209 The establishment or change to closing hours constitutes a ‘‘rule’’ for the purposes of part 40 requirements. See 17 CFR 40.1, et seq. 210 See 17 CFR 43.3(f)(3) (providing that a registered swap data repository must comply with the requirements under 17 CFR part 40 in setting closing hours and must provide advance notice of its closing hours to market participants and the public). 211 See 17 CFR 40.6(a)(6) (setting forth the requirements for implementing rules or rule amendments in response to an emergency, as defined under 17 CFR 40.1(h)). E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations 3. Acceptance of SDR Data During Closing Hours—§ 49.28(c) jbell on DSKJLSW7X2PROD with RULES2 Existing § 43.3(g) addresses an SDR’s obligations regarding swap transaction and pricing data sent to the SDR for publicly reportable swap transactions during closing hours. The Commission is moving existing § 43.3(g) to final § 49.28(c), and expanding the existing requirements for swap transaction and pricing data in current § 43.3(g) 212 to all SDR data. Proposed and final § 49.28(c) require an SDR to have the capability to accept and hold in queue any and all SDR data reported to the SDR during normal closing hours and special closing hours. Final § 49.28(c) is intended to prevent the loss of any SDR data that is reported to an SDR during closing hours and to facilitate the SDR’s prompt fulfillment of its data reporting responsibilities, including public dissemination of swap transaction and pricing data, as applicable, once the SDR reopens from closing hours. The requirements in § 49.28(c) mirror the requirements for an SBSDR to receive and hold in queue information regarding security-based swaps.213 Final § 49.28(c)(1) requires an SDR, on reopening from normal or special closing hours, to promptly process all SDR data received during the closing hours and, pursuant to part 43, publicly disseminate swap transaction and pricing data reported to the SDR that was held in queue during the closing hours. Final § 49.28(c)(1) expands the existing requirements for an SDR to disseminate swap transaction and pricing data pursuant to § 43.3(g)(1) 214 to also include the prompt processing of all other SDR data received and held in queue during closing hours.215 212 See 17 CFR 43.3(g) (providing that during closing hours, a registered swap data repository must have the capability to receive and hold in queue any data regarding publicly reportable swap transactions pursuant to part 43). 213 See 17 CFR 242.904(c) (providing that during normal closing hours, and to the extent reasonably practicable during special closing hours, a registered security-based swap data repository must have the capability to receive and hold in queue information regarding security-based swaps that has been reported pursuant to §§ 242.900 through 242.909). 214 See 17 CFR 43.3(g)(1) (providing that upon reopening after closing hours, a registered swap data repository must promptly and publicly disseminate the swap transaction and pricing data of swaps held in queue, in accordance with the requirements of part 43). 215 These requirements mirror the SBSDR requirements for disseminating transaction reports after reopening following closing hours. See 17 CFR 242.904(d) (providing that when a registered security-based swap data repository re-opens following normal closing hours or special closing hours, it must disseminate transaction reports of security-based swaps held in queue, in accordance with the requirements of § 242.902). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 Final § 49.28(c)(2) expands existing requirements for swap transaction and pricing data that an SDR cannot receive and hold in queue during closing hours in existing § 43.3(g)(2) to all SDR data and also mirrors the requirements for an SBSDR that cannot receive and hold in queue information regarding securitybased swaps during closing hours.216 Final § 49.28(c)(2) requires an SDR to immediately issue a notice to all SEFs, DCMs, reporting counterparties, and the public in the event that an SDR is unable to receive or hold in queue any SDR data reported during normal closing hours or special closing hours. Final § 49.28(c)(2) also requires an SDR to issue a notice to all SEFs, DCMs, reporting counterparties, and the public that the SDR has resumed normal operations immediately on reopening.217 Lastly, final § 49.28(c)(2) requires a SEF, DCM, or reporting counterparty that was not able to report SDR data to an SDR because of the SDR’s inability to receive and hold in queue any SDR data to immediately report the SDR data to the SDR after the SDR provides notice that it has resumed normal operations. Though final § 49.28 expands the existing requirements of § 43.3(f) and (g) to apply to all SDR data, the Commission believes the regulation will not lead to significant changes in the operations of an SDR. The Commission understands that, under current practice, SDRs routinely receive and hold in queue all SDR data submitted during declared SDR closing hours, regardless of whether that data is being submitted pursuant to part 43. Additionally, because the requirements of final § 49.28 largely mirror the requirements for an SBSDR to receive and hold in queue information 216 See 17 CFR 242.904(e) (providing that if a registered security-based swap data repository could not receive and hold in queue transaction information that was required to be reported pursuant to §§ 242.900 through 242.909, it must immediately upon re-opening send a message to all participants that it has resumed normal operations. Thereafter, any participant that had an obligation to report information to the registered security-based swap data repository pursuant to §§ 242.900 through 242.909, but could not do so because of the registered security-based swap data repository’s inability to receive and hold in queue data, must promptly report the information to the registered security-based swap data repository.). 217 Consistent with the current requirements under part 43, an SDR may issue such notices to its participants and the public by publicizing the notices that the SDR is unable to receive and hold in queue any SDR data and that the SDR has resumed normal operations in a conspicuous place on the SDR’s website. See 77 FR at 1205, n. 208 (Jan. 9, 2012) (allowing SDRs to provide reasonable advance notice of its closing hours to participants and the public by providing notices directly to its participants or publicizing its closing hours in a conspicuous place on its website). PO 00000 Frm 00203 Fmt 4701 Sfmt 4700 75623 regarding security-based swaps, final § 49.28 will not impose additional requirements on an SDR that is also registered as an SBSDR. Therefore, the Commission believes that expanding the operating hours requirements to all SDR data would have little practical impact on current SDR operations. The Commission requested comment on all aspects of proposed § 49.28. The Commission also invited specific comment on whether proposed § 49.28 provides SDRs sufficient flexibility to conduct necessary maintenance on their systems while facilitating the availability of SDR data for the Commission and the public.218 One comment stated that business flow considerations should be taken into account in addition to sufficient flexibility for SDRs when considering operating hours. The comment suggested that proposed § 49.28(a)(1) be revised to employ the phrase ‘‘based on historical volume’’ in place of ‘‘in the reasonable estimation of the [SDR]’’ to describe the basis on which an SDR may determine when it typically receives the least amount of SDR data.219 Another comment supported the proposed requirements in § 49.28(a)(2) for normal closing hours and special closing hours.220 This comment, however, also opposed the requirement in proposed § 49.28(b) that the adoption or amendment of special closing hours be subject to part 40 filing requirements. The comment asserted that ‘‘for the foreseeable future SDRs may need to frequently make use of special closing hours to accommodate changes to their systems’’ and that requiring an SDR to comply with part 40 in each such instance would ‘‘impose an administrative burden that does not provide a corresponding benefit to impacted parties.’’ 221 This comment also opposed the requirement in proposed § 49.28(c)(2) that an SDR provide notice of its resumption of normal activities following a period of time during which it was unable to receive and hold in queue any SDR data. The comment asserted such notice is unnecessary when the downtime was planned and 218 Proposal at 21065. at 42. 220 DDR at 6 (stating that these requirements ‘‘recognize the importance of system maintenance to the safe operation of an SDR’s systems’’). 221 Id. (recommending that, instead of a making a submission under part 40, an SDR should be required to notify the Commission along with market participants when declaring special closing hours). 219 ISDA/SIFMA E:\FR\FM\25NOR2.SGM 25NOR2 jbell on DSKJLSW7X2PROD with RULES2 75624 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations previously communicated to the SDR’s members and the public.222 In response to the business flow considerations comment, the Commission believes an SDR is best situated to make a judgement regarding when it receives the least amount of SDR data. The Commission agrees that historical volume is one factor SDRs may consider, but other considerations may factor into an SDR’s determination, so long as the estimation is reasonable. With regard to the comment on proposed § 49.28(b), the Commission notes that the regulation, as adopted, does not impose requirements beyond what is already required under part 40. The Commission also notes that special closing hours are intended for unforeseeable, emergency situations, not planned system updates and maintenance, as described in the comment. For planned system updates or maintenance, under the normal closing hours provisions, an SDR could use a single part 40 filing for all planned updates or maintenance, to the extent that the SDR knows the schedule for such activities. The Commission would expect SDRs to plan anticipated system updates or maintenance, and the related closing hours determinations, well ahead of time and for SDRs to follow the normal closing hours requirements, and their reasonable discretion on timing of such closing hours, when performing the system updates or maintenance. With regard to the comment on proposed § 49.28(c)(2), the Commission believes that in circumstances where an SDR is unable to receive and hold in queue SDR data, keeping impacted parties informed and updated as to changes to the SDR’s operations is critical to limiting potential negative impacts caused by the disruption. The Commission expects that instances where an SDR is unable to receive and hold in queue SDR will be the result of emergency situations that prompt special closing hours, as opposed to planned and scheduled SDR system outages. Such situations do not easily allow for accurate planning or estimation of when the SDR will resume normal operations. Further, even for planned outages, the scheduled outage may not finish on schedule, for myriad reasons, and it would be extremely disruptive for market participants to begin reporting SDR data to an SDR based on an outdated estimate of when the SDR would resume normal operations. Accordingly, the Commission believes an SDR should be required to inform market participants and the public that it has resumed operations following a period during which it was unable to receive and hold SDR data, regardless of whether the inability to receive and hold SDR was planned and announced ahead of time. T. § 49.29—Information Relating to Swap Data Repository Compliance The Commission proposed to add a new § 49.29 to require an SDR to provide, upon the Commission’s request, information necessary for the Commission to perform its duties or to demonstrate the SDR’s compliance with its obligations under the Act and Commission regulations.223 Proposed § 49.29(a) would require an SDR, upon request by the Commission, to file with the Commission information related to its business as an SDR and information the Commission determines to be necessary or appropriate for the Commission to perform its duties under the Act and Commission regulations thereunder. The SDR must provide the requested information in the form and manner and within the time specified by the Commission in its request. Proposed § 49.29(b) would require an SDR, upon request by the Commission, to file with the Commission a written demonstration, containing supporting data, information, and documents, that it is in compliance with its obligations under the Act and the Commission’s regulations. SDRs must provide the written demonstration in the form and manner and within the time specified by the Commission in its request. The Commission notes that the requests may include, but are not limited to, demonstrating compliance with the core principles applicable to SDRs under CEA section 21(f) and with any or all requirements in part 49 of the Commission’s regulations. The Commission requested comment on all aspects of proposed § 49.29 and received one comment in response. The comment generally supported proposed § 49.29,224 but also recommended that the Commission revise § 49.29(a) and 49.29(b) to include the phrase ‘‘as soon as practicable, given the nature of the request and the SDR’s circumstances’’ in order to recognize that SDRs will need a reasonable amount of time to comply with a request, and to encourage collaboration with the SDR in determining the appropriate form, 223 Proposal at 21065–66. at 6 (‘‘DDR supports the Commission’s inclusion of a requirement to provide information on an as needed basis in place of a requirement for SDRs to file an annual Form SDR update in proposed section 49.29.).’’ 224 DDR 222 Id. (stating that in these situations, the impacted parties would be prepared for the resumption of normal operations and, therefore, a notification to that effect is unnecessary). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00204 Fmt 4701 Sfmt 4700 manner and timing associated with the request.225 The comment also asserted that the proposed language of § 49.29 is vague and lacking detail, which would hinder an SDR in determining what is required to comply with the proposed regulation.226 The Commission has determined to adopt final § 49.29 as proposed. The Commission believes that § 49.29, as proposed and adopted, provides the Commission with the necessary flexibility to obtain information and documentation to determine whether an SDR is complying with applicable statutory and regulatory requirements, and to ensure that the Commission is able to fulfill its responsibilities in the oversight of SDRs. The Commission notes that requests under § 49.29 may be made for any Commission oversight purpose. For example, the Commission may request that an SDR provide information relating to its operations or its practices in connection with its compliance with particular regulatory duties and core principles, other conditions of its registration, or in connection with the Commission’s general oversight responsibilities under the Act. Final § 49.29 is also based on similar existing Commission requirements applicable to SEFs and DCMs, which have successfully assisted the Commission in obtaining needed information from these registered entities for many years without difficulty.227 The Commission also notes that, as discussed above, final § 49.29 facilitates the removal of the requirement in § 49.3(a)(5) that an SDR file an annual amendment to Form SDR, by allowing the Commission to request the relevant information as needed without requiring an SDR to file a full Form SDR update. The Commission believes the comment’s proposed revisions would unduly constrain the Commission’s ability to obtain needed information in a timely manner and inappropriately restrict the Commission in fulfilling its oversight responsibilities. However, the Commission emphasizes that it intends to coordinate and collaborate with SDRs in formulating information requests pursuant to § 49.29 in order to ensure that such requests are reasonable, based on the facts and circumstances, as is the current practice between the Commission and the SDRs. 225 DDR at 6–7. at 7. 227 See 17 CFR 37.5 and 38.5. 226 DDR E:\FR\FM\25NOR2.SGM 25NOR2 jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations U. § 49.30—Form and Manner of Reporting and Submitting Information to the Commission The Commission proposed to add a new § 49.30 to place in one location the requirements governing the form and manner in which an SDR must provide information to the Commission.228 Final § 49.30, as adopted in this final rulemaking, requires SDRs to provide reports and other information to the Commission in ‘‘the form and manner’’ requested or directed by the Commission. Other regulations within part 49, such as final § 49.29, require an SDR to provide reports and certain other information to the Commission in the ‘‘form and manner’’ requested or directed by the Commission. The Commission has determined to adopt § 49.30 as proposed. Final § 49.30 sets forth the broad parameters of the ‘‘form and manner’’ requirement. Under final § 49.30, unless otherwise instructed by the Commission, an SDR must submit SDR data reports and any other information required to be provided to the Commission under part 49 within the time specified, using the format, coding structure, and electronic data transmission procedures approved in writing by the Commission. The Commission requested comment on all aspects of proposed § 49.30. The Commission also invited specific comment on (i) whether the Commission should provide a single format or coding structure for each SDR to deliver reports and other information in a consistent manner; (ii) whether existing standards and formats are sufficient for providing the Commission with requested information; and (iii) whether the Commission should require specific electronic data transmission methods and/or protocols for SDRs to disseminate reports and other information to the Commission.229 One comment supported mandating messaging formats for transmission from an SDR to the Commission, but emphasized the Commission should not mandate the format for reporting from a reporting counterparty to an SDR.230 Another comment recommended that the Commission revise the text of proposed § 49.30 to include the phrase ‘‘as soon as practicable, given the nature of the request and the SDR’s circumstances’’ after ‘‘[u]nless otherwise instructed by the Commission.’’ 231 The comment asserted that the suggested revision recognizes an SDR will need a 228 Proposal at 21066. 229 Id. 230 ISDA/SIFMA 231 DDR at 42. at 7. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 reasonable amount of time to implement technical changes necessary to comply with the request and will encourage collaboration between an SDR and Commission in determining the appropriate form, manner and timing associated with the request.232 Similar to the comment on § 49.29, noted above, the comment also asserted that the proposed language of § 49.30 is vague and lacking detail as to data transmission requirements, which may be determined by the Commission at a later time.233 The Commission has determined to adopt § 49.30 as proposed. The Commission notes that final § 49.30 does not expand the existing substantive SDR informational requirements of part 49. Rather, the regulation authorizes the Commission to specify how information reported to an SDR under other requirements of part 49 should be formatted and delivered to the Commission. Under final § 49.30, the format, coding structure, and electronic data transmission procedures an SDR uses for reports and submissions to the Commission pursuant to part 49 must be approved in writing by the Commission. These written specifications could include specifications similar to the ‘‘guidebooks’’ and other technical specifications currently published on the Commission’s website.234 Specifications may also be more limited in their application, potentially involving more specific or tailored requirements applicable to a report or information required by the Commission from a particular SDR. The Commission believes the comment’s proposed revision may unduly constrain the Commission’s ability to adjust the process by which it obtains information. However, the Commission emphasizes that it intends to continue to coordinate and collaborate with SDRs in formulating information requests and specifications pursuant to § 49.30 in order to ensure that such requests are reasonable, based on the facts and circumstances, as is the current practice for the Commission and the SDRs. 232 Id. 233 Id. 234 The Commission’s current published ‘‘guidebooks’’ include those published for reporting required by parts 15, 16, 17, 18, and 20 of the Commission’s regulations relating to ownership and control reports, large trader reports, and data reporting. These guidebooks are available on the Commission’s website at http://www.cftc.gov/ Forms/index.htm. PO 00000 Frm 00205 Fmt 4701 Sfmt 4700 75625 V. § 49.31—Delegation of Authority to the Director of the Division of Market Oversight Relating to Certain Part 49 Matters The Commission proposed to add new § 49.31 to set forth and consolidate delegations of authority for part 49 of the Commission’s regulations.235 A number of current and proposed provisions in part 49 require an SDR to perform various functions at the Commission’s request or to provide information as prescribed or instructed by the Commission. The Commission proposed to adopt new § 49.31 by which the Commission would delegate its authority under most these of the part 49 provisions to the Director of DMO. The new delegations are intended to enhance the Commission’s ability to respond to changes in the swaps market and technological developments, to quickly and efficiently access information and data from SDRs to meet the Commission’s oversight obligations, and to more efficiently perform the Commission’s regulatory functions. More specifically, the Commission proposed to delegate its authority under the current and proposed part 49 regulations, as set forth below, to the Director of DMO, and to such members of the Commission’s staff acting under his or her direction as he or she may see fit from time to time. The Commission did not receive any comments on proposed § 49.31. The Commission continues to believe the proposed addition of § 49.31 and the proposed new delegations thereunder will improve the Commission’s ability to respond to developments in the swaps market, to access information and data from SDRs, and to fulfill the Commission’s oversight obligations. Accordingly, the Commission is adopting § 49.31 as proposed. Final § 49.31(a)(1) delegates to the Director of DMO the Commission’s authority to request documentation related to an SDR equity interest transfer pursuant to § 49.5.236 Final § 49.31(a)(2) delegates to the Director of DMO the Commission’s authority to instruct an SDR on transmitting open swaps reports to the Commission pursuant to § 49.9.237 Final § 49.31(a)(3) delegates to the Director of DMO the Commission’s authority under § 49.10 to modify an SDR’s required acceptance of all SDR data in a particular asset class for which the SDR accepts data. Final § 49.31(a)(4) delegates to the Director of DMO the Commission’s 235 Proposal at 21066–67. section II.C above. 237 See section II.E above. 236 See E:\FR\FM\25NOR2.SGM 25NOR2 75626 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations authority under § 49.12 to request records from an SDR.238 Final § 49.31(a)(5) delegates to the Director of DMO the Commission’s authority under § 49.13 to require an SDR to monitor, screen, and analyze SDR data.239 Final § 49.31(a)(6) delegates to the Director of DMO the Commission’s authority under § 49.16 to request that an SDR disclose aggregated SDR data in the form and manner prescribed by the Commission. Final § 49.31(a)(7) delegates to the Director of DMO the Commission’s authority with respect to all functions reserved to the Commission under § 49.17.240 Final § 49.31(a)(8) delegates to the Director of DMO the Commission’s authority under § 49.18 to permit an SDR to accept alternative forms of confidentiality arrangements and the ability to direct an SDR to limit, suspend, or revoke access to swap data.241 Final § 49.31(a)(9) delegates to the Director of DMO the authority under § 49.22 to grant an SDR an extension to the annual compliance report filing deadline. Final § 49.31(a)(10) delegates to the Director of DMO the Commission’s authority under § 49.23 to require an SDR to exercise emergency authority and to request the documentation underlying an SDR’s decision to exercise its emergency authority. Final § 49.31(a)(11) delegates to the Director of DMO the Commission’s authority under § 49.24 to determine an SDR to be a ‘‘critical SDR’’ and to request copies of BC–DR books and records, assessments, test results, plans, and reports. Final § 49.31(a)(12) delegates to the Director of DMO the Commission’s authority under § 49.25, including the authority under § 49.25(b)(2) to deem other financial resources as acceptable; the authority under § 49.25(c) to review and require changes to an SDR’s computations of projected operating costs; the authority under § 49.25(f)(1) to request reports of financial resources; and the authority under § 49.25(f)(3) to extend the deadline by which an SDR must file a quarterly financial report. 238 See section II.H above. section II.I above. 240 This includes the authority to: prescribe the form of direct electronic access that an SDR must make available to the Commission; prescribe the format by which an SDR must maintain SDR data; request an SDR transmit SDR data to the Commission; and instruct an SDR on the transmission of SDR data to the Commission. See section II.L above. 241 See section II.M above. jbell on DSKJLSW7X2PROD with RULES2 239 See VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 Final § 49.31(a)(13) delegates to the Director of DMO the Commission’s authority under § 49.29 to request information from an SDR, and to require an SDR to provide a written demonstration of its compliance with the Act and Commission regulations, including the authority to specify the form, manner and time for the an SDR’s provision of such information or written demonstration.242 Final § 49.31(a)(14) delegates to the Director of DMO the Commission’s authority under § 49.30 to establish the format, coding structure, and electronic data transmission procedures for the submission of SDR data reports and any other information required by the Commission under part 49.243 III. Amendments to Part 45 A. § 45.1—Definitions The Commission is adding a definition for the term ‘‘open swap’’ to final § 45.1 that will define the term as an executed swap transaction that has not reached maturity or expiration, and has not been fully exercised, closed out, or terminated. The definition is identical to the definition for ‘‘open swap’’ added to final § 49.2 and is intended to create consistency between defined terms in parts 45 and 49 of the Commission’s regulations. The term ‘‘open swap’’ is used is both final part 45 and part 49, particularly in regards to the requirements related to swap data verification, and consistency in the use of the term across both parts is crucial to ensure swap data verification functions properly. See section II.A.3 above for a more robust discussion of the definition of ‘‘open swap.’’ B. § 45.2—Swap Recordkeeping As discussed above in Section II.H, as part of the amendments to § 49.12, the Commission proposed to consolidate the SDR recordkeeping requirements set forth in current § 45.2(f) and (g) into § 49.12. As discussed above, the Commission has determined to adopt the consolidation of § 45.2(f) and (g) into § 49.12, as proposed. C. § 45.14—Correcting Errors in Swap Data and Verification of Swap Data Accuracy 1. Background and Summary of the Final Rule Pursuant to CEA section 2(a)(13)(G), all swaps must be reported to an SDR.244 The requirements for reporting swaps to an SDR, including 242 See section II.T above. section II.U above. 244 7 U.S.C. 2(a)(13)(g). 243 See PO 00000 Frm 00206 Fmt 4701 Sfmt 4700 requirements regarding swap data, are set forth in part 45 of the Commission’s regulations.245 If the information for a specific data element that is required to be reported is incorrect, or swap data was not reported as required, the SEF, DCM, DCO, or reporting counterparty that was required to report has not satisfied its obligations under the Act and the Commission’s regulations. There is no expiration for the requirement in the CEA and the Commission’s regulations to report swaps, and therefore, the requirement to report swap data remains in effect until satisfied. Accordingly, if swap data is not completely and accurately reported, the obligation to report the swap data remains in effect. The Commission also interprets the statutory requirement to report swaps to include a requirement to ensure that the reporting was performed completely and accurately. Further, as discussed in section II.G above, CEA section 21(c)(2) requires SDRs to confirm the accuracy of swap data with both counterparties. The Commission interprets this provision to require each counterparty to participate in ensuring the completeness and accuracy of swap data. Accordingly, in order to ensure the high quality of swap data, the Commission is adopting the proposed rules, with modifications, to require counterparties to take steps to ensure the accuracy and completeness of swap data reported to SDRs. In response to comments, the Commission is modifying final § 45.14 to make the error-correction and verification processes less burdensome and more flexible than the processes set forth in proposed § 45.14. To this end, final § 45.14(a)(1), as does current § 45.14, requires each SEF, DCM, and reporting counterparty to correct errors 246 relating to swap data that it was required to report under part 45. Further, final § 45.14(b) requires reporting counterparties to verify the accuracy and completeness of the swap data for their open swaps. Final § 45.14(a)(2) requires each non-reporting 245 See generally 17 CFR part 45. Commission notes that current § 45.14 and proposed § 45.14 both use the phrases ‘‘errors and omissions’’ and ‘‘errors or omissions’’ in the correction requirements. See generally 17 CFR 45.14 and Proposal at 21098–99. The Commission is not including the word ‘‘omission’’ in final § 45.14 for simplicity purposes, but the Commission emphasizes that all omissions of required swap data, whether the omissions are the failure to report individual data elements for a swap or the failure to report all swap data for a swap, are errors that must be corrected under final § 45.14, just as the omissions must be corrected under current § 45.14. The Commission makes clear in final § 45.14(c), discussed below, that all omissions of required swap data are errors under final § 45.14. 246 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 counterparty to notify the reporting counterparty if it discovers an error. Final § 45.14(a)(1) provides that any SEF, DCM, or reporting counterparty that by any means 247 becomes aware of any error relating to swap data that it was required to report under part 45 must correct the error. This correction requirement includes swap data for a swap that has terminated, matured, or otherwise is no longer considered to be an open swap. As noted, there is no expiration on the requirement to report swaps, and the requirement includes all swaps regardless of the state of the swap. However, final § 45.14(a)(3) provides that the error correction requirement in final § 45.14(a)(1) does not apply to swaps for which the record retention periods under § 45.2 of this part have expired as of the time that the errors are discovered. The Commission determined that this exclusion is appropriate, as SEFs, DCMs, and reporting counterparties are not required to maintain records related to their swaps beyond the applicable retention periods in § 45.2. The exclusion therefore removes any potential confusion as to the correction of swaps beyond the retention period for these swaps. The Commission further notes that, with the adoption of the verification requirement, the Commission expects that errors will generally be discovered during the record retention period and the exclusion will not have a significant impact on the accuracy of swap data for 247 The Commission notes that, as explained in the Proposal, ‘‘by any means’’ includes absolutely any means that alerts a SEF, DCM, or reporting counterparty to an error in the relevant swap data. Awareness or discovery of errors to be corrected would include, but would not be limited to, errors present in the swap data during the verification process specified in final § 45.14(b). This would include swap data for any open swaps that should be present in the swap data accessible through the applicable SDR verification mechanism that are omitted, or swap data for swaps that are no longer open that is still accessible through the verification mechanism, in addition to any other errors in the swap data accessible through the verification mechanism. The requirement would also include, but is not limited to, a SEF, DCM, or reporting counterparty being informed of errors by an outside source, such as a non-reporting counterparty under final § 45.14(a)(2), a SEF or DCM, or the Commission; errors discovered by a SEF, DCM, or reporting counterparty during a review of its own records or a voluntary review of swap data maintained by the SDR, including the discovery of any over-reporting or under-reporting of swap data; and the discovery of errors during the investigation of a separate issue. The Commission also expects that a SEF, DCM, or reporting counterparty that repeatedly discovers errors, especially repeated errors that follow a pattern, such as the reporting for a certain type of swap regularly resulting in errors, would evaluate its reporting systems to discover and correct any issues. See Proposal at 21069–70. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 future swaps. The Commission emphasizes that a SEF, DCM, or reporting counterparty may not in any way attempt to avoid ‘‘discovering’’ errors, including, but not limited to, by not performing thorough verification as required under final § 45.14(b). Final § 45.14(a)(1)(i) provides that corrections must be made as soon as technologically practicable after discovery of an error. In all cases, errors must be corrected within seven business days after discovery. This deadline is necessary to ensure that errors are corrected in a timely manner. Final § 45.14(a)(1)(ii) provides that if an error will not be corrected in a timely fashion, the entity required to correct must notify the Director of DMO, or such other employee or employees of the Commission as the Director may designate from time to time, of the error. The notification must be made within twelve hours of when the determination is made that the error will not be corrected in time. This notification requirement is necessary to alert the Commission to problems with the quality of swap data. The notification must be made according to the instructions that will be specified by the Director of DMO, or such other employee or employees of the Commission as the Director may designate from time to time. The notification must generally include an initial assessment of the scope of the error or errors. If an initial remediation plan exists, the notification must include the initial remediation plan as well.248 Final § 45.14(b) requires each reporting counterparty to verify the accuracy and completeness of swap data for all of its open swaps. To perform verification, each reporting counterparty must utilize the mechanism adopted for verification under § 49.11 by each SDR the reporting counterparty uses for swap data reporting. Each reporting counterparty must use the relevant SDR mechanism to compare all swap data for each open swap that is maintained by the SDR for which it is the reporting counterparty with all swap data contained in the reporting counterparty’s internal books and records to verify that there are no errors. Final § 45.14(a)(1)(i) provides that any error that is discovered or could have been discovered during the performance 248 The Commission notes that, while final § 45.14(a)(1)(ii) only requires the entity to provide an initial remediation plan with the notice if such a plan exists, the Commission may also request additional information regarding any error(s) and the correction process at any time, including requesting an updated or fully-developed remediation plan. PO 00000 Frm 00207 Fmt 4701 Sfmt 4700 75627 of the verification process is considered discovered as of the moment the verification process began, and the error must be corrected accordingly. The Commission determined that this rule is necessary in order to ensure that reporting counterparties diligently perform verification. Under final § 45.14(b)(1) and final § 49.11(b)(2), the verification requirement entails verifying that there are no errors for each data field for each open swap that the reporting counterparty was required to report under this part. The Commission determined that all swap data is relevant, and that none of the data that the Commission requires to be reported is unnecessary. All swap data fields are necessary to ensure the quality of all swap data available to the Commission, which the Commission uses to fully perform its regulatory mission. Accordingly, the verification requirement applies to all reporting counterparties, for all open swaps, and for each required data element. However, the Commission determined that it is only necessary for reporting counterparties to verify that there are no errors in the up-to-date swap data for each data field that is required to be reported under part 45 of this chapter, and it is unnecessary to require verification of data reporting messages. Accordingly, SDRs are only required to make available to reporting counterparties the most current swap data the SDR maintains using the verification mechanism, as discussed above in II.G, and reporting counterparties are only required to verify using the swap data available through this mechanism under final § 45.14(b). Final § 45.14(b)(4) provides the minimum frequency at which a reporting counterparty must perform verification. A reporting counterparty that is an SD, MSP, or DCO, must perform verification once every thirty calendar days. All other reporting counterparties must perform verification once every calendar quarter, provided that there are at least two calendar months between verifications. The Commission determined that these time frames are sufficient to ensure the quality of swap data because SDs, MSPs, and DCOs serve as reporting counterparties for the overwhelming majority of swap data,249 meaning the overwhelming majority of open swaps would be verified on a monthly basis. 249 See De Minimis Exception to the Swap Dealer Definition, 83 FR 56666, 56674 (Nov. 13, 2018) (stating that, in 2017, approximately 98 percent of swap transactions involved at least one registered SD). E:\FR\FM\25NOR2.SGM 25NOR2 jbell on DSKJLSW7X2PROD with RULES2 75628 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations The Commission also believes that nonSD/MSP/DCO reporting counterparties may include various entities that would bear a significant burden to verify swap data more often than quarterly, without a corresponding increase in data quality, because these entities are more likely to not have the same resources and experience to devote to verification as SD/MSP/DCO reporting counterparties and are only responsible for verifying a small proportion of swaps. The Commission further determined that final § 45.14(b)(4)(ii) requiring a duration of at least two calendar months between quarterly verifications for nonSD/MSP/DCO reporting counterparties is necessary to ensure that there is sufficient time between verifications to adequately ensure data quality. Under final § 45.14(b), a reporting counterparty is not required to notify the relevant SDR regarding the result of a verification,250 as was required under proposed § 45.14(a).251 The Commission determined that in order to ensure the quality of swap data, it is sufficient for the Commission to have the ability to confirm that verification was performed timely and properly, and to enforce the verification and error correction requirements. Therefore, the notification of the result of a verification is not necessary to ensure data quality or to fulfill the SDR’s obligation to confirm the accuracy of data under CEA section 21. Accordingly, final § 45.14(b)(5) requires each reporting counterparty to keep a log of each verification that it performs. The log must include all errors discovered during the verification, as well as the corrections made under final § 45.14(a). Final § 45.14(b)(5) further clarifies that the requirement to keep a verification log is in addition to all other applicable recordkeeping requirements. Non-reporting counterparties must also participate in ensuring that errors in swap data are corrected, although to a much smaller degree than reporting counterparties. Final § 45.14(a)(2) provides that a non-reporting counterparty that by any means discovers an error must notify the reporting counterparty of the error. The notification must be made as soon as technologically practicable after discovery, but not later than three business days following discovery of the error. The Commission notes that nonreporting counterparties are not required to verify swap data, and that 250 However, as noted, under final § 45.14(a)(1)(i) and final § 45.14(b)(3), if the reporting counterparty discovered, or could have discovered, an error, the reporting counterparty is required to correct the error under final § 45.14(a)(1). 251 See Proposal at 21099. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 the notification only needs to include the errors that the non-reporting counterparty discovers. To the extent that an error exists, the reporting counterparty will be required to correct the error under the requirements of final § 45.14(a)(1). The Commission determined that this notification requirement is necessary to ensure the quality of swap data. The Commission further determined that the threebusiness-day notification deadline is necessary to ensure that the nonreporting counterparty will notify the reporting counterparty of errors in a timely manner. The Commission recognizes that a non-reporting counterparty may not know the identity of the reporting counterparty. Accordingly, § 45.14(a)(2) provides that when the non-reporting counterparty does not know the identity of the reporting counterparty, the nonreporting counterparty must notify the SEF or DCM where the swap was executed of the error in the same time frame for notifying the reporting counterparty. Such notification constitutes discovery of the error for the SEF or DCM for purpose of the SEF’s or DCM’s error correction requirement under final § 45.14(a). Errors are described in final § 45.14(c), which provides that for the purposes of § 45.14, there is an error when swap data is not completely and accurately reported. Under final § 45.14(c)(1), errors include, but are not limited to, where swap data is reported to an SDR, or is maintained by an SDR, containing incorrect information (i.e. the swap data is present, but is incorrect); where some required swap data for a swap is reported to an SDR, or is maintained by an SDR, and other required swap data is omitted (i.e. some required swap data elements are blank); where no required swap data for a swap is reported to an SDR, or maintained by an SDR, at all (i.e. none of the swap data was reported as required and/or is missing from the SDR); and where swap data for swaps that are no longer open is maintained by an SDR as if the swaps are still open (i.e., swap data for swaps that are no longer open swaps is still available during the verification process).252 In each of these 252 The Commission notes that for each of these examples the entity responsible for the error may or may not be the entity that is required to correct the error. For example, if an SDR fails to record swap data that a reporting counterparty properly reported, it will still be the reporting counterparty that reports the error. The Commission emphasizes that the error correction process is one overarching requirement intended to result in accurate and complete swap data, regardless of the entities involved and their respective roles in any particular error correction. The SEFs, DCMs, and reporting PO 00000 Frm 00208 Fmt 4701 Sfmt 4700 circumstances, among others, swap data is not complete and accurate. Under § 45.14(c)(2), there is a presumption that, for the purposes of § 45.14, an error exists if the swap data that is maintained and disseminated by an SDR for a swap is not complete and accurate. The Commission determined that this presumption is necessary because the swap data maintained and disseminated by the SDRs is the same as the swap data available to the Commission and it is necessary to ensure the accuracy of that swap data for the Commission’s regulatory purposes. Further, the presumption that the swap data maintained and disseminated by SDRs is the same as the swap data that was reported is implicit in the structure of swap data reporting under CEA section 21. Under CEA section 21(c)(4) and (7), an SDR is required to make the swap data it maintains available to the Commission and to certain other regulators. This requirement only serves its purpose if there is a presumption that the swap data maintained by the SDR is the same as the swap data that was reported to the SDR. 2. Comments on the Proposal The Commission received a number of comments on the Proposal recommending limitations on the scope of the error correction rules. Comments recommended that the error correction rules should only apply to open swaps 253 or that error correction rules should only apply in a limited fashion to swaps that are not open.254 These comments included recommendations to add a materiality threshold to the requirement to correct errors for swaps that are not open; 255 to limit the requirement to correct errors to specific data elements, such as counterparty, price, and product; 256 to limit the requirement to correct errors to errors that are discovered within the relevant record retention period for the swap; 257 and to limit the requirement to correct errors to certain reporting counterparties.258 counterparties have the responsibility to correct errors to the SDR once they are discovered, even if the SEF, DCM, or reporting counterparty is not at fault for the error, which is an independent responsibility from the responsibility to successfully report or maintain swap data. The Commission would endeavor to hold the entity responsible for the reporting error accountable for the failure to correctly report or maintain the erroneous swap data, as applicable, regardless of which entity corrects the error under final § 45.14. 253 FIA at 9; Chatham at 4–5. 254 ISDA/SIFMA at 46; FIA at 9. 255 CS at 3. 256 ISDA/SIFMA at 47; FIA at 9. 257 Id. 258 Joint Associations at 10–12. E:\FR\FM\25NOR2.SGM 25NOR2 jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations The Commission generally does not agree with the recommendations to exclude swaps that are no longer open from the full requirement to correct errors. There is no expiration in the CEA and the Commission’s regulations on the requirement to report swap data. If there is an error in the reporting of swap data, the reporting counterparty has not fulfilled its requirement to report swap data. Further, the Commission utilizes data regarding swaps that are no longer open in a variety of ways, including in its market and economic analyses and in its enforcement and administration of the provisions of the CEA. It is therefore necessary to ensure that swap data for these swaps does not contain errors. Although the Commission is limiting the verification requirements to open swaps, the Commission is doing so because the verification of swaps that are no longer open is not as practicable as with open swaps, not because it is unnecessary to ensure that swap data from these swaps is free from error. The Commission similarly declines to accept recommendations to limit the scope of the error correction rules by adopting a materiality requirement, or by limiting the application of the rules to only certain data elements. A reporting counterparty does not satisfy the requirement to report swap data until all required elements are accurately reported. Further, all the required swap data elements are significant and required in order for the Commission to perform its regulatory functions. As a result, it is necessary for the Commission to ensure that the swap data for every data element is accurate. However, the Commission agrees with the recommendation to exclude errors that are discovered after the expiration of the relevant recordkeeping requirement. The Commission recognizes that it would be impracticable for SEFs, DCMs, and reporting counterparties to be required to correct such errors, as these entities are not required to keep records of swap data beyond the applicable retention periods, and these records would be necessary to discover and correct errors. Accordingly, final § 45.14(a)(3) excludes such errors from the error correction requirement. The Proposal provided that errors must be corrected as soon as technologically practicable after discovery, but no later than three business days after discovery.259 The Proposal, like final § 45.14(a)(1)(ii), also included a requirement to notify the Director of DMO if an error will not be 259 See Proposal at 21099 (proposed § 45.14(b)(1)(i)). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 timely corrected.260 The Commission received a number of comments on these rules. Comments generally recommended limiting the notification requirement by expanding the time frame to correct errors.261 Comments also stated that three business days may not be sufficient time to identify the scope of the errors and develop a remediation plan.262 Other comments recommended including a materiality threshold to the notification requirement,263 and adopting a principles-based rule that would provide greater flexibility regarding the deadline for correcting errors.264 Other comments recommended not adopting the three-day deadline and the notification requirement,265 and instead replacing the notification requirement with a requirement to maintain a log of errors and remediation and only require notification for material errors and only after ‘‘due review of the facts and circumstances.’’ 266 The Commission does not agree with the recommendations to replace or not adopt the notification requirement. The purpose of the notification requirement is to provide the Commission with the information that it needs to assess the accuracy of swap data. The notification requirement is not punitive. However, to make the notification more useful to the Commission, the Commission accepts the recommendation for a longer notification time frame and final § 45.14(a)(1)(ii) extends the notification deadline for correcting errors to seven business days. This longer time frame will provide the entity making the correction time to develop a more accurate understanding of the scope of the error. The Commission also agrees with the recommendations that it may not be feasible in every case to develop an initial remediation plan. Accordingly, final § 45.14(a)(1)(ii) provides that the notification needs to include the initial remediation plan, but only if one exists.267 The Commission received several comments recommending against requiring reporting counterparties to 260 See id. (proposed § 45.14(b)(1)(ii)). e.g., CEWG at 5. 262 Id.; ISDA/SIFMA at 46. 263 Id. at 5–6. 264 ICE Clear at 3–4. 265 FIA at 8; Joint Associations at 13. 266 ISDA/SIFMA at 46. 267 The current common practice for market participants is to notify DMO after discovering reporting errors and to develop a remediation plan once a solution for the errors is formulated. The Commission expects that this practice will continue, but notes that final § 45.14(a)(1)(ii) does not require the notification of the failure to timely correct an error to include an initial remediation plan if one does not yet exist. 261 See, PO 00000 Frm 00209 Fmt 4701 Sfmt 4700 75629 verify their swap data. Several commenters stated that improving SDR validations and the required data elements is a more efficient way to increase data accuracy than the proposed verification rules.268 Other commenters stated that verification is unnecessary because it would only marginally improve the data accuracy, and the burden on reporting counterparties outweighs that marginal gain.269 Other commenters stated that verification is unnecessary because the extent of errors in swap data is unknown.270 The Commission also received several comments generally supporting the proposed verification rule, asserting that it will help to ensure the high quality of swap data.271 The Commission does not agree with the recommendations against requiring verification. As noted above, the Commission interprets the requirement to report data to an SDR in section 2(a)(13)(G) of the CEA to include a requirement that the reporting counterparty verifies that it accurately complied with the requirement. The Commission also interprets the requirement in section 21(c)(2) of the CEA for SDRs to confirm the accuracy of reported data with the counterparties to also include a requirement for counterparties to participate in ensuring the swap data accuracy, as not including counterparties in the confirmation process would render the statutory requirement useless. The purpose of the verification requirement is to ensure the quality of swap data, as required by the Act. Improving SDR validations and standardizing the data elements alone will not accomplish this, because a swap data error that is still a plausible value, such as reporting a notional value of $1,000,000 instead of the correct notional value of $10,000,000, would not be caught by validations. Only a review of the swap data by the counterparty that is responsible for reporting the swap data would catch this error. Additionally, the Commission has ample experience with the existence of swap data errors that would pass validations that, in the absence of an adequate verification requirement, persisted for long periods of time before being discovered and corrected. The Commission cannot know the precise nature and scope of existing errors that have not been corrected, which the 268 Chatham at 6; FIA at 7–8; ICE TV at 2–4; NGSA at 4; Joint Associations at 6–10; Eurex at 2; CEWG at 2–3. 269 FIA at 2–3. 270 Chatham at 5; GIFMA at 14. 271 Joint SDR at 1; IATP at 1–7; LCH at 4; Markit at 2. E:\FR\FM\25NOR2.SGM 25NOR2 jbell on DSKJLSW7X2PROD with RULES2 75630 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations verification requirement is designed to address, because the errors are not obvious from the swap data and will not be knowable to the Commission unless and until they are discovered and corrected. However, based on its experience, the Commission has determined that data quality can be further improved by requiring verification, and doing so is consistent with the requirements in the Act to report swap data and to verify the accuracy of the reported swap data. The Commission also received comments regarding which counterparties should be required to perform verifications. Comments recommended excluding specific reporting counterparties, including end users with centralized trading structures,272 non-bank SDs and reporting counterparties that are not SDs or MSPs,273 ‘‘unregistered end users,’’ 274 reporting counterparties that report less than fifty-one swaps per month,275 and DCOs.276 The Commission rejects these recommendations to exempt any classes of reporting counterparties from verification. As noted, the requirement under section 2(a)(13)(G) of the CEA to verify that swap data was reported correctly and the requirement under section 21(c)(2) to confirm the accuracy of swap data applies to all reporting counterparties, regardless of size, registration status, type, or how frequently the reporting counterparty report swaps. All reporting counterparties are, by definition, also users of at least one SDR and are fully capable of communicating with an SDR to report swap data and correct swap data as required, whether directly or through the use of a third-party service provider, and are also therefore fully capable of verifying swap data through an SDR-provided mechanism, as required by final § 45.14(b). Further, all swap data for all swaps is significant, material, and important for the Commission’s performance of its regulatory responsibilities. Verification is necessary to ensure that the swap data is free from errors, and every reporting counterparty performing verification as required is essential to rooting out swap data errors. The Commission notes that although CEA section 21(c)(2) also includes nonreporting counterparties in the obligation to confirm the accuracy of reported swap data, the Commission 272 Prudential at 1–2. 273 NGSA at 1–4. 274 Freddie Mac at 2. 275 COPE at 3. 276 lCH at 3–4; ICE Clear at 2. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 determined that it is unnecessary to require non-reporting counterparties to perform verification. The Act places the burden of reporting on the reporting counterparty, and, as the only counterparty with swap data reporting responsibilities, the reporting counterparty is best positioned to perform verification. Commenters generally supported this determination.277 Comments stated that non-reporting counterparties will generally not be able to communicate with the relevant SDR(s), and that it will be very uncommon for there to be discrepancies between the data maintained by the reporting counterparty and the non-reporting counterparty, such that the reporting counterparty’s verification is sufficient to ensure the quality of swap data.278 The Commission also received comments recommending changes to the proposed verification rule. The proposed rule required reporting counterparties that are SDs, MSPs, or DCOs to perform verification weekly and all other reporting counterparties to perform verification monthly.279 Instead, commenters recommended adopting a rule that would require verification to be performed less frequently. One suggested alternative was to adopt a more ‘‘principles based’’ approach, under which reporting counterparties would periodically perform verification less frequently than the proposed rule required.280 One comment recommended that verification should only be required to be performed monthly by all reporting counterparties.281 Another comment recommended that verification should only be required to be performed monthly by reporting counterparties that are SDs, and quarterly by all other reporting counterparties.282 The Commission accepts the recommendation that it is not necessary for verification to be performed with the frequency of the Proposal in order to meet the Commission’s swap data quality needs. Accordingly, final § 45.14(b)(4) provides that a reporting counterparty that is an SD, MSP or DCO must perform verification once every thirty calendar days, and all other reporting counterparties must perform verification once every calendar quarter, provided that there are at least two 277 Joint Associations at 13; ISDA/SIFMA at 39; Chatham at 1–2; COPE at 2; Joint SDR at 2; ICI at 10–11. 278 GIFMA at 4; Chatham at 1–2. 279 Proposal at 84 FR 21103 (May 13, 2019). 280 CS at 3; FIA at 7–8; ISDA/SIFMA at 45. 281 GIFMA at 5. 282 ISDA/SIFMA at 45. PO 00000 Frm 00210 Fmt 4701 Sfmt 4700 calendar months between the quarterly verifications. The Commission also received comments on the scope of the data that must be verified. The verification rule in the Proposal would apply to all required swap data fields for all open swaps.283 The Commission received comments in support of limiting the verification requirement to only the required swap data elements and not to all swap data messages.284 The Commission also received a comment recommending that the verification rule should be limited to specific data elements, such as economic terms.285 The Commission declines to accept the recommendation to limit the scope of the verification requirement. Every data field that is required to be reported to the Commission is significant and necessary for the Commission’s performance of its regulatory responsibilities, and to ensure the quality of all swap data. One comment recommended limiting the verification requirement to once per swap, meaning that once swap data for a particular swap has been verified, the reporting counterparty no longer is required to verify the data for that swap.286 The Commission does not agree with this recommendation. Swap data is often updated frequently through continuation data reporting, including lifecycle event reporting and valuation reporting, and errors can occur throughout the life of the swap. Regular verification of open swaps is necessary to ensure that the swap data for each open swap remains free from errors throughout the life of the swap. The Commission also received comments regarding the requirements on non-reporting counterparties to ensure that swap data is free from errors. Comments supported excluding non-reporting counterparties from the verification requirements.287 Comments also supported not requiring nonreporting counterparties to submit error corrections to SDRs.288 The Commission received one comment recommending against requiring a non-reporting counterparty to notify the reporting counterparty when it discovers an error.289 The Commission does not agree with this recommendation. The confirmation requirement in CEA 283 Proposal 284 GIFMA at 21098, 21103. at 4–6; ISDA/SIFMA at 40–41; IATP at 285 GIFMA at 10. 5. 286 ISDA/SIFMA at 45. Associations at 13; ISDA/SIFMA at 39; Chatham at 1–2; COPE at 2; Joint SDR at 2; ICI at 10–11. 288 COPE at 2. 289 Joint Associations at 13. 287 Joint E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations section 21(c)(2) requires both counterparties to confirm the accuracy of swap data. The Commission has excluded non-reporting counterparties from the requirement to verify swap data, but if a non-reporting counterparty discovers an error, it must take steps to correct the error by notify the reporting counterparty. The Commission also received comments on the proposed § 45.14(b)(2),which provided, in part, that a reporting counterparty, SEF, or DCM that is notified of an error by a non-reporting counterparty is only required to correct the error if it agrees with the non-reporting counterparty that an error exists.290 Comments recommended against adopting the requirement that the non-reporting counterparty and the reporting counterparty, SEF, or DCM must agree to the error,291 and comments requested that the requirement be clarified.292 The Commission is not adopting the requirement. Final § 45.14(a) explicitly applies to errors regardless of the how the SEF, DCM, or reporting counterparty becomes aware of the error. If the nonreporting counterparty notifies the reporting counterparty of the error, and the SEF, DCM, or reporting counterparty disagrees that there is an error, then the SEF, DCM, or reporting counterparty has not discovered an error and there is nothing to correct. The Commission does however note that a SEF, DCM, or reporting counterparty refusing to acknowledge an error that does exist, and therefore not correcting the error, would violate the Commission’s regulations. IV. Amendments to Part 43 A. § 43.3(e)—Correction of Errors The Commission is adopting proposed § 43.3(e), with modifications. Final § 43.3(e) is identical in substance to § 45.14(a), described in III.B, above, except that § 45.14(a) provides the rules for correcting errors 293 in swap data, jbell on DSKJLSW7X2PROD with RULES2 290 CEWG at 5, Joint Associations at 13. 291 Joint Associations at 13. 292 CEWG at 5. 293 The Commission notes that, as with final § 45.14, current § 43.3(e) and proposed § 43.3(e) both use the phrases ‘‘errors and omissions’’ and ‘‘errors or omissions’’ in the correction requirements. See generally 17 CFR 43.3(e) and Proposal at 84 FR 21097–98 (May 13, 2019). The Commission is not including the word ‘‘omission’’ in final § 43.3(e) for simplicity purposes, but the Commission emphasizes that all omissions of required swap transaction and pricing data, whether the omissions are the failure to report individual data elements for a swap or the failure to report all swap transaction and pricing data for a swap, are errors that must be corrected under final § 43.3(e), just as the omissions must be corrected under current § 43.3(e). The Commission makes VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 while § 43.3(e) provides the rules for correcting errors in swap transaction and pricing data. As in § 45.14(a), § 43.3(e) generally requires each SEF, DCM, and reporting counterparty to correct any error it discovers, including for swaps that are no longer open. The Commission notes that, although market participants generally treat the current error correction requirements in § 43.3(e) and § 45.14 as if they are consistent, existing §§ 43.3(e) and 45.14 do not share consistent terminology and style. In addition to the substantive amendments and rules that are described above in section III.C, the Commission determined that the terminology and style of the error correction rules final §§ 45.14(a) and 43.3(e) should be consistent. This will add clarity to the error correction requirements, which may result in increased compliance. The Commission received numerous comments on the proposed amendments to the error correction rules The Commission did not receive any comments that apply only to § 43.3(e), and is assessing all comments on error correction as if they apply equally to both §§ 43.3(e) and 45.14(a).294 The comments are described above in section III.C. B. Removal of § 43.3(f) and (g) Current § 43.3(f) and (g) set forth the operating hours requirements for SDRs.295 As discussed above, the Commission proposed to remove § 43.3(f) and (g) and to incorporate the provisions in new § 49.28.296 The Commission believes these provisions are better placed in part 49 of this chapter because they address SDR operations and, as amended, final § 49.28 applies to all SDR data and also incorporates provisions from SBSDR operating hours requirements. Accordingly, the Commission is adopting the proposed removal of § 43.3(f) and (g). V. Amendments to Part 23 § 23.204—Reports to Swap Data Repositories, and § 23.205—Real-Time Public Reporting The Commission proposed additions to §§ 23.204 and 23.205 of the Commission’s regulations. The clear in final § 43.3(e)(4) that all omissions of required swap data are errors under final § 43.3(e). 294 See e.g., ISDA/SIFMA at 47 (‘‘Refer to responses above for proposed § 45.14 which also apply similarly to § 43.3.’’). 295 17 CFR 43.3(f) and (g). 296 See section II.S above. Current § 43.3(f) contains the hours of operations requirements and current § 43.3(g) contains the requirements for SDRs to accept swap transaction and pricing data during closing hours. PO 00000 Frm 00211 Fmt 4701 Sfmt 4700 75631 proposed additions would require each SD and MSP to establish, maintain, enforce, review, and update as needed written policies and procedures that are reasonably designed to ensure that the SD or MSP complies with all obligations to report swap data to an SDR, consistent with parts 43 and 45. The Proposal noted that pursuant to other Commission regulations, SDs and MSPs are already expected to establish policies and procedures related to their swap market activities, including but not limited to, swaps reporting obligations.297 The Commission proposed to make this expectation explicit with respect to swaps reporting obligations. Commenters recommended that the Commission take a less prescriptive approach than the Proposal, and noted that it is unnecessary to add specificity for swaps reporting obligations for data reporting policies and procedures.298 The Commission notes that existing §§ 23.204 and 23.205 require SDs and MSPs to report all swap data and swap transaction and pricing data they are required to report under parts 43 and 45, and to have in place the electronic systems and procedures necessary to transmit electronically all such information and data.299 As noted above, these requirements are encompassed by the existing requirement that SDs and MSPs establish policies and procedures. Therefore, the Commission agrees with the comments and determines that it is unnecessary to make the proposed additions. Accordingly, the Commission does not adopt any amendments to § 23.204 or 23.205. VI. Compliance Date In the Proposal, the Commission stated that it intended to provide a unified compliance date for all three of the Roadmap rulemakings because all three must work in tandem to achieve the Commission’s goals.300 The Commission also stated its intention to provide sufficient time for market participants to implement the changes in the rulemakings prior to the 297 See, e.g., 17 CFR 3.3(d)(1) (requiring a chief compliance officer to administer each of the registrant’s policies and procedures relating to its business as an SD/MSP that are required to be establish pursuant to the Act and the Commission’s regulations); 17 CFR 3.2(c)(3)(ii) (requiring the National Futures Association to assess whether an entity’s SD/MSP documentation demonstrates compliance with the Section 4s Implementing Regulation to which it pertains, which includes § 23.204 and § 23.205). 298 ISDA/SIFMA at 48; GFMA at 12. 299 17 CFR 23.204, 23.205. 300 Proposal at 84 FR 21046 (May 13, 2019). E:\FR\FM\25NOR2.SGM 25NOR2 75632 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations compliance date.301 The Commission is adopting a unified compliance date for all three Roadmap rulemakings, May 25, 2022, unless otherwise noted. The Commission received comments recommending a staggered implementation period instead of a unified one,302 comments supporting an implementation period of one year,303 and a comment stating that one year is insufficient and recommending a compliance date that allows for a twoyear implementation period.304 The Commission disagrees with comments recommending a staggered implementation period. The various rules in the Roadmap rulemakings, including verification and error correction, address different compliance areas and will achieve the overall goal of improved data quality only by working in tandem. The Commission agrees with the comment recommending an implementation period longer than a year, but the Commission disagrees that the implementation period should extend for two years. The amendments and additions in these final rules, as well as the related Roadmap rulemakings, are critical steps in implementing the requirements of the Act and ensuring high quality swap data. Accordingly, the Commission believes that an implementation period longer than eighteen months is unwarranted and to ensure that all market participants have sufficient time to implement the changes required in these rulemakings, the Commission has determined to provide an eighteen month implementation period. 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.305 The Commission has previously established certain definitions of ‘‘small entities’’ to be used by the Commission in evaluating the impact of its rules on small entities in accordance with the RFA.306 The changes to parts 43, 45, 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 jbell on DSKJLSW7X2PROD with RULES2 301 Id. 302 GFMA at 13; GFXD at 35. at 36; LCH at 2 and 4; ICE SDR 303 ISDSA/SIFMA at 2 and 5. 304 FIA at 10–11. 305 See 5 U.S.C. 601 et seq. 306 See Policy Statement and Establishment of ‘‘Small Entities’’ for purposes of the Regulatory Flexibility Act, 47 FR 18618 (Apr. 30, 1982). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 previously certified that DCMs,307 DCOs,308 MSPs,309 SDs,310 SDRs 311, and SEFs 312 are not small entities for purpose of the RFA. Various changes to parts 43, 45, 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 that 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 pursuant to the rules of a DCM.313 The Commission has previously certified that ECPs are not small entities for purposes of the RFA.314 The Commission has analyzed swap data reported to each SDR 315 across all five asset classes to determine the number and identities of non-SD/MSP/ DCOs that are reporting counterparties to swaps under the Commission’s jurisdiction. A recent Commission staff review of swap data, including swaps executed on or pursuant to the rules of a DCM, identified nearly 1,600 non-SD/ 307 See id. Derivatives Clearing Organization General Provisions and Core Principles, 76 FR 69334, 69428 (Nov. 8, 2011). 309 See Swap Dealer and Major Swap Participant Recordkeeping, Reporting, and Duties Rules, 77 FR 20128, 20194 (Apr. 3, 2012) (basing determination in part on minimum capital requirements). 310 See Swap Trading Relationship Documentation Requirements for Swap Dealers and Major Swap Participants, 76 FR 6715 (Feb. 8, 2011). 311 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). 312 Core Principles and Other Requirements for Swap Execution Facilities, 78 FR 33476, 33548 (June 4, 2013). 313 See 7 U.S.C. 2(e). 314 See Opting Out of Segregation, 66 FR 20740, 20743 (Apr. 25, 2001). The Commission also notes that this determination was based on the definition of ECP as provided in the Commodity Futures Modernization Act of 2000. The Dodd-Frank 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. 315 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 default swaps, 357,851 commodities swaps, 603,864 equities swaps, and 276,052 interest rate swaps. 308 See PO 00000 Frm 00212 Fmt 4701 Sfmt 4700 MSP/DCO reporting counterparties. Based on its review of publicly available data, the Commission believes that the overwhelming majority of these non-SD/ MSP/DCO reporting counterparties are either ECPs or do not meet the definition of ‘‘small entity’’ established in the RFA. Accordingly, the Commission does not believe the rules would affect a substantial number of small entities. Based on the above analysis, the Commission does not believe that this Final Rule will have a significant economic impact on a substantial number of small entities. Therefore, the Chairman, on behalf of the Commission, pursuant to 5 U.S.C. 605(b), hereby certifies that the Final Rule will not have a significant economic impact on a substantial number of small entities. B. Paperwork Reduction Act The Paperwork Reduction Act of 1995 (‘‘PRA’’) 316 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 three control numbers from the Office of Management and Budget (‘‘OMB’’), one for each of the information collections impacted by this rulemaking: (1) OMB Control Number 3038–0096 (Swap Data Reporting and Recordkeeping Requirements), relating to part 45 swap data recordkeeping and reporting; (2) OMB Control Number 3038–0070 (Real-Time Public Reporting and Block Trades), relating to part 43 real-time swap transaction and pricing data; and (3) OMB Control Number 3038–0086 (Swap Data Repositories; Registration and Regulatory Requirements), relating to part 49 SDR regulations. Persons otherwise required to respond to an information collection are not required to respond to the collection of information unless a currently valid OMB control number is displayed. 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 43, 44, and 49, including changes to reflect adjustments that were made to the final rules in response to comments on the Proposal (not relating to the PRA). 316 See E:\FR\FM\25NOR2.SGM 44 U.S.C. 3501. 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations 1. Revisions to Collection 3038–0096 (Relating to Part 45 Swap Data Recordkeeping and Reporting) i. § 45.2—Swap Recordkeeping The Commission is adopting changes that remove paragraphs (f) and (g) from § 45.2 and move the requirements of these paragraphs to amended § 49.12. Paragraphs (f) and (g) contain recordkeeping requirements specific to SDRs. Existing § 49.12 already incorporates the requirements of current § 45.2(f) and (g), and amended § 49.12 includes the same requirements, but deleting this requirement from § 45.2 and amending § 49.12 to clarify the requirements better organizes the regulations for SDRs by locating these SDR requirements in part 49 of the Commission’s regulations. These amendments modify collection 3038– 0096 because it removes these recordkeeping requirements from part 45 of the Commission’s regulations. The Commission estimates that moving these requirements results in a reduction of 50 annual burden hours for each SDR in collection 3038–0096, for a total reduction of 150 annual burden hours across all three SDRs. ii. § 45.14—Verification of Swap Data Accuracy and Correcting Errors and Omissions in Swap Data jbell on DSKJLSW7X2PROD with RULES2 Final § 45.14(a) requires SEFs, DCMs, and reporting counterparties to correct errors and omissions in swap data previously reported to an SDR, or erroneously not reported to an SDR as required, as soon as technologically practicable after discovery of the errors or omissions, similar to existing § 45.14. Also, similar to existing § 45.14, final § 45.14(a) requires a non-reporting counterparty to report a discovered error or omission to the relevant SEF, DCM, or reporting counterparty as soon as technologically practicable after discovery of the error or omission.317 These requirements, being effectively the same as the requirements in existing § 45.14, do not require amendments to the collection. 317 The Commission notes that final § 45.14(a)(2) does add provisions that are not present in current § 45.14(a) to address the situation where a nonreporting counterparty does not know the identity of the reporting counterparty. The Commission does not believe that these additions have PRA implications, as the amount of information the nonreporting counterparty must provide and the frequency with which it must be provided remain the same and are de minimis. The only change is the requirement that non-reporting counterparties inform the SEF or DCM of errors, instead of the reporting counterparty. SEFs and DCMs have correction responsibilities under current § 45.14(b) and final § 45.14(a)(2) does not change these responsibilities. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 Final § 45.14(a)(1)(ii) includes the new requirement for SEFs, DCMs, and reporting counterparties to notify the Director of DMO when errors or omissions cannot be timely corrected and, in such case, to provide the Director of DMO with an initial assessment of the errors and omissions and an initial remediation plan if one exists. The notification shall be made in the form and manner, and according to the instructions, specified by the Director of DMO. This requirement constitutes a new collection of information. The Commission estimates that each SEF, DCM, and reporting counterparty will, on average need to provide notice to the Commission under final § 45.14(a)(1)(ii) once per year and that each instance will require 6 burden hours.318 As there are approximately 1,729 SEFs, DCMs, and reporting counterparties that handle swaps, the Commission estimates an overall additional annual hours burden of 10,374, hours related to this requirement. This estimate is based on the Commission’s experience with the current practices of SEFs, DCMs, and reporting counterparties regarding the reporting of errors and omissions, including the initial assessments and remediation plans that SEFs, DCMs, and reporting counterparties provide to the Commission under current practice. The Commission does not anticipate any one-time, initial burdens related to final § 45.14(b)(1)(ii). Final § 45.14(b) requires all reporting counterparties to verify the accuracy and completeness of all swap data for all open swaps to which they are the reporting counterparty. Reporting counterparties comply with this provision by utilizing the relevant mechanism(s) to compare all swap data for each open swap for which it serves as the reporting counterparty maintained by the relevant swap data repository or repositories with all swap data contained in the reporting counterparty’s internal books and records for each swap, to verify that there are no errors in the relevant swap data maintained by the swap data repository. Additionally, reporting counterparties must conform to each relevant swap data repository’s verification policies and procedures created pursuant to final § 49.11. Final 318 The Commission notes that, currently, it receives significantly less than one notice and initial assessment of reporting errors and omissions per SEF, DCM, or reporting counterparty per year, but estimates one notice annually, as the final requirements of § 45.14(a) may reveal more reporting errors to reporting counterparties that would then require corrections pursuant to final § 45.14(b). PO 00000 Frm 00213 Fmt 4701 Sfmt 4700 75633 § 45.14(b)(5) requires each reporting counterparty to keep a log of each verification that it performs. The log must include all errors discovered during the verification and the corrections performed under § 45.14(a). Compliance with § 45.14(b) constitutes a collection of information not currently included in collection 3038–0096, and therefore requires a revision of that collection. The Commission expects that compliance with § 45.14(b) will include: (1) A one-time hours burden to establish internal systems needed to perform their verification responsibilities, and (2) an ongoing hours burden to complete the verification process for each report provided by an SDR. In order to comply with the relevant SDR verification policies and procedures as required to complete the verification process, the Commission believes that reporting counterparties will create their own verification systems or modify their existing connections to the SDRs. The Commission estimates that each reporting counterparty will incur an initial, one-time burden of 100 hours to build, test, and implement their verification systems based on SDR instructions. This burden may be reduced, if complying with SDR verification requirements only requires reporting counterparties to make small modifications to their existing SDR reporting systems, but the Commission is estimating the burden based on the creation of a new system. The Commission also estimates an ongoing annual burden of 10 hours per reporting counterparty to maintain their verification systems and to make any needed updates to verification systems to conform to any changes to SDR verification policies and procedures. As there are approximately 1,702 reporting counterparties based on data available to the Commission, the Commission estimates a one-time overall hours burden of 170,200 hours to build reporting counterparty verification systems and an ongoing annual overall hours burden of 17,020 hours to maintain the reporting counterparty verification systems. Under final § 45.14(b)(4), SD, MSP, or DCO reporting counterparties must perform verification once every thirty days for each SDR where the reporting counterparty maintains any open swaps. Non-SD/MSP/DCO reporting counterparties must perform verification once every calendar quarter for each SDR where the reporting counterparty maintains any opens swaps. The Commission also expects, based on discussions with SDRs and reporting E:\FR\FM\25NOR2.SGM 25NOR2 75634 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations counterparties, that the verification process will be largely automated for all parties involved. The Commission estimates an average burden of two hours per verification performed at each SDR per reporting counterparty. As there are 117 SDs, MSPs, or DCOs that clear swaps registered with the Commission, the Commission estimates 319 that these 117 reporting counterparties will, at maximum, be required to verify data 13 times per year at a maximum of 3 SDRs, for an overall additional annual hours burden of 9,126 ongoing burden hours related to the verification process for these reporting counterparties. The Commission also estimates, based on data available to the Commission, that there are 1,585 nonSD/MSP/DCO reporting counterparties.320 The Commission estimates that these 1,585 reporting counterparties will be required to, at maximum, verify data 4 times per year at a maximum of 3 SDRs, for an overall additional annual hours burden of 38,040 burden hours related to verification process for these reporting counterparties. The Commission therefore estimates that the overall burden for updated Information Collection 3038–0096 will be as follows: Estimated number of respondents affected: 1,732 SEFs, DCMs, DCOs, SDRs, and reporting counterparties. Estimated annual number of responses per respondent: 257,595. Estimated total annual responses: 446,154,540. Estimated burden hours per response: 0.005. Estimated total annual burden hours per respondent: 1,316. Estimated aggregate total burden hours for all respondents: 2,279,312. 2. Revisions to Collection 3038–0070 (Real-Time Transaction Reporting) jbell on DSKJLSW7X2PROD with RULES2 § 43.3—Method and Timing for RealTime Public Reporting Final § 43.3(e) requires SEFs, DCMs, and reporting counterparties to correct errors and omissions in swap transaction and pricing data as soon as 319 Though there are 117 SDs, MSPs, or DCOs that clear swaps registered with the Commission that could be a reporting counterparty, not all potential reporting counterparties will perform data verification for any given verification cycle. Only those reporting counterparties with open swaps are required to perform data verification for that verification cycle. 320 Though there are 1,585 non-SD/MSP/DCOs that could be a reporting counterparty, not all potential reporting counterparties will perform data verification for any given verification cycle. Only those reporting counterparties with open swaps are required to perform data verification for that verification cycle. VerDate Sep<11>2014 20:01 Nov 24, 2020 Jkt 253001 technologically practicable after discovery. Final § 43.3(e) also requires a non-reporting counterparty to report a discovered error or omission to the relevant SEF, DCM, or reporting counterparty as soon as technologically practicable after discovery of the error or omission. These final rules clarify the requirements to be consistent with the requirements in final § 45.14(b), but are also effectively the same as the requirements of exiting § 43.3(e).321 These requirements therefore do not require amendments to the collection. Final § 43.3(e)(1)(ii) includes the new requirement for SEFs, DCMs, and reporting counterparties to notify the Director of DMO when errors or omissions cannot be timely corrected and, in such case, to provide the Director of DMO with an initial assessment of the errors and omissions and an initial remediation plan if one exists. This requirement constitutes a new collection of information. The Commission estimates that each SEF, DCM, and reporting counterparty will, on average need to provide notice to the Commission under final § 43.3(e)(1)(ii) once per year and that each instance will require 6 burden hours.322 As there are approximately 1,729 SEFs, DCMs, and reporting counterparties that handle swaps, the Commission estimates an overall additional annual hours burden of 10,374 hours related to this requirement. This estimate is based on the Commission’s experience with SEFs, DCMs, and reporting counterparties current practices regarding the reporting of errors and omissions, including the initial assessments that SEFs, DCMs, and reporting counterparties provide to the Commission under current practice. The Commission does not anticipate any one-time, initial burdens related to final § 43.3(e)(1)(ii). 321 The Commission notes that final § 43.3(e)(2) does add provisions that are not present in current § 43.3(e)(1) to address the situation where a nonreporting counterparty does not know the identity of the reporting counterparty. The Commission does not believe that these additions have PRA implications, as the amount of information the nonreporting counterparty must provide and the frequency with which it must be provided remain the same as the current requirement and are de minimis. The only change is the requirement that non-reporting counterparties inform the SEF or DCM of errors, instead of the reporting counterparty. SEFs and DCMs have correction responsibilities under current § 43.3(e)(1) and final § 43.3(e)(2) does not change these responsibilities. 322 The Commission notes that, currently, it receives significantly less than one notice and initial assessment of reporting errors and omissions per SEF, DCM, or reporting counterparty per year, but estimates one notice annually, as the final requirements of § 45.14(a) may reveal more reporting errors to reporting counterparties that would then require corrections pursuant to final § 43.3(e). PO 00000 Frm 00214 Fmt 4701 Sfmt 4700 The Commission is also removing paragraphs (f) and (g) from § 43.3 in order to move the requirements of these paragraphs to final § 49.28. Paragraphs (f) and (g) contain requirements for SDRs related to their operating hours. Final § 49.28 includes all of the current § 43.3(f) and (g) requirements, and this deletion and move is intended to better organize regulations for SDRs by locating as many SDR requirements as possible in part 49 of the Commission’s regulations. Moving the requirements modifies collections 3038–0070 and 3038–0086 because it removes these recordkeeping requirements from part 43 of the Commission’s regulations and adds them to part 49 of the Commission’s regulations. The Commission estimates that the public notice requirements of existing § 43.3(f) and (g) require SDRs to issue three notices per year and spend five hours creating and disseminating each notice, for a total of 15 hours annually for each SDR, for a total of 45 annual burden hours being moved across all three SDRs. As a result, the Commission estimates that moving these requirements will result in a total reduction of 45 annual burden hours for SDRs in collection 3038–0070. The Commission therefore estimates that the total overall burdens for updated Information Collection 3038– 0070 will be as follows: Estimated number of respondents affected: 1,732 SEFs, DCMs, DCOs, SDRs, and reporting counterparties. Estimated annual number of responses per respondent: 21,247. Estimated total annual responses: 36,799,804. Estimated burden hours per response: 0.033. Estimated total annual burden hours per respondent: 701. Estimated aggregate total burden hours for all respondents: 1,214,392. 3. Revisions to Collection 3038–0086 (Relating to Part 49 SDR Regulations) 323 The Commission is revising collection 3038–0086 to account for changes in certain SDR responsibilities under the final amendments to §§ 49.3, 49.5, 49.6, 49.9, 49.10, 49.11, and 49.26, and to the addition of §§ 49.28, 49.29, and 49.30. The estimated hours burdens and costs provided below are in addition to or subtracted from the existing hours burdens and costs in collection 3038– 323 The Commission is also proposing to reduce the number of SDRs used in collection 3038–0086 to calculate burdens and costs from 4 to 3. There are currently three SDRs provisionally registered with the Commission. The Commission has not received any applications for SDR registration since 2012. E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations 0086. The Commission also describes a number of changes to sections that do not have PRA implications below, for clarity. i. § 49.3—Procedures for Registration The final amendments to § 49.3(a)(5) remove the requirement for each SDR to file an annual amendment to its Form SDR. This reduces the PRA burden for SDRs by lowering the number of filings required for each SDR. The Commission estimates that the PRA burden for each SDR will remain at 15 hours per filing, but that the number of filings per year will be reduced from three to two, meaning that the final amendments to § 49.3(a)(5) reduces the burden on SDRs by 15 hours per year, for a total reduction of 45 annual burden hours across all three SDRs. This estimate is based on the Commission’s experience with current SDR practices and the original supporting statement for collection 3038–0086.324 The Commission does not anticipate any one-time, initial burden changes related to final § 49.3(a)(5). jbell on DSKJLSW7X2PROD with RULES2 ii. § 49.5—Equity Interest Transfers The final amendments to § 49.5 require SDRs to file a notification with the Commission for each transaction involving the direct or indirect transfer of ten percent or more of the equity interest in the SDR within ten business days of the firm obligation to transfer the equity interest, to provide the Commission with supporting documentation for the transaction upon the Commission’s request, and, within two business days of the completion of the equity interest transfer, to file a certification with the Commission that the SDR will meet all of its obligations under the Act and the Commission’s regulations. The Commission estimates that the requirements of final § 49.5 create a burden of 15 hours per SDR for each qualifying equity interest transfer. Equity interest transfers for SDR are rare, so the Commission estimates that each SDR will provide information pursuant to final § 49.5 no more often than once every three years. As a result, the estimated average annual PRA burden related to final § 49.5 is 5 hours per SDR, for a total estimated ongoing annual burden of 15 hours total for all three SDRs. The Commission does not anticipate any one-time, initial burdens related to final § 49.5. 324 The original supporting statement for collection 3038–0086 estimated that the requirements of current § 49.3(a)(5) will necessitate three filings per year and 15 hours per filing. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 iii. § 49.6—Request for Transfer of Registration The final amendments to § 49.6 require an SDR seeking to transfer its registration to another legal entity due to a corporate change to file a request for approval with the Commission before the anticipated corporate change, including the specific documents and information listed in final § 49.6(c). The Commission estimates that the requirements of final § 49.6 create a burden of 15 hours per SDR for each transfer of registration. Transfers of registration for SDR are rare, so the Commission estimates that each SDR will provide information pursuant to final § 49.6 no more often than once every three years. As a result, the estimated average annual PRA burden related to final § 49.6 is 5 hours per SDR, for a total estimated ongoing annual burden of 15 hours total for all three SDRs. The Commission does not anticipate any one-time, initial burdens related to final § 49.6. iv. § 49.9—Open Swaps Reports Provided to the Commission The final amendments to § 49.9 remove the current text of the section and replace it with requirements related to SDRs providing open swaps reports to the Commission, as instructed by the Commission. The instructions may include the method, timing, frequency, and format of the open swaps reports. The Commission estimates that SDRs will incur a one-time initial burden of 250 hours per SDR to create or modify their systems to provide the open swaps reports to the Commission as instructed, for a total estimated hours burden of 750 hours. This burden may be mitigated by the fact that SDRs currently have systems in place to provide similar information to the Commission, which may reduce the effort needed to create or modify SDRs’ systems. The Commission additionally estimates 30 hours per SDR annually to perform any needed maintenance or adjustments to SDR systems. The Commission expects that the process for providing the open swaps reports to the Commission will be largely automated and therefore estimates a burden on the SDRs of 2 hours per report. Though the Commission is not prescribing the frequency of the open swaps reports at this time, the Commission estimates, only for the purposes of this burden calculation, that the SDRs will provide the Commission with 365 open swaps reports per year, meaning that the estimated ongoing annual additional hours burden for generating the open PO 00000 Frm 00215 Fmt 4701 Sfmt 4700 75635 swaps reports and providing the reports to the Commission is 730 hours per SDR. The Commission therefore estimates a total ongoing additional annual hours burden related to final § 49.9 of 760 hours per SDR, 325 for a total estimated ongoing annual burden of 2,280 hours. v. § 49.10—Acceptance of Data Final § 49.10(e) requires SDRs to accept, process, and disseminate corrections to SDR data errors and omissions. Final § 49.10(e) also requires SDRs to have policies and procedures in place to fulfill these requirements. The Commission estimates that SDRs will incur a one-time initial burden of 100 hours per SDR to update and implement the systems, policies, and procedures necessary to fulfill their obligations under final § 49.10(e), for a total increased initial hours burden of 300 hours across all three SDRs. This burden may be mitigated by the fact that SDRs already have systems, policies, and procedures in place to accomplish corrections to SDR data and that the SDRs currently make such corrections on a regular basis. The Commission additionally estimates 30 hours per SDR annually to perform any needed maintenance on correction systems and to update corrections policies and procedures as needed. The Commission anticipates that the process for SDRs to perform corrections will be largely automated, as this is the case with current SDR corrections. Based on swap data available to the Commission and discussions with the SDRs, the Commission estimates that an SDR will perform an average of approximately 2,652,000 data corrections per year. Based on the same information, the Commission estimates that performing each correction will require 2 seconds from an SDR. As a result, the Commission estimates that the ongoing burden of performing the actual corrections to SDR data will be approximately 1,473 hours per SDR annually, on average. The Commission anticipates that once applicable, the verification rules may have the short term effect of increasing the number of corrections per year, as reporting counterparties discover errors in open swaps. The Commission further anticipates that the number of corrections will then decrease as the new validation rules and revised technical specifications improve the quality and accuracy of initial reporting, reducing the number of corrections. 325 730 hours for the open swaps reports, and 30 hours to perform system maintenance. E:\FR\FM\25NOR2.SGM 25NOR2 75636 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations The Commission therefore estimates a total additional annual hours burden related to final § 49.10(e) of 1,503 hours per SDR annually, for a total estimated ongoing burden of 4,509 hours. jbell on DSKJLSW7X2PROD with RULES2 vi. § 49.11—Verification of Swap Data Accuracy The final amendments to § 49.11 modify the existing obligations on SDRs to confirm the accuracy and completeness of swap data. Final § 49.11(b) requires SDRs to provide a mechanism that allows each reporting counterparty that is a user of the swap data repository to access all swap data maintained by the swap data repository for each open swap for which the reporting counterparty is serving as the reporting counterparty. Final §§ 49.11(a) and 49.11(c) 326 do not have PRA implications beyond the burdens discussed for paragraph (b) below. While SDRs are already required to confirm the accuracy and completeness of swap data under current § 49.11, the requirements in final § 49.11 impose different burdens on the SDRs than the current regulation. The Commission estimates that each SDR will incur an initial, one-time burden of 300 hours to build, test, and implement updated verification systems, for a total of 900 initial burden hours across all SDRs. The Commission also estimates 30 hours per SDR annually for SDRs to maintain their verification systems and make any needed updates to verification policies and procedures required under final § 49.11(a) and (c). Currently, SDRs are required to confirm swap data by contacting both counterparties for swaps that are not submitted by a SEF, DCM, DCO, or third-party service provider every time the SDR receives swap data related to the swap. For swaps reported by a SEF, DCM, DCO, or third-party service provider, the SDRs must currently assess the swap data to form a reasonable belief that the swap data is accurate every time swap data is submitted for a swap. Under final § 49.11(b) and (c), SDRs are only required to provide the mechanism that will allow reporting counterparties to perform verification, as described above. The Commission also anticipates, based on discussions with SDRs and other market participants, that the verification 326 The Commission notes that requirements of part 40 of the Commission’s regulations apply to SDRs amending their verification policies and procedures regardless of final § 49.11(c), because verification policies and procedures fall under the part 40 definition of a ‘‘rule.’’ See 17 CFR 40.1(i) (definition of rule for the purposes of part 40). PRA implications for final § 49.11(c) are included under the existing approved PRA collection for part 40 of the Commission’s regulations. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 process will be largely automated once the processes are in place, and will consist of an annual burden of 30 hours per SDR. The Commission therefore estimates a total additional ongoing hours burden related to final § 49.11 of 60 hours per SDR annually,327 for a total estimated ongoing burden of 180 hours. vii. § 49.12—Swap Data Repository Recordkeeping Requirements The final amendments to § 49.12(a) and (b) incorporate existing SDR recordkeeping obligations from § 45.2(f) and (g) respectively, which are already applicable to SDRs under current § 49.12(a). As the recordkeeping requirements being moved from § 45.2 already apply to SDRs under current § 49.12, the Commission does not believe that amended § 49.12(a) or (b) requires any revision to hours burden related to § 49.12 already included in collection 3038–0086. Final amendments to § 49.12(c) require SDRs to maintain records of data validation errors and of data reporting errors, which include records of data subsequently corrected by a SEF, DCM, or reporting counterparty pursuant to parts 43, 45, and 46. Final § 49.12(c) does not, however, add any new requirement to part 49, as all of the records to be kept are already required to be kept by existing recordkeeping obligations as data submitted under part 43, 45, or 46. As a result, the Commission does not believe that final § 49.12(c) requires an additional PRA burden beyond that already included in collection 3038–0086. viii. § 49.26—Disclosure Requirements of Swap Data Repositories Final new § 49.26(j) requires SDRs to provide their users and potential users with the SDR’s policies and procedures on reporting SDR data, including SDR data validation procedures, swap data verification procedures, and SDR data correction procedures. The Commission anticipates that SDRs will incur a onetime burden of 20 burden hours to draft written documents to provide to their users and potential users, for a total increase of 60 one-time burden hours across SDRs. The Commission also anticipates that SDRs will update their policies once per year and incur a recurring burden of 10 hours annually from providing any updated reporting policies and procedures to their users and potential users, as needed, for a for a total estimated ongoing annual burden of 30 hours across the three SDRs. 327 30 hours for system maintenance and 30 hours for the verification process. PO 00000 Frm 00216 Fmt 4701 Sfmt 4700 ix. § 49.28—Operating Hours of Swap Data Repositories Final new § 49.28 incorporates existing provisions of § 43.3(f) and (g) with respect to hours of operation with minor changes and clarifications. Final § 49.28 extends the provisions of current § 43.3(f) and (g) to include all SDR data and clarifies the different treatment of regular closing hours and special closing hours. SDRs currently have closing hours systems, policies, and procedures that apply to all SDR functions and all SDR data under the current requirements. The final requirements related to declaring regular closing hours and special closing hours also effectively follow current requirements, without necessitating changes to current SDR systems or practices. The Commission does, however, anticipate that the SDRs will need to issue notices to the public related to closing hours under final § 49.28(a) and (c). The Commission estimates that each SDR will issue three notices per year and spend five hours creating and disseminating each notice, for a total of 15 hours per year preparing and providing public notices per SDR, for a for a total estimated ongoing annual burden of 45 hours per year across all SDRs. x. § 49.29—Information Relating to Swap Data Repository Compliance Final new § 49.29 requires each SDR to provide, upon request by the Commission, information relating to its business as an SDR, and such other information that the Commission needs to perform its regulatory duties. This provision also requires each SDR, upon request by the Commission, to provide a written demonstration of compliance with the SDR core principles and other regulatory obligations. The PRA burden associated with such responses is dependent on the number of requests made and the complexity of such requests. Based on its experience with requests to DCMs, the Commission estimates that each SDR will likely receive on average between three and five requests per year, considering that an SDR is a newer type of registered entity than a DCM. The Commission anticipates that the number of requests will decrease over time. The Commission also anticipates that each such request will require the SDR to spend 20 hours to gather information and formulate a response, and bases its estimate of burden hours assuming five such requests per year, for a total additional hours burden of 100 hours per SDR per year, for a total estimated ongoing annual burden of 300 hours per E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations year across all SDRs. The Commission does not anticipate that SDRs will incur any one-time hours burden or costs in complying with this regulation. The Commission therefore estimates that the total overall burdens for updated Information Collection 3038– 0086 will be as follows: Estimated number of respondents affected: 3 SDRs. Estimated annual number of responses per respondent: 154,327,169. Estimated total annual responses: 462,981,508. Estimated burden hours per response: 0.0006. Estimated total annual burden hours per respondent: 99,197. Estimated aggregate total burden hours for all respondents: 297,591. jbell on DSKJLSW7X2PROD with RULES2 C. Cost-Benefit Considerations 1. Introduction Section 15(a) 328 of the CEA requires the Commission to consider the costs and benefits of its actions before promulgating a regulation under the CEA or issuing certain orders. Section 15(a) further specifies that the costs and benefits shall be evaluated in light of five broad areas of market and public concern: (1) Protection of market participants and the public; (2) efficiency, competitiveness, and financial integrity of markets; (3) price discovery; (4) sound risk management practices; and (5) other public interest considerations. The Commission considers the costs and benefits resulting from its discretionary determinations with respect to the section 15(a) factors. In this release, the Commission is revising existing regulations in parts 43, 45, and 49. The Commission is also issuing new regulations in part 49. Together, these revisions and additions are intended to address swap data verification and to improve the quality of data reporting generally. Some of the amendments are substantive. A number of amendments, however, are nonsubstantive or technical, and therefore will not have associated cost-benefits implications.329 In the sections that follow, the Commission discusses the costs and benefits associated with the final rule and reasonable alternatives are considered. Comments addressing the associated costs and benefits of the rule are addressed in the appropriate sections. Wherever possible, the Commission has considered the costs U.S.C. 19(a). Commission believes there are no costbenefit implications for Final §§ 49.2, 49.15, 49.16, 49.18, 49.20, 49.24, and 49.31. and benefits of the final rule in quantitative terms. Given that many aspects of the Proposal did not dictate the means by which SDRs or reporting counterparties must comply, the Commission recognized that the quantitative impact of the proposed rule would vary by each entity because the affected market participants vary in technological and staffing structure and resources. The Commission also noted in the Proposal that because of differences in the sizes of SDR operations, many of the costs associated with the proposed rulemaking were not readily quantifiable without relying on and potentially divulging confidential information. The Commission believed that many of the proposed rules would have affected a wide variety of proprietary reporting systems developed by SDRs and reporting counterparties. With these understandings, the Commission asked the public to provide information regarding quantitative costs and benefits related to complying with the Commission’s proposed rules. The Commission received comments from market participants, such as SDRs and reporting counterparties, and other interested public commenters. Some of the commenters asserted that some of the proposed rules would generate significant or burdensome costs, but no commenters quantified such costs. Nor did commenters, in particular the limited universe of market participants required to report and collect data, quantify costs they currently expend to comply with current swap data reporting requirements.330 If the Commission possessed information regarding current and actual costs, the Commission could consider current monetary outlays against the anticipated quantitative costs and benefits needed to comply with the rules in this final rulemaking. As a result, the Commission has considered the costs and benefits of the rules in this final rulemaking and has provided broad ranges of estimates of the costs associated with implementing some of the rule changes. It is reasonable to use ranges because the final rules are flexible, which means SDRs and reporting counterparties will take different approaches to comply with the final rules. In addition, ranges account for variation in technological and staffing structure, resources, and operational sophistication of affected market participants. 328 7 329 The VerDate Sep<11>2014 20:01 Nov 24, 2020 Jkt 253001 330 See section I above for discussion of the history behind swaps data reporting required by CEA section 21. PO 00000 Frm 00217 Fmt 4701 Sfmt 4700 75637 In several of the sections below, the Commission has estimated the number of hours it believes market participants will likely expend to comply with the final rules. These cost estimates focus on the technical aspects of the final rules and are separate from those listed in the Paperwork Reduction Act discussion above in section VII.B. The Commission has made reasonable estimations based, in part, on its familiarity with the work of SDRs and reporting counterparties, and its own experience in building systems to collect swap data. To monetize the hours, the Commission multiplies the number of hours and an hourly wage estimate. As most of the final rules may require technological changes, the Commission uses hourly wages for developers. The Commission estimated the hourly wages market participants will likely pay software developers to implement changes to be between $48 and $101 per hour.331 The Commission recognizes that for some services—like compliance review, and legal drafting and review—the wage rates may be more or less than the $48 to $101 range for developers. The Commission believes, however, that the estimated cost ranges, discussed below, will cover most budgets for tasks, regardless of the exact nature of the tasks needed to comply with the final rules. 2. Background Since their promulgation in 2011, the provisions in part 49 have required SDRs to, among other things, accept and confirm data reported to SDRs. The Commission believes SDRs’ collection and maintenance of swap data as required in parts 45 and 49 has allowed the Commission to better monitor the overall swaps market and individual market participants. In contrast, before the adoption of the Dodd-Frank Act and its implementing regulations, the swaps 331 Hourly wage rates were based on the Software Developers and Programmers category of the May 2019 National Occupational Employment and Wage Estimates Report produced by the U.S. Bureau of Labor Statistics, available at https://www.bls.gov/ oes/current/oes_nat.htm. The 25th percentile was used for the low range and the 90th percentile was used for the upper range ($36.89 and $78.06, respectively). Each number was multiplied by an adjustment factor of 1.3 for overhead and benefits (rounded to the nearest whole dollar) which is in line with adjustment factors the Commission has used for similar purposes in other final rules adopted under the Dodd-Frank Act. See, e.g., 77 FR at 2173 (Jan. 13, 2012) (using an adjustment factor of 1.3 for overhead and other benefits). These estimates are intended to capture and reflect U.S. developer hourly rates market participants are likely to pay when complying with the proposed changes. The Commission recognizes that individual entities may, based on their circumstances, incur costs substantially above or below the estimated averages. E:\FR\FM\25NOR2.SGM 25NOR2 jbell on DSKJLSW7X2PROD with RULES2 75638 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations market generally, and transactions and positions of individual market participants in particular, were not transparent to regulators or the public. Under the current data reporting requirements, the Commission has had the opportunity to work directly with SDR data reported to, and held by, SDRs. Based on its experience working with SDR data, along with extensive feedback and comments received from market participants, the Commission believes that improving SDR data quality will help enhance the data’s usefulness. In this final rulemaking, the Commission has focused on the operation and implementation of CEA section 21,332 which contains requirements related to SDRs, including the requirement to confirm data.333 The Commission also is modifying a number of other regulations for clarity and consistency and to enhance the Commission’s ability to monitor and supervise the swaps market. Prior to discussing the rule changes, the Commission describes below the current environment that will be impacted by these changes. Three SDRs are currently provisionally registered with the Commission: CME, DDR, and ICE. Each SDR has unique characteristics and structures that determine how the rule changes will impact its operations. For example, SDRs affiliated with DCOs tend to receive a large proportion of their SDR data from swaps cleared through those affiliated DCOs, while independent SDRs tend to receive SDR data from a wider range of market participants. The current reporting environment also involves third-party service providers. These entities assist market participants with fulfilling the applicable data reporting requirements, though the reporting requirements do not apply to third-party service providers directly. Current regulations have not resulted in data quality that meets the Commission’s expectations. For example, current regulations do not include a specific affirmative obligation for swap counterparties to review reported swap data for errors.334 Swap counterparties are required to correct data errors only if inaccurate data is discovered, and therefore data quality is partially dependent on processes that are not mandated by the Commission. The result has been that market participants too often have not reviewed data and corrected any errors. It is not uncommon for Commission staff to find 332 See 7 U.S.C. 24a. 7 U.S.C. 24a(c)(2). 334 See 17 CFR 43.3(e); 17 CFR 45.14. 333 See VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 discrepancies between open swaps information available to the Commission and reported data for the same swaps. For example, in processing open swaps reports to generate the CFTC’s Weekly Swaps Report,335 Commission staff has observed instances where the notional amount of a swap differs from the swap data reported to an SDR for the same swap. Other common examples of discrepancies include incorrect references to an underlying currency, such as a notional value incorrectly linked to U.S. dollars instead of Japanese Yen. These examples, among others, strongly suggest a need for better verification of reported swap data. Weaknesses in SDR policies and procedures also have created additional challenges for swap data accuracy. As discussed above, certain SDR policies and procedures for swap data have been based on negative affirmation, i.e., predicated on the assumption that reported swap data is accurate and confirmed if a reporting counterparty does not inform the SDR of errors, or otherwise make subsequent modifications to the swap data, within a certain period of time.336 As reporting counterparties are typically not reviewing their reported swap data maintained by SDRs, the data is effectively assumed to be accurate, and errors are not sufficiently discovered and corrected. The volume of inaccurate swap data that is discovered by market participants or the Commission shows that current regulations are ineffective in producing the quality of swap data the Commission expects and needs to fulfill its regulatory responsibilities. The Commission believes that amendments and additions to certain regulations, particularly in parts 43, 45, and 49, will improve data accuracy and completeness. The regulatory changes in this final rulemaking aim to meet this objective. This final rulemaking also includes amendments to part 49 to improve and streamline the Commission’s oversight of SDRs. These amendments include new provisions allowing the Commission to request demonstrations of compliance and other information from SDRs. For each amendment discussed below, the Commission summarizes the changes,337 and identifies and discusses 335 See CFTC’s Weekly Swaps Report, available at https://www.cftc.gov/MarketReports/ SwapsReports/index.htm. 336 See 17 CFR 49.11(b)(1)(ii) and (b)(2)(ii). 337 As described throughout this release, the Commission is also proposing a number of nonsubstantive, conforming rule amendments in this release, such as renumbering certain provisions and PO 00000 Frm 00218 Fmt 4701 Sfmt 4700 the costs and benefits attributable to the changes. The Commission then considers reasonable alternatives to the rules. Finally, the Commission considers the costs and benefits of all of the rules jointly in light of the five public interest considerations in CEA section 15(a). The Commission notes that 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 United States, with leading industry members often conducting operations both within and outside the United States, and with market participants commonly following substantially similar business practices wherever located. Where the Commission does not specifically refer to matters of location, the discussion of costs and benefits refers to the rules’ effects on all swaps activity, whether by virtue of the activity’s physical location in the United States or by virtue of the activity’s connection with, or effect on, U.S. commerce under CEA section 2(i).338 The Commission contemplated this cross-border perspective in 2011 when it adopted § 49.7, which applies to trade repositories located in foreign jurisdictions.339 3. Baseline There are separate baselines for the costs and benefits that arise from the finalized regulations in this release. The baseline for final § 43.3(e) is existing § 43.3(e). The baseline for final § 45.14 is existing § 45.14. The baseline for amendments to current part 49 regulations is the existing part 49 and current practices. For final § 49.12, the baseline is existing § 49.12, as well as modifying the wording of existing provisions. Nonsubstantive amendments of this nature may be described in the cost-benefit portion of this release, but the Commission will note that there are no costs or benefits to consider. 338 See 7 U.S.C. 2(i). CEA section 2(i) limits the applicability of the CEA provisions enacted by the Dodd-Frank Act, and Commission regulations promulgated under those provisions, to activities within the U.S., unless the activities have a direct and significant connection with activities in, or effect on, commerce of the U.S.; or contravene such rules or regulations as the Commission may prescribe or promulgate as are necessary or appropriate to prevent the evasion of any provision of the CEA enacted by the Dodd-Frank Act. The application of section 2(i)(1) to § 45.2(a), to the extent it duplicates § 23.201, with respect to SDs/ MSPs and non-SD/MSP counterparties is discussed in the Commission’s final rule, ‘‘Cross-Border Application of the Registration Thresholds and Certain Requirements Applicable to Swap Dealers and Major Swap Participants,’’ 85 FR 56924, 56965– 66 (Sept. 14, 2020). 339 See 17 CFR 49.7. E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations § 45.2(f) and (g), which will be replaced by final § 49.12. For final § 49.17, the baseline is current §§ 49.17 and 45.13. The Commission is also finalizing four new regulations: §§ 49.28, 49.29, 49.30, and 49.31. For final § 49.28 the baseline is existing § 43.3(f) and (g), because the requirements in § 43.3(f) and (g) are being moved to final § 49.28. For final §§ 49.29 and 49.30, the baselines are current practices. Final § 49.31 concerns internal Commission practices and is not subject to consideration of costs and benefits. 4. Costs and Benefits of Amendments to Part 49 jbell on DSKJLSW7X2PROD with RULES2 i. § 49.2—Definitions The Commission is adopting editorial and conforming amendments to certain definitions in final § 49.2. The Commission considers the definitions to have no cost-benefit implications on their own. In addition, the Commission believes the amendments to § 49.2 are non-substantive changes that will not impact existing obligations on SDRs or reporting counterparties, and, therefore, the amended definitions have no costbenefit implications. ii. § 49.3—Procedures for Registration The Commission is adopting the amendments to § 49.3(a)(5) and the conforming amendments to Form SDR and § 49.22(f)(2) as proposed in part and is not adopting the proposed amendments in part. The Commission is removing the current requirements for SDRs to file an annual amendment to Form SDR but declines to amend the requirement to update the Form SDR after the Commission grants an SDR registration under § 49.3(a).340 The annual Form SDR filing requirement is unnecessary for the Commission to successfully perform its regulatory functions. The amendments to § 49.3(a)(5) benefit SDRs by reducing the amount of information that SDRs must provide to the Commission on an annual basis and the frequency with which SDRs must deliver information updating Form SDR. By removing the requirement to file an annual update to Form SDR in current § 49.3(a)(5), SDRs will benefit from expending fewer resources to provide information to the Commission. The Commission believes that the eliminated requirement is burdensome and unnecessary, as the SDRs already submit, and will continue to submit, the same updated information in the required periodic Form SDR amendments. The Commission believes that costs of eliminating the annual 340 See 17 CFR 49.3(a)(5). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 Form SDR update requirement, in terms of impairing the Commission’s access to information, will be minimal. The costs related to the changes to § 49.3(a)(5) will largely be associated with any needed adjustments to SDR policies and procedures related to reducing the number of updates to Form SDR. Notwithstanding the anticipated incremental costs, the Commission believes this change to § 49.3(a)(5) is warranted in light of the anticipated benefits. iii. § 49.5—Equity Interest Transfers The Commission is finalizing various amendments to § 49.5 to simplify and streamline the requirements for when an SDR enters into an agreement involving the transfer of an equity interest of ten percent or more in the SDR. The Commission also is extending the notice filing deadline. Current § 49.5 requires three actions by an SDR as part of an equity interest transfer: (1) Issue a notice to the Commission within one business day of committing to the transfer; (2) submit specific documents to the Commission, as well as update its Form SDR; and (3) certify compliance with CEA section 21 and Commission regulations adopted thereunder within two business days of the transfer of equity. Final § 49.5 is less demanding than current § 49.5. Final § 49.5 ensures that the Commission is apprised of a change that might impact SDR operations and provided with information to aid any evaluation processes the Commission undertakes. Yet, final § 49.5 gives an SDR more time in which to notify the Commission of an equity interest transfer and eliminates unnecessary filings. Final § 49.5(a) requires an SDR: (i) To notify the Commission of each transaction involving the direct or indirect transfer of ten percent or more of the equity interest in the SDR within ten business days of ‘‘a firm obligation to transfer’’; and (ii) to provide the Commission with supporting documentation upon request. Final § 49.5(b) requires that the notice in § 49.5(a) be filed electronically with the Secretary of the Commission and DMO at the earliest possible time, but in no event later than ten business days following the date upon which a firm obligation is made for the equity interest transfer. Final § 49.5(c) requires that upon the transfer, whether directly or indirectly, the SDR shall file electronically with the Secretary of the Commission and DMO a certification that the SDR meets all of the requirements of CEA section 21 and the Commission regulations thereunder, no later than two business days following PO 00000 Frm 00219 Fmt 4701 Sfmt 4700 75639 the date on which the equity interest was acquired. The Commission requested the public to comment on the cost-benefit considerations related to proposed § 49.5, but the Commission did not receive any comments. Consequently, the Commission continues to believe that the amendments will benefit SDRs by lowering the burdens related to notifying the Commission of equity interest transfers and by extending the time SDRs have to file the notice with the Commission. The amendments benefit SDRs by reducing the burden to notify the Secretary of the Commission and DMO of transfers by extending the available time from one business day to ten business days. More time will give SDRs greater latitude in managing how they use their time and allocate resources to file the required notices and certification. In addition, SDRs will no longer have the obligations in current § 49.5(a) to update Form SDR and in current § 49.5(b) to provide specificallyidentified documents to the Commission with the equity interest transfer notification. Final § 49.5 instead states that the Commission may request supporting documentation for the transaction. Even if the request causes the SDR to submit more documents than the ones listed in the current regulation or Form SDR, the requested documents will be tailored to the Commission’s evaluation of the equity transfer. SDRs will benefit from not expending resources and time to collect, file, record, and track documents listed in current § 49.5 that may have no value to the Commission’s review. The Commission’s ability to request supporting documentation mitigates costs in terms of detrimental effects that could arise from less information about the transfer being available to the Commission. Additional costs to SDRs, if any, will stem from the inclusion of ‘‘indirect transfers’’ of equity interest in § 49.5. This could increase the costs to SDRs, if the inclusion of indirect transfers results in more equity interest transfers being subject to the regulation and the associated need to provide information to the Commission. The inclusion of indirect transfers benefits the Commission by providing greater insight into equity interest transfers that could affect the business of an SDR, even though the equity interest transfer does not involve the SDR directly. As equity interest transfers are rare occurrences and the Commission does not anticipate that including indirect transfers will result in substantially more equity interest transfers, the E:\FR\FM\25NOR2.SGM 25NOR2 75640 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Commission expects the potential additional costs connected to final § 49.5 to be small. Notwithstanding the anticipated incremental costs, the Commission believes the changes to § 49.5 are warranted in light of the anticipated benefits. jbell on DSKJLSW7X2PROD with RULES2 iv. § 49.6—Request for Transfer of Registration The Commission is finalizing § 49.6 as proposed. Final § 49.6(a) requires an SDR seeking to transfer its SDR registration following a corporate change to file a request for approval to transfer the registration with the Secretary of the Commission in the form and manner specified by the Commission. Final § 49.6(b) specifies that an SDR file a request for transfer of registration as soon as practicable before the anticipated corporate change. Final § 49.6(c) sets forth the information that must be included in the request for transfer of registration, including the documentation underlying the corporate change, the impact of the change on the SDR, governance documents, updated rulebooks, and representations by the transferee entity, among other things. Final § 49.6(d) specifies that upon review of a request for transfer of registration, the Commission, as soon as practicable, shall issue an order either approving or denying the request for transfer of registration. The Commission sought public comment on its cost-benefit considerations related to § 49.6. The Commission did not receive any comments. The Commission continues to believe that § 49.6 will not impose any additional costs on SDRs compared to the current requirements that include meeting filing deadlines for submitting a Form SDR. The amendments to § 49.6 create several benefits that include simplifying the process for requesting a transfer of SDR registration and reducing the burdens on SDRs for successfully transferring an SDR registration to a successor entity. Final § 49.6 eliminates duplicative filings by requiring a more limited scope of information and representations from the transferor and transferee entities than existing § 49.6, which requires a full application for registration on Form SDR, including all Form SDR exhibits. Final § 49.6 focuses on ensuring the Commission receives relevant information needed to approve a request for a transfer of an SDR registration promptly. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 v. § 49.9—Open Swaps Reports Provided to the Commission The Commission is finalizing § 49.9 as proposed. Final § 49.9 creates a new regulatory obligation by requiring an SDR to provide the Commission with an open swaps report that contains an accurate reflection of data for every swap data field required to be reported under part 45 for every open swap maintained by the SDR. Final § 49.9 alters current § 49.9 substantially. Current § 49.9 does not specifically discuss open swaps reports; rather, it outlines twelve SDR duties through cross-references to other part 49 regulations. For example, current § 49.9 states that SDRs must ‘‘accept swap data as prescribed in § 49.10;’’ provide direct electronic access to the Commission ‘‘as prescribed in § 49.17;’’ and adopt disaster recovery plans ‘‘as prescribed in § 49.23 and § 49.13.’’ 341 The Commission is removing the list of duties in § 49.9 and replacing it with a regulation that assigns SDRs the obligation to issue open swaps reports to the Commission.342 The Commission requested public comment on its consideration of the costs and benefits related to proposed § 49.9. The Commission did not receive any comments. The Commission believes that while there may be costs imposed by final § 49.9, costs will be mitigated by the fact that SDRs already send the Commission reports that are similar to the open swaps reports required by final § 49.9. Given that SDRs already have systems to issue reports, the adjustments SDRs must undertake to comply with final § 49.9 should be incremental in terms of financial and administrative outlays to modify technological infrastructures to meet the Commission’s requirements. The Commission believes the costs may include expenditures to modify current reporting systems to meet the requirements for the open swaps reporting systems and costs to maintain SDR systems. Currently, SDRs produce reports using differing approaches to calculations and formats. There may be costs to change systems to meet the Commission’s required standardized format for open swaps reports. The Commission, however, does not expect the format of these reports to change frequently. The Commission believes a 341 17 CFR 49.9(a). Commission believes that removing the list of duties in § 49.9 is a non-substantive change that does not implicate cost or benefit considerations, because the list consists of crossreferences to other regulations. The costs and benefits of the addition of new requirements in final § 49.9 are considered below. 342 The PO 00000 Frm 00220 Fmt 4701 Sfmt 4700 standardized report will ensure the report is in a more usable format that assists and improves the Commission’s regulatory efforts. The Commission uses current SDR reports to perform market risk and position calculations. The Commission also uses SDR reports to create and publish the Commission’s weekly swaps report and quarterly entity-netted notional reports. The Commission-issued reports benefit market participants and the public by providing and analyzing data sourced directly from the SDRs. This information on open swaps is unique and is not available to the public until the Commission publishes its reports. The Commission recognizes that the three existing SDRs vary in size of operations. They also service and process different volumes of data for various asset classes. As a result, the qualitative and quantitative costs to comply with § 49.9 will differ between SDRs. Notably, however, no commenters submitted estimates of time or monetized costs for proposed § 49.9 or the amount of current costs to produce reports. Based on the Commission’s knowledge of SDRs and its own technological experience, the Commission estimates that each SDR will expend 250 hours to establish an open swaps report system that complies with § 49.9. Thereafter, the Commission estimates that each SDR will spend 30 hours on maintenance and 730 hours dedicated to issuing open swaps reports annually. The Commission monetizes the initial set-up and annual hours by multiplying by the wage-rate range of $48 to $101 to estimate that each SDR will expend $12,000 to $25,250 to establish an open swaps report system and then expend $36,480 to $76,760 for annual maintenance and reporting.343 The Commission considered and rejected the alternative of not adopting § 49.9. The Commission believes that the absence of a requirement for open swaps reports creates regulatory ambiguity and the possibility that SDRs might stop voluntarily producing open swaps reports. If the latter were to 343 See supra note 344 (discussion of BLS wage estimates). These estimates, discussed here and below, 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 market participant or reporting entity level are listed in the Paperwork Reduction Act discussion above in section VII.B and reflect blended burden costs as defined in the supporting statement for Part 49. Those costs are not repeated in this section. Wherever appropriate, quantified costs reflected in the Paperwork Reduction Act discussion are noted below. E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 occur, the weekly swaps report would be adversely impacted, possibly temporarily eliminated, and efforts to inform the public of developments in swaps markets would be hindered. This cost is significant because SDR reports and Commission-issued reports have become invaluable to the public’s and the Commission’s understanding of derivatives markets. Notwithstanding the costs and in light of the drawbacks of possible alternatives, the Commission believes § 49.9 is warranted in light of the anticipated benefits. vi. § 49.10—Acceptance of Data Final § 49.10(e) requires an SDR to accept corrections for errors in SDR data that was previously reported, or erroneously not reported, to SDRs. The Commission is finalizing § 49.10(e)(1) through (4) generally as proposed, with modifications and textual clarifications in response to public comments. The final rule sets forth the specific requirements SDRs will need to satisfy under § 49.10(e): (i) Accept corrections for errors reported to, or erroneously not reported to, the SDR until the end of the record-keeping retention period under § 49.12(b)(2); (ii) record corrections as soon as technologically practicable after accepting the corrections; (iii) disseminate corrected SDR data to the public and the Commission, as applicable; and (iv) establish, maintain, and enforce policies and procedures designed to fulfill these responsibilities under § 49.10(e)(1) through (3). In the Proposal, the Commission explained that § 49.10(e) could impose some costs on SDRs, but that the costs would not be significant and are largely related to any needed updates to SDR error correction systems. The Commission based its belief, in part, on the fact that SDRs are currently required to identify cancellations, corrections, and errors under parts 43 and 45.344 Joint SDR commented that this is an incorrect understanding because SDRs ‘‘make available facilities to reporting entities to meet their obligations to make such corrections.’’ 345 Joint SDR added: ‘‘In order for an SDR to take on the new obligation of making corrections, rather than allowing a reporting entity to submit corrections themselves, would necessitate significant changes to the SDR’s systems.’’ 346 Joint SDR also stated that it would be costly to make corrections to data for dead swaps. They 344 See 17 CFR 43.3(e)(1), (3), and (4); 17 CFR 45.14(c). 345 Joint SDR at 8 n. 28. 346 Joint SDR at 8 n. 28. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 specifically explained: ‘‘This requirement would be costly for the SDRs as data will need to be maintained in a readily accessible format for an unlimited amount of time and the SDR will be unable to archive the data in accordance with its internal policies and procedures.’’ 347 The Commission is persuaded by commenters’ statements that proposed § 49.10(e) would be costly and burdensome without changes. Given that final § 49.10(e) must be read with final §§ 43.3(e), 45.14, and 49.11, SDRs’ costs related to § 49.10(e) should be far less than anticipated. The Commission believes that there will be costs connected with implementing final § 49.10(e). Currently, SDRs must accept and record data, as well as disseminate calculations and corrections to SDR data.348 Final § 49.10(e) might require SDRs to expend incremental costs in terms of financial and staff outlays to adjust systems to ‘‘accept’’ and ‘‘record’’ corrections. These incremental costs should be limited because, as mentioned earlier, SDRs already make facilities available to reporting counterparties to make corrections. The Commission believes that the commenter misunderstands the requirements of proposed and final § 49.10(e) and the associated costs as requiring more direct participation in the correction process than is currently required. Nothing in proposed or final § 49.10(e) would require the SDRs to change a current approach based on making facilities available that allow market participants to submit corrections or obligate an SDR to do anything more to accept, record, and disseminate corrections than is currently required. The Commission also believes that the inclusion of the technical specification and validation requirements for SDR data in parallel Commission rulemaking 349 will help prevent certain types of SDR data reporting errors before they occur, and, therefore, reduce the need for market participants and the SDRs to correct those types of errors and, as a result, the corresponding costs incurred by SDRs to correct errors will likely decrease over time. Final § 49.10(e) will also limit SDR error correction requirements to the applicable recordkeeping obligation in final § 49.12. SDRs will not be obligated to indefinitely maintain storage and legacy systems for dead swaps or to 347 Joint SDR at 9. CFR 49.10 (SDR ‘‘shall accept and promptly record all swap data. . . .’’). See also § 43.3(e)(1), (3), and (4); 17 CFR 45.14(c). 349 See generally 85 FR 21516, et seq. (Apr. 17, 2020); 85 FR 21578, et seq. (Apr. 17, 2020). 348 17 PO 00000 Frm 00221 Fmt 4701 Sfmt 4700 75641 correct dead swaps for which the records retention period has expired. SDRs also might incur incremental costs related to establishing, maintaining, and enforcing the policies and procedures required by final § 49.10(e). The Commission, however, believes that costs will be limited to initial creation costs and update costs for the policies and procedures as needed, as mitigated by any existing SDR error correction policies and procedures. The Commission continues to believe that one of the main benefits of § 49.10(e) is improved data quality resulting from SDRs collecting and disseminating accurate swaps data. Accurate and complete datasets will enable the Commission to better understand markets and trading behavior, and guard against abusive practices. In addition, the Commission uses swap SDR data to produce public information on the swaps markets, such as the weekly swaps reports. The Commission believes that accurate data reflected in the weekly swaps report will improve the quality and reliability of the reports. All market participants and the public benefit from complete and accurate SDR data. Final § 49.10(e) is linked closely to final §§ 43.3(e), 45.14, and 49.11. Because of the changes to current §§ 43.3(e), 45.14, and 49.11, there will be costs associated with § 49.10(e). The Commission, however, believes that the benefits related to using accurate data sets warrant the costs of changes to § 49.10(e). vii. § 49.11—Verification of Swap Data Accuracy In response to comments, the Commission is modifying final § 49.11 so that the verification process is less burdensome and more flexible than the process set forth in proposed § 49.11. Final § 49.11 requires an SDR to: (i) Verify the accuracy and completeness of swap data that the SDR receives from a SEF, DCM, or reporting counterparty, or third-party service providers acting on their behalf; and (ii) establish, maintain, and enforce policies and procedures reasonably designed to verify the accuracy and completeness of that swap data. In terms of implementation, § 49.11 requires an SDR to provide a mechanism that allows each reporting counterparty that is a user of the SDR to access all swap data maintained by the SDR for each open swap for which the reporting counterparty is serving as the reporting counterparty. Under companion provisions in § 45.14, a reporting counterparty is required to perform verifications of the relevant E:\FR\FM\25NOR2.SGM 25NOR2 75642 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations swap data at specified intervals, using the mechanism provided by an SDR under § 49.11, and to correct any errors discovered. The Commission anticipates that the final rule will provide benefits, as compared to the current regulation, by improving the quality of data received and maintained by SDRs. The final rule is expected to lead to swap data errors being discovered and corrected more frequently and earlier than is often the case under the current regulations. Existing Commission regulations and SDRs rules and policies allow counterparties to presume data is accurate when it may not be. The absence of an affirmative verification requirement has also resulted in counterparties not discovering errors, including many obvious errors, and therefore not correcting the errors, for extended periods. The new requirements in final § 49.11 will also impose costs. As discussed in more detail below, commenters provided qualitative comments on the Commission’s consideration of the costs and benefits of proposed § 49.11, but did not provide quantitative information. As final § 49.11 grants SDRs the flexibility to devise their own processes to allow reporting counterparties to access swap data for verification, it is difficult to determine the amount of hours and effort SDRs will need to comply with § 49.11. Based on comments, the Commission believes that SDRs will be able to leverage current technological systems to provide access to reporting counterparties to verify data under § 49.11.350 In the absence of information from commenters, the Commission estimates that it will take each SDR up to 500 hours to build, test, and implement verification systems that are of their own design.351 The Commission estimates that SDRs will expend 50 hours or fewer annually to maintain systems and revise policies and procedures. The Commission monetizes the hours by multiplying by a wage rate of $48 to $101.352 The Commission estimates that the initial costs to an SDR 350 Joint SDR at 6 n. 28. the Proposal, the Commission estimated burden hours based on proposed § 49.11. Because final § 49.11 is more flexible and does not require the creation of open swaps reports or the building of systems to send and receive messages with reporting counterparties, the Commission believes that SDRs and reporting counterparties will employ less onerous and more economical approaches to meeting their § 49.11 and § 45.14 obligations. Therefore, the Commission is using the estimated burden hours in the Proposal as upper limits on the number of hours entities will use to develop and maintain data verification systems. 352 See supra note 344 (discussion of BLS wage estimates). jbell on DSKJLSW7X2PROD with RULES2 351 In VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 of implementing § 49.11 will range between $24,000 and $50,500. The annual costs will range between $2,400 and $5,050. Before adopting the verification requirements in final § 49.11, the Commission considered the two following requirements that were in the Proposal: (1) Requiring an SDR to establish, maintain, and enforce policies and procedures reasonably designed for the SDR to successfully receive verifications of data accuracy and notices of discrepancy from reporting counterparties 353 and (2) requiring SDRs to issue open swaps reports to reporting counterparties on a weekly or monthly basis, depending on the type of reporting counterparty involved.354 The Commission received numerous comments on these two requirements in response to the Commission’s request for comment. ISDA/SIFMA suggested that the Commission issue a more principles-based verification process than the one described in proposed §§ 45.14(a) and 49.11(b).355 ISDA/ SIFMA recommended eliminating the requirement that reporting counterparties reconcile swaps data with SDR-issued open swaps reports as well as obligations that SDRs manage or monitor such reconciliations.356 ISDA/ SIFMA proposed a verification process that would require reporting counterparties, via required policies and procedures, ‘‘to periodically reconcile the relevant SDR data with the data from their internal books and records for accuracy.’’ 357 Reporting counterparties that are SDs, MSPs, or DCOs would be required to perform verifications monthly and all other reporting counterparties would be required to verify data quarterly.358 The reporting counterparties would need to keep a record of verifications and make that information available to SDRs or the Commission upon request.359 This approach would enable reporting counterparties to leverage their own data validation efforts and eliminate the burden of sending multiple notifications.360 As explained in section II.G above, the Commission is persuaded by comments that a more flexible verification process will have the same, if not better, effect on data quality as the proposed verification process. As final 353 Proposal at 84 FR 21051–55 (May 13, 2019). 354 Id. 355 ISDA/SIFMA at 45. 356 Id. 357 Id. 358 Id. 359 Id. 360 Id. PO 00000 Frm 00222 Fmt 4701 Sfmt 4700 § 49.11 does not include the requirement for SDRs to distribute open swaps reports to reporting counterparties or to have policies and procedures to receive verifications of accuracy and notices of discrepancy from reporting counterparties, SDRs will have greater flexibility in managing their relationships with reporting counterparties than they were expected to have under the Proposal. The differences between final § 49.11 and the Proposal also affect the Commission’s cost considerations. In the Proposal, the Commission recognized that the SDRs would bear most of the costs associated with the proposed amendments to § 49.11.361 The Commission stated that there would be initial costs from establishing systems to generate open swaps reports and to successfully distribute these reports to all reporting counterparties. There also would be recurring costs related to any needed adjustments to SDR systems over time and to accommodate the arrival or departure of reporting counterparties. The Commission also stated that an SDR’s costs would be insignificant because an SDR would automate the verification process.362 Joint SDR disagreed with the Commission’s cost assessments for proposed § 49.11.363 Joint SDR commented that ‘‘chasing reporting counterparties who have not provided verification of data accuracy or a notice of discrepancy in order to establish the SDR made a ‘full, good-faith effort to comply’ ’’ would require an expenditure of significant resources.364 Joint SDR also highlighted that the ‘‘cost of creating and maintaining a system to verify each message would be significant.’’ 365 Joint SDR encouraged the Commission to recognize that any new message types impose development costs on SDRs, reporting counterparties, and all third-parties or vendors who build and maintain reporting systems.366 Other commenters characterized their objections to the proposed messagebased verification process as a costly endeavor. FIA requested a more principles-based approach to verifying swaps under § 49.11, because they 361 Proposal at 84 FR 21084 (May 13, 2019). at 84 FR 21084 (May 13, 2019) (‘‘these changes would [not] be significant because, based on discussion with the SDRs and other market participants, the Commission believes SDRs would largely automate the verification process.’’) 363 Joint SDR at 2–3. 364 Joint SDR at 3. 365 Joint SDR at 6. See also ICE Clear at 3 (referencing Joint SDR). 366 Joint SDR at 6 and n. 22. 362 Proposal E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 believed the approach in proposed § 49.11 would create more burdens than benefits.367 FIA added that ‘‘verification requirements will have little marginal benefit relative to the increased costs on reporting counterparties, in particular those that are not registered [SDs].’’ 368 ISDA/SIFMA stated that they believe the ‘‘proposed prescriptive approach to verification would result in considerable costs for reporting parties to implement.’’ 369 ICE Clear commented that the Commission failed to discuss how the additional verification and messaging costs ‘‘would result in increased levels of data accuracy sufficient to warrant imposing the obligations.’’ 370 The Commission believes that the costs resulting from the verification process under § 49.11 as finalized will be less burdensome than the costs the Commission estimated in the Proposal. For instance, SDRs would have incurred costs to create and distribute weekly and monthly open swaps reports as the Commission initially proposed, but will not incur these costs under final § 49.11.371 Under final § 49.11, SDRs and other entities will incur fewer costs because they will be able to employ different data-accuracy approaches that will not include the costs of buildingout and maintaining message-based verification systems that rely on open swaps reports. The Commission is not eliminating the overall verification requirement because it believes verifying data is crucial to ensure data quality. Data review and verification improves the reliability and usability of swap data, and more accurate swap data helps the Commission in monitoring risk; analyzing metrics for such indicators as volume, price, and liquidity; and developing policy. Thus, final § 49.11 will benefit the Commission and the public by improving the accuracy of data they will receive. Besides considering proposed § 49.11, the Commission also considered and rejected the idea of maintaining current § 49.11. The Commission rejected this approach because of concerns about the quality of data received under current regulations, as swap data quality has not sufficiently improved under current regulations. As explained above, the presumption that reported swap data is accurate along with the absence of an affirmative verification requirement, 367 See FIA May at 7–8; ISDA/SIFMA at 44–45. May at 7. at 44. 370 ICE Clear at 3. 371 Proposal at 84 FR 21084 (May 13, 2019) (discussion of costs related to generating and distributing open swaps reports). 368 FIA 369 ISDA/SIFMA VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 have resulted in many instances of inaccurate or unusable swap data being provided to the Commission under current regulations and procedures. In the nine years since the Commission issued the data reporting regulations, it has become apparent that the current requirements are inadequate to ensure swap data accuracy and that processes like verification can improve the accuracy and completeness of data sets. Accurate data sets are crucial for overseeing modern markets and for understanding the structure and operations of the markets. Notwithstanding the anticipated incremental costs of final § 49.11 and after considering alternatives, the Commission believes the amendments to § 49.11 are warranted in light of the anticipated benefits. viii. § 49.12—Swap Data Repository Recordkeeping Requirements The Commission is finalizing § 49.12 as proposed. Final § 49.12(a) requires an SDR to keep full, complete, and systematic records, together with all pertinent data and memoranda, of all activities relating to the business of the SDR, including, but not limited to, all SDR information and all SDR data reported to the SDR. Final § 49.12(b)(1) requires an SDR to maintain all SDR information received by the SDR in the course of its business. Final § 49.12(b)(2) requires an SDR to maintain all SDR data and timestamps, and all messages to and from an SDR, related to SDR data reported to the SDR throughout the existence of the swap to which the SDR data relates and for five years following final termination of the swap, during which time the records must be readily accessible by the SDR and available to the Commission via real-time electronic access, and then for an additional period of at least ten years in archival storage from which such records are retrievable by the SDR within three business days. Final § 49.12(c) requires an SDR to create and maintain records of errors related to SDR data validations and errors related to SDR data reporting. Final § 49.12(c)(1) requires an SDR to create and maintain an accurate record of all SDR data that fails to satisfy the SDR’s data validation procedures. Final § 49.12(c)(2) requires an SDR to create and maintain an accurate record of all SDR data errors reported to the SDR and all corrections disseminated by the SDR pursuant to parts 43, 45, 46, and 49. SDRs must make the records available to the Commission on request. Final § 49.12(d) contains the requirements of existing § 49.12(c) and provides that: (i) All records required to PO 00000 Frm 00223 Fmt 4701 Sfmt 4700 75643 be kept pursuant to part 49 must be open to inspection upon request by any representative of the Commission or any representative of the U.S. Department of Justice; and (ii) an SDR must produce any record required to be kept, created, or maintained by the SDR in accordance with § 1.31. The Commission did not receive any comments concerning its consideration of costs and benefits related to the recordkeeping requirements in proposed § 49.12. The Commission continues to believe that the costs of amendments to § 49.12 will primarily be incurred by the SDRs as they make any needed adjustments to create and maintain all required records. The Commission believes these incremental costs will be limited, as the recordkeeping requirements in § 49.12 are largely the same as the requirements in existing § 49.12 and existing § 45.2(f) and (g). The amendments to § 49.12 related to SDR information will also be substantially similar to the SEC’s requirements for its SBSDRs.372 The Commission expects that there will be substantial overlap in these requirements for SDRs that are also SBSDRs and these entities will be able to leverage resources to reduce any duplicative costs. Joint SDR objected to the requirements moved to final § 49.12(b) that requires SDRs to retain data ‘‘for a period of at least ten additional years in archival storage from which such records are retrievable by the swap data repository within three business days.’’ 373 Joint SDR suggested that the Commission harmonize retention periods with that of Europe and other Commission-regulated entities.374 Joint SDR pointed-out that the Commission collects its own data from SDRs so the Commission ‘‘can itself retain relevant data in accordance with its own recordkeeping policies.’’ 375 The Commission recognizes that the ten-year archival storage is lengthy, but the Commission notes that this period is the current SDR retention periods for the same data under existing § 45.2(f) and (g) 376 and that the Commission has not proposed to modify this current requirement. The amendments to § 49.12(b) are part of the Commission’s effort to better organize its own rules, not the result of the Commission changing a current requirement. As a 372 See 17 CFR 240.13n–7 (detailing the SBSDR recordkeeping requirements). 373 Final § 49.12(b); See Joint SDR at 11. 374 Joint SDR at 11. 375 Id. 376 17 CFR 45.2(f) and (g). E:\FR\FM\25NOR2.SGM 25NOR2 75644 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 result, there are no new costs to SDRs associated with the retention period in final § 49.12(b). The Commission also continues to believe the ten-year period is reasonable. Archived data is important to regulatory oversight and the SDRs serve as the source of SDR data for the Commission. The Commission benefits from access to archived swap data, for the purpose of understanding trends in swaps markets, such as exposures, trades, and positions, and guarding against abusive practices. The Commission believes that the amendments to § 49.12 will provide greater clarity to SDRs in regards to their recordkeeping responsibilities. The amendments also will help improve efforts to track data reporting errors, because the requirements for SDRs to maintain records of reporting errors will be clearer. Data recordkeeping should lead to better quality data by allowing an SDR and the Commission to look for patterns in records that may lead to adjustments to SDR systems or future adjustments to reporting policies. The availability of quality records is also crucial for the Commission to effectively perform its market surveillance and enforcement functions, which benefit the public by protecting market integrity and identifying risks within the swaps markets. Notwithstanding the anticipated incremental costs of § 49.12, the Commission believes this change is warranted in light of the anticipated benefits. ix. § 49.17—Access to SDR Data The Commission is finalizing § 49.17 as proposed. Final § 49.17(b)(3) amends the definition of ‘‘direct electronic access’’ to mean an electronic system, platform, framework, or other technology that provides internet-based or other form of access to real-time SDR data that is acceptable to the Commission and also provides scheduled data transfers to Commission electronic systems. Final § 49.17(c) requires an SDR to provide access to the Commission for all SDR data maintained by the SDR pursuant to the Commission’s regulations. Final § 49.17(c)(1) requires an SDR to provide direct electronic access to the Commission or its designee in order for the Commission to carry out its legal and statutory responsibilities under the CEA and Commission regulations. Final § 49.17(c)(1) also requires an SDR to maintain all SDR data reported to the SDR in a format acceptable to the Commission, and transmit all SDR data requested by the Commission to the Commission as instructed by the Commission. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 Final § 49.17(c)(1) amends the requirements of existing § 45.13(a) from maintaining and transmitting ‘‘swap data’’ to maintaining and transmitting ‘‘SDR data,’’ to make clear that an SDR must maintain all SDR data reported to the SDR in a format acceptable to the Commission and transmit all SDR data requested by the Commission, not just swap data. Final § 49.17(c)(1) also modifies the requirements of existing § 45.13(a) from ‘‘transmit all swap data requested by the Commission to the Commission in an electronic file in a format acceptable to the Commission’’ to ‘‘transmit all SDR data requested by the Commission to the Commission as instructed by the Commission,’’ and explains what these instructions may include. The Commission also is finalizing amendments to § 49.17(f) to replace the incorrect reference to § ‘‘37.12(b)(7)’’ at the end of paragraph (f)(2) with a correct reference to § ‘‘39.12(b)(7)’’ of the Commission’s regulations, as there is no § 37.12(b)(7) in the Commission’s regulations. The Commission’s amendments also include the movement of the delegation of authority in existing § 49.17(i) to final § 49.31(a)(7). The Commission believes that § 49.17 will generate costs and benefits. In the Proposal, the Commission asked for public comment on its consideration of costs and benefits. DDR commented that an SDR cannot estimate costs of proposed § 49.17(c)(1) because the proposed rule provided ‘‘no specificity as to the method, timing, format or transmission frequency for required transmission of SDR data requested by the Commission’’ and left ‘‘the requirements associated with both the provision of direct electronic access and the maintenance of SDR data to be determined by the Commission at a later date.’’ 377 While the Commission agrees that costs may be difficult to determine, the Commission notes that no commenters provided information related to current costs associated with responding to the similar current requirements for scheduled data transfers. If the Commission possessed current financial and staffing outlays, the Commission could consider incremental increases or decreases that might result from finalizing § 49.17. The Commission continues to believe that the costs imposed by the changes to § 49.17(c) will fall mainly on SDRs, because SDRs will incur costs to provide the Commission with direct electronic access to all SDR data and to provide access to SDR data as 377 DDR PO 00000 at 5. Frm 00224 Fmt 4701 Sfmt 4700 instructed. The costs associated with the use of the term ‘‘direct electronic access’’ in § 49.17(c) are negligible, as SDRs are currently required to provide the Commission with direct electronic access and the definition is being modified to allow SDRs more flexibility in providing the Commission with direct electronic access to SDR data, subject to the Commission’s approval. The other amendments to § 49.17(c) grant the Commission greater flexibility to instruct SDRs on how to transfer SDR data to the Commission at the Commission’s request. As mentioned above, the Commission currently works closely with SDRs to facilitate data transfers and implement technology changes. The Commission anticipates that because the rule changes reinforce the existing working relationships, there will be better communications between the Commission and SDRs that will help both parties devise efficient and costeffective ways to facilitate the transfer of SDR data to the Commission. As explained in the Proposal, SDRs are already required to transmit data under existing § 49.17(b)(3) and (c)(1), and are required to transmit all swap data requested by the Commission to the Commission in an electronic file in a format acceptable to the Commission under existing § 45.13(a). It is also current market practice for SDRs to regularly provide SDR data to the Commission as instructed by Commission staff. The changes in final § 49.17 do not substantially change the current requirements or market practices. The final changes to § 49.17(b)(3) that modify the definition of ‘‘direct electronic access’’ to allow for more technological flexibility will likely reduce future costs for SDRs because the amendment allows the Commission to consider any technology that may provide direct electronic access. This will allow the Commission to adapt to changing technology more quickly and may allow SDRs to save costs by having more efficient technology and processes approved in the future. The Commission continues to believe that the amendments to § 49.17 will be beneficial to SDRs by including the data access requirements applicable to SDRs in one section and by more clearly stating the Commission’s ability to instruct SDRs on all aspects of providing SDR data to the Commission. Notwithstanding the anticipated incremental costs of § 49.12, the Commission believes the changes are warranted in light of the anticipated benefits. E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations x. § 49.25—Financial Resources The Commission is finalizing changes to § 49.25 as proposed, except for the proposed amendments to § 49.25(f)(3). The conforming changes to § 49.25 eliminate the reference to § 49.9 and to core principle obligations identified in § 49.19. Final § 49.25(a) refers to SDR obligations under ‘‘this chapter,’’ to be broadly interpreted as any regulatory or statutory obligation specified in part 49. The Commission considered these to be non-substantive changes that will not impact existing obligations on SDRs, and therefore have no cost-benefit implications. The Commission did not receive any comments on this point. The Commission is not finalizing proposed amendments to § 49.25(f)(3) to extend the time SDRs have to submit their quarterly financial resources reports to 40 calendar days after the end of the SDR’s first three fiscal quarters, and 90 days after the end of the SDR’s fourth fiscal quarter, or a later time that the Commission permits upon request. As discussed above, the Commission has determined not to address the proposed changes to the filing deadline for the annual compliance report under § 49.22(f)(2) in this final rulemaking. Accordingly, the Commission is not adopting the related proposed amendment to § 49.25(f)(3). jbell on DSKJLSW7X2PROD with RULES2 xi. § 49.26—Disclosure Requirements of Swap Data Repositories The Commission is finalizing § 49.26 as proposed. Final § 49.26 includes updates to the introductory paragraph of § 49.26 to reflect updates to the terms ‘‘SDR data,’’ ‘‘registered swap data repository,’’ and ‘‘reporting entity’’ in final § 49.2. The Commission is also finalizing updates to other defined terms used in the section to conform to the amendments to § 49.2. These nonsubstantive amendments do not change the requirements of § 49.26 and do not have cost-benefit implications. The Commission also is finalizing § 49.26(j) as proposed. Final § 49.26(j) requires that the SDR disclosure document set forth the SDR’s policies and procedures regarding the reporting of SDR data to the SDR, including the SDR data validation and swap data verification procedures implemented by the SDR, and the SDR’s procedures for correcting SDR data errors and omissions (including the failure to report SDR data as required pursuant to the Commission’s regulations). The Commission requested public comments on its cost-benefit considerations related to § 49.26, but the Commission did not receive any comments. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 The Commission believes that costs related to final § 49.26 will be limited and incremental given that current § 49.26 requires every SDR to issue disclosure documents.378 Costs will likely entail the costs related to adding information required under final § 49.26(j) to the required SDR disclosure document and updating the document as needed. For example, there may be administrative and staff costs to revise current SDR disclosure documents to include the required information. The Commission expects that the addition of final § 49.26(j) will benefit market participants by providing more instructive information regarding data reporting to SDR users. The availability of this information should improve data reporting, because SDR users will be able to align their data reporting systems with SDRs’ data reporting systems before using the SDRs’ services. SDR users will be able to prepare operations and train staff before reporting SDR data and, thereby, able reduce reporting errors and potential confusion. Notwithstanding the anticipated incremental costs associated with § 49.26, the Commission believes this change is warranted in light of the anticipated benefits. xii. § 49.28—Operating Hours of Swap Data Repositories The Commission is finalizing § 49.28 as proposed. Final § 49.28 provides more detail on an SDR’s responsibilities with respect to hours of operation. Final § 49.28(a) requires an SDR to have systems in place to continuously accept and promptly record all SDR data reported to the SDR, and, as applicable, publicly disseminate all swap transaction and pricing data reported to the SDR pursuant to part 43. Final § 49.28(a)(1) allows an SDR to establish normal closing hours to perform system maintenance when, in the SDR’s reasonable estimation, the SDR typically receives the least amount of SDR data, and requires the SDR to provide reasonable advance notice of its normal closing hours to market participants and the public. Final § 49.28(a)(2) allows an SDR to declare, on an ad hoc basis, special closing hours to perform system maintenance that cannot wait until normal closing hours. Final § 49.28(a)(2) requires an SDR to schedule special closing hours during periods when, in the SDR’s reasonable estimation while considering the circumstances that prompt the need for the special closing hours, the special closing hours will be least disruptive to 378 See PO 00000 the SDR’s data reporting responsibilities. Final § 49.28(a)(2) also requires the SDR to provide reasonable advance notice of the special closing hours to market participants and the public whenever possible, and, if advance notice is not reasonably possible, to give notice to the public as soon as is reasonably possible after declaring special closing hours. Final § 49.28(b) requires an SDR to comply with the requirements under part 40 of the Commission’s regulations when adopting or amending normal closing hours or special closing hours.379 Final § 49.28(c) requires an SDR to have the capability to accept and hold in queue any and all SDR data reported to the SDR during normal closing hours and special closing hours 380 Final § 49.28(c)(1) requires an SDR, on reopening from normal or special closing hours, to promptly process all SDR data received during the closing hours and, pursuant to part 43, publicly disseminate swap transaction and pricing data reported to the SDR that was held in queue during the closing hours.381 Final § 49.28(c)(2) requires an SDR to immediately issue notice to all SEFs, DCMs, reporting counterparties, and the public in the event that the SDR is unable to receive and hold in queue any SDR data reported during normal closing hours or special closing hours. Final § 49.28(c)(2) also requires an SDR to issue notice to all SEFs, DCMs, reporting counterparties, and the public that the SDR has resumed normal operations immediately on reopening. Final § 49.28(c)(2) requires a SEF, DCM, or reporting counterparty that was not able to report SDR data to an SDR because of the SDR’s inability to receive and hold in queue SDR data to report the SDR data to the SDR immediately after receiving such notice that the SDR has resumed normal operations.382 379 This requirement already applies to SDRs pursuant to current § 43.3(f)(3). See 17 CFR 43.3(f)(3). 380 Final § 49.28(c) expands the similar existing requirements for swap transaction and pricing data in current § 43.3(g) to all SDR data and largely follows the SBSDR requirements to receive and hold in queue information regarding security-based swaps. 381 Final § 49.28(c)(1) expands the similar existing requirements for the SDRs to disseminate swap transaction and pricing data pursuant to current § 43.3(g)(1) to also include the prompt processing of all other SDR data received and held in queue during closing hours. The requirements also largely follow the SBSDR requirements for disseminating transaction reports after reopening following closing hours. 382 Final § 49.28(c)(2) expands the similar existing requirements for swap transaction and pricing data in current § 43.3(g)(2) to all SDR data and is largely consistent with the SBSDR 17 CFR 49.26(a) through (i). Frm 00225 Fmt 4701 Sfmt 4700 75645 Continued E:\FR\FM\25NOR2.SGM 25NOR2 75646 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 The Commission requested public comment on its consideration of costs and benefit related to § 49.28 but did not receive any. The Commission continues to believe that the final requirements, which are largely based on existing rule text found in current § 43.3(f) and (g), will have limited cost implications for SDRs. There may be costs associated with any needed modification to SDR systems to accommodate all SDR data during closing hours, as opposed to only swap transaction and pricing data. These costs will be incremental because all SDRs currently have policies, procedures, and systems in place to accommodate all SDR data during closing hours under the current requirements. The Commission also still believes that SDRs, market participants, and the public will benefit from final § 49.28 because the requirements for setting closing hours and handling SDR data during closing hours will be clearer. Final § 49.28 removes discrepancies between current requirements for SDRs and SBSDRs related to closing hours, which will allow SDRs that are also registered as SBSDRs to comply with one consistent requirement. Notwithstanding the anticipated incremental costs related to § 49.28, the Commission believes the addition of § 49.28 is warranted in light of the anticipated benefits. xiii. § 49.29—Information Relating to Swap Data Repository Compliance The Commission is finalizing new § 49.29 as proposed, which requires an SDR to respond to Commission information requests regarding, among other things, its business as an SDR and its compliance with SDR regulatory duties and core principles. Final § 49.29(a) requires an SDR, upon request of the Commission, to file certain information related to its business as an SDR or other such information as the Commission determines to be necessary or appropriate for the Commission to perform its regulatory duties. An SDR must provide the requested information in the form and manner and within the time specified by the Commission in its request. Final § 49.29(b) requires an SDR, upon the request of the Commission, to demonstrate compliance with its obligations under the CEA and Commission regulations, as specified in the request. An SDR must provide the requested information in the form and requirements to receive and hold in queue information regarding security-based swaps. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 manner and within the time specified by the Commission in its request. Final § 49.29 is based on similar existing Commission requirements applicable to SEFs and DCMs.383 The costs associated with responding to requests for information include the staff hours required to prepare and submit materials related to the Commission’s requests. These costs will vary among SDRs depending upon the nature and frequency of Commission inquiries. The Commission expects these requests to be limited in both size and scope, which will likely mitigate the associated costs for SDRs. While final § 49.29 allows the Commission to make requests on an ad hoc basis, the Commission expects that the need for these requests will decrease over time as SDR data quality and SDR compliance with Commission regulations improve.384 DDR commented that because proposed § 49.29 provided ‘‘no detail as to the potential scope of a request or to the form, manner and timing associated with satisfying the request’’ an SDR could not assess accurately costs associated with the rule.385 While the Commission agrees that costs are difficult to accurately determine, the Commission notes that no commenters provided current costs associated with responding to requests for information, as currently SDRs routinely provide the same information to the Commission on request. If the Commission possessed current cost information related to responding to requests, the Commission could consider incremental increases or decreases that might result from finalizing § 49.29 as proposed. Without that information as a reference, the Commission continues to believe that there will be an incremental cost for each response. Yet, the Commission also believes that that costs will be mitigated by the fact that current practice is for SDRs to provide similar information to the Commission on request and that the SDRs do so regularly. In addition, SDRs will be required to adhere to form and manner specifications established pursuant to final § 49.30. The Commission expects that clearly defining the form and manner for each response will further mitigate the cost burden to SDRs that may arise from any uncertainty as to the information to be provided. Benefits attributed to final § 49.29 include improving the Commission’s 383 See, e.g., 17 CFR 37.5 and 38.5. Commission currently exercises similar authority fewer than ten times per year in total with other registered entities, such as SEFs, DCMs, and DCOs. 385 DDR at 7. 384 The PO 00000 Frm 00226 Fmt 4701 Sfmt 4700 oversight of SDRs due to Commission inquiries. The Commission expects that this oversight will lead to improved data quality and SDR compliance with Commission regulations. Better data quality will help improve the Commission’s ability to fulfill its regulatory responsibilities and help to increase the Commission’s understanding of the swaps market. These improvements are expected to benefit the public because accurate and complete SDR data reporting improves the Commission’s analyses and oversight of the swaps markets, and increases market integrity due to the Commission’s improved ability to detect and investigate noncompliance issues and oversee their correction. The Commission also continues to believe that final § 49.29 will help the Commission to obtain the information it needs to perform its regulatory functions more effectively, as opposed to requiring SDRs to supply information on a set schedule, such as under the current requirement for annual Form SDR updates in § 49.3(a)(5). This will reduce the burden on SDRs, as the SDRs will no longer need to expend resources to prepare annual filings. Notwithstanding the anticipated incremental costs related to § 49.29, the Commission believes the addition of § 49.29 is warranted in light of the anticipated benefits. xiii. § 49.30—Form and Manner of Reporting and Submitting Information to the Commission The Commission is finalizing new § 49.30 as proposed to address the form and manner of information the Commission requests from SDRs. Final § 49.30 establishes the broad parameters of the ‘‘form and manner’’ requirements found in part 49. The form and manner requirement in § 49.30 will not supplement or expand upon existing substantive provisions of part 49, but instead, will allow the Commission to specify how information reported by SDRs should be formatted and delivered to the Commission. Final § 49.30 provides that an SDR must submit any information required under part 49, within the time specified, using the format, coding structure, and electronic data transmission procedures approved in writing by the Commission. The Commission continues to believe that the form and manner requirements will have costs associated with conforming reports and information to Commission specifications. For instance, there may be costs associated with staff hours and technology used to format reports. DDR commented that because proposed § 49.30 was vague, an E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations SDR could not assess accurately costs associated with the rule.386 While the Commission agrees that costs are difficult to determine, the Commission notes that no commenters provided current reporting costs or projections for staffing and systems costs, which the Commission could use to consider incremental increases or decreases that might result from finalizing § 49.30 as proposed. The Commission continues to believe that, in practice, the incremental costs of § 49.30 will be limited, because SDRs have ample experience working with Commission staff to deliver data, reports, and other information in the form and manner requested by Commission staff. The Commission believes that this experience will significantly mitigate the costs of similar activities under this requirement. The Commission also still believes that the Commission will benefit through increased standardization of information provided by SDRs, thereby aiding the Commission in the performance of its regulatory obligations by ensuring the provided information is in useable formats and delivered by usable methods. The ability to standardize the form and manner of information provided to the Commission will also help SDRs to efficiently fulfill their obligations to provide information to the Commission. Notwithstanding the anticipated incremental costs related to § 49.30, the Commission believes the addition of § 49.30 is warranted in light of the anticipated benefits. 5. Costs and Benefits of Amendments to Part 45 jbell on DSKJLSW7X2PROD with RULES2 i. § 45.2—Swap Recordkeeping The Commission is moving existing § 45.2(f) and (g) (SDR recordkeeping and SDR records retention, respectively) to final § 49.12. As such, all costs and benefits associated with this change are discussed in the section, above, that discusses the amendments to § 49.12. ii. § 45.14—Correcting Errors and Omissions in Swap Data and Verification of Swap Data Accuracy The Commission is adopting proposed § 45.14, with modifications, to improve the requirements to correct data errors and to verify data. Currently, the Commission requires error corrections but it does not directly require reporting counterparties to verify data. In the Proposal, the Commission outlined error correction and verification processes that included specific actions and timelines for those actions. In response to comments on the Proposal, the Commission is modifying final § 45.14 so that the error-correction and verification processes for reporting counterparties are less burdensome and more flexible than the processes set forth in the Proposal. The Commission will discuss the final error-correction process first, and then the final verification process. Final § 45.14(a) sets forth requirements for correcting swap data errors. Final § 45.14(a) requires a SEF, DCM, or reporting counterparty to correct swap data errors as soon as technologically practicable, but no later than seven business days, after discovery. Final § 45.14(a) requires a SEF, DCM, or reporting counterparty to correct errors and omissions for open swaps and dead swaps, but § 45.14(a)(3) provides that the error correction requirement does not apply to swaps for which the applicable record retention period under § 45.2 has expired. Final § 45.14(a)(2) requires a non-reporting counterparty that becomes aware of an error to notify the reporting counterparty of the error as soon as technologically practicable, but no later than three business days, after discovery. If a non-reporting counterparty does not know the identity of the reporting counterparty, the nonreporting counterparty must notify the SEF or DCM where the swap was executed of the error as soon as technologically practicable, but no later than three business days, following the discovery. Final § 45.14(a) differs from current § 45.14, because it provides more parameters for SEFs, DCMs, and reporting counterparties correcting errors and sets timelines for correcting errors or issuing error notices to the Commission. Current § 45.14(a) requires each registered entity or swap counterparty to report discovered data errors and omissions as soon as technologically practicable, but there is no deadline for making a correction.387 Current § 45.14(b) requires a nonreporting counterparty to promptly notify the reporting counterparty of any errors or omissions, but the rule does not define promptly.388 Proposed § 45.14(b) would have required a SEF, DCM, or reporting counterparty to correct errors or notify the Director of DMO within three business days of discovery of errors, regardless of the state of the swap. In final § 45.14(a), the Commission establishes a seven-day correction period in response to comments that the 387 17 386 DDR at 7. VerDate Sep<11>2014 388 17 18:27 Nov 24, 2020 Jkt 253001 PO 00000 CFR 45.14(a). CFR 45.14(b). Frm 00227 Fmt 4701 Sfmt 4700 75647 proposed three-day period to correct or notify would not be practicable.389 One commenter asserted that the Commission’s proposed rule was a ‘‘one size fits all’’ approach that failed to account for ‘‘different errors and omission scenarios and levels of materiality’’ with an impractical error remediation period that would result in an excessive volume of notifications being sent to the director of DMO 390 The proposed three-day period was based on the Commission’s preliminary belief that the costs related to correcting errors and omissions or drafting remediation plans and sending notices would not impose an undue burden on reporting counterparties. Commenters stated that the requirements of proposed § 45.14(b), such as the notification requirement, would consume significant resources, even for immaterial errors, that would take away resources needed to actually correct errors.391 Commenters also explained that the proposed three-day deadline would be burdensome because the process for identifying errors and then resolving such issues often takes more than three business days.392 The Commission is persuaded by comments that the threeday period, as proposed, would hamper the correction of errors. The Commission believes there will be costs associated with correcting errors under the revised seven-business day correction period. Market participants correcting errors will need to expend technological and staff resources to identify the causes of data errors and resources to correct errors. The amount of resources used will likely be dictated by the complexity of the error. The Commission notes that these costs will be minimal, compared to current requirements, because the current requirements would necessitate the same cause identification and error correction. The seven-day deadline in final § 45.14, however, will require 389 ISDA/SIFMA at 46. FIA May at 8–9; ICE Clear at 3. 390 ISDA/SIFMA at 45–46. See also FIA May at 8 (‘‘Verification of swap data and/or remediation of known errors or omission is not a ‘‘one-size-fits-all’ task’’). 391 ISDA/SIFMA at 46. See also GFMA at 6, 12 (timeframe should be in business days); CEWG at 5–6 (For a non-registrant reporting counterparty, it would be difficult to address a reporting error while simultaneously commit resources to file a report with the Commission). 392 FIA May at 8 (‘‘Members report that these reviews routinely take significantly more than three business days to determine scope, let alone to outline a remediation plan to a regulator.’’); ISDA/ SIFMA at 45–46 (three days would often not be enough time to fine the causes and scope of errors and omissions and submit a report); GFMA at 13 (proposed verification process would impose significant headcount costs). E:\FR\FM\25NOR2.SGM 25NOR2 jbell on DSKJLSW7X2PROD with RULES2 75648 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations some reporting counterparties to allocate resources differently to meet the deadline, because the current errorcorrection rule has no time deadline.393 The Commission believes that market participants will benefit from the sevenday correction period because it eliminates any uncertainty about the time period in which market participants must correct errors before notifying the Commission of an issue. A time period also helps market participants manage time in terms of scheduling and assigning resources to correct errors. The Commission believes seven business days is sufficient time to complete the steps needed to identify, investigate, and rectify most errors or omissions. The Commission also believes that the seven-day period, as compared to the absence of a deadline in current § 45.14, will not negatively affect the Commission’s regulatory duties, including its ability to monitor swaps markets. Under the current error correction requirements, counterparties have neglected to inform SDRs of errors or omissions for extended periods, which has meant that SDRs have transmitted inaccurate data to the Commission and the Commission may have relied on inaccurate data while performing its regulatory responsibilities. The Commission is also modifying, in final § 45.14, the proposed requirement for a reporting counterparty to produce remediation plans and issue notices to the Commission, and for a non-reporting counterparty to notify a reporting counterparty, SEF, or DCM of errors, as applicable.394 Current § 45.14 does not require market participants to issue any error notices or submit a remediation plan, if one exists, to the Commission. Final § 45.14 requires SEF, DCM, or reporting counterparties to notify the Commission of any error that cannot be corrected within seven business days of discovery. The notice must include an initial assessment of the scope of the error and an initial remediation plan, if one exists. This notification must be made within twelve hours of the SEF’s, DCM’s, or reporting counterparty’s determination that it will fail to timely correct the error. The Commission believes that the final § 45.14 requirement to issue error notices will generate costs. Market participants will need to expend technological and staff resources to develop and maintain notification systems. SEF’s, DCM’s, and reporting 393 See generally 17 CFR 45.14. at 84 FR 21069–70 (May 13, 2019) (discussion of proposed § 45.14(b)(1)(ii) and the current practices for remediation plans). 394 Proposal VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 counterparties will incur additional costs to develop systems to assess the scope of an error and to submit initial remediation plans, if they decide to use such plans. For SEFs, DCMs, and reporting counterparties that already send the Commission error-correction notices and remediation plans, the costs will be incremental.395 The Commission believes that error correction notices are beneficial because they will help alert the Commission to data that is unreliable and to reporting issues. Notices also will help the Commission monitor whether market participants are complying with Commission regulations. If a market participant creates an initial remediation plan, it will be useful to the market participants and the Commission because such plans help with tracking errors, identifying data issues, discovering recurring errors, and preventing errors from reoccurring. The Commission also believes that the inclusion of the technical specification and validation requirements for swap data in parallel Commission rulemaking 396 will help reduce certain types of swap data reporting errors, and reduce the need for market participants to correct those types of errors and, as a result, the corresponding costs incurred by market participants to correct swap data errors will likely decrease over time. Finally, the Commission believes that the error correction process becomes less burdensome and less disruptive when market participants remedy data errors as soon as possible and in an organized manner. The Commission also believes that the final § 45.14 error correction process will improve data accuracy and will enable the Commission to better monitor risk and identify issues in the swaps markets. As discussed above, the Commission currently issues a weekly swaps report and quarterly entity-netted notional reports using swaps data.397 Using swap data, the weekly swaps report has the capacity to illustrate trends in exposures, trades, and positions, and the entity-netted notional reports measure the transfer of risk in swaps markets. Both reports give the Commission and the public greater insight into trading behavior, liquidity, pricing, various types of risk, and how swaps markets work in general—all 395 Proposal 396 See at 84 FR 20170 (May 13, 2019). generally 85 FR 21578, et seq. (Apr. 17, 2020). 397 The weekly swaps report is available at: https://www.cftc.gov/MarketReports/SwapsReports/ index.htm. ENNs reports for different asset classes are available at: https://www.cftc.gov/About/ EconomicAnalysis/ReportsOCE/index.htm. PO 00000 Frm 00228 Fmt 4701 Sfmt 4700 factors important in developing policy and allocating oversight resources. More accurate swap data will increase the usefulness of these reports. The Commission is requiring error corrections for all swaps that are within their respective records retention periods. In a change from the Proposal, and is response to comments received, the Commission is finalizing a limit on the SEFs’, DCMs’, and reporting counterparties’ obligations to correct errors in swap data that confines the error correction requirements to errors discovered during the relevant recordkeeping periods for the relevant swaps under § 45.2. The Commission recognizes the comments that argued that correcting swaps that are outside of their record retention periods is burdensome and impractical. ISDA/ SIFMA explained that as dead swaps ‘‘no longer pose risks to U.S. markets, it is unclear how correcting any errors would enhance the Commission’s ability to monitor risk.’’ 398 ISDA/ SIFMA also remarked that there would be costs incurred by SDRs and reporting counterparties that are associated with correcting dead swaps, such as maintaining and storing data and building validations that can accommodate the reporting of dead swaps.399 The Commission acknowledges that the burden shouldered by market participants to expend resources to correct older data and to maintain legacy formats will affect costs and complexity of compliance.400 However, there is value in correcting dead swaps, as the Commission is charged with ensuring market integrity and guarding against fraud and manipulation, among its other regulatory responsibilities, which includes the use of data for dead swaps. With accurate data, including for dead swaps, the Commission will be able to better analyze years of market activity, study market events, perform back-testing, and, ultimately, use the swap data to inform policy.401 The 398 ISDA/SIFMA at 47. 399 Id. 400 Id. at 46–47. See also FIA May at 9. example, since January 2013, the Commission has produced weekly swaps data, and since early 2018, the Commission has issued quarterly, ENNs reports. Over time, Commission staff will be able to produce studies using historical swaps data, similar to the papers about futures trading. See, e.g., ‘‘Commodity Index Trading and Hedging Costs,’’ Celso Brunetti and David Reiffen, August 2014, Journal of Financial Markets, vol. 21, pp. 153–180, available at: https://doi.org/10.1016/ j.finmar.2014.08.001 (authors used 10 years of futures data, 2003–2012; ‘‘The Lifecycle of Exchange-traded Derivatives,’’ Grant Cavanaugh and Michael Penick, July 2014, Journal of Commodity Markets, vol. 10, pp. 47–68, available at https://doi.org/10.1016/j.jcomm.2018.05.007 401 For E:\FR\FM\25NOR2.SGM 25NOR2 jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations correction of dead swaps also provides a strong incentive for market participants to properly design their reporting systems, to perform thorough verification, and to promptly correct errors, to avoid or mitigate the cost of correcting data errors, which will improve data quality. In final § 45.14(b), the Commission is requiring reporting counterparties to verify data. Currently, there are no specific verification requirements for reporting counterparties. The Commission is adopting verification requirements in final § 45.14(b) that differ from the process described in the Proposal. Proposed § 45.14(a) outlined a verification process that involved an exchange of open swaps reports and messaging between SDRs and reporting counterparties. Proposed § 45.14(a) would have required reporting counterparties to reconcile open swaps reports with their internal records for the swap data and to submit to an SDR a verification of the accuracy or notice of discrepancy for the relevant swap data within a 48- or 96-hour period, as applicable,402 after receipt of open swaps reports from the SDR. Proposed 49.11 would have required an SDR to distribute open swaps reports for verification by reporting counterparties who are SDs, MSPs or DCOs on a weekly basis and to other reporting counterparties on a monthly basis. By not adopting certain elements in proposed § 49.11—that is, the messaging process based on open swaps reports issued by SDRs—SDRs and reporting counterparties will have more flexibility (as compared to the Proposal) in determining how reporting counterparties verify data and correct errors pursuant to § 45.14. Final § 45.14(b) modifies the proposed verification process. Final § 45.14(b)(1) requires a reporting counterparty to utilize the mechanism provided by an SDR pursuant to final § 49.11 to access and verify swap data by comparing its internal records for swap data with the relevant swap data maintained by the SDR. Under final § 45.14(b)(2), a reporting counterparty must conform to the relevant SDR’s policies and procedures for verification. In final § 45.14(b)(4), the Commission is setting the verification frequency at every thirty calendar days for reporting counterparties that are SDs, MSPs, or DCOs, and at every quarter for other (authors studied over 50 years of futures data from 1954 to the 2000s). 402 Under the Proposal, SDs, MSPs and DCOs are subject to a shorter 48-hour time frame for verification. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 reporting counterparties. Final § 45.14(b)(5) requires a reporting counterparty to maintain a verification log, wherein the reporting counterparty records the verifications it performed, errors discovered during the verification processes, and corrections made. The reporting counterparty must provide the verification log to the Commission on request. The Commission understands that the costs of verification processes under final § 45.14 will involve time and personnel resources for reporting counterparties. A reporting counterparty may be required to expend resources to develop processes to access swap data through one or more SDR mechanisms and to compare swap data maintained by SDRs with its internal data and records for open swaps. The absence of a verification process under the Commission’s current rules has been costly in terms of the harmful effect erroneous and incomplete swaps data submissions have had on the Commission’s regulatory efforts, especially when data errors that could have been discovered through verification are not discovered and not corrected. The Commission believes there may be recurring costs associated with performing monthly and quarterly verifications and with preparing verification logs. The Commission proposed more frequent verifications than are included in the final requirement, and some commenters suggested that the Commission reduce the frequency of the verification process and focus on key economic fields for trades to alleviate the costs and the challenges of verification.403 A number of commenters believed that the Commission’s technical specifications and validation requirements proposed from other Roadmap rules would mean that data is reliable enough for verification to be performed less frequently than proposed.404 The Commission agrees with these comments, and has reduced the frequency of verifications from the proposed weekly/monthly to monthly/ quarterly, as recommended by commenters. The Commission believes that the final frequency of verifications will still support the Commission’s objectives for high-quality data without 403 See, e.g., GFMA at 13. ICE Clear at 3 (‘‘By focusing on obtaining a critical set of data elements, utilizing existing and future upfront data validations, and leveraging existing requirements to correct errors and omissions, the Commission has crafted a reporting framework that should substantially enhance the accuracy, reliability and utility of swap data.’’) 404 See PO 00000 Frm 00229 Fmt 4701 Sfmt 4700 75649 overburdening reporting counterparties and SDRs.405 Monthly and quarterly verifications, depending on the type of reporting counterparty, will also require the use of resources, such as personnel and time, but the Commission believes that reporting counterparties’ verification processes will become more efficient and, in some cases, automated as experience and technology develops. Also, as commenters suggested, it is likely that the Commission’s enhanced validation and technical specifications will produce more accurate and reliable data, in certain respects, which, in turn, will reduce the reduce the amount of time needed to verify data. Validations and standardized data fields would help eliminate inappropriately blank data fields, though they would not eliminate the reporting of incorrect but plausible swap data, meaning that verification is still a necessity. Reducing or eliminating the number of inappropriately blank data fields will, however reduce the number of errors to be discovered in verification and the number of errors to be corrected. The Commission also believes that § 45.14 encourages accountability, because reporting counterparties must record their data verification efforts. Under the current regulations, there is little accountability for counterparties that do not participate in the confirmation process. The Commission believes that verification processes that lead to accurate data are vital to meaningful regulation and essential to fulfilling the purposes of CEA section 21. With more accurate data, the Commission can better identify discrepancies in swaps markets, determine whether market participants are complying with Commission regulations, and guard against abusive practices. Accurate data also benefits the public, because it is used to inform the Commission’s policy decisions that help support wellfunctioning markets. For proposed § 45.14, like proposed § 49.11, commenters provided qualitative comments in response to the Commission’s consideration of costs and benefits. Commenters did not provide quantitative information. Based on the Commission’s familiarity with reporting counterparty operations and the currently collected data, the Commission recognizes there will be monetary costs for reporting counterparties to comply with the errorcorrection and verification requirements 405 ISDA/SIFMA at 45 (ISDA/SIFMA suggested monthly verifications for reporting counterparties that are SDs, MSPs, or DCOs, and quarterly verifications for all other reporting counterparties). E:\FR\FM\25NOR2.SGM 25NOR2 jbell on DSKJLSW7X2PROD with RULES2 75650 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations in § 45.14. For the error-correction process, the Commission estimates that SEFs, DCMs, and reporting counterparties will each spend about 30 hours per year correcting data previously submitted to SDRs, providing notices to the Commission, and submitting remediation plans, if such plans exist.406 Those hours will not be new time commitments because reporting counterparties are currently required to correct errors. The Commission monetizes the hours by multiplying by a wage rate of $48 to $101.407 Accordingly, the Commission estimates that each reporting counterparty will expend between $1,440 and $3,030 annually to implement § 45.14(a), and each nonreporting counterparty will expend between $48 and $101. The Commission estimates that the hours needed for reporting counterparties to meet their verification obligations under the final rules will be less than the hours estimated to be required under the Proposal, as a result of the technical specifications and validation requirements from other Roadmap rulemakings, which the Commission expects will reduce errors in the first instance, and because the verification process under final § 45.14(b) will be less time-consuming than the requirements under proposed §§ 45.14(a) and 49.11. The Commission understands that the hours and rates will vary based on many factors, including each reporting counterparty’s expertise in data reporting and operational size. The Commission estimates that the initial efforts to implement § 45.14(b) will require 100 hours on average, meaning each reporting counterparty will expend up to 100 hours a year to establish systems to verify data and prepare verification logs. The Commission estimates these efforts to cost between $4,800 to $10,100, which are the sums of the hours multiplied by a wage rate of $48 to $101.408 The Commission estimates that reporting counterparties will expend up to two hours every 30 days to verify data, or 24 hours annually. The annual costs to verify data every 30 days for some reporting counterparties will range between $1,152 and $2,424. The annual costs to expend up to two hours every quarter to verify data for other reporting counterparties will range between $384 and $808. 406 Proposal at 84 FR 21076 (May 13, 2019). supra note 344 (discussion of BLS wage estimates). 408 See supra note 344 (discussion of BLS wage estimates). 407 See VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 Besides considering proposed § 45.14, the Commission considered and rejected the idea of maintaining current § 45.14. The Commission rejected this approach because it has become evident that mandates to correct errors and verification processes improve data quality, and that current requirements have proven inadequate for providing the Commission with the level of data quality that it requires to perform its regulatory functions. As explained above, the current regulations for confirmation and error correction have resulted in the Commission receiving data that is presumed accurate, when this is often not the case. The Commission also has observed that the absence of a verification requirement has resulted in counterparties neglecting to inform SDRs of errors, or otherwise not discovering even glaring errors in swap data, often for long periods of time. This leaves the Commission with flawed data, which hinders the Commission’s ability to understand the nature of swaps, price fluctuations, and markets generally, and hampers the Commission’s ability to perform its regulatory functions. Thus, the Commission believes the alternative of retaining current § 45.14 would undermine the Commission’s regulatory efforts and hinder the Commission’s ability to make informed decisions using accurate data. Notwithstanding the anticipated incremental costs related to final § 45.14 and after considering alternative approaches, the Commission believes the amendments to § 45.14 are warranted in light of the anticipated benefits. 6. Costs and Benefits of Amendments to Part 43 § 43.3(e)—Error Correction The Commission is amending the error correction requirements of existing § 43.3(e) to conform to the error correction requirements in § 45.14. The amendments to § 43.3(e) create regulatory consistency and reduce any confusion around error-correction requirements for data under Part 43 and swap data required under Part 45. Final § 43.3(e)(1) requires any SEF, DCM, or reporting counterparty that by any means becomes aware of any errors in swap transaction and pricing data previously-reported, or not properly reported, to an SDR by the SEF, DCM, or reporting counterparty to submit corrected swap transaction and pricing data to the SDR regardless of the state of the swap, including swaps that have terminated, matured, or are otherwise no longer open. Final § 43.3(e)(1)(i) PO 00000 Frm 00230 Fmt 4701 Sfmt 4700 requires a SEF, DCM, or reporting counterparty to correct swap transaction and pricing data as soon as technologically practicable following discovery of the errors, but no later than seven business days following the discovery of the error. Under final § 43.3(e)(1)(ii), if a SEF, DCM, or reporting counterparty is unable to correct the errors within seven business days following discovery of the errors, the SEF, DCM, or reporting counterparty must inform the Director of DMO, or his or her designee, of such errors or omissions and provide an initial assessment of the scope of the errors or omissions and an initial remediation plan for correcting the errors, if one exists, within 12 hours of determining that the correction cannot be made within the required time frame. Final § 43.3(e)(1)(iii) requires that a SEF, DCM, or reporting counterparty conform to an SDR’s policies and procedures for corrections of errors in previouslyreported swap transaction and pricing data and reporting of omitted swap transaction and pricing data. Final § 43.3(e)(2) applies to a nonreporting counterparty that becomes aware of any errors in swap transaction and pricing data. Final § 43.3(e)(2) requires a non-reporting counterparty to inform the reporting counterparty for the swap of the error, but does not require the non-reporting counterparty to correct the error. A non-reporting counterparty has three business days following the discovery of the errors or omissions to notify the reporting counterparty of the error, instead of the seven business days provided for corrections under final § 43.3(e)(1). If a non-reporting counterparty does not know the identity of the reporting counterparty, the non-reporting counterparty must notify the SEF or DCM where the swap was executed of the errors and omissions no later than three business days after the discovery. The Commission is moving all of the requirements of existing § 43.3(f) and (g) to new § 49.28. As such, all costs and benefits associated with this change are discussed above in section discussing § 49.28. The costs related to final § 43.3(e)(1) are similar to the costs to correct errors under final § 45.14(a)(1), as the final rules to each section are intended to be consistent. Final § 43.3(e) will impose costs on SEFs, DCMs, and reporting counterparties for correcting errors and submitting remediation plans, if they exist, to the Director of DMO within a seven-day period. Market participants are also currently required to correct errors under existing § 43.3(e), so costs associated with § 43.3(e) are only those E:\FR\FM\25NOR2.SGM 25NOR2 jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations that result from the modified requirements as compared to the existing requirements, such as the requirement for notices. Costs to correct errors and issue error notices with initial remediation plans, if they exist, will be mitigated by the fact that the duties under § 43.3(e) are similar to duties in final § 45.14. The Commission also believes that the costs related to remediation plans will be incremental because reporting counterparties typically provide a remediation plan to the Commission as part of current practice. The seven-day deadline will require some reporting counterparties to allocate resources differently to meet the deadline because the current rule does not have a specific time deadline.409 The Commission also believes that the inclusion of the technical specification and validation requirements for swap transaction and pricing data in parallel Commission rulemaking 410 will help reduce certain types of swap transaction and pricing data reporting errors, and, therefore, reduce the need for market participants to correct those types of errors and, as a result, the corresponding costs incurred by market participants to correct swap transaction and pricing data errors will likely decrease over time. Non-reporting counterparties also may incur additional costs related to the requirements in § 43.3(e)(2). Nonreporting counterparties may expend resources to make the required notification within the three-day period under final § 43.3(e)(2). Under current § 43.3(e)(1)(i), non-reporting counterparties must act ‘‘promptly’’ so the three-day deadline under the final rule may require non-reporting counterparties to allocate resources differently to meet the deadline. The additional requirement in final § 43.3(e)(2) for a non-reporting counterparty to inform a SEF or DCM of an error if the identity of the reporting counterparty is not known is intended to accommodate non-reporting counterparties in fulfilling their role in the data correction process for swaps executed anonymously. The Commission expects that non-reporting counterparties will not incur many costs to notify a SEF or DCM of errors and omissions beyond the cost currently incurred when notifying reporting counterparties. As discussed in the section regarding the benefits of final § 45.14, the Commission believes consistent error correction requirements for swap data 409 See 410 See generally 17 CFR 43.3(e). generally 85 FR 21516, et seq. (Apr. 17, 2020). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 and swap transaction and pricing data will help ensure that the Commission has access to accurate and complete swap transaction and pricing data in order to fulfill its various regulatory responsibilities. Accurate swap transaction and pricing data helps the Commission to monitor and surveil market activity and risks within the swaps markets. Accurate and complete swap transaction and pricing data is also beneficial to market participants and the public, who rely on the data in their swaps-related decision-making. Inaccurate or incomplete swap transaction and pricing data can create market volatility. Additionally, the Commission believes that accurate swap transaction and pricing data is necessary for effective risk management for swap counterparties, and the correction requirements under the final rule will help ensure that swap counterparties have access to accurate and complete swap transaction and pricing data. SDRs and counterparties also benefit from consistent regulations. The final rule establishes a swap data errorcorrection framework for reporting counterparties in § 45.14. The requirements in final § 43.3(e) are consistent with the requirements in final § 45.14(a). Both of these rules complement amendments to Part 49 that require SDRs to provide reporting counterparties with access to swaps data reporting systems to identify errors and make corrections. The Commission believes that inconsistent requirements may lead to confusion and unnecessary efforts by covered entities. By ensuring that obligations in final § 43.3(e) are consistent with the obligations to § 45.14, these issues should be avoided. Finally, the Commission believes its ability to monitor swaps markets is not compromised by the three-day or sevenday correction and notification periods in final § 43.3(e). While incorrect data might affect market analysis in the short-term, there is greater value in possessing accurate data for the life of a swap that can provide insight into market activity for months and years; support a point-in-time examination of the data, and enable back-testing. The Commission recognizes there will be monetary costs for reporting counterparties and non-reporting counterparties to comply with the errorcorrection and notification requirements in § 43.3(e). For the error-correction and remediation process, the Commission estimates that 1,729 SEFs, DCMs, and reporting counterparties will each spend about 30 hours a year correcting swap transaction and pricing data, providing notices to the Commission and submitting remediation plans, if such PO 00000 Frm 00231 Fmt 4701 Sfmt 4700 75651 plans exist.411 Those hours will not be new time commitments because reporting counterparties are currently required to correct errors. Because the Commission believes that error notifications by non-reporting counterparties will be infrequent, it estimates that non-reporting counterparties will expend no more than one hour issuing error notices. The Commission monetizes the hours by multiplying by a wage rate of $48 to $101.412 Accordingly, the Commission estimates that each reporting counterparty will expend between $1,440 and $3,030 annually to implement § 43.3(e), and each nonreporting counterparty will expend between $48 and $101 annually. While the Commission does anticipate incremental costs associated with § 43.3(e), the Commission believes the amendments to § 43.3(e) are warranted in light of the anticipated benefits related to error-correction processes that lead to accurate data. 7. Section 15(a) Factors The Dodd-Frank Act sought to promote the financial stability of the United States, in part, by improving financial system accountability and transparency. More specifically, Title VII of the Dodd-Frank Act directs the Commission to promulgate regulations to increase swaps market transparency and thereby reduce the potential for counterparty and systemic risk.413 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. SEFs, DCMs, and reporting counterparties that submit data to SDRs are central to achieving the legislation’s objectives related to swap reporting. Section 15(a) of the Act requires the Commission to consider the costs and benefits of the amendments to parts 43, 45, and 49 with respect to the following factors: • Protection of market participants and the public; • Efficiency, competitiveness, and financial integrity of markets; • Price discovery; 411 Proposal at 84 FR 21076–77 (May 13, 2019). supra note 344 (discussion of BLS wage estimates). 413 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 1 (June 17, 2009) at 47–48. 412 See E:\FR\FM\25NOR2.SGM 25NOR2 75652 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations • Sound risk management practices; and • Other public interest considerations. A discussion of these amendments in light of section 15(a) factors is set out immediately below. jbell on DSKJLSW7X2PROD with RULES2 i. Protection of Market Participants and the Public In the Part 49 Adopting Release, the Commission noted that it believed that the registration and regulation of SDRs will serve to better protect market participants by providing the Commission and other regulators with important oversight tools to monitor, measure, and comprehend the swaps markets. Inaccurate and incomplete data reporting hinders the Commission’s ability to oversee the swaps market. The final rules adopted in this release mostly focus on ensuring that SDRs and reporting counterparties verify and correct errors or omissions in data reported to SDRs and on streamlining and simplifying the requirements for SDRs. Both error-correction and verification processes are steps in a series of data checks or techniques needed to build accurate data sets. Regardless of whether verification is done automatically or manually, the accuracy of SDR data should improve under these final regulations because inaccuracies will be removed. Overall, the Commission believes that the adoption of all the amendments to parts 43, 45, and 49 will improve the quality of the data reported, increase transparency, and enhance the Commission’s ability to fulfill its regulatory responsibilities, including its market surveillance and enforcement capabilities. In some cases, as discussed above, the final regulations are expected to be more flexible as compared to the requirements in the Proposal. The Commission does not believe that this increased flexibility will encumber the benefits from better quality data. Rather, the Commission believes that monitoring of potential risks to financial stability will be more effective with more accurate data. More accurate data will therefore lead to improved protection of market participants and the public. ii. Efficiency, Competitiveness, and Financial Integrity of Markets The Commission believes that the adoption of the amendments to parts 43, 45, and 49, together with the swap data recordkeeping and reporting requirements in parts 43 and 45, will provide a robust source of information on swaps markets that is expected to promote increased efficiency and VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 competition. Under the final Roadmap regulations, parts 43, 45, and 49 will work together to establish a data validation and verification system for SDRs and reporting counterparties. The result is a data reporting system that fulfills the CEA’s mandate that the Commission prescribe data collection and maintenance standards for SDRs, and, ultimately, supports the collection of accurate and complete data. The Commission believes that accurate swap transaction and pricing data will lead to greater efficiencies for market participants executing swap transactions due to a better understanding of their overall positions within the context of the broader market. This improved understanding will be facilitated by two distinct channels. First, amendments adopted in this final rulemaking are expected to result in improved swap transaction and pricing data being made available to the public, which will improve the ability of market participants to monitor realtime activity by other participants and to respond as they see fit. Second, amendments that result in improved swap data will improve the Commission’s ability to monitor the swaps markets for abusive practices and improve the Commission’s ability to create policies that ensure the integrity of the swaps markets. This improvement will be facilitated by the Commission’s improved oversight and enforcement capabilities and the reports and studies published as part of the Commission’s research and information programs. In particular, the amendments to §§ 45.14, 49.2, 49.10, 49.11, 49.12, and 49.26 will help improve the financial integrity of markets. For example, the verification and correction of swap data will improve the accuracy and completeness of swap data available to the Commission. The verification and correction processes also will assist the Commission with, among other things, improving monitoring of risk exposures of individual counterparties, monitoring concentrations of risk exposure, and evaluating systemic risk. The efficient oversight and accurate data reporting enabled by these amendments will improve the financial integrity of the swaps markets. In the Part 49 Adopting Release, the Commission expected that the introduction of SDRs would further automate the reporting of swap data. The Commission expected that automation would benefit market participants and reduce transactional risks through the SDRs and other service providers offering important ancillary services, such as confirmation and matching services, valuation, pricing, PO 00000 Frm 00232 Fmt 4701 Sfmt 4700 reconciliation, position limits management, and dispute resolution. These benefits did follow and have enhanced the efficiency, competitiveness, and financial integrity of markets.414 The Commission believes that the amendments in this release will help to further enhance these benefits. iii. Price Discovery The CEA requires that swap transaction and pricing data be made publicly available. The CEA and its existing regulations in part 43 also require swap transaction and pricing data to be available to the public in realtime. Combined, parts 43 and 49 achieve the statutory objective of providing transparency and enhanced price discovery to swap markets in a timely manner. The amendments to §§ 43.3, 49.2, 49.10, 49.11, 49.12, and 49.26 improve the fulfillment of these objectives. The amendments, both directly and indirectly, upgrade the quality of real-time public reporting of swap transaction and pricing data by improving the accuracy of information that is reported to the SDRs and disseminated to the public. As explained above, many of the final rules adopted in this release focus on a system for verifying swap data reported to and maintained by SDRs, who are also charged with disseminating such data to the Commission. The value of the swap data to the Commission depends on its accuracy and completeness. Swap data that contains errors or missing information has limited value because the Commission cannot rely on it to monitor risk and pricing, measure volume and liquidity, or inform policy. Similarly, the Commission believes that inaccurate and incomplete swap transaction and pricing data hinders the public’s use of the data, which harms transparency and price discovery. The Commission is aware of at least three publicly-available studies that support this point. The studies examined data and remarked on incomplete, inaccurate, and unreliable data. The first study analyzed the potential impact of the Dodd-Frank Act on OTC transaction costs and liquidity using real-time CDS trade data. The study found that more than 5,000 reports had missing data and more than 15,000 reports included a price of zero, leaving a usable sample of 180,149 reports.415 The second study reported a number of data fields that See Part 49 Adopting Release at 54573. Y.C. Loon, Z. (Ken) Zhong, ‘‘Does Dodd-Frank affect OTC transaction costs and liquidity? Evidence from real-time trade reports,’’ Journal of Financial Economics (2016), available at http:// dx.doi.org/10.1016/j.jfineco.2016.01.019. 414 415 E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations were routinely null or missing, making it difficult to analyze swap market volumes.416 The third study assessed the size of the agricultural swaps market and described problems in identifying the underlying commodity as well as other errors in the reported data that made some data unusable, including, for example, swaps with a reported notional quantity roughly equal to the size of the entire U.S. soybean crop.417 The Commission expects the final rules will result in more accurate and complete data, which will improve market participants’ ability to analyze swap transaction and pricing data. This, in turn, should improve transparency and price discovery. jbell on DSKJLSW7X2PROD with RULES2 iv. Sound Risk Management Practices In the Part 49 Adopting Release, the Commission stated that part 49 and part 45 will strengthen the risk management practices of the swaps market.418 Prior to the adoption of the Dodd-Frank Act, participants in the swaps markets operated without obligations to disclose transactions to regulators or to the public. The Dodd-Frank Act specifically changed the transparency of the swaps market with the adoption of CEA section 21 and the establishment of SDRs as the entities to which swap data and swap transaction and pricing data are reported and maintained for use by regulators or disseminated to the public. The Commission believes that the improved reporting of data to SDRs will serve to improve risk management practices by market participants. To the extent that better swap transaction and pricing data improves the ability of market participants to gauge their risks in the context of the overall market, risk management practices should improve. Earlier and more-informed discussions between relevant market participants and regulators regarding systemic risk, facilitated by accurate swap data, will also lead to improved risk management outcomes. Market participants should also see improvements in their risk management practices, as improved swap data allows for more accurate and timely market analyses that are publicly disseminated by the Commission. The Commission believes that the amendments to parts 43, 45, and 49 will 416 See Financial Stability Report, Office of Financial Research (Dec. 15, 2015) at 84–85, available at https://financialresearch.gov/financialstability-reports/files/OFR_2015-Financial-StabilityReport_12-15-2015.pdf. 417 Peterson, P.E. 2014. ‘‘How Large is the Agricultural Swaps Market?’’ Proceedings of the NCCC–134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management. St. Louis, MO, available at http:// www.farmdoc.illinois.edu/nccc134. 418 See Part 49 Adopting Release at 54574. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 improve the quality of SDR data reported to SDRs and, hence, improve the Commission’s ability to monitor the swaps market, react to potential market emergencies, and fulfill its regulatory responsibilities generally. The amendments adopted in this final rulemaking place different obligations on SDRs and reporting counterparties to verify accuracy and completeness of SDR data. The Commission believes that access for regulators to accurate and reliable SDR data is essential for appropriate risk management and is especially important for regulators’ ability to monitor the swaps market for systemic risk. Moreover, the Commission expects efforts to improve data quality will increase market participants’ confidence in SDR data and therefore their confidence in any subsequent analyses based on the data. v. Other Public Interest Considerations The Commission believes that the increased transparency resulting from improvements to the SDR data via the amendments to parts 43, 45, and 49 has other public interest considerations including: Creating greater understanding for the public, market participants, and the Commission of the interaction between the swaps market, other financial markets, and the overall economy; improving regulatory oversight and enforcement capabilities; and generating more information for regulators so that they may establish more effective public policies to reduce overall systemic risk. D. Antitrust Considerations Section 15(b) of the CEA requires the Commission to take into consideration the public interest to be protected by the antitrust laws and 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 (including any exemption under section 4(c) or 4c(b)), or in requiring or approving any bylaw, rule, or regulation of a contract market or registered futures association established pursuant to section 17 of the CEA.419 The Commission believes that the public interest to be protected by the antitrust laws is generally to protect competition. The Commission requested comments on whether the Proposal may have the potential to be inconsistent with the anti-trust laws or anti-competitive in nature. The Commission has considered this final rule to determine whether it is anticompetitive and has identified no anticompetitive effects. 419 7 PO 00000 U.S.C. 19(b). Frm 00233 Fmt 4701 Sfmt 4700 75653 Because the Commission has determined that the final rule is not anticompetitive and has no anticompetitive effects, the Commission has not identified any less anticompetitive means of achieving the purposes of the CEA. List of Subjects 17 CFR Part 43 Real-time public swap reporting. 17 CFR Part 45 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 43—REAL-TIME PUBLIC REPORTING 1. The authority citation for part 43 continues to read as follows: ■ Authority: 7 U.S.C. 2(a), 12a(5) and 24a, as amended by Pub. L. 111–203, 124 Stat. 1376 (2010). 2. Amend § 43.3 by revising paragraph (e) to read as follows: ■ § 43.3 Method and timing for real-time public reporting. * * * * * (e) Correction of errors—(1) Swap execution facilities, designated contract markets, and reporting counterparties. Any swap execution facility, designated contract market, or reporting counterparty that by any means becomes aware of any error relating to swap transaction and pricing data that it was required to report under this part shall correct the error. To correct an error, the swap execution facility, designated contract market, or reporting counterparty shall submit complete and accurate swap transaction and pricing data to the swap data repository that maintains the swap transaction and pricing data for the relevant swap, or completely and accurately report swap transaction and pricing data for a swap that was not previously reported to a swap data repository as required under this part, as applicable. Except as otherwise provided in this section, the requirement to correct any error applies regardless of the state of the swap that is the subject of the swap transaction and pricing data, including a swap that has terminated, matured, or otherwise is no longer considered to be an open swap. E:\FR\FM\25NOR2.SGM 25NOR2 jbell on DSKJLSW7X2PROD with RULES2 75654 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations (i) Timing requirement for correcting errors. The swap execution facility, designated contract market, or reporting counterparty shall correct any error as soon as technologically practicable after discovery of the error. In all cases, errors shall be corrected within seven business days after discovery. Any error that a reporting counterparty discovers or could have discovered during the verification process required under § 45.14(b) of this chapter is considered discovered for the purposes of this section as of the moment the reporting counterparty began the verification process during which the error was first discovered or discoverable. (ii) Notification of failure to timely correct. If the swap execution facility, designated contract market, or reporting counterparty will, for any reason, fail to timely correct an error, the swap execution facility, designated contract market, or reporting counterparty shall notify the Director of the Division of Market Oversight, or such other employee or employees of the Commission as the Director may designate from time to time. The notification shall be in the form and manner, and according to the instructions, specified by the Director of the Division of Market Oversight, or such other employee or employees of the Commission as the Director may designate from time to time. Unless otherwise instructed by the Director of the Division of Market Oversight, or such other employee or employees of the Commission as the Director may designate from time to time, the notification shall include an initial assessment of the scope of the error or errors that were discovered, and shall include any initial remediation plan for correcting the error or errors, if an initial remediation plan exists. This notification shall be made within 12 hours of the swap execution facility’s, designated contract market’s, or reporting counterparty’s determination that it will fail to timely correct the error. (iii) Form and manner for error correction. In order to satisfy the requirements of this section, a swap execution facility, designated contract market, or reporting counterparty shall conform to a swap data repository’s policies and procedures created pursuant to § 49.10 of this chapter for correction of errors. (2) Non-reporting counterparties. Any non-reporting counterparty that by any means becomes aware of any error in the swap transaction and pricing data for a swap to which it is the nonreporting counterparty, shall notify the reporting counterparty for the swap of VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 the error as soon as technologically practicable after discovery, but not later than three business days following discovery of the error. If the nonreporting counterparty does not know the identity of the reporting counterparty, the non-reporting counterparty shall notify the swap execution facility or designated contract market where the swap was executed of the error as soon as technologically practicable after discovery, but no later than three business days following the discovery. Such notice from the nonreporting counterparty to the swap execution facility, designated contract market, or reporting counterparty constitutes discovery under this section. (3) Exception. The requirements to correct errors set forth in paragraph (e) of this section only apply to errors in swap transaction and pricing data relating to swaps for which the record retention period under § 45.2 of this chapter has not expired as of the time the error is discovered. Errors in swap transaction and pricing data relating to swaps for which the record retention periods under § 45.2 of this chapter have expired at the time that the errors are discovered are not subject to the requirements to correct errors set forth in paragraph (e) of this section. (4) Error defined—(i) Errors. For the purposes of this part, there is an error when swap transaction and pricing data is not completely and accurately reported. This includes, but is not limited to, the following circumstances: (A) Any of the swap transaction and pricing data for a swap reported to a swap data repository is incorrect or any of the swap transaction and pricing data that is maintained by a swap data repository differs from any of the relevant swap transaction and pricing data contained in the books and records of a party to the swap. (B) Any of the swap transaction and pricing data for a swap that is required to be reported to a swap data repository or to be maintained by a swap data repository is not reported to a swap data repository or is not maintained by the swap data repository as required by this part. (C) None of the swap transaction and pricing data for a swap that is required to be reported to a swap data repository or to be maintained by a swap data repository is reported to a swap data repository or is maintained by a swap data repository. (D) Any of the swap transaction and pricing data for a swap that is no longer an open swap is maintained by the swap data repository as if the swap is still an open swap. PO 00000 Frm 00234 Fmt 4701 Sfmt 4700 (ii) Presumption. For the purposes of this section, there is a presumption that an error exists if the swap data or the swap transaction and pricing data that is maintained and disseminated by an SDR for a swap is not complete and accurate. This includes, but is not limited to, the swap data that the SDR makes available to the reporting counterparty for verification under § 49.11 of this chapter. * * * * * PART 45—SWAP DATA RECORDKEEPING AND REPORTING REQUIREMENTS 3. 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. 4. In § 45.1(a), add a definition for the term ‘‘Open swap’’ in alphabetical order to read as follows: ■ § 45.1 Definitions. (a) * * * Open swap means an executed swap transaction that has not reached maturity or expiration, and has not been fully exercised, closed out, or terminated. * * * * * § 45.2 [Amended] 5. In § 45.2, remove and reserve paragraphs (f) and (g). ■ 6. Revise § 45.14 to read as follows: ■ § 45.14 Correcting errors in swap data and verification of swap data accuracy. (a) Correction of errors—(1) Swap execution facilities, designated contract markets, and reporting counterparties. Any swap execution facility, designated contract market, or reporting counterparty that by any means becomes aware of any error relating to swap data that it was required to report under this part shall correct the error. To correct an error, the swap execution facility, designated contract market, or reporting counterparty shall submit complete and accurate swap data to the swap data repository that maintains the swap data for the relevant swap, or completely and accurately report swap data for a swap that was not previously reported to a swap data repository as required under this part, as applicable. Except as otherwise provided in this section, the requirement to correct any error applies regardless of the state of the swap that is the subject of the swap data, including a swap that has E:\FR\FM\25NOR2.SGM 25NOR2 jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations terminated, matured, or otherwise is no longer considered to be an open swap. (i) Timing requirement for correcting errors. The swap execution facility, designated contract market, or reporting counterparty shall correct any error as soon as technologically practicable after discovery of the error. In all cases, errors shall be corrected within seven business days after discovery. Any error that a reporting counterparty discovers or could have discovered during the verification process required under paragraph (b) of this section is considered discovered for the purposes of this section as of the moment the reporting counterparty began the verification process during which the error was first discovered or discoverable. (ii) Notification of failure to timely correct. If the swap execution facility, designated contract market, or reporting counterparty will, for any reason, fail to timely correct an error, the swap execution facility, designated contract market, or reporting counterparty shall notify the Director of the Division of Market Oversight, or such other employee or employees of the Commission as the Director may designate from time to time. The notification shall be in the form and manner, and according to the instructions, specified by the Director of the Division of Market Oversight, or such other employee or employees of the Commission as the Director may designate from time to time. Unless otherwise instructed by the Director of the Division of Market Oversight, or such other employee or employees of the Commission as the Director may designate from time to time, the notification shall include an initial assessment of the scope of the error or errors that were discovered, and shall include any initial remediation plan for correcting the error or errors, if an initial remediation plan exists. This notification shall be made within 12 hours of the swap execution facility’s, designated contract market’s, or reporting counterparty’s determination that it will fail to timely correct the error. (iii) Form and manner for error correction. In order to satisfy the requirements of this section, a swap execution facility, designated contract market, or reporting counterparty shall conform to a swap data repository’s policies and procedures created pursuant to § 49.10 of this chapter for correction of errors. (2) Non-reporting counterparties. Any non-reporting counterparty that by any means becomes aware of any error in the swap data for a swap to which it is VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 the non-reporting counterparty, shall notify the reporting counterparty for the swap of the error as soon as technologically practicable after discovery, but not later than three business days following discovery of the error. If the non-reporting counterparty does not know the identity of the reporting counterparty, the nonreporting counterparty shall notify the swap execution facility or designated contract market where the swap was executed of the error as soon as technologically practicable after discovery, but no later than three business days following the discovery. Such notice from the non-reporting counterparty to the swap execution facility, designated contract market, or reporting counterparty constitutes discovery under this section. (3) Exception. The requirements to correct errors set forth in paragraph (a) of this section only apply to errors in swap data relating to swaps for which the record retention period under § 45.2 has not expired as of the time the error is discovered. Errors in swap data relating to swaps for which the record retention periods under § 45.2 have expired at the time that the errors are discovered are not subject to the requirements to correct errors set forth in paragraph (a) of this section. (b) Verification that swap data is complete and accurate. Each reporting counterparty shall verify that there are no errors in the swap data for all open swaps that the reporting counterparty reported, or was required to report, to a swap data repository under the requirements of this part, in accordance with this paragraph (b). (1) Method of verification. Each reporting counterparty shall utilize the mechanism for verification that each swap data repository to which the reporting counterparty reports swap data adopts under § 49.11 of this chapter. Each reporting counterparty shall utilize the relevant mechanism(s) to compare all swap data for each open swap for which it serves as the reporting counterparty maintained by the relevant swap data repository or repositories with all swap data contained in the reporting counterparty’s internal books and records for each swap, to verify that there are no errors in the relevant swap data maintained by the swap data repository. Notwithstanding the foregoing, a reporting counterparty is not required to verify the accuracy and completeness of any swap data to which the reporting counterparty is not permitted access under the Act or Commission regulations, including, but not limited to, § 49.17 of this chapter. PO 00000 Frm 00235 Fmt 4701 Sfmt 4700 75655 (2) Verification policies and procedures. In performing verification as required by this paragraph, each reporting counterparty shall conform to each relevant swap data repository’s verification policies and procedures created pursuant to § 49.11 of this chapter. If a reporting counterparty utilizes a third-party service provider to perform verification, the reporting counterparty shall conform to each relevant swap data repository’s thirdparty service provider verification policies and procedures created pursuant to § 49.11 of this chapter and shall require the third-party service provider to conform to the same policies and procedures while performing verification on behalf of the reporting counterparty. (3) Correcting errors. Any and all errors discovered during the verification process shall be corrected in accordance with paragraph (a)(1) of this section. (4) Frequency. Each reporting counterparty shall perform verification at a minimum: (i) If the reporting counterparty is a swap dealer, major swap participant, or derivatives clearing organization, once every thirty calendar days; or (ii) If the reporting counterparty is not a swap dealer, major swap participant, or a derivatives clearing organization, once every calendar quarter, provided that there are at least two calendar months between verifications. (5) Verification log. Each reporting counterparty shall keep a log of each verification that it performs. For each verification, the log shall include all errors discovered during the verification, and the corrections performed under paragraph (a) of this section. This requirement is in addition to any other applicable reporting counterparty recordkeeping requirement. (c) Error defined—(1) Errors. For the purposes of this part, there is an error when swap data is not completely and accurately reported. This includes, but is not limited to, the following circumstances: (i) Any of the swap data for a swap reported to a swap data repository is incorrect or any of the swap data that is maintained by a swap data repository differs from any of the relevant swap data contained in the books and records of a party to the swap. (ii) Any of the swap data for a swap that is required to be reported to a swap data repository or to be maintained by a swap data repository is not reported to a swap data repository or is not maintained by the swap data repository as required by this part. E:\FR\FM\25NOR2.SGM 25NOR2 75656 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations (iii) None of the swap data for a swap that is required to be reported to a swap data repository or to be maintained by a swap data repository is reported to a swap data repository or is maintained by a swap data repository. (iv) Any of the swap data for a swap that is no longer an open swap is maintained by the swap data repository as if the swap is still an open swap. (2) Presumption. For the purposes of this section, there is a presumption that an error exists if the swap data that is maintained and disseminated by an SDR for a swap is not complete and accurate. This includes, but is not limited to, the swap data that the SDR makes available to the reporting counterparty for verification under § 49.11 of this chapter. PART 49—SWAP DATA REPOSITORIES 7. 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 of 2010, Pub. L. 111–203, 124 Stat. 1376 (Jul. 21, 2010), unless otherwise noted. 8. Amend § 49.2 by: a. In paragraph (a)— i. Revising the definition of ‘‘Affiliate’’; ■ ii. Adding in alphabetical order a definition for ‘‘As soon as technologically practicable’’; ■ iii. Revising the definitions of ‘‘Asset class,’’ ‘‘Commercial use,’’ ‘‘Control,’’ ‘‘Foreign regulator,’’ ‘‘Independent perspective,’’ ‘‘Market participant,’’ and ‘‘Non-affiliated third party’’; ■ iv. Adding in alphabetical order a definition for ‘‘Open swap’’; ■ v. Revising the definitions of ‘‘Person associated with a swap data repository’’ and ‘‘Position’’; ■ vi. Removing the definition of ‘‘Registered swap data repository’’; ■ vii. Adding in alphabetical order a definition for ‘‘Reporting counterparty’’; ■ viii. Removing the definition of ‘‘Reporting entity’’; ■ ix. Adding in alphabetical order a definition for ‘‘SDR data’’; ■ x. Revising the definitions of ‘‘SDR Information,’’ ‘‘Section 8 material,’’ and ‘‘Swap data’’; ■ xi. Adding in alphabetical order a definition for ‘‘Swap transaction and pricing data’’; and ■ b. Revising paragraph (b). The revisions and additions read as follows: jbell on DSKJLSW7X2PROD with RULES2 ■ ■ ■ § 49.2 Definitions. (a) * * * Affiliate means a person that directly, or indirectly, controls, is controlled by, VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 or is under common control with, the swap data repository. 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. Commercial use means the use of SDR data held and maintained by a swap data repository for a profit or business purposes. A swap data repository’s use of SDR data for regulatory purposes and/or to perform its regulatory responsibilities would not be considered a commercial use regardless of whether the swap data repository charges a fee for reporting such SDR data. Control (including the terms ‘‘controlled by’’ and ‘‘under common control with’’) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise. * * * * * Foreign regulator means a foreign futures authority as defined in section 1a(26) of the Act, foreign financial supervisors, foreign central banks, foreign ministries, and other foreign authorities. Independent perspective means a viewpoint that is impartial regarding competitive, commercial, or industry concerns and contemplates the effect of a decision on all constituencies involved. Market participant means any person participating in the swap market, including, but not limited to, designated contract markets, derivatives clearing organizations, swap execution facilities, swap dealers, major swap participants, and any other counterparty to a swap transaction. Non-affiliated third party means any person except: (1) The swap data repository; (2) The swap data repository’s affiliate; or (3) A person jointly employed by a swap data repository and any entity that is not the swap data repository’s affiliate (the term ‘‘non-affiliated third party’’ includes such entity that jointly employs the person). PO 00000 Frm 00236 Fmt 4701 Sfmt 4700 Open swap means an executed swap transaction that has not reached maturity or expiration, and has not been fully exercised, closed out, or terminated. Person associated with a swap data repository means: (1) Any partner, officer, or director of such swap data repository (or any person occupying a similar status or performing similar functions); (2) Any person directly or indirectly controlling, controlled by, or under common control with such swap data repository; or (3) Any person employed by such swap data repository, including a jointly employed person. Position means the gross and net notional amounts of open swap transactions aggregated by one or more attributes, including, but not limited to, the: (1) Underlying instrument; (2) Index, or reference entity; (3) Counterparty; (4) Asset class; (5) Long risk of the underlying instrument, index, or reference entity; and (6) Short risk of the underlying instrument, index, or reference entity. Reporting counterparty means the counterparty required to report SDR data pursuant to part 43, 45, or 46 of this chapter. SDR data means the specific data elements and information required to be reported to a swap data repository or disseminated by a swap data repository pursuant to two or more of parts 43, 45, 46, and/or 49 of this chapter, as applicable in the context. SDR information means any information that the swap data repository receives or maintains related to the business of the swap data repository that is not SDR data. Section 8 material means the business transactions, SDR data, or market positions of any person and trade secrets or names of customers. Swap data means the specific data elements and information required to be reported to a swap data repository pursuant to part 45 of this chapter or made available to the Commission pursuant to this part, as applicable. Swap transaction and pricing data means the specific data elements and information required to be reported to a swap data repository or publicly disseminated by a swap data repository pursuant to part 43 of this chapter, as applicable. (b) Other defined terms. Terms not defined in this part have the meanings assigned to the terms in § 1.3 of this chapter. E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations 9. In § 49.3: a. Revise paragraph (a)(5); b. Remove the phrase ‘‘swap transaction data’’ from paragraph (d) and add in its place ‘‘SDR data’’; and ■ c. Remove the reference ‘‘§ 40.1(e)’’ from paragraph (d) and add in its place ‘‘§ 40.1’’. The revision reads as follows: ■ ■ ■ § 49.3 Procedures for registration. (a) * * * (5) Amendments. If any information reported on Form SDR or in any amendment thereto is or becomes inaccurate for any reason, whether before or after the application for registration has been granted under this paragraph (a), the swap data repository shall promptly file an amendment on Form SDR updating such information. * * * * * ■ 10. Revise the paragraph heading for § 49.4(c) to read as follows: § 49.4 Withdrawal from registration. * * * * * (c) Revocation of registration for false application. * * * * * * * * ■ 11. Revise § 49.5 to read as follows: jbell on DSKJLSW7X2PROD with RULES2 § 49.5 Equity interest transfers. (a) Equity interest transfer notification. A swap data repository shall file with the Commission a notification of each transaction involving the direct or indirect transfer of ten percent or more of the equity interest in the swap data repository. The Commission may, upon receiving such notification, request that the swap data repository provide supporting documentation of the transaction. (b) Timing of notification. The equity interest transfer notice described in paragraph (a) of this section shall be filed electronically with the Secretary of the Commission at its Washington, DC headquarters at submissions@cftc.gov and the Division of Market Oversight at DMOSubmissions@cftc.gov, at the earliest possible time but in no event later than the open of business ten business days following the date upon which a firm obligation is made to transfer, directly or indirectly, ten percent or more of the equity interest in the swap data repository. (c) Certification. Upon a transfer, whether directly or indirectly, of an equity interest of ten percent or more in a swap data repository, the swap data repository shall file electronically with the Secretary of the Commission at its Washington, DC headquarters at submissions@cftc.gov and the Division of Market Oversight at VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 DMOSubmissions@cftc.gov, a certification that the swap data repository meets all of the requirements of section 21 of the Act and the Commission regulations in 17 CFR chapter I, no later than two business days following the date on which the equity interest of ten percent or more was acquired. ■ 12. Revise § 49.6 to read as follows: § 49.6 Request for transfer of registration. (a) Request for approval. A swap data repository seeking to transfer its registration from its current legal entity to a new legal entity as a result of a corporate change shall file a request for approval to transfer such registration with the Secretary of the Commission in the form and manner specified by the Commission. (b) Timing for filing a request for transfer of registration. A swap data repository shall file a request for transfer of registration as soon as practicable prior to the anticipated corporate change. (c) Required information. The request for transfer of registration shall include the following: (1) The underlying documentation that governs the corporate change; (2) A description of the corporate change, including the reason for the change and its impact on the swap data repository, including the swap data repository’s governance and operations, and its impact on the rights and obligations of market participants; (3) A discussion of the transferee’s ability to comply with the Act, including the core principles applicable to swap data repositories and the Commission’s regulations; (4) The governance documents adopted by the transferee, including a copy of any constitution; articles or certificate of incorporation, organization, formation, or association with all amendments thereto; partnership or limited liability agreements; and any existing bylaws, operating agreement, or rules or instruments corresponding thereto; (5) The transferee’s rules marked to show changes from the current rules of the swap data repository; and (6) A representation by the transferee that it: (i) Will be the surviving entity and successor-in-interest to the transferor swap data repository and will retain and assume the assets and liabilities of the transferor, except if otherwise indicated in the request; (ii) Will assume responsibility for complying with all applicable provisions of the Act and the Commission’s regulations; and PO 00000 Frm 00237 Fmt 4701 Sfmt 4700 75657 (iii) Will notify market participants of all changes to the transferor’s rulebook prior to the transfer, including those changes that may affect the rights and obligations of market participants, and will further notify market participants of the concurrent transfer of the registration to the transferee upon Commission approval and issuance of an order permitting the transfer. (d) Commission determination. Upon review of a request for transfer of registration, the Commission, as soon as practicable, shall issue an order either approving or denying the request for transfer of registration. ■ 13. Revise § 49.9 to read as follows: § 49.9 Open swaps reports provided to the Commission. Each swap data repository shall provide reports of open swaps to the Commission in accordance with this section. (a) Content of the open swaps report. In order to satisfy the requirements of this section, each swap data repository shall provide the Commission with open swaps reports that contain an accurate reflection, as of the time the swap data repository compiles the open swaps report, of the swap data maintained by the swap data repository for every swap data field required to be reported for swaps pursuant to part 45 of this chapter for every open swap. The report shall be organized by the unique identifier created pursuant to § 45.5 of this chapter that is associated with each open swap. (b) Transmission of the open swaps report. Each swap data repository shall transmit all open swaps reports to the Commission as instructed by the Commission. Such instructions may include, but are not limited to, the method, timing, and frequency of transmission, as well as the format of the swap data to be transmitted. ■ 14. In § 49.10, add paragraph (e) to read as follows: § 49.10 Acceptance of data. * * * * * (e) Error corrections—(1) Accepting corrections. A swap data repository shall accept error corrections for SDR data. Error corrections include corrections to errors and omissions in SDR data previously reported to the swap data repository pursuant to part 43, 45, or 46 of this chapter, as well as omissions in reporting SDR data for swaps that were not previously reported to a swap data repository as required under part 43, 45, or 46 of this chapter. The requirement to accept error corrections applies for all swaps, regardless of the state of the swap that E:\FR\FM\25NOR2.SGM 25NOR2 75658 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations is the subject of the SDR data. This includes swaps that have terminated, matured, or are otherwise no longer considered to be open swaps, provided that the record retention period under § 49.12(b)(2) has not expired as of the time the error correction is reported. (2) Recording corrections. A swap data repository shall record the corrections, as soon as technologically practicable after the swap data repository accepts the error correction. (3) Dissemination. A swap data repository shall disseminate corrected SDR data to the public and the Commission, as applicable, in accordance with this chapter, as soon as technologically practicable after the swap data repository records the corrected SDR data. (4) Policies and procedures. A swap data repository shall establish, maintain, and enforce policies and procedures designed for the swap data repository to accept error corrections, to record the error corrections as soon as technologically practicable after the swap data repository accepts the error correction, and to disseminate corrected SDR data to the public and to the Commission, as applicable, in accordance with this chapter. * * * * * ■ 15. Revise § 49.11 to read as follows: jbell on DSKJLSW7X2PROD with RULES2 § 49.11 Verification of swap data accuracy. (a) General requirement. Each swap data repository shall verify the accuracy and completeness of swap data that it receives from swap execution facilities, designated contract markets, reporting counterparties, or third-party service providers acting on their behalf, in accordance with paragraph (b) of this section. (b) Verifying swap data accuracy and completeness—(1) Swap data access. Each swap data repository shall provide a mechanism that allows each reporting counterparty that is a user of the swap data repository to access all swap data maintained by the swap data repository for each open swap for which the reporting counterparty is serving as the reporting counterparty, as specified in paragraph (b)(2) of this section. This mechanism shall allow sufficient access, provide sufficient information, and be in a form and manner to enable each reporting counterparty to perform swap data verification as required under § 45.14 of this chapter. (2) Scope of swap data access. The swap data accessible through the mechanism provided by each swap data repository shall accurately reflect the most current swap data maintained by the swap data repository, as of the time VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 the reporting counterparty accesses the swap data using the provided mechanism, for each data field that the reporting counterparty was required to report for each relevant open swap pursuant to part 45 of this chapter, except as provided in paragraph (b)(3) of this section. The swap data accessible through the mechanism provided by each swap data repository shall include sufficient information to allow reporting counterparties to successfully perform the swap data verification required under § 45.14 of this chapter. (3) Confidentiality. The swap data access each swap data repository shall provide pursuant to this section is subject to all applicable confidentiality requirements of the Act and this chapter, including, but not limited to, § 49.17. The swap data accessible to any reporting counterparty shall not include any swap data that the relevant reporting counterparty is prohibited to access under any Commission regulation. (4) Frequency of swap data access. Each swap data repository shall allow each reporting counterparty that is a user of the relevant swap data repository to utilize the mechanism as required under this section with at least sufficient frequency to allow each relevant reporting counterparty to perform the swap data verification required under § 45.14 of this chapter. (5) Third-party service providers. If a reporting counterparty informs a swap data repository that the reporting counterparty will utilize a third-party service provider to perform verification as required pursuant to § 45.14 of this chapter, the swap data repository will satisfy its requirements under this section by providing the third-party service provider with the same access to the mechanism and the relevant swap data for the reporting counterparty under this section, as if the third-party service provider was the reporting counterparty. The access for the thirdparty service provider shall be in addition to the access for the reporting counterparty required under this section. The access for the third-party service provider under this paragraph shall continue until the reporting counterparty informs the swap data repository that the third-party service provider should no longer have access on behalf of the reporting counterparty. The policies and procedures each swap data repository adopts under paragraph (c) of this section shall include instructions detailing how each reporting counterparty can successfully inform the swap data repository regarding a third-party service provider. PO 00000 Frm 00238 Fmt 4701 Sfmt 4700 (c) Policies and procedures—(1) Contents. Each swap data repository shall establish, maintain, and enforce policies and procedures designed to ensure compliance with the requirements of this section. Such policies and procedures shall include, but are not limited to, instructions detailing how each reporting counterparty, or third-party service provider acting on behalf of a reporting counterparty, can successfully utilize the mechanism provided pursuant to this section to perform each reporting counterparty’s verification responsibilities under § 45.14 of this chapter. (2) Amendments. Each swap data repository shall comply with the requirements under part 40 of this chapter in adopting or amending the policies and procedures required by this section. ■ 16. Revise § 49.12 to read as follows: § 49.12 Swap data repository recordkeeping requirements. (a) General requirement. A swap data repository shall keep full, complete, and systematic records, together with all pertinent data and memoranda, of all activities relating to the business of the swap data repository, including, but not limited to, all SDR information and all SDR data that is reported to the swap data repository pursuant to this chapter. (b) Maintenance of records. A swap data repository shall maintain all records required to be kept by this section in accordance with this paragraph (b). (1) A swap data repository shall maintain all SDR information, including, but not limited to, all documents, policies, and procedures required by the Act and the Commission’s regulations, correspondence, memoranda, papers, books, notices, accounts, and other such records made or received by the swap data repository in the course of its business. All SDR information shall be maintained in accordance with § 1.31 of this chapter. (2) A swap data repository shall maintain all SDR data and timestamps reported to or created by the swap data repository pursuant to this chapter, and all messages related to such reporting, throughout the existence of the swap that is the subject of the SDR data and for five years following final termination of the swap, during which time the records shall be readily accessible by the swap data repository and available to the Commission via real-time electronic access, and for a period of at least ten additional years in archival storage from which such records are E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations retrievable by the swap data repository within three business days. (c) Records of data errors and omissions. A swap data repository shall create and maintain records of data validation errors and SDR data reporting errors and omissions in accordance with this paragraph (c). (1) A swap data repository shall create and maintain an accurate record of all reported SDR data that fails to satisfy the swap data repository’s data validation procedures including, but not limited to, all SDR data reported to the swap data repository that fails to satisfy the data validation procedures, all data validation errors, and all related messages and timestamps. A swap data repository shall make these records available to the Commission on request. (2) A swap data repository shall create and maintain an accurate record of all SDR data errors and omissions reported to the swap data repository and all corrections disseminated by the swap data repository pursuant to parts 43, 45, and 46 of this chapter and this part. A swap data repository shall make these records available to the Commission on request. (d) Availability of records. All records required to be kept pursuant to this part shall be open to inspection upon request by any representative of the Commission or the United States Department of Justice in accordance with the provisions of § 1.31 of this chapter. A swap data repository required to keep, create, or maintain records pursuant to this section shall provide such records in accordance with the provisions of § 1.31 of this chapter, unless otherwise provided in this part. (e) A swap data repository shall establish policies and procedures to calculate positions for position limits and any other purpose as required by the Commission, for all persons with swaps that have not expired maintained by the swap data repository. ■ 17. Revise paragraph (a) and the paragraph (b) heading in § 49.13 to read as follows: § 49.13 Monitoring, screening and analyzing swap data. jbell on DSKJLSW7X2PROD with RULES2 (a) Duty to monitor, screen and analyze SDR data. A swap data repository shall monitor, screen, and analyze all relevant SDR data in its possession in such a manner as the Commission may require. A swap data repository shall routinely monitor, screen, and analyze SDR data for the purpose of any standing swap surveillance objectives that the Commission may establish as well as perform specific monitoring, screening, and analysis tasks based on ad hoc requests by the Commission. (b) Capacity to monitor, screen and analyze SDR data. * * * ■ 18. Revise § 49.15 to read as follows: § 49.15 Real-time public reporting by swap data repositories. (a) Scope. The provisions of this section apply to the real-time public reporting of swap transaction and pricing data submitted to a swap data repository pursuant to part 43 of this chapter. (b) Systems to accept and disseminate data in connection with real-time public reporting. A swap data repository shall establish such electronic systems as are necessary to accept and publicly disseminate swap transaction and pricing data submitted to the swap data repository pursuant to part 43 of this chapter in order to meet the real-time public reporting obligations of part 43 of this chapter. Any electronic system established for this purpose shall be capable of accepting and ensuring the public dissemination of all data fields required by part 43 this chapter. (c) Duty to notify the Commission of untimely data. A swap data repository shall notify the Commission of any swap transaction for which the real-time swap data was not received by the swap data repository in accordance with part 43 of this chapter. ■ 19. Revise § 49.16 to read as follows: § 49.16 Privacy and confidentiality requirements of swap data repositories. (a) Each swap data repository shall: (1) Establish, maintain, and enforce written policies and procedures reasonably designed to protect the privacy and confidentiality of any and all SDR information and all SDR data that is not swap transaction and pricing data disseminated under part 43 of this chapter. Such policies and procedures shall include, but are not limited to, policies and procedures to protect the Paragraphs Remove (a) ......................................... (a) ......................................... (b)(1) heading ...................... (b)(1) introductory text ......... (b)(2) heading ...................... (b)(2) .................................... swap data ........................................................................ Section 8 of the Act ........................................................ Domestic Regulator ......................................................... Appropriate Domestic Regulator ..................................... Foreign Regulator ........................................................... Appropriate Foreign Regulator ........................................ VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00239 privacy and confidentiality of any and all SDR information and all SDR data (except for swap transaction and pricing data disseminated under part 43 of this chapter) that the swap data repository shares with affiliates and non-affiliated third parties; and (2) Establish and maintain safeguards, policies, and procedures reasonably designed to prevent the misappropriation or misuse, directly or indirectly, of: (i) Section 8 material; (ii) Other SDR information or SDR data; and/or (iii) Intellectual property, such as trading strategies or portfolio positions, by the swap data repository or any person associated with a swap data repository. Such safeguards, policies, and procedures shall include, but are not limited to: (A) Limiting access to such section 8 material, other SDR information or SDR data, and intellectual property; (B) Standards controlling persons associated with a swap data repository trading for their personal benefit or the benefit of others; and (C) Adequate oversight to ensure compliance with this paragraph (a)(2). (b) A swap data repository shall not, as a condition of accepting SDR data from any swap execution facility, designated contract market, or reporting counterparty, require the waiver of any privacy rights by such swap execution facility, designated contract market, or reporting counterparty. (c) Subject to section 8 of the Act, a swap data repository may disclose aggregated SDR data on a voluntary basis or as requested, in the form and manner prescribed by the Commission. ■ 20. Amend § 49.17 by: ■ a. Revising paragraph (b)(3); ■ b. Adding paragraph (c) introductory text; ■ c. Revising paragraph (c)(1), the headings to paragraphs (d)(1) and (5), and paragraph (f)(2); ■ d. Removing paragraph (i); and ■ e. 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: Add Fmt 4701 Sfmt 4700 75659 SDR data. section 8 of the Act domestic regulator appropriate domestic regulator foreign regulator appropriate foreign regulator E:\FR\FM\25NOR2.SGM 25NOR2 75660 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Paragraphs Remove Add (b)(2) .................................... (c)(2) ..................................... (c)(2) ..................................... (c)(3) ..................................... (c)(3) ..................................... (d)(1)(i) ................................. (d)(1)(i) ................................. (d)(1)(ii) ................................ those Foreign Regulators ................................................ analyzing of swap data ................................................... transfer of data ................................................................ swap data provided ......................................................... authorizedusers ............................................................... Appropriate Domestic Regulator ..................................... Appropriate Foreign Regulator ........................................ Appropriate Domestic Regulators and Appropriate Foreign Regulators seeking. applicable to Appropriate Domestic Regulators and Appropriate Foreign Regulators. Foreign Regulator ........................................................... Foreign Regulator ........................................................... Foreign Regulator’s ......................................................... requests for data access ................................................. Appropriate Domestic Regulator or Appropriate Foreign Regulator. Appropriate Domestic Regulator’s or Appropriate Foreign Regulator’s. Appropriate Domestic Regulator or Appropriate Foreign Regulator. Appropriate Domestic Regulator’s or Appropriate Foreign Regulator’s. Appropriate Domestic Regulator or Appropriate Foreign Regulator. Arrangement .................................................................... Appropriate Domestic Regulator or Appropriate Foreign Regulator. swap data and SDR Information ..................................... those foreign regulators analyzing of SDR data transfer of SDR data SDR data provided authorized users appropriate domestic regulator appropriate foreign regulator Appropriate domestic regulators and appropriate foreign regulators seeking applicable to appropriate domestic regulators and appropriate foreign regulators Foreign regulator foreign regulator. foreign regulator’s requests for swap data access appropriate domestic regulator or appropriate foreign regulator appropriate domestic regulator’s or appropriate foreign regulator’s appropriate domestic regulator or appropriate foreign regulator appropriate domestic regulator’s or appropriate foreign regulator’s appropriate domestic regulator or appropriate foreign regulator arrangement appropriate domestic regulator or appropriate foreign regulator SDR data and SDR information swap data or SDR Information ....................................... swap data maintained ..................................................... Commercial uses of data ................................................ Swap data accepted ....................................................... swap data required ......................................................... The swap dealer, counterparty, or any other registered entity. swap data maintained ..................................................... swap transaction data ..................................................... reporting party ................................................................. SDR data or SDR information SDR data maintained Commercial uses of SDR data SDR data accepted SDR data required The swap execution facility, designated contract market, or reporting counterparty SDR data maintained SDR data swap execution facility, designated contract market, or reporting counterparty any reported SDR data swap transaction and pricing data section 21(c)(7) of the Act appropriate domestic regulator or appropriate foreign regulator (d)(1)(ii) ................................ (d)(3) heading ...................... (d)(3) .................................... (d)(3) .................................... (d)(4) heading ...................... (d)(4)(i) ................................. (d)(4)(i) ................................. (d)(4)(iii) ................................ (d)(4)(iii) ................................ (d)(5)(i) through (iii) .............. (d)(6) heading ...................... (d)(6) .................................... (e) introductory text, (e)(1), and (e)(2). (e)(2) .................................... (f)(1) ..................................... (g) heading ........................... (g) introductory text .............. (g)(1) .................................... (g)(2)(A) ................................ (g)(2)(A) ................................ (g)(2)(B) ................................ (g)(2)(B) ................................ (g)(2)(B) ................................ (g)(3) .................................... (h)(3) introductory text ......... (h)(4) .................................... any reported data ............................................................ real-time swap data ......................................................... CEA section 21(c)(7) ....................................................... Appropriate Domestic Regulator or Appropriate Foreign Regulator. The revisions and addition read as follows: § 49.17 Access to SDR data. jbell on DSKJLSW7X2PROD with RULES2 * * * * * (b) * * * (3) Direct electronic access. For the purposes of this section, the term ‘‘direct electronic access’’ shall mean an electronic system, platform, framework, or other technology that provides internet-based or other form of access to real-time SDR data that is acceptable to the Commission and also provides scheduled data transfers to Commission electronic systems. (c) Commission access. A swap data repository shall provide access to the Commission for all SDR data maintained by the swap data repository pursuant to this chapter in accordance with this paragraph (c). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 (1) Direct electronic access requirements. A swap data repository shall provide direct electronic access to the Commission or the Commission’s designee, including another registered entity, in order for the Commission to carry out its legal and statutory responsibilities under the Act and the Commission’s regulations in 17 CFR chapter I. A swap data repository shall maintain all SDR data reported to the swap data repository in a format acceptable to the Commission, and shall transmit all SDR data requested by the Commission to the Commission as instructed by the Commission. Such instructions may include, but are not limited to, the method, timing, and frequency of transmission, as well as the format and scope of the SDR data to be transmitted. * * * * * PO 00000 Frm 00240 Fmt 4701 Sfmt 4700 (d) * * * (1) General procedure for gaining access to swap data repository data. * * * * * * * * (5) Timing, limitation, suspension, or revocation of swap data access. * * * (f) * * * (2) Exception. SDR data and SDR information related to a particular swap transaction that is maintained by the swap data repository may be accessed by either counterparty to that particular swap. However, the SDR data and SDR information maintained by the swap data repository that may be accessed by either counterparty to a particular swap shall not include the identity or the legal entity identifier (as such term is used in part 45 of this chapter) of the other counterparty to the swap, or the other counterparty’s clearing member E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations for the swap, if the swap is executed anonymously on a swap execution facility or designated contract market, and cleared in accordance with §§ 1.74, 23.610, and 39.12(b)(7) of this chapter. * * * * * § 49.18 [Amended] 21. Amend § 49.18 by: a. Removing from paragraphs (a) and (d) the words ‘‘Appropriate Domestic Regulator or Appropriate Foreign Regulator’’ and ‘‘Appropriate Domestic ■ ■ § 49.19 [Amended] 22. In § 49.19(a), remove the word ‘‘paragraph’’ from wherever it appears and add in its place the word ‘‘section’’. Remove (b) heading ........................... (c)(1)(i) introductory text ...... (c)(1)(i)(A)(2) ........................ (c)(1)(i)(B) ............................. (c)(5) ..................................... Governance Arrangements ............................................. Regulation ....................................................................... Independent Perspective ................................................ Independent Perspective ................................................ Regulation ....................................................................... § 49.20 Governance arrangements (Core Principle 2). * * * * * (b) * * * (2) * * * (v) A description of the manner in which the board of directors, as well as any committee referenced in paragraph (b)(2)(ii) of this section, considers an independent perspective in its decisionmaking process, as § 49.2(a) defines such term; * * * * * (vii) Summaries of significant decisions impacting the public interest, the rationale for such decisions, and the process for reaching such decisions. 23. Amend § 49.20 by: ■ a. Revising paragraphs (b)(2)(v), (b)(2)(vii), and (c)(1)(ii)(B); and ■ b. In the table below, for each paragraph indicated in the left column, removing the text indicated in the middle column from wherever it appears, and adding in its place the text indicated in the right column: ■ ■ Paragraph The revisions read as follows: Add governance arrangements section independent perspective independent perspective section Such significant decisions shall include decisions relating to pricing of repository services, offering of ancillary services, access to SDR data, and use of section 8 material, SDR information, and intellectual property (as referenced in § 49.16). Such summaries of significant decisions shall not require the swap data repository to disclose section 8 material or, where appropriate, information that the swap data repository received on a confidential basis from a swap execution facility, designated contract market, or reporting counterparty. * * * * * (c) * * * (1) * * * (ii) * * * (B) A description of the relationship, if any, between such members and the swap data repository or any swap execution facility, designated contract market, or reporting counterparty user thereof (or, in each case, affiliates thereof, as § 49.2(a) defines such term); and * * * * * 24. Amend § 49.22 by: ■ a. In the table below, for each paragraph indicated in the left column, removing the text indicated in the middle column from wherever it appears, and adding in its place the text indicated in the right column: ■ Paragraph Remove (a) heading ........................... (b)(1) heading ...................... (b)(2) heading ...................... (b)(2)(i) ................................. (d)(1) .................................... (d)(4) .................................... (e)(2) introductory text and (e)(2)(i). (f)(3) ..................................... (g)(1)(iii)(A) ........................... Board of Directors ........................................................... Compliance Officer .......................................................... Chief Compliance Officer ................................................ Sections ........................................................................... Section ............................................................................ Section ............................................................................ Section ............................................................................ board of directors compliance officer chief compliance officer section section section section (e)(67) .............................................................................. Created, sent or received in connection with the annual compliance report and. (e)(6) Created, sent, or received in connection with the annual compliance report; and b. Revising the paragraph (c)(1) heading, the paragraph (f) heading, and paragraph (f)(2) to read as follows: ■ § 49.22 Chief compliance officer. * jbell on DSKJLSW7X2PROD with RULES2 Regulator’s or Appropriate Foreign Regulator’s’’ wherever they appear, and add in their places ‘‘appropriate domestic regulator or appropriate foreign regulator’’ and ‘‘appropriate domestic regulator’s or appropriate foreign regulator’s’’, respectively; and ■ b. Removing paragraph (e). 75661 * * * * (c) * * * (1) Appointment and compensation of chief compliance officer determined by board of directors. * * * * * * * * VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 Add (f) Submission of annual compliance report to the Commission. * * * (2) The annual compliance report shall be provided electronically to the Commission not more than 60 days after the end of the swap data repository’s fiscal year. * * * * * § 49.23 ■ [Amended] 25. Amend § 49.23 by: PO 00000 Frm 00241 Fmt 4701 Sfmt 4700 a. Removing from paragraph (a) the words ‘‘swap transaction data’’ and adding in their place ‘‘SDR data’’; and ■ b. Removing from the heading of paragraph (e) the word ‘‘commission’’ and adding in its place ‘‘Commission’’. ■ 26. Amend § 49.24 by: ■ a. Revising paragraph (d); and ■ b. In the table below, for each paragraph indicated in the left column, removing the text indicated in the middle column from wherever it ■ E:\FR\FM\25NOR2.SGM 25NOR2 75662 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations appears, and adding in its place the text indicated in the right column: Paragraphs Remove (a) introductory text .............. (e)(3)(i) ................................. (e)(3)(ii) ................................ (f)(2) ..................................... (i) introductory text and (i)(5) (j)(1) definitions of ‘‘Controls’’ and ‘‘Enterprise technology risk assessment’’. (j)(1) definition of ‘‘Security incident’’. (k)(1) and (2) ........................ (l)(3) ...................................... (m) ........................................ all swap data in its custody ............................................. dissemination of swap data ............................................ normal swap data ............................................................ all swap data contained .................................................. §§ 1.31 and 45.2 ............................................................. data and information ....................................................... all SDR data in its custody dissemination of SDR data normal SDR data all SDR data contained § 1.31 SDR data and SDR information or integrity of data ........................................................... , or integrity of SDR data report swap data ............................................................. any data related to .......................................................... Board of Directors ........................................................... report SDR data any SDR data related to board of directors The revision reads as follows: § 49.24 System safeguards. * * * * * (d) A swap data repository shall maintain a business continuity-disaster recovery plan and business continuitydisaster recovery resources, emergency procedures, and backup facilities sufficient to enable timely recovery and resumption of its operations and resumption of its ongoing fulfillment of its duties and obligations as a swap data repository following any disruption of its operations. Such duties and obligations include, without limitation, the duties set forth in §§ 49.10 through 49.18, § 49.23, and the core principles set forth in §§ 49.19 through 49.21 and §§ 49.25 through 49.27, and maintenance of a comprehensive audit trail. The swap data repository’s business continuity-disaster recovery plan and resources generally should enable resumption of the swap data repository’s operations and resumption of ongoing fulfillment of the swap data repository’s duties and obligation during the next business day following the disruption. A swap data repository shall update its business continuitydisaster recovery plan and emergency procedures at a frequency determined by an appropriate risk analysis, but at a minimum no less frequently than annually. * * * * * Paragraph 27. In § 49.25, revise paragraph (a)(1) to read as follows: ■ § 49.25 Financial resources. (a) * * * (1) A swap data repository shall maintain sufficient financial resources to perform its statutory and regulatory duties set forth in this chapter. * * * * * ■ 28. Amend § 49.26 by: ■ a. Revising the introductory text; ■ b. In the table below, for each paragraph indicated in the left column, removing the text indicated in the middle column from wherever it appears, and adding in its place the text indicated in the right column: Remove Add ......................................... ......................................... ......................................... ......................................... swap data maintained ..................................................... safeguarding of swap data .............................................. any and all swap data ..................................................... reporting entity ................................................................ (e) ......................................... (e) ......................................... swap data that it receives ............................................... market participant, any registered entity, or any other person; rebates; and .................................................................... arrangements. ................................................................. SDR data maintained. safeguarding of SDR data. any and all SDR data. swap execution facility, designated contract market, or reporting counterparty. SDR data that it receives. swap execution facility, designated contract market, or reporting counterparty; rebates; arrangements; and. (a) (c) (d) (d) (h) ......................................... (i) .......................................... c. Adding paragraph (j). The revisions and additions read as follows: ■ § 49.26 Disclosure requirements of swap data repositories. jbell on DSKJLSW7X2PROD with RULES2 Add Before accepting any SDR data from a swap execution facility, designated contract market, or reporting counterparty; or upon a swap execution facility’s, designated contract market’s, or reporting counterparty’s request; a swap data repository shall furnish to the swap execution facility, designated contract market, or reporting counterparty a disclosure document that VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 contains the following written information, which shall reasonably enable the swap execution facility, designated contract market, or reporting counterparty to identify and evaluate accurately the risks and costs associated with using the services of the swap data repository: * * * * * (j) The swap data repository’s policies and procedures regarding the reporting of SDR data to the swap data repository, including the swap data repository’s SDR data validation procedures, swap data verification procedures, and PO 00000 Frm 00242 Fmt 4701 Sfmt 4700 procedures for correcting SDR data errors and omissions. § 49.27 [Amended] 29. Amend § 49.27 by removing the term ‘‘Regulation’’ from paragraph (a)(2) and add in its place the term ‘‘section’’, and by removing ‘‘reporting of swap data’’ from paragraph (b)(1) and adding in its place ‘‘reporting of SDR data’’. ■ 30. Add § 49.28 to read as follows: ■ § 49.28 Operating hours of swap data repositories. (a) Except as otherwise provided in this paragraph (a), a swap data E:\FR\FM\25NOR2.SGM 25NOR2 jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations repository shall have systems in place to continuously accept and promptly record all SDR data reported to the swap data repository as required in this chapter and, as applicable, publicly disseminate all swap transaction and pricing data reported to the swap data repository as required in part 43 of this chapter. (1) A swap data repository may establish normal closing hours to perform system maintenance during periods when, in the reasonable estimation of the swap data repository, the swap data repository typically receives the least amount of SDR data. A swap data repository shall provide reasonable advance notice of its normal closing hours to market participants and to the public. (2) A swap data repository may declare, on an ad hoc basis, special closing hours to perform system maintenance that cannot wait until normal closing hours. A swap data repository shall schedule special closing hours during periods when, in the reasonable estimation of the swap data repository in the context of the circumstances prompting the special closing hours, the special closing hours will be the least disruptive to the swap data repository’s SDR data reporting responsibilities. A swap data repository shall provide reasonable advance notice of its special closing hours to market participants and to the public whenever possible, and, if advance notice is not reasonably possible, shall provide notice of its special closing hours to market participants and to the public as soon as reasonably possible after declaring special closing hours. (b) A swap data repository shall comply with the requirements under part 40 of this chapter in adopting or amending normal closing hours and special closing hours. (c) During normal closing hours and special closing hours, a swap data repository shall have the capability to accept and hold in queue any and all SDR data reported to the swap data repository during the normal closing hours or special closing hours. (1) Upon reopening after normal closing hours or special closing hours, a swap data repository shall promptly process all SDR data received during normal closing hours or special closing hours, as required pursuant to this chapter, and, pursuant to part 43 of this chapter, publicly disseminate all swap transaction and pricing data reported to the swap data repository that was held in queue during the normal closing hours or special closing hours. (2) If at any time during normal closing hours or special closing hours a VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 swap data repository is unable to receive and hold in queue any SDR data reported pursuant to this chapter, then the swap data repository shall immediately issue notice to all swap execution facilities, designated contract markets, reporting counterparties, and the public that it is unable to receive and hold in queue SDR data. Immediately upon reopening, the swap data repository shall issue notice to all swap execution facilities, designated contract markets, reporting counterparties, and the public that it has resumed normal operations. Any swap execution facility, designated contract market, or reporting counterparty that was obligated to report SDR data pursuant to this chapter to the swap data repository, but could not do so because of the swap data repository’s inability to receive and hold in queue SDR data, shall report the SDR data to the swap data repository immediately after receiving such notice. ■ 31. Add § 49.29 to read as follows: § 49.29 Information relating to swap data repository compliance. (a) Requests for information. Upon the Commission’s request, a swap data repository shall file with the Commission information related to its business as a swap data repository and such information as the Commission determines to be necessary or appropriate for the Commission to perform the duties of the Commission under the Act and regulations in 17 CFR chapter I. The swap data repository shall file the information requested in the form and manner and within the time period the Commission specifies in the request. (b) Demonstration of compliance. Upon the Commission’s request, a swap data repository shall file with the Commission a written demonstration, containing supporting data, information, and documents, that it is in compliance with its obligations under the Act and the Commission’s regulations in 17 CFR chapter I, as the Commission specifies in the request. The swap data repository shall file the written demonstration in the form and manner and within the time period the Commission specifies in the request. ■ 32. Add § 49.30 to read as follows: § 49.30 Form and manner of reporting and submitting information to the Commission. Unless otherwise instructed by the Commission, a swap data repository shall submit SDR data reports and any other information required under this part to the Commission, within the time specified, using the format, coding structure, and electronic data PO 00000 Frm 00243 Fmt 4701 Sfmt 4700 75663 transmission procedures approved in writing by the Commission. ■ 33. Add § 49.31 to read as follows: § 49.31 Delegation of authority to the Director of the Division of Market Oversight relating to certain part 49 matters. (a) The Commission hereby delegates, until such time as the Commission orders otherwise, the following functions to the Director of the Division of Market Oversight and to such members of the Commission staff acting under his or her direction as he or she may designate from time to time: (1) All functions reserved to the Commission in § 49.5. (2) All functions reserved to the Commission in § 49.9. (3) All functions reserved to the Commission in § 49.10. (4) All functions reserved to the Commission in § 49.12. (5) All functions reserved to the Commission in § 49.13. (6) All functions reserved to the Commission in § 49.16. (7) All functions reserved to the Commission in § 49.17. (8) All functions reserved to the Commission in § 49.18. (9) All functions reserved to the Commission in § 49.22. (10) All functions reserved to the Commission in § 49.23. (11) All functions reserved to the Commission in § 49.24. (12) All functions reserved to the Commission in § 49.25. (13) All functions reserved to the Commission in § 49.29. (14) All functions reserved to the Commission in § 49.30. (b) The Director of the Division of Market Oversight may submit to the Commission for its consideration any matter that has been delegated under paragraph (a) of this section. (c) Nothing in this section may prohibit the Commission, at its election, from exercising the authority delegated in this section. ■ 34. Revise appendix A to part 49 to read as follows: Appendix A to Part 49—Form SDR COMMODITY FUTURES TRADING COMMISSION FORM SDR SWAP DATA REPOSITORY APPLICATION OR AMENDMENT TO APPLICATION FOR REGISTRATION REGISTRATION INSTRUCTIONS Intentional misstatements or omissions of material fact may constitute federal criminal violations (7 U.S.C. 13 and 18 U.S.C. 1001) or grounds for disqualification from registration. E:\FR\FM\25NOR2.SGM 25NOR2 75664 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations DEFINITIONS Unless the context requires otherwise, all terms used in this Form SDR have the same meaning as in the Commodity Exchange Act, as amended (‘‘Act’’), and in the General Rules and Regulations of the Commodity Futures Trading Commission (‘‘Commission’’) thereunder (17 CFR chapter I). For the purposes of this Form SDR, the term ‘‘Applicant’’ shall include any applicant for registration as a swap data repository or any applicant amending a pending application. jbell on DSKJLSW7X2PROD with RULES2 GENERAL INSTRUCTIONS 1. This Form SDR, which includes instructions, a Cover Sheet, and required Exhibits (together ‘‘Form SDR’’), is to be filed with the Commission by all Applicants, pursuant to section 21 of the Act and the Commission’s regulations thereunder. Upon the filing of an application for registration in accordance with the instructions provided herein, the Commission will publish notice of the filing and afford interested persons an opportunity to submit written comments concerning such application. No application for registration shall be effective unless the Commission, by order, grants such registration. 2. Individuals’ names, except the executing signature, shall be given in full (Last Name, First Name, Middle Name). 3. Signatures on all copies of the Form SDR filed with the Commission can be executed electronically. If this Form SDR is filed by a corporation, it shall be signed in the name of the corporation by a principal officer duly authorized; if filed by a limited liability company, it shall be signed in the name of the limited liability company by a manager VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 or member duly authorized to sign on the limited liability company’s behalf; if filed by a partnership, it shall be signed in the name of the partnership by a general partner duly authorized; if filed by an unincorporated organization or association that is not a partnership, it shall be signed in the name of such organization or association by the managing agent, i.e., a duly authorized person who directs manages or who participates in the directing or managing of its affairs. 4. If this Form SDR is being filed as an application for registration, all applicable items must be answered in full. If any item is inapplicable, indicate by ‘‘none,’’ ‘‘not applicable,’’ or ‘‘N/A,’’ as appropriate. 5. Under section 21 of the Act and the Commission’s regulations thereunder, the Commission is authorized to solicit the information required to be supplied by this Form SDR from any Applicant seeking registration as a swap data repository. Disclosure by the Applicant of the information specified in this Form SDR is mandatory prior to the start of the processing of an application for registration as a swap data repository. The information provided in this Form SDR will be used for the principal purpose of determining whether the Commission should grant or deny registration to an Applicant. The Commission may determine that additional information is required from an Applicant in order to process its application. A Form SDR that is not prepared and executed in compliance with applicable requirements and instructions may be returned as not acceptable for filing. Acceptance of this Form SDR, however, shall not constitute a finding that the Form SDR has been filed as required PO 00000 Frm 00244 Fmt 4701 Sfmt 4700 or that the information submitted is true, current, or complete. 6. Except in cases where confidential treatment is requested by the Applicant and granted by the Commission pursuant to the Freedom of Information Act and Commission Regulation § 145.9, information supplied on this Form SDR will be included in the public files of the Commission and will be available for inspection by any interested person. The Applicant must identify with particularity the information in these exhibits that will be subject to a request for confidential treatment and supporting documentation for such request pursuant to Commission Regulations § 40.8 and § 145.9. APPLICATION AMENDMENTS 1. An Applicant amending a pending application for registration as a swap data repository shall file an amended Form SDR electronically with the Secretary of the Commission in the manner specified by the Commission. 2. When filing this Form SDR for purposes of amending a pending application, an Applicant must re-file the entire Cover Sheet, amended if necessary, include an executing signature, and attach thereto revised Exhibits or other materials marked to show any amendments. The submission of an amendment to a pending application represents that all unamended items and Exhibits remain true, current, and complete as previously filed. WHERE TO FILE This Form SDR shall be filed electronically with the Secretary of the Commission in the manner specified by the Commission. 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 00245 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 75665 ER25NO20.038</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 00246 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 ER25NO20.039</GPH> jbell on DSKJLSW7X2PROD with RULES2 75666 VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 PO 00000 Frm 00247 Fmt 4701 Sfmt 4725 E:\FR\FM\25NOR2.SGM 25NOR2 75667 ER25NO20.040</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 BILLING CODE 6351–01–C jbell on DSKJLSW7X2PROD with RULES2 EXHIBITS INSTRUCTIONS The following Exhibits must be included as part of Form SDR and filed with the Commission by each Applicant seeking registration as a swap data repository pursuant to section 21 of the Act and the Commission’s regulations thereunder. Such Exhibits must be labeled according to the items specified in this Form SDR. If any Exhibit is inapplicable, please specify the Exhibit letter and indicate by ‘‘none,’’ ‘‘not applicable,’’ or ‘‘N/A,’’ as appropriate. The Applicant must identify with particularity the information in these Exhibits that will be subject to a request for confidential treatment VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 and supporting documentation for such request pursuant to Commission Regulations § 40.8 and § 145.9. If the Applicant is a newly formed enterprise and does not have the financial statements required pursuant to Items 27 and 28 of this form, the Applicant should provide pro forma financial statements for the most recent six months or since inception, whichever is less. EXHIBITS I—BUSINESS ORGANIZATION 14. Attach as Exhibit A, any person who owns ten (10) percent or more of Applicant’s equity or possesses voting power of any class, either directly or indirectly, through agreement or otherwise, in any other manner, PO 00000 Frm 00248 Fmt 4701 Sfmt 4700 may control or direct the management or policies of Applicant. ‘‘Control’’ for this purpose is defined in Commission Regulation § 49.2(a). State in Exhibit A the full name and address of each such person and attach a copy of the agreement or, if there is none written, describe the agreement or basis upon which such person exercises or may exercise such control or direction. 15. Attach as Exhibit B, a narrative that sets forth the fitness standards for the board of directors and its composition including the number or percentage of public directors. Attach a list of the present officers, directors (including an identification of the public directors), governors (and, if the E:\FR\FM\25NOR2.SGM 25NOR2 ER25NO20.041</GPH> 75668 jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations Applicant is not a corporation, the members of all standing committees grouped by committee), or persons performing functions similar to any of the foregoing, of the swap data repository or of the entity identified in Item 16 that performs the swap data repository activities of the Applicant, indicating for each: a. Name b. Title c. Date of commencement and, if appropriate, termination of present term of position d. Length of time each present officer, director, or governor has held the same position e. Brief account of the business experience of each officer and director over the last five (5) years f. Any other business affiliations in the securities industry or OTC derivatives industry g. A description of: (1) any order of the Commission with respect to such person pursuant to section 5e of the Act; (2) any conviction or injunction within the past 10 years; (3) any disciplinary action with respect to such person within the last five (5) years; (4) any disqualification under sections 8b and 8d of the Act; (5) any disciplinary action under section 8c of the Act; and (6) any violation pursuant to section 9 of the Act. h. For directors, list any committees on which the director serves and any compensation received by virtue of their directorship. 16. Attach as Exhibit C, the following information about the chief compliance officer who has been appointed by the board of directors of the swap data repository or a person or group performing a function similar to such board of directors: a. Name b. Title c. Dates of commencement and termination of present term of office or position d. Length of time the chief compliance officer has held the same office or position e. Brief account of the business experience of the chief compliance officer over the last five (5) years f. Any other business affiliations in the derivatives/securities industry or swap data repository industry g. A description of: (1) any order of the Commission with respect to such person pursuant to section 5e of the Act; (2) any conviction or injunction within the past 10 years; (3) any disciplinary action with respect to such person within the last five (5) years; (4) any disqualification under sections 8b and 8d of the Act; (5) any disciplinary action under section 8c of the Act; and (6) any violation pursuant to section 9 of the Act. 17. Attach as Exhibit D, a copy of documents relating to the governance arrangements of the Applicant, including, but not limited to: VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 a. The nomination and selection process of the members on the Applicant’s board of directors, a person or group performing a function similar to a board of directors (collectively, ‘‘board’’), or any committee that has the authority to act on behalf of the board, the responsibilities of each of the board and such committee, and the composition of each board and such committee; b. a description of the manner in which the composition of the board allows the Applicant to comply with applicable core principles, regulations, as well as the rules of the Applicant; and c. a description of the procedures to remove a member of the board of directors, where the conduct of such member is likely to be prejudicial to the sound and prudent management of the swap data repository. 18. Attach as Exhibit E, a narrative or graphic description of the organizational structure of the Applicant. Note: If the swap data repository activities are conducted primarily by a division, subdivision, or other segregable entity within the Applicant’s corporation or organization, describe the relationship of such entity within the overall organizational structure and attach as Exhibit E only such description as applies to the segregable entity. Additionally, provide any relevant jurisdictional information, including any and all jurisdictions in which the Applicant or any affiliated entity is doing business and registration status, including pending application (e.g., country, regulator, registration category, date of registration). In addition, include a description of the lines of responsibility and accountability for each operational unit of the Applicant to (i) any committee thereof and/or (ii) the board. 19. Attach as Exhibit F, a copy of the conflicts of interest policies and procedures implemented by the Applicant to minimize conflicts of interest in the decision-making process of the swap data repository and to establish a process for the resolution of any such conflicts of interest. 20. Attach as Exhibit G, a list of all affiliates of the swap data repository and indicate the general nature of the affiliation. Provide a copy of any agreements entered into or to be entered by the swap data repository, including partnerships or joint ventures, or its participants, that will enable the Applicant to comply with the registration requirements and core principles specified in section 21 of the Act. With regard to an affiliate that is a parent company of the Applicant, if such parent controls the Applicant, an Applicant must provide (i) the board composition of the parent, including public directors, and (ii) all ownership information requested in Exhibit A for the parent. ‘‘Control’’ for this purpose is defined in Commission Regulation § 49.2(a). 21. Attach as Exhibit H, a copy of the constitution; articles of incorporation or association with all amendments thereto; existing by-laws, rules, or instruments corresponding thereto, of the Applicant. The Applicant shall also provide a certificate of good standing dated within one week of the date of the application. 22. Where the Applicant is a foreign entity seeking registration or filing an amendment PO 00000 Frm 00249 Fmt 4701 Sfmt 4700 75669 to an existing registration, attach as Exhibit I, an opinion of counsel that the swap data repository, as a matter of law, is able to provide the Commission with prompt access to the books and records of such swap data repository and that the swap data repository can submit to onsite inspection and examination by the Commission. 23. Where the Applicant is a foreign entity seeking registration, attach as Exhibit I–1, a form that designates and authorizes an agent in the United States, other than a Commission official, to accept any notice or service of process, pleadings, or other documents in any action or proceedings brought against the swap data repository to enforce the Act and the regulations thereunder. 24. Attach as Exhibit J, a current copy of the Applicant’s rules, as defined in Commission Regulation § 40.1, consisting of all the rules necessary to carry out the duties as a swap data repository. 25. Attach as Exhibit K, a description of the Applicant’s internal disciplinary and enforcement protocols, tools, and procedures. Include the procedures for dispute resolution. 26. Attach as Exhibit L, a brief description of any material pending legal proceeding(s), other than ordinary and routine litigation incidental to the business, to which the Applicant or any of its affiliates is a party or to which any of its or their property is the subject. Include the name of the court or agency in which the proceeding(s) are pending, the date(s) instituted, and the principal parties thereto, a description of the factual basis alleged to underlie the proceeding(s) and the relief sought. Include similar information as to any such proceeding(s) known to be contemplated by the governmental agencies. EXHIBITS II—FINANCIAL INFORMATION 27. Attach as Exhibit M, a balance sheet, statement of income and expenses, statement of sources and application of revenues, and all notes or schedules thereto, as of the most recent fiscal year of the Applicant. If a balance sheet and statements certified by an independent public accountant are available, such balance sheet and statement shall be submitted as Exhibit M. 28. Attach as Exhibit N, a balance sheet and an income and expense statement for each affiliate of the swap data repository that also engages in swap data repository activities as of the end of the most recent fiscal year of each such affiliate. 29. Attach as Exhibit O, the following: a. A complete list of all dues, fees, and other charges imposed, or to be imposed, by or on behalf of Applicant for its swap data repository services and identify the service or services provided for each such due, fee, or other charge. b. Furnish a description of the basis and methods used in determining the level and structure of the dues, fees, and other charges listed in paragraph a of this item. c. If the Applicant differentiates, or proposes to differentiate, among its customers, or classes of customers in the amount of any dues, fees, or other charges imposed for the same or similar services, so E:\FR\FM\25NOR2.SGM 25NOR2 75670 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 state and indicate the amount of each differential. In addition, identify and describe any differences in the cost of providing such services, and any other factors, that account for such differentiations. EXHIBITS III—OPERATIONAL CAPABILITY 30. Attach as Exhibit P, copies of all material contracts with any swap execution facility, designated contract market, clearing agency, central counterparty, or third party service provider. To the extent that form contracts are used by the Applicant, submit a sample of each type of form contract used. In addition, include a list of swap execution facilities, designated contract markets, clearing agencies, central counterparties, and third party service providers with whom the Applicant has entered into material contracts. Where swap data repository functions are performed by a third-party, attach any agreements between or among the Applicant and such third party, and identify the services that will be provided. 31. Attach as Exhibit Q, any technical manuals, other guides or instructions for users of, or participants in, the market. 32. Attach as Exhibit R, a description of system test procedures, test conducted or test results that will enable the Applicant to comply, or demonstrate the Applicant’s ability to comply, with the core principles for swap data repositories. 33. Attach as Exhibit S, a description in narrative form, or by the inclusion of functional specifications, of each service or function performed as a swap data repository. Include in Exhibit S a description of all procedures utilized for the collection, processing, distribution, publication, and retention (e.g., magnetic tape) of information with respect to transactions or positions in, or the terms and conditions of, swaps entered into by market participants. 34. Attach as Exhibit T, a list of all computer hardware utilized by the Applicant to perform swap data repository functions, indicating where such equipment (terminals and other access devices) is physically located. 35. Attach as Exhibit U, a description of the personnel qualifications for each category of professional employees employed by the swap data repository or the division, subdivision, or other segregable entity within the swap data repository as described in Item 16. 36. Attach as Exhibit V, a description of the measures or procedures implemented by Applicant to provide for the security of any system employed to perform the functions of a swap data repository. Include a general description of any physical and operational safeguards designed to prevent unauthorized access (whether by input or retrieval) to the system. Describe any circumstances within the past year in which the described security measures or safeguards failed to prevent any such unauthorized access to the system and any measures taken to prevent a reoccurrence. Describe any measures used to verify the accuracy of information received or disseminated by the system. 37. Attach as Exhibit W, copies of emergency policies and procedures and VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 Applicant’s business continuity-disaster recovery plan. Include a general description of any business continuity-disaster recovery resources, emergency procedures, and backup facilities sufficient to enable timely recovery and resumption of its operations and resumption of its ongoing fulfillment of its duties and obligations as a swap data repository following any disruption of its operations. 38. Where swap data repository functions are performed by automated facilities or systems, attach as Exhibit X a description of all backup systems or subsystems that are designed to prevent interruptions in the performance of any swap data repository function as a result of technical malfunctions or otherwise in the system itself, in any permitted input or output system connection, or as a result of any independent source. Include a narrative description of each type of interruption that has lasted for more than two minutes and has occurred within the six (6) months preceding the date of the filing, including the date of each interruption, the cause, and duration. Also state the total number of interruptions that have lasted two minutes or less. 39. Attach as Exhibit Y, the following: a. For each of the swap data repository functions: (1) Quantify in appropriate units of measure the limits on the swap data repository’s capacity to receive (or collect), process, store, or display (or disseminate for display or other use) the data elements included within each function (e.g., number of inquiries from remote terminals); (2) identify the factors (mechanical, electronic, or other) that account for the current limitations reported in answer to (1) on the swap data repository’s capacity to receive (or collect), process, store, or display (or disseminate for display or other use) the data elements included within each function. b. If the Applicant is able to employ, or presently employs, the central processing units of its system(s) for any use other than for performing the functions of a swap data repository, state the priorities of assignment of capacity between such functions and such other uses, and state the methods used or able to be used to divert capacity between such functions and such other uses. EXHIBITS IV—ACCESS TO SERVICES 40. Attach as Exhibit Z, the following: a. As to each swap data repository service that the Applicant provides, state the number of persons who presently utilize, or who have notified the Applicant of their intention to utilize, the services of the swap data repository. b. For each instance during the past year in which any person has been prohibited or limited in respect of access to services offered by the Applicant as a swap data repository, indicate the name of each such person and the reason for the prohibition or limitation. c. Define the data elements for purposes of the swap data repository’s real-time public reporting obligation. Appendix A to Part 43 of the Commission’s Regulations (Data Elements and Form for Real-Time Reporting for Particular Markets and Contracts) sets PO 00000 Frm 00250 Fmt 4701 Sfmt 4700 forth the specific data elements for real-time public reporting. 41. Attach as Exhibit AA, copies of any agreements governing the terms by which information may be shared by the swap data repository, including with market participants. To the extent that form contracts are used by the Applicant, submit a sample of each type of form contract used. 42. Attach as Exhibit BB, a description of any specifications, qualifications, or other criteria that limit, are interpreted to limit, or have the effect of limiting access to or use of any swap data repository services furnished by the Applicant and state the reasons for imposing such specifications, qualifications, or other criteria, including whether such specifications, qualifications, or other criteria are imposed. 43. Attach as Exhibit CC, any specifications, qualifications, or other criteria required of participants who utilize the services of the Applicant for collection, processing, preparing for distribution, or public dissemination by the Applicant. 44. Attach as Exhibit DD, any specifications, qualifications, or other criteria required of any person, including, but not limited to, regulators, market participants, market infrastructures, venues from which data could be submitted to the Applicant, and third party service providers who request access to data maintained by the Applicant. 45. Attach as Exhibit EE, policies and procedures implemented by the Applicant to review any prohibition or limitation of any person with respect to access to services offered or data maintained by the Applicant and to grant such person access to such services or data if such person has been discriminated against unfairly. EXHIBITS V—OTHER POLICIES AND PROCEDURES 46. Attach as Exhibit FF, a narrative and supporting documents that may be provided under other Exhibits herein, that describes the manner in which the Applicant is able to comply with each core principle and other requirements pursuant to Commission Regulation § 49.19. 47. Attach as Exhibit GG, policies and procedures implemented by the Applicant to protect the privacy of any and all SDR data, section 8 material, and SDR information that the swap data repository receives from reporting entities. 48. Attach as Exhibit HH, a description of safeguards, policies, and procedures implemented by the Applicant to prevent the misappropriation or misuse of (a) any confidential information received by the Applicant, including, but not limited to, SDR data, section 8 material, and SDR information, about a market participant or any of its customers; and/or (b) intellectual property by Applicant or any person associated with the Applicant for their personal benefit or the benefit of others. 49. Attach as Exhibit II, policies and procedures implemented by the Applicant regarding its use of the SDR data, section 8 material, and SDR information that it receives from a market participant, any registered entity, or any person for noncommercial and/or commercial purposes. E:\FR\FM\25NOR2.SGM 25NOR2 75671 50. Attach as Exhibit JJ, procedures and a description of facilities of the Applicant for effectively resolving disputes over the accuracy of the SDR data and positions that are maintained by the swap data repository. 51. Attach as Exhibit KK, policies and procedures relating to the Applicant’s calculation of positions. 52. Attach as Exhibit LL, policies and procedures that are reasonably designed to prevent any provision in a valid swap from being invalidated or modified through the procedures or operations of the Applicant. 53. Attach as Exhibit MM, Applicant’s policies and procedures that ensure that the SDR data that are maintained by the Applicant continues to be maintained after the Applicant withdraws from registration as a swap data repository, which shall include procedures for transferring the SDR data to the Commission or its designee (including another swap data repository). ■ The U.S. Commodity Futures Trading Commission (‘‘CFTC’’) and the [name of foreign/domestic regulator (‘‘ABC’’)] (each an ‘‘Authority’’ and collectively the ‘‘Authorities’’) have entered into this Confidentiality Arrangement (‘‘Arrangement’’) in connection with [whichever is applicable] [CFTC Regulation 49.17(b)(1)[(i)–(vi)]/the determination order issued by the CFTC to [ABC] (‘‘Order’’)] and any request for swap data by [ABC] to any swap data repository (‘‘SDR’’) registered or provisionally registered with the CFTC. regulatory responsibilities or to prejudice the individual responsibilities or autonomy of any Authority. 4. This Arrangement does not alter the terms and conditions of any existing arrangements. the benefit of others or with respect to any commercial or business purpose; and f. Include a process for monitoring compliance with the confidentiality safeguards described herein and for promptly notifying the CFTC, and each SDR from which ABC has received Swap Data, of any violation of such safeguards or failure to fulfill the terms of this Arrangement. 7. Except as provided in Paragraphs 6.d. and 8, ABC will not onward share or otherwise disclose any Confidential Information. 8. ABC undertakes that: a. If a department, central bank, or agency of the Government of the United States, it will not disclose Confidential Information except in an action or proceeding under the laws of the United States to which it, the CFTC, or the United States is a party; b. If a department or agency of a State or political subdivision thereof, it will not disclose Confidential Information except in connection with an adjudicatory action or proceeding brought under the Act or the laws of [name of either the State or the State and political subdivision] to which it is a party; or c. If a foreign futures authority or a department, central bank, ministry, or agency of a foreign government or subdivision thereof, or any other Foreign Regulator, as defined in Commission Regulation 49.2(a)(5), it will not disclose Confidential Information except in connection with an adjudicatory action or proceeding brought under the laws of [name of country, political subdivision, or (if a supranational organization) supranational lawmaking body] to which it is a party. 9. Prior to complying with any legally enforceable demand for Confidential Information, ABC will notify the CFTC of such demand in writing, assert all available appropriate legal exemptions or privileges with respect to such Confidential Information, and use its best efforts to protect Article One: General Provisions 1. ABC is permitted to request and receive swap data directly from an SDR (‘‘Swap Data’’) on the terms and subject to the conditions of this Arrangement. 2. This Arrangement is entered into to fulfill the requirements under Section 21(d) of the Commodity Exchange Act (‘‘Act’’) and CFTC Regulation 49.18. Upon receipt by an SDR, this Arrangement will satisfy the requirement for a written agreement pursuant to Section 21(d) of the Act and CFTC Regulation 49.17(d)(6). This Arrangement does not apply to information that is [reported to an SDR pursuant to [ABC]’s regulatory regime where the SDR also is registered with [ABC] pursuant to separate statutory authority, even if such information also is reported pursuant to the Act and CFTC regulations][reported to an SDR pursuant to [ABC]’s regulatory regime where the SDR also is registered with, or recognized or otherwise authorized by, [ABC], which has supervisory authority over the repository pursuant to foreign law and/or regulation, even if such information also is reported pursuant to the Act and CFTC regulations.] 1 3. This Arrangement is not intended to limit or condition the discretion of an Authority in any way in the discharge of its 1 The first bracketed phrase will be used for ADRs; the second will be used for AFRs. The inapplicable phrase will be deleted. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 Article Two: Confidentiality of Swap Data 5. ABC will be acting within the scope of its jurisdiction in requesting Swap Data and employs procedures to maintain the confidentiality of Swap Data and any information and analyses derived therefrom (collectively, the ‘‘Confidential Information’’). ABC undertakes to notify the CFTC and each relevant SDR promptly of any change to ABC’s scope of jurisdiction. 6. ABC undertakes to treat Confidential Information as confidential and will employ safeguards that: a. To the maximum extent practicable, identify the Confidential Information and maintain it separately from other data and information; b. Protect the Confidential Information from misappropriation and misuse; c. Ensure that only authorized ABC personnel with a need to access particular Confidential Information to perform their job functions related to such Confidential Information have access thereto, and that such access is permitted only to the extent necessary to perform their job functions related to such particular Confidential Information; d. Prevent the disclosure of aggregated Confidential Information; provided, however, that ABC is permitted to disclose any sufficiently aggregated Confidential Information that is anonymized to prevent identification, through disaggregation or otherwise, of a market participant’s business transactions, trade data, market positions, customers, or counterparties; e. Prohibit use of the Confidential Information by ABC personnel for any improper purpose, including in connection with trading for their personal benefit or for PO 00000 Frm 00251 Fmt 4701 Sfmt 4700 35. Revise appendix B to part 49 to read as follows: Appendix B to Part 49—Confidentiality Arrangement for Appropriate Domestic Regulators and Appropriate Foreign Regulators To Obtain Access To Swap Data Maintained by Swap Data Repositories Pursuant to §§ 49.17(d)(6) and 49.18(a) E:\FR\FM\25NOR2.SGM 25NOR2 ER25NO20.042</GPH> jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations 75672 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations the confidentiality of the Confidential Information. 10. ABC acknowledges that, if it does not fulfill the terms of this Arrangement, the CFTC may direct any SDR to suspend or revoke ABC’s access to Swap Data. 11. ABC will comply with all applicable security-related requirements imposed by an SDR in connection with access to Swap Data maintained by the SDR, as such requirements may be revised from time to time. 12. ABC will promptly destroy all Confidential Information for which it no longer has a need or which no longer falls within the scope of its jurisdiction, and will certify to the CFTC, upon request, that ABC has destroyed such Confidential Information. jbell on DSKJLSW7X2PROD with RULES2 Article Three: Administrative Provisions 13. This Arrangement may be amended with the written consent of the Authorities. 14. The text of this Arrangement will be executed in English, and may be made available to the public. 15. On the date this Arrangement is signed by the Authorities, it will become effective and may be provided to any SDR that holds and maintains Swap Data that falls within the scope of ABC’s jurisdiction. 16. This Arrangement will expire 30 days after any Authority gives written notice to the other Authority of its intention to terminate the Arrangement. In the event of termination of this Arrangement, Confidential Information will continue to remain confidential and will continue to be covered by this Arrangement. This Arrangement is executed in duplicate, this llday of ll. [name of Chairman] Chairman, U.S. Commodity Futures Trading Commission [name of signatory] [title] [name of foreign/domestic regulator] [Exhibit A: Description of Scope of Jurisdiction. If ABC is not enumerated in Commission Regulations 49.17(b)(1)(i)–(vi), it must attach the Determination Order received from the Commission pursuant to Commission Regulation 49.17(h). If ABC is enumerated in Commission Regulations 49.17(b)(1)(i)–(vi), it must attach a sufficiently detailed description of the scope of ABC’s jurisdiction as it relates to Swap Data maintained by SDRs. In both cases, the description of the scope of jurisdiction must include elements allowing SDRs to establish, without undue obstacles, objective parameters for determining whether a particular Swap Data request falls within such scope of jurisdiction. Such elements could include legal entity identifiers of all jurisdictional entities and could also include unique product identifiers of all jurisdictional products or, if no CFTCapproved unique product identifier and product classification system is yet available, the internal product identifier or product description used by an SDR from which Swap Data is to be sought.] 36. Further amend part 49 by removing all references to ‘‘registered swap data repository’’, ‘‘Registered ■ VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 Swap Data Repository’’, and ‘‘registered swap data repositories’’, and adding in their place ‘‘swap data repository’’, ‘‘Swap Data Repository’’, and ‘‘swap data repositories’’, respectively, wherever they appear. Issued in Washington, DC, on September 24, 2020, by the Commission. Christopher Kirkpatrick, Secretary of the Commission. Note: The following appendices will not appear in the Code of Federal Regulations. Appendices to Amendments to Regulations Relating to Certain Swap Data Repository and Data 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 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. PO 00000 Frm 00252 Fmt 4701 Sfmt 4700 markets must be open and free, meaning transparency is a critical component of any reporting system. Price discovery requires robust public reporting that supplies market participants with the information they need to price trades, hedge risk, and supply liquidity. Today we double down on transparency, ensuring that public reporting of swap transactions is even more accurate and timely. In particular, our final rules adjust certain aspects of the Part 43 proposal’s block-trade 4 reporting rules to improve transparency in our markets. These changes have been carefully considered to enhance clarity, one of the CFTC’s core values. 5 Promoting clarity in our markets also demands that we, as an agency, have clear goals in mind. Today’s final swap data reporting rules reflect a hard look at the data we need and the data we collect, building on insights gleaned from our own analysis as well as feedback from market participants. The key point is that more data does not necessarily mean better information. Instead, the core of an effective data reporting system is focus. As Aesop reminds us, ‘‘Beware lest you lose the substance by grasping at the shadow.’’ 6 Today’s final swap data reporting rules place substance first, carefully tailoring our requirements to reach the data that really matters, while removing unnecessary burdens on our market participants. As Bill Gates once remarked, ‘‘My success, part of it certainly, is that I have focused in on a few things.’’ 7 So too are the final swap data reporting rules limited in number. The Part 45 Technical Specification, for example, streamlines hundreds of different data fields currently required by swap data repositories into 128 that truly advance the CFTC’s regulatory goals. This focus will simplify the data reporting process without undermining its effectiveness, thus fulfilling the CFTC’s strategic goal of enhancing the regulatory experience for market participants at home and abroad.8 That last point is worth highlighting: our final swap data reporting rules account for market participants both within and outside the United States. A diversity of market participants, some of whom reside beyond our borders and are accountable to foreign regulatory regimes, contribute to vibrant derivatives markets. But before today, inconsistent international rules meant some swap dealers were left to navigate what I have called ‘‘a byzantine maze of disparate data fields and reporting timetables’’ for the very same swap.9 While perfect alignment 4 The final rule’s definition of ‘‘block trade’’ is provided in regulation 43.2. 5 See CFTC Core Values, https://www.cftc.gov/ About/Mission/index.htm. 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. E:\FR\FM\25NOR2.SGM 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations may not be possible or even desirable, the final rules significantly harmonize reportable data fields, compliance timetables, and implementation requirements to advance our global markets. Doing so brings us closer to realizing the CFTC’s vision of being the global standard for sound derivatives regulation.10 Overview of the Swap Data Reporting Rules It is important to understand the specific function of each of the three swap data reporting rules, which together form the CFTC’s reporting system. First, Part 43 relates to the real-time public reporting of swap pricing and transaction data, which appears on the ‘‘public tape.’’ Swap dealers and other reporting parties supply Part 43 data to swap data repositories (SDRs), which then make the data public. Part 43 includes provisions relating to the treatment and public reporting of large notional trades (blocks), as well as the ‘‘capping’’ of swap trades that reach a certain notional amount. Second, Part 45 relates to the regulatory reporting of swap data to the CFTC by swap dealers and other covered entities. Part 45 data provides the CFTC with insight into the swaps markets to assist with regulatory oversight. A Technical Specification available on the CFTC’s website 11 includes data elements that are unique to CFTC reporting, as well as certain ‘‘Critical Data Elements,’’ which reflect longstanding efforts by the CFTC and other regulators to develop global guidance for swap data reporting.12 Finally, Part 49 requires data verification to help ensure that the data reported to SDRs and the CFTC in Parts 43 and 45 is accurate. The final Part 49 rule will provide enhanced and streamlined oversight of SDRs and data reporting generally. In particular, Part 49 will now require SDRs to have a mechanism by which reporting counterparties can access and verify the data for their open swaps held at the SDR. A reporting counterparty must compare the SDR data with the counterparty’s own books and records, correcting any data errors with the SDR. 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 10 See CFTC Vision Statement, available at https://www.cftc.gov/About/AboutThe Commission#:∼:text=CFTC%20Vision%20 Statement,standard%20for%20sound %20derivatives%20regulation. 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. VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 requires swap dealers to report uncleared margin data for the first time, enhancing the CFTC’s ability to ‘‘to monitor systemic risk accurately and to act quickly if cracks begin to appear in the system.’’ 14 As Justice Brandeis famously wrote in advocating for transparency in organizations, ‘‘sunlight is the best disinfectant.’’ 15 So too it is for financial markets: the better visibility the CFTC has into the uncleared swaps markets, the more effectively it can address what until now has been ‘‘a black box of potential systemic risk.’’ 16 Doubling Down on Transparency Justice Brandeis’s words also resonate across other areas of the final swap data reporting rules. The final swap data reporting rules enhance transparency to the public of pricing and trade data. 1. Blocks and Caps A critical aspect of the final Part 43 rule is the issue of block trades and dissemination delays. When the Part 43 proposal was issued, I noted that ‘‘[o]ne of the issues we are looking at closely is whether a 48-hour delay for block trade reporting is appropriate.’’ 17 I encouraged market participants to ‘‘provide comment letters and feedback concerning the treatment of block delays.’’ 18 Market participants responded with extensive feedback, much of which advocated for shorter delays in making block trade data publicly available. I agree with this view, and support a key change in the final Part 43 rule. Rather than apply the proposal’s uniform 48-hour dissemination delay on block trade reporting, the final rule returns to bespoke public reporting timeframes that consider liquidity, market depth, and other factors unique to specific categories of swaps. The result is shorter reporting delays for most block trades. The final Part 43 rule also changes the threshold for block trade treatment, raising the amount needed from a 50% to 67% notional calculation. It also increases the threshold for capping large notional trades from 67% to 75%. These changes will enhance market transparency by applying a stricter standard for blocks and caps, thereby enhancing public access to swap trading data. At the same time, the rule reflects serious consideration of how these thresholds are calculated, particularly for block trades. In excluding certain option trades and CDS trades around the roll months from the 67% notional threshold for blocks, the final rule helps ensure that dissemination delays have their desired effect of preventing front-running and similar disruptive activity. 2. Post-Priced and Prime-Broker Swaps The swaps market is highly complex, reflecting a nearly endless array of transaction structures. Part 43 takes these differences into account in setting forth the 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. 17 Tarbert, Proposal Statement, supra note 1, note 14. 18 Id. PO 00000 Frm 00253 Fmt 4701 Sfmt 4700 75673 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 19 Tarbert, Proposal Statement, supra note 1. Strategic Plan, supra note 7, at 7. 21 Tarbert, Proposal Statement, supra note 1. 22 Id. 20 CFTC E:\FR\FM\25NOR2.SGM 25NOR2 75674 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations reporting obligations that do not advance our statutory mandates. achieves the goal—data accuracy—with fewer costs and burdens.27 2. Regulatory Harmonization 4. Relief for End Users I have long said that if our derivatives markets are not working for agriculture, then they are not working at all.28 While swaps are often the purview of large financial institutions, they also provide critical 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 The swaps markets are integrated and global; our data rules must follow suit.23 To that end, the final Part 45 rule takes a sensible approach to aligning the CFTC’s data reporting fields with the standards set by international efforts. Swap data reporting is an area where harmonization simply makes sense. The costs of failing to harmonize are high, as swap dealers and other reporting parties must provide entirely different data sets to multiple regulators for the very same swap.24 A better approach is to conform swap data reporting requirements where possible. Data harmonization is not just good for market participants: it also advances the CFTC’s vision of being the global standard for sound derivatives regulation.25 The CFTC has a long history of leading international harmonization efforts in data reporting, including by serving as a co-chair of the Committee on Payments and Infrastructures and the International Organization of Securities Commissioners (CPMI–IOSCO) working group on critical data elements (CDE) in swap reporting.26 I am pleased to support a final Part 45 rule that advances these efforts by incorporating CDE fields that serve our regulatory goals. In addition to certain CDE fields, the final Part 45 rule also adopts other important features of the CPMI–IOSCO Technical Guidance, such as the use of a Unique Transaction Identifier (UTI) system in place of today’s Unique Swap Identifier (USI) system. This change will bring the CFTC’s swap data reporting system in closer alignment with those of other regulators, leading to better data sharing and lower burdens on market participants. Last, the costs of altering data reporting systems makes implementation timeframes especially important. To that effect, the CFTC has worked with ESMA to bring our jurisdictions’ swap data reporting compliance timetables into closer harmony, easing transitions to new reporting systems. 3. Verification and Error Correction The final Part 49 rule has changed since the proposal stage to facilitate easier verification of SDR data by swap dealers. Based on feedback we received, the final rule now requires SDRs to provide a mechanism for swap dealers and other reporting counterparties to access the SDR’s data for their open swaps to verify accuracy and address errors. This approach replaces a message-based system for error identification and correction, which would have produced significant implementation costs without improving error remediation. The final rule jbell on DSKJLSW7X2PROD with RULES2 23 See Tarbert, Proposal Statement, supra note 1. id. 25 See 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. 24 See VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 Conclusion The derivatives markets run on data. They will be even more reliant on it in the future, as digitization continues to sweep through society and industry. I am pleased to support the final rules under Parts 43, 45, and 49, which will help ensure that the CFTC’s swap data reporting systems are effective, efficient, and built to last. Appendix 3—Supporting Statement of Commissioner Brian Quintenz The Commodity Exchange Act (CEA) specifically directs the Commission to ensure that real-time public reporting requirements for swap transactions (i) do not identify the participants; (ii) specify the criteria for what constitutes a block trade and the appropriate time delay for reporting such block trades, and (iii) take into account whether public disclosure will materially reduce market liquidity.1 The Commission has long recognized the intrinsic tension between the policy goals of enhanced transparency versus market liquidity. In fact, in 2013, the Commission noted that the optimal point in this interplay between enhanced swap transaction transparency and the potential that, in certain circumstances, this enhanced transparency could reduce market liquidity ‘‘defies precision.’’ 2 I agree with the Commission that the ideal balance between transparency and liquidity is difficult to ascertain and necessarily requires not only robust data but also the exercise of reasoned 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 Committee Meeting (April 22, 2020), https:// www.cftc.gov/PressRoom/SpeechesTestimony/ tarbertstatement042220. 29 CFTC Strategic Plan, supra note 7, at 6. 1 CEA Section 2(a)(13)(E). 2 Procedures to Establish Appropriate Minimum Block Sizes for Large Notional Off-Facility Swaps and Block Trades, 78 FR 32866, 32917 (May 31, 2013). PO 00000 Frm 00254 Fmt 4701 Sfmt 4700 judgement, particularly in the swaps marketplace with a finite number of institutional investors trading hundreds of thousands of products, often by appointment. Unfortunately, I fear the balance struck in this rule misses that mark. The final rule before us today clearly favors transparency over market liquidity, with the sacrifice of the latter being particularly more acute given the nature of the swaps market. In this final rule, the Commission asserts that the increased transparency resulting from higher block trade thresholds and cap sizes will lead to increased competition, stimulate more trading, and enhance liquidity and pricing. That is wishful thinking, which is no basis upon which to predicate a final rule. As numerous commenters pointed out, this increased transparency comes directly at the expense of market liquidity, competitive pricing for end-users, and the ability of dealers to efficiently hedge their large swap transactions. While the Commission hopes the 67% block calculation will bring about the ample benefits it cites, I think the exact opposite is the most probable outcome. I remain unconvinced that the move from the 50% notional amount calculation for block sizes to the 67% notional amount calculation is necessary or appropriate. Unfortunately, the decision to retain the 67% calculation, which was adopted in 2013 but never implemented, was not seriously reconsidered in this rule. Instead, in the final rule, the Commission asserts that it ‘‘extensively analyzed the costs and benefits of the 50-percent threshold and 67-percent threshold when it adopted the phased-in approach’’ in 2013. Respectfully, I believe that statement drastically inflates the Commission’s prior analysis. I have no doubt the Commission ‘‘analyzed’’ the costs and benefits in 2013 to the best of its ability. However, the reality is that in 2013, as the Commission acknowledged in its own costbenefit analysis, ‘‘in a number of instances, the Commission lacks the data and information required to precisely estimate costs, owing to the fact that these markets do not yet exist or are not yet fully developed.’’ 3 In 2013, the Commission was just standing up its SEF trading regime, had not yet implemented its trade execution mandate, and had adopted interim time delays for all swaps—meaning that, in 2013 when it first adopted this proposal, no swap transaction data was publicly disseminated in real time. Seven years later, the Commission has a robust, competitive SEF trading framework and a successful real-time reporting regime that results in 87% of IRS trades and 82% of CDS trades being reported in real time. In light of the sea change that has occurred since 2013, I believe the Commission should have undertaken a comprehensive review of whether the transition to a 67% block trade threshold was appropriate. In my opinion, the fact that currently 87% of IRS and 82% of CDS trades are reported in real time is evidence that the transparency policy goals underlying the real-time reporting requirements have already been achieved. In 2013, the Commission, quoting directly from the Congressional Record, 3 Id. E:\FR\FM\25NOR2.SGM 25NOR2 jbell on DSKJLSW7X2PROD with RULES2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations noted that when it considered the benefits and effects of enhanced market transparency, the ‘‘guiding principle in setting appropriate block trade levels [is that] the vast majority of swap transactions should be exposed to the public market through exchange trading.’’ 4 The current block sizes have resulted in exactly that—the vast majority of trades being reported in real time. The final rule, acknowledging these impressively high percentages, nevertheless concludes that because less than half of total IRS and CDS notional amounts is reported in real time, additional trades should be forced into realtime reporting. I reach the exact opposite conclusion. By my logic, the 13% of IRS and 18% of CDS trades that currently receive a time delay represent roughly half of notional for those asset classes. In other words, these trades are huge. In my view, these trades are exactly the type of outsized transactions that Congress appropriately decided should receive a delay from real-time reporting. Despite my reservations, I am voting for the real-time reporting rule before the Commission today for several reasons. First, I worked hard to ensure that this final rule contains many significant improvements from the initial draft we were first presented, as well as the original proposal which I supported. For example, in order to make sure the CDS swap categories are representative, the Commission established additional categories for CDS with optionality. In addition, the Commission is also providing guidance that certain riskreduction exercises, which are not arm’s length transactions, are not publicly reportable swap transactions, and therefore should be excluded from the block size calculations. Second, while most of the changes to the part 43 rules will have a compliance period of 18 months, compliance with the new block and cap sizes will not be not be required until one year later, providing market participants with a 30-month compliance period and the Commission with an extra 12 months to revisit this issue with actual data analysis, as good government and wellreasoned public policy demands. This means that when any final block and cap sizes go into effect for the amended swap categories, it will be with the benefit of cleaner, more precise data resulting from our part 43 final rule improvements adopted today. It is my firm expectation that DMO staff will review the revised block trade sizes, in light of the new data, at that time to ensure they are appropriately calibrated for each swap category. In addition, as required by the rule, DMO will publish the revised block trade and cap sizes the month before they go effective. I am hopeful that with the benefit of time, cleaner data and public comment, the Commission can, if necessary, re-calibrate the minimum block sizes to ensure they strike the appropriate balance built into our statute between the liquidity needs of the market and transparency. To the extent market participants also have concerns about maintaining the current time delays for block 4 Id. at 32870 n.41 (quoting from the Congressional Record—Senate, S5902, S5922 (July 15, 2010) (emphasis added)). VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 trades given the move to the 67% calculation, I encourage them to reach out to DMO and my fellow Commissioners during the intervening 30-month window. That time frame is more than enough to further refine the reporting delays, as necessary, for the new swap categories based on sound data. Appendix 4—Concurring Statement of Commissioner Rostin Behnam I respectfully concur in the Commission’s amendments to its regulations regarding realtime public reporting, recordkeeping, and swap data repositories. The three rules being finalized together today are the culmination of a multi-year effort to streamline, simplify, 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. 1 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. PO 00000 Frm 00255 Fmt 4701 Sfmt 4700 75675 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 DoddFrank 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 67 U.S.C. 2(a)(13)(A). 7 Id. 87 97 U.S.C. 2(a)(13)(B). U.S.C. 2(a)(13)(C)(ii–iv). E:\FR\FM\25NOR2.SGM 25NOR2 75676 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations as we continue to work remotely is greatly appreciated. The final rules should improve data quality by eliminating duplication, removing alternative or adjunct reporting options, utilizing universal data elements and identifiers, and focusing on critical data elements. To the extent the Commission is moving forward with mandating a specific data standard for reporting swap data to swap data repositories (‘‘SDRs’’), and that the standard will be ISO 20022, I appreciate the Commission’s thorough discussion of its rationale in support of that decision. I also commend Commission staff for its demonstrated expertise in incorporating the mandate into the regulatory text in a manner that provides certainty while acknowledging that the chosen standard remains in development. The rules provide clear, reasonable and universally acceptable reporting deadlines that not only account for the minutiae of local holidays, but address the practicalities of common market practices such as allocation and compression exercises. I am especially pleased that the final rules require consistent application of rules across SDRs for the validation of both Part 43 and Part 45 data submitted by reporting counterparties. I believe the amendments to part 49 set forth a practical approach to ensuring SDRs can meet the statutory requirement to confirm the accuracy of swap data set forth in CEA section 21(c) 10 without incurring unreasonable burdens. I appreciate that the Commission considered and received comments regarding whether to require reporting counterparties to indicate whether a specific swap: (1) Was entered into for dealing purposes (as opposed to hedging, investing, or proprietary trading); and/or (2) needs not be considered in determining whether a person is a swap dealer or need not be counted towards a person’s de minimis threshold for purposes of determining swap dealer status under Commission regulations.11 While today’s rules may not be the appropriate means to acquire such information, I continue to believe that that the Commission’s ongoing surveillance for compliance with the swap dealer registration requirements could be enhanced through data collection and analysis. Thank you again to the staff who worked on these rules. I support the overall vision articulated in these several rules and am 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. jbell on DSKJLSW7X2PROD with RULES2 11 Commission VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 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. 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. Appendix 5—Statement of Commissioner Dan M. Berkovitz Price transparency fosters price competition and reduces the cost of hedging. In directing the Commission to adopt realtime public reporting regulations, the Congress stated ‘‘[t]he purpose of this section is to authorize the Commission to make swap transaction and pricing data available to the public in such form and at such times as the Commission determines appropriate to enhance price discovery.’’ 4 For real-time data to be useful for price discovery, SDRs must be able to report standardized, valid, and timely data. The reported data should also reflect the large majority of swaps executed within a particular swap category. The final Reporting Rules for part 43 address a number of infirmities in the current rules affecting the aggregation, validation, and timeliness of the data. They also provide pragmatic solutions to several specific reporting issues, such as the treatment of prime broker trades and post-priced swaps. Introduction I support today’s final rules amending the swap data reporting requirements in parts 43, 45, 46, and 49 of the Commission’s rules (the ‘‘Reporting Rules’’). The amended rules provide major improvements to the Commission’s swap data reporting requirements. They will increase the transparency of the swap markets, enhance the usability of the data, streamline the data collection process, and better align the Commission’s reporting requirements with international standards. The Commission must have accurate, timely, and standardized data to fulfill its customer protection, market integrity, and risk monitoring mandates in the Commodity Exchange Act (‘‘CEA’’).1 The 2008 financial crisis highlighted the systemic importance of global swap markets, and drew attention to the opacity of a market valued notionally in the trillions of dollars. Regulators such as the CFTC were unable to quickly ascertain the exposures of even the largest financial institutions in the United States. The absence of real-time public swap reporting contributed to uncertainty as to market liquidity and pricing. One of the primary goals of the Dodd-Frank Act is to improve swap market transparency through both realtime public reporting of swap transactions 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 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). 2 Dodd-Frank PO 00000 Frm 00256 Fmt 4701 Sfmt 4700 Part 43 Amendments (Real-time Public Reporting) Benefits of Real Time Public Reporting 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. 4 CEA E:\FR\FM\25NOR2.SGM section 2(13)(B) (emphasis added). 25NOR2 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 As described in the preamble, upon analysis of market data and consideration of the public comments, the Commission has concluded that the categorization of swap transactions and associated block sizes and time delay periods set forth in the final rule strikes an appropriate balance to achieve the statutory objectives of enhancing price discovery, not disclosing ‘‘the business transactions and market positions of any person,’’ preserving market liquidity, and providing appropriate time delays for block transactions. The final part 43 includes a mechanism for regularly reviewing swap transaction data to refine the block trade sizing and reporting delays as appropriate to maintain that balance. Consideration of Additional Information Going Forward I have consistently supported the use of the best available data to inform Commission rulemakings, and the periodic evaluation and updating of those rules, as new data becomes available. The preamble to the final rules for part 43 describes how available data, analytical studies, and public comments informed the Commission’s rulemaking. Following press reports about the contents of the final rule, the Commission recently has received comments from a number of market participants raising issues with the reported provisions in the final rule. These commenters have expressed concern that the reported reversion of the time delays for block trades to the provisions in the current regulations, together with the 67% threshold for block trades, will impair market liquidity, increase costs to market participants, and not achieve the Commission’s objectives of increasing price transparency and competitive trading of swaps. Many of these commenters have asked the Commission to delay the issuance of the final rule or to repropose the part 43 amendments for additional public comments. I do not believe it would be appropriate for the Commission to withhold the issuance of 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 VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 transparent, inclusive, and deliberative manner. Amended part 43 also provides a process for the Commission to regularly review new data as it becomes available and amend the block size thresholds and caps as appropriate. Cross Border Regulatory Arbitrage Risk The International Swaps and Derivatives Association, Inc. (‘‘ISDA’’) and the Securities Industry and Financial Markets Association (‘‘SIFMA’’) commented that higher block size thresholds may put swap execution facilities (‘‘SEFs’’) organized in the United States at a competitive disadvantage as compared to European trading platforms that provide different trading protocols and allow longer delays in swap trade reporting. SIFMA and ISDA commented that the higher block size thresholds might incentivize swap dealers to move at least a portion of their swap trading from United States SEFs to European trading platforms. They also noted that this regulatory arbitrage activity could apply to swaps that are subject to mandatory exchange trading. Importantly, European platforms allow a non-competitive single-quote trading mechanism for these swaps while U.S. SEFs are required to maintain more competitive request-for-quotes mechanisms from at least three parties. The three-quote requirement serves to fulfill important purposes delineated in the CEA to facilitate price discovery and promote fair competition. The migration of swap trading from SEFs to non-U.S. trading platforms to avoid U.S. trade execution and/or swap reporting requirements would diminish the liquidity in and transparency of U.S. markets, to the detriment of many U.S. swap market participants. Additionally, as the ISDA/ SIFMA comment letter notes, it would provide an unfair competitive advantage to non-U.S. trading platforms over SEFs registered with the CFTC, who are required to abide by CFTC regulations. Such migration would fragment the global swaps market and undermine U.S. swap markets.5 I have supported the Commission’s substituted compliance determinations for foreign swap trading platforms in non-U.S. markets where the foreign laws and regulations provide for comparable and comprehensive regulation. Substituted compliance recognizes the interests of 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 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. PO 00000 Frm 00257 Fmt 4701 Sfmt 4700 75677 constitute the type of fragmentation of the swaps markets that our cross-border regime was meant to mitigate. It also would undermine findings by the Commission that the non-U.S. platform is subject to regulation that is as comparable and comprehensive as U.S. regulation, or that the non-U.S. regime achieves a comparable outcome. The Commission should be vigilant to protect U.S. markets and market participants. The Commission should monitor swap data to identify whether any such migration from U.S. markets to overseas markets is occurring and respond, if necessary, to protect the U.S. swap markets. PART 45 (Swap Data Reporting), PART 46 (Pre-enactment and Transition Swaps), and PART 49 (Swap Data Repositories) Amendments I also support today’s final rules amending the swap data reporting, verification, and SDR registration requirements in parts 45, 46, and 49 of the Commission’s rules. These regulatory reporting rules will help ensure that reporting counterparties, including SDs, MSPs, designated contract markets (‘‘DCMs’’), SEFs, derivatives clearing organizations (‘‘DCOs’’), and others report accurate and timely swap data to SDRs. Swap data will also be subject to a periodic verification program requiring the cooperation of both SDRs and reporting counterparties. Collectively, the final rules create a comprehensive framework of swap data standards, reporting deadlines, and data validation and verification procedures for all reporting counterparties. The final rules simplify the swap data reports required in part 45, and organize them into two report types: (1) ‘‘Swap creation data’’ for new swaps; and (2) ‘‘swap continuation data’’ for changes to existing swaps.6 The final rules also extend the deadline for SDs, MSPs, SEFs, DCMs, and DCOs to submit these data sets to an SDR, from ‘‘as soon as technologically practicable’’ to the end of the next business day following the execution date (T+1). Off-facility swaps where the reporting counterparty is not an SD, MSP, or DCO must be reported no later than T+2 following the execution date. The amended reporting deadlines will result in a moderate time window where swap data may not be available to the Commission or other regulators with access to an SDR. However, it is likely that they will also improve the accuracy and reliability of data. Reporting parties will have more time to ensure that their data reports are complete and accurate before being transmitted to an SDR.7 The final rules in part 49 will also promote data accuracy through validation procedures 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. E:\FR\FM\25NOR2.SGM 25NOR2 75678 Federal Register / Vol. 85, No. 228 / Wednesday, November 25, 2020 / Rules and Regulations jbell on DSKJLSW7X2PROD with RULES2 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 VerDate Sep<11>2014 18:27 Nov 24, 2020 Jkt 253001 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 PO 00000 Frm 00258 Fmt 4701 Sfmt 9990 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. 2020–21570 Filed 11–24–20; 8:45 am] BILLING CODE 6351–01–P E:\FR\FM\25NOR2.SGM 25NOR2

Agencies

[Federal Register Volume 85, Number 228 (Wednesday, November 25, 2020)]
[Rules and Regulations]
[Pages 75601-75678]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-21570]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 43, 45, and 49

RIN 3038-AE32


Certain Swap Data Repository and Data 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 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

[[Page 75602]]

modify existing requirements for SDRs to establish policies and 
procedures to confirm the accuracy of swap data with both 
counterparties to a swap and require reporting counterparties to verify 
the accuracy of swap data pursuant to those SDR procedures. The 
amendments also update existing requirements related to corrections for 
data errors and certain provisions related to SDR governance.

DATES: Effective date: The effective date for this final rule is 
January 25, 2021.
    Compliance date: The compliance date for all amendments and 
additions under this final rule is May 25, 2022.

FOR FURTHER INFORMATION CONTACT: Benjamin DeMaria, Special Counsel, 
Division of Market Oversight, (202) 418-5988, [email protected]; 
Eliezer Mishory, Special Counsel, Division of Market Oversight, (202) 
418-5609, [email protected]; Israel Goodman, Special Counsel, Division 
of Market Oversight, (202) 418-6715, [email protected]; Mark Fajfar, 
Assistant General Counsel, Office of the General Counsel, (202) 418-
6636, [email protected]; and Gloria Clement, Senior Special Counsel, 
Office of the Chief Economist, (202) 418-5122, [email protected]; 
Commodity Futures Trading Commission, Three Lafayette Centre, 1151 21st 
Street NW, Washington, DC 20581.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Background
II. Amendments to Part 49
    A. Sec.  49.2--Definitions
    B. Sec.  49.3--Procedures for Registration
    C. Sec.  49.5--Equity Interest Transfers
    D. Sec.  49.6--Request for Transfer of Registration
    E. Sec.  49.9--Open Swaps Reports Provided to the Commission
    F. Sec.  49.10--Acceptance of Data
    G. Sec.  49.11--Verification of Swap Data Accuracy
    H. Sec.  49.12--Swap Data Repository Recordkeeping Requirements
    I. Sec.  49.13--Monitoring, Screening, and Analyzing Data
    J. Sec.  49.15--Real-Time Public Reporting by Swap Data 
Repositories
    K. Sec.  49.16--Privacy and Confidentiality Requirements of Swap 
Data Repositories
    L. Sec.  49.17--Access to SDR Data
    M. Sec.  49.18--Confidentiality Arrangement
    N. Sec.  49.20--Governance Arrangements (Core Principle 2)
    O. Sec.  49.22--Chief Compliance Officer
    P. Sec.  49.24--System Safeguards
    Q. Sec.  49.25--Financial Resources
    R. Sec.  49.26--Disclosure Requirements of Swap Data 
Repositories
    S. Sec.  49.28--Operating Hours of Swap Data Repositories
    T. Sec.  49.29--Information Relating to Swap Data Repository 
Compliance
    U. Sec.  49.30--Form and Manner of Reporting and Submitting 
Information to the Commission
    V. Sec.  49.31--Delegation of Authority to the Director of the 
Division of Market Oversight Relating to Certain Part 49 Matters
III. Amendments to Part 45
    A. Sec.  45.1--Definitions
    B. Sec.  45.2--Swap Recordkeeping
    C. Sec.  45.14--Correcting Errors in Swap Data and Verification 
of Swap Data Accuracy
IV. Amendments to Part 43
    Sec.  43.3--Method and Timing for Real-Time Public Reporting
    A. Sec.  43.3(e)--Correction of Errors
    B. Removal of Sec.  43.3(f) and (g)
V. Amendments to Part 23
    Sec.  23.204--Reports to Swap Data Repositories, and Sec.  
23.205--Real-Time Public Reporting
VI. Compliance Date
VII. Related Matters
    A. Regulatory Flexibility Act
    B. Paperwork Reduction Act
    C. Cost-Benefit Considerations
    D. Antitrust Considerations

I. Background

    Section 727 of the Dodd-Frank Act added section 2(a)(13)(G) to the 
Commodity Exchange Act (``CEA'' or ``Act''), which requires each swap--
whether cleared or uncleared--to be reported to an SDR,\1\ a type of 
registered entity created by section 728 of the Dodd-Frank Act.\2\ CEA 
section 21 \3\ requires each SDR to register with the Commission and 
directs the Commission to adopt rules governing SDRs.
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    \1\ Section 721 of the Dodd-Frank Act amended section 1a of the 
CEA to add the definition of SDR. See Dodd-Frank Wall Street Reform 
and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376 
(2010), available at https://www.gpo.gov/fdsys/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf. Pursuant to CEA section 1a(48), the term 
SDR 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. 
7 U.S.C. 1a(48).
    \2\ The Commission notes that there are currently three SDRs 
provisionally registered with the Commission: CME Inc., DTCC Data 
Repository (U.S.) LLC (``DDR''), and ICE Trade Vault, LLC (``ICE'').
    \3\ 7 U.S.C. 24a.
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    To register and maintain registration with the Commission, an SDR 
must comply with specific duties and core principles enumerated in CEA 
section 21 as well as other requirements that the Commission may 
prescribe by rule. In particular, CEA section 21(c) mandates that an 
SDR: (1) Accept data; (2) confirm with both counterparties the accuracy 
of submitted data; (3) maintain data according to standards prescribed 
by the Commission; (4) provide direct electronic access to the 
Commission or any designee of the Commission (including another 
registered entity); (5) provide public reporting of data in the form 
and frequency required by the Commission; (6) establish automated 
systems for monitoring, screening, and analyzing data (including the 
use of end-user clearing exemptions) at the direction of the 
Commission; (7) maintain data privacy; (8) make data available to other 
specified regulators, on a confidential basis, pursuant to CEA section 
8,\4\ upon request and after notifying the Commission; and (9) 
establish and maintain emergency and business continuity-disaster 
recovery (``BC-DR'') procedures. CEA section 21(f)(4)(C) further 
requires the Commission to establish additional duties for SDRs to 
minimize conflicts of interest, protect data, ensure compliance, and 
guarantee the safety and security of the SDR.\5\ CEA section 21(b) also 
directs the Commission to prescribe standards for data recordkeeping 
and reporting that apply to both registered entities and reporting 
counterparties.\6\
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    \4\ 7 U.S.C. 12(e).
    \5\ Pursuant to this provision, the Commission may develop one 
or more additional duties applicable to SDRs. 7 U.S.C. 24a(f)(4).
    \6\ See 7 U.S.C. 24a(b)(1)(B).
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    Part 49 of the Commission's regulations implements the requirements 
of CEA section 21.\7\ Part 49 sets forth the specific duties an SDR 
must comply with to be registered and maintain registration as an SDR, 
including requirements under Sec.  49.11 for an SDR to confirm the 
accuracy of data reported to the SDR.
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    \7\ Swap Data Repositories: Registration Standards, Duties and 
Core Principles, 76 FR 54538 (Sept. 1, 2011) (``Part 49 Adopting 
Release'').
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    Since the Commission adopted its part 49 regulations in 2011, 
Commission staff has led many efforts to evaluate and improve the 
reporting of swap data and its accuracy. Commission staff leads or 
participates in several international regulatory working groups 
concentrating on harmonization of data reporting. Commission staff's 
efforts have also included the formation of an interdivisional staff 
working group to identify, and make recommendations to resolve, 
reporting challenges associated with certain swap data recordkeeping 
and reporting provisions.\8\ The Commission has also requested comments 
from the public on reporting issues.\9\
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    \8\ See Press Release, CFTC to Form an Interdivisional Working 
Group to Review Regulatory Reporting (Jan. 21, 2014), available at 
http://www.cftc.gov/PressRoom/PressReleases/pr6837-14.
    \9\ See, e.g., Review of Swap Data Recordkeeping and Reporting 
Requirements, Request for Comment, 79 FR 16689 (Mar. 26, 2014).

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[[Page 75603]]

    Based on its efforts, the Commission determined that three 
conditions work in concert to achieve a higher degree of data accuracy: 
(i) SDR processes confirming the accuracy of data submitted; (ii) data 
reconciliation exercises by entities that reported data; and (iii) the 
prompt reporting of errors and omissions when discovered.\10\ With the 
goal of advancing in these three areas to improve data accuracy, 
Commission staff conducted a comprehensive review of swap reporting 
regulations and released the Roadmap to Achieve High Quality Swap Data 
(``Roadmap'').\11\ The Roadmap's overall goals were to improve the 
quality, accuracy, and completeness of swap data reported to the 
Commission, streamline swap data reporting, and clarify obligations for 
market participants.\12\ Within these overall goals, the Roadmap's SDR 
Operations Review aimed to assure a high degree of accuracy of swap 
data and swap transaction and pricing data,\13\ improve the clarity and 
consistency of regulations governing SDRs, and bolster the Commission's 
oversight of SDRs.
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    \10\ See id. at 16695.
    \11\ See CFTC 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/csl/17-33/download; Roadmap to Achieve High Quality 
Swap Data, available at http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/dmo_swapdataplan071017.pdf.
    \12\ See id. at 3 (describing the Commission's goals for the 
review of reporting regulations).
    \13\ See Roadmap at 6 (stating the Commission's intent to 
``Identify the most efficient and effective solution for swap 
counterparty(ies) to confirm the accuracy and completeness of data 
held in an SDR.'').
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    The Roadmap solicited public comment on how to improve data 
reporting and achieve the Commission's regulatory goals without 
imposing unnecessary burdens on market participants. Commission staff 
received numerous comments in response to the Roadmap that addressed 
data accuracy and confirmation of data reported to SDRs, among other 
subjects.\14\
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    \14\ These comment letters are available at https://comments.cftc.gov/PublicComments/CommentList.aspx?id=1824.
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    Based in part on these public comments and the Commission staff's 
review of these issues, the Commission issued a notice of proposed 
rulemaking (``Proposal'') on May 13, 2019 to address the Roadmap's SDR 
Operations Review goals.\15\ The Proposal was the first of three 
Roadmap rulemakings that together aim to achieve the Roadmap's overall 
goals.\16\
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    \15\ Certain Swap Data Repository and Data Reporting 
Requirements, 84 FR 21044 (May 13, 2019).
    \16\ The other two notices of proposed rulemakings are 
Amendments to the Real-Time Public Reporting Requirements, 85 FR 
21516 (April 17, 2020) and Swap Data Recordkeeping and Reporting 
Requirements, 85 FR 21578 (April 17, 2020).
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    In the Proposal, the Commission set forth a new swap data 
verification regime to replace existing requirements for swap data 
confirmation and proposed amendments to error correction requirements 
in parts 43, 45, and 49 of the Commission's regulations. The primary 
components of the proposed verification regime included: A requirement 
for an SDR to regularly distribute to reporting counterparties an open 
swaps report containing the data maintained by the SDR for a relevant 
reporting counterparty's open swaps; a requirement that a reporting 
counterparty reconcile the data in the open swaps reports with the 
reporting counterparty's own data; a requirement that a reporting 
counterparty provide the SDR with a verification of the data's accuracy 
or a notice of discrepancy; and a requirement that, in the event of a 
discrepancy, a reporting counterparty submit corrected data to the SDR 
within a specified time frame or, if it is unable to do so, inform 
Commission staff of the error, its scope, and the reporting 
counterparty's initial remediation plan.
    In this final rulemaking, the Commission has determined to adopt 
the amendments as proposed, with certain exceptions. The Commission has 
determined, based, in part, on public comments,\17\ not to adopt, or to 
adopt with modifications, certain elements of the Proposal relating to 
data verification and error correction. More specifically, the final 
rule eliminates the proposed requirement for an SDR to distribute open 
swaps reports to a reporting counterparty, and the requirement for a 
counterparty to submit notices of verification or discrepancy in 
response.
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    \17\ The Commission received 25 responsive comment letters 
addressing the Proposal from the following entities: American Public 
Power Association/Edison Electric Institute/National Rural Electric 
Cooperative Association (``Joint Associations''), Chatham Financial 
(``Chatham''), Chris Barnard, CME Group Inc. (``CME''), CME Group 
Inc./DTCC Data Repository (U.S.) LLC/ICE Trade Vault LLC (``Joint 
SDR''), Coalition of Physical Energy Companies (``COPE''), 
Commercial Energy Working Group (``CEWG''), Credit Suisse (``CS''), 
Data Coalition, DTCC Data Repository (U.S.) LLC (``DDR''), Eurex 
Clearing AG (``Eurex''), Federal Home Loan Mortgage Corporation 
(``Freddie Mac''), Futures Industry Association August 2019 letter 
(``FIA August''), Futures Industry Association May 2020 letter 
(``FIA May''), Global Financial Markets Association (``GFMA''), 
Global Legal Entity Identifier Foundation (``GLEIF''), ICE Clear 
Credit LLC/ICE Clear Europe Limited (``ICE Clear''), ICE Trade Vault 
(``ICE TV''), IHS Markit (``Markit''), Institute for Agriculture and 
Trade Policy (``IATP''), International Swaps and Derivatives 
Association, Inc./Securities Industry and Financial Markets 
Association (``ISDA/SIFMA''), Investment Company Institute 
(``ICI''), LCH Ltd/LCH SA (``LCH''), Natural Gas Supply Association 
(``NGSA''), and Prudential Global Funding LLC (``Prudential'').
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    Instead, under the final rules, an SDR must provide a mechanism for 
a reporting counterparty to access swap data maintained by the SDR for 
the reporting counterparty's open swaps. Further, the final rules 
require a reporting counterparty to verify the SDR's data by using the 
mechanism provided by the SDR to compare the swap data for open swaps 
maintained by the SDR with the reporting counterparty's own books and 
records for the swap data, and to submit corrected swap data, if 
necessary, to the SDR. The reporting counterparty must perform the 
verification at specified intervals and maintain a verification log 
that sets forth any errors discovered and corrections made by the 
reporting counterparty. The final rule also extends the time frame 
within which a reporting counterparty must correct an error or notify 
the Commission.
    The Proposal also included various amendments and new regulations 
aimed at eliminating unduly burdensome requirements, streamlining and 
consolidating the provisions of part 49 and other Commission 
regulations applicable to SDRs, and enhancing the Commission's ability 
to fulfill its oversight obligations with respect to SDRs. The 
Commission is generally adopting those rules as proposed, with limited 
modifications in some cases to address public comments. Additionally, 
for the reasons discussed below, the Commission has determined not to 
finalize at this time its proposed amendments to Sec.  49.13 and Sec.  
49.22 and its proposed additions to part 23.
    Where possible, in developing the Proposal and in adopting final 
rules as set forth herein, the Commission has taken into consideration 
certain pertinent rules adopted by other regulators, including the 
European Securities and Markets Authority and the U.S. Securities and 
Exchange Commission (``SEC''). This is particularly the case for the 
SEC's regulations relating to the registration requirements, duties, 
and core principles applicable to security-based swap data repositories 
(``SBSDRs'') \18\ and reporting requirements for security-based swaps 
(``SBSs'') set forth in Regulation SBSR (``Regulation

[[Page 75604]]

SBSR'').\19\ The Commission notes that there are similarities between 
the regulatory framework for SBSDRs and the SDR regulations that are 
the subject of this final rulemaking. Finally, the Commission notes 
that this final rulemaking incorporates lessons learned from the 
undertakings described above and the best practices of the 
international regulatory community.
---------------------------------------------------------------------------

    \18\ See generally Security-Based Swap Data Repository 
Registration, Duties and Core Principles, 80 FR 11438 (Mar. 19, 
2015). The SEC adopted Rules 13n-1 through 13n-12 (17 CFR 240.13n-1 
through 240.13n-12) under the Securities Exchange Act of 1934 
(``Exchange Act'') relating to the registration and operation of 
SBSDRs.
    \19\ See generally Regulation SBSR--Reporting and Dissemination 
of Security-Based Swap Information, 80 FR 14740 (Mar. 19, 2015). The 
SEC adopted Regulation SBSR (Rules 900 through 909, 17 CFR 242.900 
through 909) to create a reporting framework for SBSs. The SEC has 
also adopted additional regulations regarding the reporting and 
dissemination of certain information related to SBSs. See generally 
81 FR 53546 (Aug. 12, 2016).
---------------------------------------------------------------------------

II. Amendments to Part 49

A. Sec.  49.2--Definitions

1. General Formatting Changes
    The Commission proposed a general formatting change to the 
definitions in Sec.  49.2(a). The defined terms in Sec.  49.2(a) 
currently are numbered and arranged in alphabetical order. The 
Commission proposed to remove the numbering while still arranging the 
terms in Sec.  49.2(a) in alphabetical order. Eliminating the numbering 
of defined terms in Sec.  49.2(a) will reduce the need for the 
Commission to make conforming amendments to Sec.  49.2(a) and other 
regulations when it amends Sec.  49.2(a) in future rulemaking by adding 
or removing defined terms.\20\
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    \20\ The Office of the Federal Register prefers the solely 
alphabetical approach to definitions sections. See Office of the 
Federal Register, Document Drafting Handbook May 2017 Update, 
Revision 5, 2-31 (2017) (``Definitions. In sections or paragraphs 
containing only definitions, we recommend that you do not use 
paragraph designations if you list the terms in alphabetical 
order.'').
---------------------------------------------------------------------------

    The Commission did not receive any comments on the proposed 
formatting changes to Sec.  49.2(a). The Commission is adopting the 
formatting amendments to Sec.  49.2(a) as proposed, with non-
substantive editorial changes to conform the format to the current 
style conventions.
2. Non-Substantive Amendments to Definitions
    The Commission proposed non-substantive editorial and conforming 
amendments to certain definitions to provide clarity and for 
consistency with other Commission regulations.\21\ The Commission 
believes the proposed amendments are non-substantive and will increase 
clarity and consistency across the Commission's regulations. The 
comments were generally supportive of the Commission's efforts to 
streamline definitions and increase consistency.\22\ The Commission did 
not receive comments opposed to the proposed amendments described 
above. The Commission accordingly adopts these amended definitions as 
proposed.
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    \21\ Other than removing subsection numbering as discussed above 
in section II.A.1, the Commission did not propose any substantive 
changes to the definitions of ``affiliate,'' ``control,'' ``foreign 
regulator,'' ``independent perspective,'' ``position,'' or ``section 
8 material,'' as those terms are defined in current Sec.  49.2(a).
    \22\ See, e.g., IATP at 4-5.
---------------------------------------------------------------------------

    Specifically, the Commission adopts the following amendments to 
definitions in Sec.  49.2(a):
     Asset class: Modify the definition to conform the wording 
to the definition of ``asset class'' used in part 43.\23\
---------------------------------------------------------------------------

    \23\ See 17 CFR 43.2. 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.
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     Commercial use: Modify the definition to use active 
instead of passive voice, and to change ``use of swap data for 
regulatory purposes and/or responsibilities'' to ``use of SDR data for 
regulatory purposes and/or to perform its regulatory 
responsibilities.''
     Market participant: Change the term ``swaps execution 
facilities'' to ``swap execution facilities,'' to conform to CEA 
section 5h and other Commission regulations, and make the word 
``counterparties'' singular.
     Non-affiliated third party: Clarify paragraph (3) to 
identify ``a person jointly employed'' by an SDR and any affiliate.
     Person associated with a swap data repository: Clarify 
that paragraph (3) includes a ``jointly employed person.''
     Swap data: Modify the definition to more closely match the 
related definitions of ``SDR data'' and ``swap transaction and pricing 
data'' that are being added to Sec.  49.2(a) and to incorporate the 
requirements to provide swap data to the Commission pursuant to part 
49.
    The Commission also is removing the word ``capitalized'' from Sec.  
49.2(b), to reflect that most defined terms used in part 49 are not 
capitalized in the text of part 49.
    The Commission is also removing the term ``registered swap data 
repository'' from the definitions in Sec.  49.2. In the Proposal, the 
Commission explained that the term ``registered swap data repository'' 
is not needed in part 49 because the defined term ``swap data 
repository'' already exists in Sec.  1.3.\24\ The definition of ``swap 
data repository'' in Sec.  1.3 is identical to the definition contained 
in CEA section 1a(48).\25\ This definition of ``swap data repository'' 
therefore already applies, and would continue to apply, to part 49 and 
all other Commission regulations and, when combined with Sec.  
49.1,\26\ removes the need for a separate defined term for ``registered 
swap data repository.''
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    \24\ See 17 CFR 1.3. Swap data repository is defined as 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.
    \25\ See 7 U.S.C. 1a(48). 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.
    \26\ See 17 CFR 49.1. The provisions of part 49 apply to any 
swap data repository as defined under section 1a(48) of the CEA 
which is registered or is required to register as such with the 
Commission pursuant to Section 21(a) of the CEA.
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    The Commission further explained that the inclusion of the word 
``registered'' in ``registered swap data repository'' and the 
definition of the term \27\ also may create doubt whether the 
requirements of part 49 apply to entities that are in the process of 
registering as SDRs or are provisionally registered as SDRs under the 
requirements of Sec.  49.3(b).\28\ The requirements of part 49 apply to 
provisionally-registered SDRs and any entity seeking to become an SDR 
must comply with the same requirements in order to become a 
provisionally-registered or fully-registered SDR. Finally, the removal 
of the term ``registered swap data repository'' would increase 
consistency in terms within part 49 and would also increase consistency 
between part 49 and other Commission regulations, which overwhelmingly 
use the term ``swap data repository.'' The Commission emphasized that 
removing the defined term ``registered swap data repository'' is a non-
substantive amendment that would not in any way modify the requirements 
applicable to current or future SDRs.
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    \27\ See 17 CFR 49.2(a)(11). Registered swap data repository 
means a swap data repository that is registered under section 21 of 
the CEA.
    \28\ See 17 CFR 49.3(b) (creating standards for granting 
provisional registration to an SDR).
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3. Additions and Substantive Amendments
a. Definition of As Soon as Technologically Practicable
    The Commission proposed to add the term ``as soon as 
technologically practicable'' as a defined term in Sec.  49.2. The 
Proposal defined the term to mean ``as soon as possible, taking into 
consideration the prevalence,

[[Page 75605]]

implementation, and use of technology by comparable market 
participants.'' This addition would standardize the meaning and use of 
this term across the Commission's swap reporting regulations and is 
intended to be identical to the term as it is used in parts 43 and 45 
of the Commission's regulations.\29\
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    \29\ See 17 CFR 43.2 (defining of as soon as technologically 
practicable). Part 45 of the Commission's regulations also uses the 
term ``as soon as technologically practicable'' in the same way as 
part 43 and as defined in proposed Sec.  49.2.
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    The Commission received several comments on the proposed 
definition. One comment generally supported standardizing definitions 
across the Commission's regulations.\30\ One comment recommended that 
the definition should be expanded to clarify what are considered 
comparable market participants.\31\ The Commission declines to adopt 
this recommendation. The Commission proposed to add the term ``as soon 
as technologically practicable'' merely to create consistency in 
defined terms across the swap reporting regulations, not to modify or 
interpret the term. The Commission also does not believe this final 
rulemaking is the appropriate venue to provide guidance on the 
parameters of comparable market participants, as any guidance would 
need to evaluate and impose standards for many different market 
participants and scenarios, without the opportunity for the affected 
market participants to comment on the guidance. The Commission also 
notes that the defined term has been in use through the application of 
the Commission's swap reporting regulations since the inception of swap 
reporting, without the need for additional guidance.
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    \30\ ISDA/SIFMA at 38.
    \31\ IATP at 4.
---------------------------------------------------------------------------

    The Commission is adopting the addition of ``as soon as 
technologically practicable'' as a defined term as proposed. The 
Commission notes that concomitant with adopting these final rules, the 
Commission is adopting final rules for Sec.  43.2 and Sec.  45.1, which 
both include the identical definition for this term.
b. Definition of Non-Swap Dealer/Major Swap Participant/Derivatives 
Clearing Organization Reporting Counterparty
    The Commission proposed to add the term ``non-swap dealer/major 
swap participant/derivatives clearing organization reporting 
counterparty'' as a defined term in Sec.  49.2. The Commission is not 
adopting this proposed definition.\32\ This defined term was intended 
to clarify the meaning of the term in part 49, specifically in proposed 
Sec.  49.11(b)(3). As discussed below in section II.G, the Commission 
is not finalizing proposed Sec.  49.11(b)(3) and this term does not 
otherwise appear in part 49. Accordingly, the inclusion of the defined 
term is not necessary and Commission is not adopting this proposed 
definition.
---------------------------------------------------------------------------

    \32\ The Proposal defined the term to mean a reporting 
counterparty that is not a swap dealer (``SD''), major swap 
participant (``MSP''), derivatives clearing organization (``DCO''), 
or exempt derivatives clearing organization.
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c. Definition of Open Swap
    The Commission proposed to add the term ``open swap'' as a defined 
term in Sec.  49.2. The Proposal defined the term to mean an executed 
swap transaction that has not reached maturity or the final contractual 
settlement date, and has not been exercised, closed out, or terminated. 
Under this definition, the term ``open swap'' refers to swaps that are 
often colloquially called ``alive.'' The Commission noted in the 
Proposal that the definition is intended to have the same function as 
the definitions of ``open swap'' \33\ and ``closed swap'' \34\ in part 
20.
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    \33\ See 17 CFR 20.1. An open swap or swaption means a swap or 
swaption that has not been closed.
    \34\ See 17 CFR 20.1. A closed swap or closed swaption means a 
swap or swaption that has been settled, exercised, closed out, or 
terminated.
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    The Commission received several comments on the proposed 
definition. One comment supported standardizing definitions across the 
Commission's rules, and supported the proposed definition for ``open 
swap.'' \35\ One comment noted that there is no market practice of 
reporting a ``final contractual settlement date.'' \36\ Instead, the 
comment stated, market practice is to report expiration, maturity date, 
or termination date. The comment further recommended that the 
definition be amended to allow for events to affect parts of a trade. 
The commenter recommended that the Commission define ``open swap'' to 
mean ``an executed swap transaction that has not reached maturity or 
expiration date, and has not been fully exercised, closed out, or 
terminated.'' \37\ The Commission agrees with this comment and is 
adopting the recommended changes to the definition, with a slight 
modification for grammar. Accordingly, final Sec.  49.2 includes the 
term ``open swap'' as a defined term, which means an executed swap 
transaction that has not reached maturity or expiration, and has not 
been fully exercised, closed out, or terminated.\38\ The Commission 
notes that, as with the definition in the Proposal, the final 
definition of ``open swap'' is intended to mean swaps, or the remaining 
portion of a swap, that would be commonly thought of as ``alive.''
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    \35\ DDR at 2.
    \36\ ISDA/SIFMA at 38.
    \37\ Id.
    \38\ As discussed below in section III.A, the Commission is also 
adding an identical definition for ``open swap'' to part 45 of this 
chapter, in order to create consistency between parts 45 and 49 of 
the Commission's regulations and to accommodate the use of the term 
``open swap'' in part 45.
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d. Definition of Reporting Counterparty and the Removal of Reporting 
Entity
    The Commission proposed to add the term ``reporting counterparty'' 
as a defined term to Sec.  49.2. This term would mean the counterparty 
responsible for reporting SDR data to an SDR pursuant to part 43, 45, 
or 46 of the Commission's regulations. The Proposal explained that this 
would standardize its meaning and use across the Commission's swap 
reporting regulations. The Commission also proposed to remove the term 
``reporting entity'' from the definitions in Sec.  49.2 because it is 
no longer necessary with the addition of ``reporting counterparty'' as 
a defined term.\39\
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    \39\ See 17 CFR 49.2(a)(12) (defining reporting entity as 
entities that are required to report swap data to a registered swap 
data repository, which includes derivatives clearing organizations, 
swap dealers, major swap participants and certain non-swap dealer/
non-major swap participant counterparties).
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    Concomitant with the adoption of these final rules, the Commission 
also is adopting final rules amending Sec.  43.2 and Sec.  45.1. Those 
final rules both include a definition for the term ``reporting 
counterparty'' specific to part 43 and part 45, respectively. Current 
Sec.  46.1 also includes a definition for the term.\40\ The definitions 
of the term ``reporting counterparty'' in Sec. Sec.  43.2, 45.1, and 
46.1 are more narrow than the proposed definition in Sec.  49.2. While 
the definitions do not have identical wording, the defined terms have a 
standardized meaning that follows a consistent format and is 
appropriate for each context.
---------------------------------------------------------------------------

    \40\ 17 CFR 46.1.
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    The Commission notes that the reporting counterparty may not always 
be the entity reporting SDR data to the SDR, particularly for 
transactions executed on a swap execution facility (``SEF'') or 
designated contract market (``DCM''), but it is the counterparty 
responsible for the initial and/or subsequent SDR data reporting, 
pursuant to part 43, 45, or 46 of the Commission's regulations, as 
applicable to a particular swap. SEFs and DCMs are

[[Page 75606]]

the only entities not included in the proposed definition of 
``reporting counterparty'' that may have a responsibility to report 
data.
    The Commission did not receive any comments on the proposed 
definition of the term ``reporting counterparty'' and the related 
removal of the defined term ``reporting entity.'' The Commission is 
adopting these amendments as proposed, with minor, non-substantive 
editorial changes to conform the definition of ``reporting 
counterparty'' in Sec.  49.2 to the definitions in Sec. Sec.  43.2, 
45.1, and 46.1, as discussed above. Accordingly, final Sec.  49.2 
includes the term ``reporting counterparty'' as a defined term, which 
means the counterparty required to report SDR data pursuant to part 43, 
45, or 46 of 17 CFR chapter I. Final Sec.  49.2 no longer includes the 
term ``reporting entity'' as a defined term.
e. Definition of SDR Data
    The Commission proposed to add the term ``SDR data'' as a defined 
term in Sec.  49.2. The Proposal defined the term to 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 in the context. The Commission noted that in 
this context, ``disseminated'' would include an SDR making swap data 
available to the Commission as required by part 49.
    In the Proposal, the Commission noted that the proposed definition 
of ``SDR data'' would include multiple sources of data reported to the 
SDR or disseminated by the SDR. For example, ``SDR data'' could refer 
to all data reported or disseminated pursuant to parts 43, 45, and 46. 
It may also refer to data reported or disseminated pursuant to parts 45 
and 46, depending on the context in which the term is used. This is in 
contrast with the proposed term ``swap transaction and pricing data,'' 
which, as defined in the Proposal, would only refer to data reported to 
an SDR or publicly disseminated by an SDR pursuant to part 43. It is 
also in contrast with the term ``swap data,'' which, as defined in the 
Proposal, would only refer to data reported to an SDR or made available 
to the Commission pursuant to part 45. In the Proposal, the Commission 
explained that consolidating references to the different types of data 
that must be reported to an SDR or disseminated by an SDR to the public 
or to the Commission into a single term would provide clarity 
throughout part 49.
    The Commission received several comments on the proposed addition 
of the defined term ``SDR data'' and the proposed definition in Sec.  
49.2. One comment generally supported the proposed amendment.\41\ One 
comment stated that the proposed definition limited ``SDR Data'' to 
information that is required to be reported or disseminated pursuant to 
``two or more of parts 43, 45, 46 and/or 49,'' which would exclude 
information that is required to be reported or disseminated pursuant to 
one of those parts. The Commenter recommended that the Commission 
define the term ``SDR Data'' to include information that is required to 
be reported or disseminated by one or more of parts 43, 45, 46, and/or 
49. The Commission disagrees with this comment and its interpretation 
of the term ``SDR data.'' By definition, ``SDR data'' will always 
include at least two sets of data or information that is required 
reported to an SDR or disseminated by an SDR. The definition is 
inclusive of all data being referenced, based on the context of the use 
of the term. When the Commission intends to refer to data that is 
reported or disseminated pursuant to only one of part 43, 45, 46, or 
49, it uses the term or reference that corresponds to that specific set 
of data, for example ``swap transaction and pricing data'' for part 43-
related data and ``swap data'' for part 45-related data.
---------------------------------------------------------------------------

    \41\ ISDA/SIFMA at 41.
---------------------------------------------------------------------------

    The Commission is adopting the addition of the defined term ``SDR 
data'' to final Sec.  49.2, as proposed. Accordingly, final Sec.  49.2 
includes the defined term ``SDR data,'' which is defined to mean the 
specific data elements and information required to be reported to a 
swap data repository or disseminated by a swap data repository pursuant 
to two or more of parts 43, 45, 46, and/or 49 of 17 CFR chapter I, as 
applicable in the context.
f. Definition of SDR Information
    The Commission proposed to amend the existing definition of ``SDR 
information'' in Sec.  49.2 to add the clause ``related to the business 
of the swap data repository that is not SDR data'' to the end of the 
definition. This change clarifies that the scope of SDR information is 
limited to information that the SDR receives or maintains related to 
its business that is not the SDR data reported to or disseminated by 
the SDR. SDR information would include, for example, SDR policies and 
procedures created pursuant to part 49.\42\ The Commission did not 
receive comments on the proposed amendment and the Commission adopts 
the amendment as proposed.
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    \42\ This clarification is particularly relevant for the SDR 
recordkeeping obligations in the proposed amendments to Sec.  49.12, 
discussed below in section II.H.
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g. Definition of Swap Transaction and Pricing Data
    The Commission proposed to add ``swap transaction and pricing 
data'' as a defined term in Sec.  49.2 to increase consistency in 
terminology used in the Commission's swap reporting regulations. The 
Proposal defined the term to mean the specific data elements and 
information required to be reported to a swap data repository or 
publicly disseminated by a swap data repository pursuant to part 43 of 
this chapter, as applicable. Concomitant with adopting these final 
rules, the Commission is adopting final rules in Sec.  43.2 that add 
``swap transaction and pricing data'' as a defined term. As defined in 
final Sec.  43.2, the term means all data elements for a swap in 
appendix A of this part that are required to be reported or publicly 
disseminated pursuant to this part. In order to increase consistency 
throughout its rules, the Commission adopts the addition of the defined 
term ``swap transaction and pricing data'' and the definition in Sec.  
49.2 as proposed.
    One commenter stated that the definition of the term in Sec.  49.2 
should not include the clause ``or publicly disseminated by a swap data 
repository.'' \43\ The Commission does not agree with this comment 
because dissemination is included in the definition of the same term in 
final Sec.  43.2, and the term is being included in final Sec.  49.2 to 
increase consistency between Commission regulations. Moreover, to not 
include the public dissemination requirements would frustrate the 
purpose of adding the defined term by not allowing the term to be used 
in reference to an SDR's public dissemination responsibilities. The 
Commission believes that the specific context in which the term is used 
will make clear whether the Commission is referring to the requirements 
to report the data to an SDR, for an SDR to disseminate the data to the 
public, or both. Accordingly, final Sec.  49.2 includes ``swap 
transaction and pricing data'' as a defined term that means the 
specific data elements and information required to be reported to a 
swap data repository or publicly disseminated by a swap data repository 
pursuant to part 43 of 17 CFR chapter I, as applicable.
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    \43\ DDR at 2.
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B. Sec.  49.3--Procedures for Registration

    Section 49.3 sets forth the procedures and standard of approval for 
registration

[[Page 75607]]

as an SDR.\44\ Current Sec.  49.3(a)(1) requires a person seeking SDR 
registration to file an application on Form SDR.\45\ Form SDR consists 
of instructions, general questions and a list of exhibits required by 
the Commission in order to determine whether an applicant for SDR 
registration is able to comply with the SDR core principles and 
Commission regulations thereunder.\46\
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    \44\ 17 CFR 49.3. Form SDR is set forth in Appendix A to part 
49.
    \45\ 17 CFR 49.3(a)(1).
    \46\ 17 CFR 49.3(a)(2).
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    Existing Sec.  49.3(a)(5) requires an SDR to promptly file an 
amended Form SDR to update any information that becomes inaccurate 
before or after the SDR's application for registration is granted. In 
addition, the regulation requires an SDR to annually file an amendment 
on Form SDR within 60 days after the end of its fiscal year.\47\
---------------------------------------------------------------------------

    \47\ 17 CFR 49.3(a)(5).
---------------------------------------------------------------------------

    The Commission proposed to amend Sec.  49.3(a)(5) to eliminate the 
requirements for an SDR that has been granted registration under Sec.  
49.3(a) to: (i) file an amended Form SDR if any of the information 
therein becomes inaccurate, and (ii) annually file an amended Form 
SDR.\48\ Thus, proposed Sec.  49.3(a)(5) would only require an SDR to 
file an amended Form SDR to update information before the Commission 
grants it registration under Sec.  49.3(a). The Commission also 
proposed to make conforming amendments to the Form SDR and Sec.  
49.22(f)(2) \49\ to eliminate references to the annual filing of Form 
SDR.\50\
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    \48\ Proposal at 84 FR 21048 (May 13, 2019).
    \49\ 17 CFR 49.22(f)(2).
    \50\ Proposal at 84 FR 21048 (May 13, 2019).
---------------------------------------------------------------------------

    The Commission is adopting the amendments to Sec.  49.3(a)(5) and 
the conforming amendments to Form SDR and Sec.  49.22(f)(2) as proposed 
in part and not adopting the amendments as proposed in part. The 
Commission is adopting the removal of the requirement to file an annual 
amendment to Form SDR because the Commission believes the annual Form 
SDR filing requirement is unnecessary and is duplicative of the 
requirement to file an amended Form SDR if any of the information in 
the Form SDR becomes inaccurate.
    The Commission has, however, reconsidered the proposed removal of 
the requirement to file an amended Form SDR if any of the information 
in the Form SDR (including the Form SDR exhibits) becomes inaccurate 
and has determined not to finalize the proposed removal of this 
requirement. SDRs will continue to be required to file amendments to 
Form SDR as necessary after being granted registration under Sec.  
49.3(a). While the Commission stated in the Proposal that the 
Commission would have access to the information that would be updated 
in an amended Form SDR because an SDR would be required to file updates 
for some of the information with the Commission as a rule change under 
part 40 of the Commission's regulations and that, under proposed Sec.  
49.29, the Commission could require an SDR to file information 
demonstrating the SDR's compliance with its obligations under the CEA 
and Commission regulations,\51\ the Commission no longer believes these 
methods of obtaining access to updated Form SDR information are the 
most efficient or practicable methods.
---------------------------------------------------------------------------

    \51\ Id.
---------------------------------------------------------------------------

    Instead, the Commission believes that Commission staff would be 
more effectively alerted to changes to the information in Form SDR for 
compliance monitoring purposes by maintaining the existing requirement 
for SDRs to update any Form SDR information that is or that becomes 
inaccurate. The Commission also believes it would be more efficient for 
SDRs to continue to send the updated Form SDR information to the 
Commission as currently required, as opposed to the Commission 
requesting the SDRs to demonstrate compliance whenever the Commission 
needs to check whether the Form SDR information remains current. Under 
the proposed approach, for example, the Commission may need to require 
SDRs to provide an all-encompassing demonstration of compliance for all 
of the Form SDR information under Sec.  49.29, as opposed to the SDRs 
only updating Form SDR information that has changed, as the SDRs 
regularly do under the existing requirement, because the Commission 
will not be aware of what information may or may not have changed. The 
Commission is therefore not adopting the proposed removal of the 
requirement for an SDR that is registered under Sec.  49.3(a) to file 
an updated Form SDR when the information in its Form SDR is inaccurate 
or becomes inaccurate, and this existing requirement in Sec.  
49.3(a)(5) remains in effect.
    The Commission requested comment on all aspects of the proposed 
changes to Sec.  49.3(a)(5). Two comments supported the proposed 
amendments to Sec.  49.3(a)(5).\52\ One comment also suggested the 
Commission further amend the text of proposed Sec.  49.3(a)(5) to 
clarify that the requirement to file an amended Form SDR to update 
inaccurate information does not apply to an SDR provisionally 
registered under Sec.  49.3(b).\53\ Existing Sec.  49.3(b) \54\ 
provides that, upon request, the Commission may grant an applicant 
provisional registration as an SDR if, among other things, the 
applicant is in ``substantial compliance'' with the standard for 
approval for full SDR registration set forth in Sec.  49.3(a)(4). If 
granted, provisional registration expires on the earlier of: (i) The 
date the Commission grants or denies full registration of the SDR; or 
(ii) the date the Commission rescinds the SDR's provisional 
registration.\55\
---------------------------------------------------------------------------

    \52\ CME at 2 (``[T]he addition of Part 49.29 is a much more 
effective and efficient approach for the Commission to ensure it has 
the information it needs to ensure an SDR's compliance with the 
regulations''); DDR at 3.
    \53\ DDR at 3.
    \54\ 17 CFR 49.3(b).
    \55\ Id.
---------------------------------------------------------------------------

    One comment suggested that the Commission add the legal entity 
identifier (``LEI'') of the applicant into the Form SDR, stating that 
incorporating an applicant's LEI record in the form would make various 
information fields unnecessary, while making the information provided 
more standardized and accurate.\56\
---------------------------------------------------------------------------

    \56\ GLEIF at 1.
---------------------------------------------------------------------------

    As explained above, the Commission agrees with the comments that 
supported the removal of the annual Form SDR update requirement and the 
Commission disagrees with the comments supporting the removal of the 
requirement to update Form SDR when the information is inaccurate. The 
Commission also disagrees with the suggestion regarding provisionally-
registered SDRs. Final Sec.  49.3(a)(5), as adopted, requires a 
provisionally-registered SDR to file an amended Form SDR if information 
in the form becomes inaccurate. The Commission notes that provisional 
registration is an interim status for applicants for registration, and 
the accuracy of information in the Form SDR of a provisionally-
registered SDR is necessary for the Commission to make a determination 
regarding the SDR's application for full registration.
    The Commission is also declining to adopt the suggestion to use the 
LEI of the applicant instead of various data fields in the Form SDR. 
While there may be benefits to doing so, the Commission believes the 
current format is more useful to Commission staff in reviewing 
applications for registration by providing the relevant entity names 
directly, without the need to reference the information underlying an 
LEI.

[[Page 75608]]

C. Sec.  49.5--Equity Interest Transfers

    Section 49.5 sets forth requirements for an SDR that enters into an 
agreement involving the transfer of an equity interest of ten percent 
or more in the SDR.\57\ The Commission proposed various amendments to 
Sec.  49.5 to simplify and streamline the requirements of the 
regulation. The Commission is adopting the amendments to Sec.  49.5 as 
proposed. The Commission continues to believe, as stated in the 
Proposal, that the amendments to Sec.  49.5 will simplify and 
streamline the requirements of the regulation, and remove unnecessary 
burdens on SDRs while preserving the Commission's ability to obtain 
information regarding transfers of SDR equity interests.
---------------------------------------------------------------------------

    \57\ 17 CFR 49.5.
---------------------------------------------------------------------------

    Current Sec.  49.5(a) requires an SDR to (i) notify the Commission 
of the agreement no later than the business day following the date of 
the agreement and; (ii) amend any information that is no longer 
accurate on Form SDR.\58\ Current Sec.  49.5(b) sets forth various 
agreements, associated documents and information, and representations 
an SDR must provide the Commission in advance of the equity interest 
transfer.\59\ Current 49.5(c) provides that within two business days 
following the equity interest transfer, an SDR must file with the 
Commission a certification stating that the SDR is in compliance with 
CEA section 21 and Commission regulations adopted thereunder, stating 
whether any changes were made to the SDR's operations as a result of 
the transfer, and, if so, identifying such changes.\60\
---------------------------------------------------------------------------

    \58\ 17 CFR 49.5(a).
    \59\ 17 CFR 49.5(b).
    \60\ 17 CFR 49.5(c).
---------------------------------------------------------------------------

    The Commission is amending Sec.  49.5 to specify that the 
regulation applies to both direct and indirect transfers of ten percent 
or more of an equity interest in an SDR. As the Commission explained in 
the Proposal, indirect transfers of equity ownership (e.g., the 
transfer of an equity interest in a parent company of an SDR) also 
require Commission oversight of the SDR to address any compliance 
concerns that may arise.\61\ The Commission is also replacing the 
documentation and informational requirements in current Sec.  49.5(b) 
with a provision in Sec.  49.5(a) stating that the Commission may, upon 
receiving an equity transfer notification, request that the SDR provide 
supporting documentation for the transaction. The Commission believes 
reserving the authority to request supporting documentation rather than 
compelling specific production satisfies the Commission's need for 
information without placing unnecessary burdens on an SDR.
---------------------------------------------------------------------------

    \61\ Proposal at 84 FR 21048 (May 13, 2019).
---------------------------------------------------------------------------

    In addition, the Commission is amending Sec.  49.5 to extend the 
deadline by which an SDR must file an equity transfer notification and 
to specify that the SDR shall file the notice with the Secretary of the 
Commission and the Director of the Division of Market Oversight 
(``DMO'') via email. The Commission believes an SDR may need additional 
time to file the necessary documents, and ten business days provides 
greater flexibility without sacrificing the availability of information 
the Commission needs to conduct effective oversight of the SDR. The 
Commission also is removing the requirement for an SDR to amend 
information that is no longer accurate on Form SDR due to the equity 
interest transfer because the requirement is duplicative of other 
requirements.
    Finally, the Commission is amending Sec.  49.5(c) to simplify the 
certification and information requirements in the filing an SDR is 
required to make with the Commission following an equity interest 
transfer. The Commission believes these amendments provide the 
Commission with the pertinent information it needs to assess the impact 
of an equity interest transfer on the SDR's operations.
    The Commission requested public comment on all aspects of proposed 
Sec.  49.5. One comment supported the Commission's proposal to simplify 
Sec.  49.5, stating that current requirements of the regulation are 
overly burdensome, and reserving authority for the Commission to 
request supporting documentation, rather than compelling specific 
document production, would satisfy the Commission's need for 
information.\62\ The Commission agrees with this comment and is 
finalizing Sec.  49.5 as described.
---------------------------------------------------------------------------

    \62\ CME at 2-3.
---------------------------------------------------------------------------

D. Sec.  49.6--Request for Transfer of Registration

    The Commission proposed to amend Sec.  49.6 \63\ to clarify and 
streamline the process and procedures for the transfer of an SDR 
registration to a successor entity.\64\ The amendments include re-
titling the section ``Request for transfer of registration,'' to more 
accurately reflect the subject of the regulation.\65\ The Commission 
has determined to adopt the amendments to Sec.  49.6 as proposed. The 
Commission believes the amendments to Sec.  49.6 will simplify the 
process for requesting a transfer of SDR registration by providing 
procedures that focus on informing the Commission of changes relevant 
to the Commission's oversight responsibilities, as opposed to requiring 
the successor entity to file a Form SDR, which would likely duplicate 
most of the transferor's existing Form SDR. Further, the amendments to 
Sec.  49.6 provide the Commission with the information it needs in 
order to determine whether to approve a request for a transfer of an 
SDR registration.
---------------------------------------------------------------------------

    \63\ 17 CFR 49.6.
    \64\ Proposal at 84 FR 21049 (May 13, 2019).
    \65\ Id.
---------------------------------------------------------------------------

    Current Sec.  49.6(a) provides that, in the event of a corporate 
transaction that creates a new entity as which an SDR operates, the SDR 
must request a transfer of its registration no later than 30 days after 
the succession.\66\ Current Sec.  49.6(a) also specifies that the SDR 
registration shall be deemed to remain effective as the registration of 
the successor if the successor, within 30 days after such succession, 
files a Form SDR application for registration, and the predecessor 
files a request for vacation. Further, the SDR registration ceases to 
be effective 90 days after the application for registration on Form SDR 
is filed by the successor SDR.
---------------------------------------------------------------------------

    \66\ 17 CFR 49.6(a).
---------------------------------------------------------------------------

    Final Sec.  49.6(a) instead requires an SDR seeking to transfer its 
registration to a new legal entity as a result of a corporate change to 
file a request for approval of the transfer with the Secretary of the 
Commission in the form and manner specified by the Commission. Examples 
of such corporate changes may include, but are not limited to, re-
organizations, mergers, acquisitions, bankruptcy, or other similar 
events that result in the creation of a new legal entity for the SDR.
    Final Sec.  49.6(b) specifies that an SDR shall file a request for 
transfer of registration as soon as practicable prior to the 
anticipated corporate change.
    Final Sec.  49.6(c) sets forth the information that must be 
included in a request for transfer of registration, including, among 
other things, the underlying documentation that governs the corporate 
change, a description of the corporate change and its impact on the SDR 
and on the rights and obligations of market participants, governance 
documents of the transferee, and various representations by the 
transferee related to its ability to operate the SDR and comply with 
the Act and Commission regulations.
    Final Sec.  49.6(d) specifies that upon review of a request for 
transfer of registration, the Commission, as soon as practicable, shall 
issue an order either

[[Page 75609]]

approving or denying the request for transfer of registration.
    The Commission requested public comment on all aspects of proposed 
Sec.  49.6. One comment opposed the proposed amendments to Sec.  49.6, 
asserting that the amendments will add uncertainty into the transfer 
process by making a transfer contingent upon obtaining prior Commission 
approval without specifying a deadline by which the Commission must 
approve or deny a request for transfer.\67\
---------------------------------------------------------------------------

    \67\ CME at 3.
---------------------------------------------------------------------------

    The Commission has determined to adopt the amendments to Sec.  49.6 
as proposed. With respect to the comment, the Commission recognizes 
that corporation transactions and reorganizations that involve the 
transfer of an SDR registration may arise without significant notice, 
and require certainty and prompt action by regulators. The Commission 
similarly has an interest in facilitating such transfers in order to 
maintain the operation of SDRs while also ensuring compliance with the 
applicable statutory and regulatory requirements. To that end, the 
Commission believes it is important to apply the information and 
procedural requirements set forth in Sec.  49.6, as proposed and 
adopted, in order to enable the Commission and its staff to promptly 
address requests for transfer and to ensure that the transferee entity 
is fully capable of complying with the Commission's regulations for 
SDRs.

E. Sec.  49.9--Open Swaps Reports Provided to the Commission

    The Commission proposed to remove the text of existing Sec.  49.9 
\68\ and replace it with new requirements for SDRs to provide open 
swaps reports to the Commission.\69\ Existing Sec.  49.9 lists and 
briefly summarizes the duties of SDRs, with references to where those 
duties are found in other sections of part 49.\70\ The Commission 
believes existing Sec.  49.9 is superfluous because all of the SDR 
duties listed in Sec.  49.9 are also contained, in much greater detail, 
in the other sections of part 49. Removing existing Sec.  49.9 is a 
non-substantive amendment that does not affect the requirements for 
SDRs.
---------------------------------------------------------------------------

    \68\ 17 CFR 49.9.
    \69\ Proposal at 84 FR 21050 (May 13, 2019).
    \70\ 17 CFR 49.9. As discussed below in section II.Q, the 
Commission proposed conforming amendments to Sec.  49.25 to remove 
references to current Sec.  49.9.
---------------------------------------------------------------------------

    As part of the Commission's proposed new requirements in Sec.  49.9 
for SDRs to provide open swaps reports to the Commission,\71\ the 
Commission proposed renaming Sec.  49.9 ``Open swaps reports provided 
to the Commission'' and, as discussed above, proposed to add a new 
definition in Sec.  49.2 for the term ``open swap.'' \72\ The 
Commission received several comments on the proposed new requirements 
for open swaps reports under Sec.  49.9, as discussed below. The 
Commission has determined to adopt the amendments to Sec.  49.9 as 
proposed.
---------------------------------------------------------------------------

    \71\ Section 49.2, as proposed and as adopted in this final 
rulemaking, defines the term ``open swap'' to mean an executed swap 
transaction that has not reached maturity or expiration, and has not 
been fully exercised, closed out, or terminated.
    \72\ See section II.A above for a discussion of the definitions 
in final Sec.  49.2.
---------------------------------------------------------------------------

    Final Sec.  49.9(a) requires each SDR to provide the Commission 
with open swaps reports that contain an accurate reflection of the swap 
data maintained by the SDR for every swap data field required to be 
reported under part 45 of the Commission's regulations for every open 
swap, as of the time the SDR compiles the report. Open swaps reports 
must be organized by the unique identifier created pursuant to Sec.  
45.5 of the Commission's regulations that is associated with each open 
swap.
    SDRs currently send reports that are similar to the proposed open 
swaps reports to the Commission on a regular basis. The Commission 
currently uses these reports to produce a weekly swaps report that is 
made available to the public \73\ and for entity-netted notional 
calculations.\74\ The Commission also uses these reports to perform 
market risk and position calculations, and for additional market 
research projects. However, in formulating these reports, SDRs employ a 
variety of calculation approaches and differing formats, which reduces 
the utility of the data for the Commission. The Commission therefore 
proposed requiring each SDR to regularly provide the Commission with 
standardized open swaps reports containing accurate and up-to-date 
information. The Commission continues to believe it is necessary to 
require SDRs to provide open swaps reports and to require such reports 
to be standardized, in order to maximize their utility to the 
Commission and enhance the Commission's ability to perform its 
regulatory functions.
---------------------------------------------------------------------------

    \73\ The Commission's various public reports, including the 
weekly swaps reports, are available at http://www.cftc.gov/MarketReports/index.htm.
    \74\ See generally ``Introducing ENNs: A Measure of the Size of 
Interest Rate Swaps Markets,'' Jan. 2018, available at https://www.cftc.gov/sites/default/files/idc/groups/public/@economicanalysis/documents/file/oce_enns0118.pdf.
---------------------------------------------------------------------------

    Final Sec.  49.9(b) requires an SDR to transmit all open swaps 
reports to the Commission as instructed by the Commission. Such 
instructions may include, but are not limited to, the method, timing, 
and frequency of transmission, as well as the format of the swap data 
to be transmitted.\75\ Retaining the flexibility to determine these 
requirements, and the ability to modify them over time as necessary, 
allows the Commission to tailor the information that is required to be 
in the reports to meet the Commission's needs without imposing undue 
burdens on SDRs. As stated in the Proposal, the Commission intends to 
work with SDRs in formulating instructions pursuant to final Sec.  
49.9(b) and expects to provide a reasonable amount of time for SDRs to 
adjust their systems before any instructions regarding open swaps 
reports take effect. This collaborative process will allow the 
Commission's current practice of working with SDRs to implement changes 
to swaps reports to continue, which provides SDRs time to update their 
systems as needed.
---------------------------------------------------------------------------

    \75\ As discussed below in section II.V, proposed Sec.  49.31 
delegates to the Director of DMO the Commission's authority in 
proposed Sec.  49.9, including the authority to create instructions 
for transmitting open swaps reports to the Commission.
---------------------------------------------------------------------------

    The Commission requested comment on all aspects of proposed Sec.  
49.9. One comment generally supported standardizing the open swaps 
reports.\76\ Several comments addressed the Commission's discretion 
with respect to the transmission of open swaps reports under proposed 
Sec.  49.9(b). One comment stated that any revisions the Commission 
makes to the requirements for transmitting open swaps reports should 
not require revisions to reports provided by the SDR to reporting 
counterparties, which would increase costs for reporting 
counterparties.\77\ Likewise, the requirements should not result in 
reporting counterparties having to submit additional data, or to submit 
previously reported data in a different data format.\78\ One comment 
stated that the Commission should modify the proposed rule to include 
``reasonable constraints'' on the instruction process by amending the 
text of proposed Sec.  49.9(b) to include ``as soon as practicable, 
given the nature of the instructions and the swap data repository's 
circumstances'' at the end of the first sentence.\79\
---------------------------------------------------------------------------

    \76\ DDR at 3.
    \77\ ISDA/SIFMA at 39.
    \78\ Id.
    \79\ DDR at 3.
---------------------------------------------------------------------------

    The Commission is adopting Sec.  49.9 as proposed, with non-
substantive editorial changes for clarity. With regard to the comments 
on open swaps reports provided by SDRs to reporting counterparties, the 
Commission notes that, as described in section II.G below, final Sec.  
49.11 will not require SDRs to

[[Page 75610]]

provide open swaps reports to reporting counterparties as part of the 
swap data verification process, and therefore the comments are moot.
    The Commission declines to adopt the suggested revisions related to 
constraints, which would unnecessarily restrict the Commission's 
discretion to issue transmission instructions. The Commission 
reiterates its intent to work with the SDRs before creating or 
modifying any instructions pursuant to Sec.  49.9 and to provide a 
reasonable amount of time for SDRs to adjust their systems before any 
instructions take effect. The Commission's existing practice of 
collaborating with SDRs stems from the recognition that such 
collaboration will ultimately improve SDRs' ability to comply with 
their regulatory obligations and further the Commission's regulatory 
objectives.

F. Sec.  49.10--Acceptance of Data

    The Commission is adopting new Sec.  49.10(e) generally as 
proposed, with modifications and textual clarifications in response to 
the comments received. Final Sec.  49.10(e) complements the error 
correction requirements in other Commission regulations, including 
final Sec. Sec.  43.3(e) and 45.14(b), that apply to the entities that 
report SDR data to the SDRs. Each SEF, DCM, and reporting counterparty 
must correct errors in their SDR data by submitting complete and 
accurate SDR data to the relevant SDR.\80\ Final Sec.  49.10(e) is 
intended to ensure that SDRs correct errors in SDR data and disseminate 
corrected data as soon as possible.
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    \80\ See section IV below for a discussion of final Sec.  
43.3(e) (regarding swap transaction and pricing data) and section 
III.C below for a discussion of final Sec.  45.14 (regarding swap 
data).
---------------------------------------------------------------------------

    As it stated in the Proposal, the Commission believes that clearly 
delineating an SDR's obligations to receive and make corrections to SDR 
data, and to disseminate the corrected SDR data to the public and the 
Commission, as applicable, will further the Commission's goal of more 
accurate and complete SDR data being made available to the public and 
the Commission. The Commission believes that the steps required by 
Sec.  49.10(e) will also facilitate, and therefore encourage, 
compliance by SEFs, DCMs, and reporting counterparties with their 
regulatory obligation to correct SDR data. The Commission further 
believes proposed Sec.  49.10(e) is consistent with the current 
statutory and regulatory requirements for SDRs to correct errors and 
omissions.
    Final Sec.  49.10(e)(1) requires an SDR to accept corrections of 
errors and omissions \81\ reported to the SDR pursuant to part 43, 45, 
or 46 of the Commission's regulations. Final Sec.  49.10(e) specifies 
that the requirements of Sec.  49.10(e) apply to SDR data regardless of 
the state of the swap that is the subject such data, unless the record 
retention period for the SDR data under final Sec.  49.12(b)(2) has 
expired. Thus, final Sec.  49.10(e) requires an SDR to correct and 
disseminate SDR data for swaps that have matured or were otherwise 
terminated and are no longer open swaps, if such swaps are still within 
the required SDR data retention period. Final Sec.  49.10(e)(2) 
requires an SDR to record corrections as soon as technologically 
practicable after the SDR accepts the corrections. Final Sec.  
49.10(e)(3) requires an SDR to disseminate the corrected SDR data to 
the public and the Commission, as applicable, as soon as 
technologically practicable after the SDR records the correction to the 
SDR data. Lastly, final Sec.  49.10(e)(4) requires each SDR to 
establish, maintain, and enforce policies and procedures designed for 
the SDR to fulfill its responsibilities under Sec.  49.10(e).
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    \81\ The Commission notes that, as described below, final Sec.  
45.14 and final Sec.  43.3(e) do not use the word ``omission'' in 
the error correction requirements. The word ``omission'' is not 
included in those sections because the term ``error'' is defined to 
include all omissions in final Sec.  45.14(c) and final Sec.  
43.3(e)(4). The Commission is, however, using the word ``omission'' 
in final Sec.  49.10(e), because ``error'' is not defined in final 
part 49. The Commission emphasizes that this difference between the 
three sections is merely semantic and does not in any way change the 
SDRs' data correction requirements. All omissions of required SDR 
data are errors, and an SDR is required to correct, in accordance 
with final Sec.  49.10(e), all errors reported to the SDR, including 
errors that arise from omissions in SDR data reported to an SDR or 
the omission of all SDR data for a swap.
---------------------------------------------------------------------------

    One comment suggested that the final rule should clarify that the 
only obligation on SDRs under Sec.  49.10(e) is to accept, record, and 
disseminate corrections to SDR data.\82\ The Commission notes that this 
is the scope of proposed Sec.  49.10(e), and is the scope of final 
Sec.  49.10(e).
---------------------------------------------------------------------------

    \82\ Joint SDR at 9.
---------------------------------------------------------------------------

    The comment also stated that applying the requirements of proposed 
Sec.  49.10(e)(2) to SDR data ``regardless of the state of the swap'' 
will require SDRs to make SDR data available for corrections for an 
unlimited amount of time.\83\ The comment suggested that the Commission 
should instead limit the requirements in the regulation with respect to 
``dead swaps'' to the required SDR data recordkeeping retention 
period.\84\ The Commission agrees with this comment and final Sec.  
49.10(e)(1) provides that the rules in Sec.  49.10(e) apply only if 
``the record retention period under Sec.  49.12(b)(2) of this part has 
not expired as of the time the error correction is reported.''
---------------------------------------------------------------------------

    \83\ Id.
    \84\ Id.
---------------------------------------------------------------------------

    Finally, the comment stated that the Commission should make clear 
that an entity submitting SDR data corrections or previously omitted 
SDR data must comply with the then current technical specifications of 
the SDR and that an SDR is not required to make accommodations for data 
that is unable to comport with the then current technical 
specifications.\85\ The Commission does not agree with the 
recommendation that the regulation be revised to require error 
corrections to be made using the prevailing validations and technical 
specifications of the SDR. The Commission notes that final Sec.  
49.10(e) provides discretion to SDRs to establish, maintain, and 
enforce policies and procedures designed for the SDRs to fulfill their 
responsibilities under final Sec.  49.10(e), which includes the 
discretion to require error corrections to use prevailing validations 
and the SDR's technical specifications. Final Sec. Sec.  43.3(e) and 
45.14(a) contain companion requirements for market participants to 
conform to these SDR policies and procedures when correcting SDR data. 
The Commission believes that this discretion provides necessary 
flexibility to SDRs and market participants.
---------------------------------------------------------------------------

    \85\ Id. at 9-10.
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G. Sec.  49.11--Verification of Swap Data Accuracy

1. Background
    Section 21(c)(2) of the CEA requires SDRs to confirm submitted swap 
data.\86\ The Commission implemented this statutory requirement by 
promulgating current Sec.  49.11.\87\ Current Sec.  49.11(a) requires 
an SDR to establish policies and procedures to ensure the accuracy of 
swap data and other regulatory information reported to the SDR. Current 
Sec.  49.11(b) sets forth the general requirement that an SDR confirm 
the accuracy and completeness of all swap data submitted pursuant to 
part 45. The regulation then sets forth specific confirmation 
requirements for creation data in Sec.  49.11(b)(1) and for 
continuation data in Sec.  49.11(b)(2).\88\
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    \86\ See 7 U.S.C. 24a(c)(2) (providing that, among other duties, 
a swap data repository shall confirm with both counterparties to the 
swap the accuracy of the data that was submitted).
    \87\ See Part 49 Adopting Release at 54547.
    \88\ In both cases, the requirements vary depending on whether 
the SDR received the data directly from a counterparty or from a 
SEF, DCM, derivatives clearing organization (``DCO''), or third-
party service provider acting on behalf of the swap counterparty.

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[[Page 75611]]

    For swap creation data, if the swap data was submitted directly by 
a swap counterparty, such as an SD, MSP, or non-SD/MSP counterparty, an 
SDR is required to notify both counterparties to the swap and to 
receive from both counterparties acknowledgement of the accuracy of the 
swap data and corrections for any errors.\89\ However, because 
counterparties do not currently have a corollary obligation to respond 
to an SDR's notifications, SDRs have adopted rules based on the concept 
of negative affirmation: Reported swap data is presumed accurate and 
confirmed if a counterparty does not inform the SDR of errors or 
omissions or otherwise make modifications to a trade record for a 
certain period of time.\90\
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    \89\ See Sec.  49.11(b)(1)(i) (providing that an SDR has 
confirmed the accuracy of swap creation data that was submitted 
directly by a counterparty if the swap data repository has notified 
both counterparties of the data that was submitted and received from 
both counterparties acknowledgement of the accuracy of the swap data 
and corrections for any errors) and Sec.  49.11(b)(2)(i).
    \90\ See DTCC Data Repository (U.S.) LLC Rule 3.3.3.3 and ICE 
Trade Vault Rules 4.6 and 4.7.
---------------------------------------------------------------------------

    If the swap data was instead submitted by a SEF, DCM, DCO, or 
third-party service provider acting on behalf of a swap counterparty, 
the SDR must, among other things, provide both counterparties with a 
48-hour correction period after which a counterparty is assumed to have 
acknowledged the accuracy of the swap data.\91\ For swap continuation 
data, an SDR may rely on a 48-hour correction period regardless of the 
type of entity that submitted the swap data.\92\
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    \91\ Additional requirements include the following: (i) The SDR 
must have formed a reasonable belief that the swap data is accurate; 
and the swap data that was submitted, or any accompanying 
information, evidences that both counterparties agreed to the data. 
See 17 CFR 49.11(b)(1)(ii).
    \92\ See 17 CFR 49.11(b)(2)(ii).
---------------------------------------------------------------------------

    These provisions in existing Sec.  49.11 reflect the Commission's 
view in adopting the regulation that an SDR need not always 
affirmatively communicate with both counterparties to in order to 
confirm the accuracy of swap data.\93\ In the Proposal, the Commission 
stated that, based on the its experience with swap data submitted by 
SEFs, DCMs, DCOs, and third-party service providers, the current 
requirements of Sec.  49.11 have failed to ensure swap data accuracy 
and consistency, which has hampered the Commission's ability to carry 
out its regulatory responsibilities.\94\
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    \93\ See Part 49 Adopting Release at 54547 (describing the 
requirements of Sec.  49.11).
    \94\ See Proposal at 84 FR 21052 (May 13, 2019).
---------------------------------------------------------------------------

    As noted in the Proposal, the Commission previously raised these 
issues in the Roadmap and received many comments in response.\95\ As 
discussed in the Proposal, commenters generally held the view that SDRs 
are not able to confirm swap data with non-reporting counterparties; 
\96\ the obligation to confirm data accuracy should generally reside 
with the parties to the swap, not SDRs; \97\ and confirmation 
requirements for non-reporting counterparties are generally unnecessary 
and will not improve data accuracy.\98\
---------------------------------------------------------------------------

    \95\ See id.
    \96\ Id.
    \97\ Id.
    \98\ Id.
---------------------------------------------------------------------------

    Based on its experience with swap data reporting and the comments 
it received in response to the Roadmap, the Proposal set forth a new 
swap verification scheme for swap data.
2. Summary of the Final Rule
    The Commission is modifying its approach to verification in final 
Sec.  49.11, based on comments received on proposed Sec.  49.11. The 
Commission believes the verification process required by final Sec.  
49.11 is less burdensome and more flexible than the verification 
process set forth in the proposed regulation. As described in detail 
below, in order for SDRs to verify the accuracy and completeness of 
swap data, final Sec.  49.11 requires each SDR to provide reporting 
counterparties that are users of the SDR with a mechanism that allows a 
reporting counterparty to access the current swap data for all open 
swaps for which the reporting counterparty is serving as the reporting 
counterparty, in such a manner that allows the reporting counterparty 
to fulfill its own verification obligations under final Sec.  
45.14.\99\
---------------------------------------------------------------------------

    \99\ See section III.C below for a discussion of final Sec.  
45.14.
---------------------------------------------------------------------------

    This approach is similar to the requirements in proposed Sec.  
49.11 in many respects, particularly in that under final Sec.  49.11, 
SDRs are required to facilitate verification by reporting 
counterparties of all swap data for all open swaps on a regular basis. 
However, the Commission believes final Sec.  49.11 provides a less 
prescriptive and less burdensome method to achieve the Commission's 
goals related to swap data verification. In particular, final Sec.  
49.11 will not require the SDRs to create and send open swaps reports 
to reporting counterparties as proposed.\100\ Also, in place of the 
requirement that SDRs establish, maintain, and enforce policies and 
procedures reasonably designed for the SDR to successfully receive 
replies to open swaps reports from reporting counterparties in the form 
of a verification of data accuracy or notice of discrepancy, the SDR's 
policies and procedures will be required to address how the SDR will 
fulfill all of the requirements of Sec.  49.11, including how reporting 
counterparties and third-party service providers may successfully use 
the verification mechanism to fulfill the reporting counterparties' 
responsibilities under Sec.  45.14. Final Sec.  49.11 will also require 
reporting counterparties to perform verification on a less frequent 
basis than proposed, meaning that SDRs will likewise not be required to 
facilitate verification on as frequent a basis as proposed.
---------------------------------------------------------------------------

    \100\ The Commission is requiring SDRs to create and send open 
swaps reports to the Commission under final Sec.  49.9. See section 
II.E above for a discussion of final Sec.  49.9.
---------------------------------------------------------------------------

a. Sec.  49.11(a)
    The Commission adopts final Sec.  49.11(a) largely as proposed, 
with some non-substantive rearrangement of proposed Sec.  49.11(a) into 
final paragraphs Sec.  49.11(a) and (c). The first sentence of proposed 
Sec.  49.11(a) is being finalized as final Sec.  49.11(a). Final Sec.  
49.11(a) reiterates each SDR's statutory duty to verify the accuracy of 
swap data pursuant to CEA section 21(c)(2). The second sentence of 
proposed Sec.  49.11(a) is now included in final Sec.  49.11(c)(1), 
with non-substantive rewording to more clearly articulate the 
requirement for SDRs to establish, maintain, and enforce policies and 
procedures related to verification and the content requirements for the 
policies and procedures.
b. Sec.  49.11(b)(1)
    Final Sec.  49.11(b)(1) requires each SDR to provide a mechanism 
through which each reporting counterparty that is a user of the SDR can 
access all swap data the SDR maintains for each open swap for which the 
reporting counterparty serves as the reporting counterparty. The 
mechanism must allow sufficient access, provide sufficient information, 
and be in a form and manner to enable each reporting counterparty to 
perform swap data verification as required under Sec.  45.14 of this 
chapter. The Commission believes that, together with final Sec.  
45.14(b), final Sec.  49.11(b)(1) will create an effective verification 
process to help ensure that swap data maintained by SDRs is complete 
and accurate.
    The Commission notes that, similar to the communication 
requirements in proposed Sec.  49.11, it is not prescribing the form of 
mechanism that SDRs must provide in final Sec.  49.11(b)(1), beyond the 
data access, data scope, frequency, and confidentiality requirements 
contained in final Sec.  49.11(b). The Commission expects that SDRs and

[[Page 75612]]

reporting counterparties will be able to work together to devise the 
most effective and efficient verification mechanism, with particular 
attention to accommodating non-SD/MSP/DCO reporting counterparties that 
may have fewer resources to perform verification than their SD/MSP/DCO 
counterparts. The Commission is also aware that at least one SDR 
already offers a mechanism that allows counterparties to access their 
own swap data, which may be readily modified to meet the requirements 
of final Sec.  49.11(b).
c. Sec.  49.11(b)(2)
    The Commission adopts the substance of the Proposal in final Sec.  
49.11(b)(2) in regards to the scope of data that the SDRs must make 
available to reporting counterparties for verification. Final Sec.  
49.11(b)(2) provides that the swap data accessible through the 
mechanism must accurately reflect the most current swap data maintained 
by the SDR, as of the time the reporting counterparty accesses the swap 
data using the mechanism, for each data field that the reporting 
counterparty was required to report under part 45 for each of the 
reporting counterparty's open swaps for which it is serving as the 
reporting counterparty. Final Sec.  49.11(b)(2) only requires the 
mechanism to make available the then-current swap data for each of the 
data fields that the SDR maintains for the relevant open swaps. There 
is no requirement to include swap data contained in any particular 
messages from the reporting counterparty or any outdated swap data.
    The Commission notes again that it is not prescribing the 
particular method by which the mechanism grants access to all of the 
swap data as required, as long as the mechanism satisfies the 
requirements in final Sec.  49.11(b)(2), including the general 
requirement that the swap data accessible through the mechanism 
provides sufficient information to allow the reporting counterparties 
utilizing the mechanism to successfully perform their swap data 
verification responsibilities as required under final Sec.  45.14. The 
Commission expects that SDRs will work with reporting counterparties to 
devise the most efficient and effective method by which the mechanism 
will provide access to all of the required swap data, with particular 
attention to accommodating non-SD/MSP/DCO reporting counterparties.
    The Commission also notes that final Sec.  49.11(b)(2) references 
the limits on providing access to swap data that must be kept 
confidential under final Sec.  49.11(b)(3). The swap data access 
provided under final Sec.  49.11(b)(2) must not allow access to data 
that is required to be kept confidential, as described further below in 
the discussion of Sec.  49.11(b)(3).
d. 49.11(b)(3)
    Final Sec.  49.11(b)(3) adopts the proposed limits on access to 
swap data as part of verification for swap data that is required to be 
kept confidential from reporting counterparties under the Act or other 
Commission regulations. Notwithstanding the other requirements of final 
Sec.  49.11(b), final Sec.  49.11(b)(3) explicitly prohibits SDRs from 
allowing access to swap data that a reporting counterparty is otherwise 
prohibited to access. The Commission notes that the same confidential 
swap data is also excluded from the reporting counterparties' 
corresponding verification requirements in final Sec.  45.14(b).
    This confidentiality requirement is particularly relevant for 
counterparty identity information that is required to be kept 
confidential under final Sec.  49.17.\101\ Existing and final Sec.  
49.17(f) prohibit SDRs from allowing access to counterparty identifying 
information for certain anonymously-executed cleared swaps. Under the 
provisions of final Sec.  49.11(b)(3), nothing in final Sec.  49.11 
overrides the confidentiality requirements of Sec.  49.17, or any other 
confidentiality requirements of the Act or other Commission 
regulations. This information is also excluded from the verification 
requirements in the corresponding verification obligation rules in 
final Sec.  45.14(b).
---------------------------------------------------------------------------

    \101\ The Commission is finalizing a technical correction to 
Sec.  49.17(f) in this rulemaking, as described below in section 
II.L.
---------------------------------------------------------------------------

e. Sec.  49.11(b)(4)
    Final Sec.  49.11(b)(4) provides that the mechanism each SDR adopts 
under final Sec.  49.11(b) must allow sufficiently frequent access for 
reporting counterparties to perform the required swap data verification 
under Sec.  45.14(b). This minimum frequency is necessary so that 
reporting counterparties are able to access all of their relevant swap 
data every time they are required to perform verification under Sec.  
45.14(b), in order to help ensure that reporting counterparties perform 
a robust verification of all swap data for their relevant open swaps. 
Final Sec.  45.14(b) requires SD/MSP/DCO reporting counterparties to 
verify every 30 calendar days and requires non-SD/MSP/DCO reporting 
counterparties to verify once every calendar quarter, with at least two 
months between verifications.\102\
---------------------------------------------------------------------------

    \102\ See section III.C below for a discussion of the 
verification requirements for reporting counterparties under final 
Sec.  45.14(b).
---------------------------------------------------------------------------

    The Commission notes that the frequency requirement in final Sec.  
49.11(b)(4) is a minimum frequency standard. Nothing prohibits SDRs 
from allowing reporting counterparties to access swap data through the 
mechanism more frequently than required and nothing prohibits reporting 
counterparties from utilizing the mechanism to access their own swap 
data more frequently than is required.
f. Sec.  49.11(b)(5)
    Final Sec.  49.11(b)(5) provides requirements related to SDRs 
making swap data available to third-party service providers for 
verification purposes. As with other Commission regulations, reporting 
counterparties are permitted to utilize third-party service providers 
to perform verification, and the Commission believes that accommodating 
the use of diligent third-party services providers may increase the 
efficiency and effectiveness of the verification process.
    Accordingly, in order to accommodate the reporting counterparties' 
use of third-party service providers, final Sec.  49.11(b)(5) provides 
that an SDR will satisfy its verification requirements under final 
Sec.  49.11 by, after a reporting counterparty informs the SDR that the 
reporting counterparty will utilize a particular third-party service 
provider for verification purposes, providing the third-party service 
provider with the same access to the mechanism and the relevant swap 
data as the SDR is required to provide to the reporting counterparty.
    As part of this third-party service provider access, final Sec.  
49.11(b)(5) also provides that the third-party service provider access 
is in addition to (i.e., not instead of) the access for the relevant 
reporting counterparty. Each SDR must still grant the same required 
level of access to the mechanism and the relevant swap data to the 
reporting counterparty, regardless of whether a reporting counterparty 
utilizes a third-party service provider. The third-party service 
provider's access under final Sec.  49.11(b)(5) must also continue 
until the reporting counterparty informs the SDR that the third-party 
service provider should no longer have access to the mechanism and 
relevant swap data on the reporting counterparty's behalf. This 
requirement is necessary to ensure that the third-party service 
provider can provide services to the

[[Page 75613]]

reporting counterparty without interruption.
    Finally, Sec.  49.11(b)(5) requires the verification policies and 
procedures an SDR must create pursuant to final Sec.  49.11(c) to 
include instructions detailing how each reporting counterparty can 
successfully inform the SDR so that the SDR will grant or discontinue 
access for a third-party service provider at the reporting 
counterparty's instruction. This requirement is necessary to ensure 
that third-party service provider access for verification purposes is 
as efficient and seamless as possible. The Commission notes that these 
SDR policies and procedures are required to be publicly disclosed under 
final Sec.  49.26(j).\103\
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    \103\ See section II.R below for a discussion of final Sec.  
49.26(j).
---------------------------------------------------------------------------

g. Sec.  49.11(c)
    The Commission made several non-substantive organizational and 
editorial modifications in final Sec.  49.11(c), as compared to the 
Proposal. For example, as described above, the SDR verification 
policies and procedures requirement from proposed Sec.  49.11(a) is 
included in final Sec.  49.11(c). The wording in final Sec.  
49.11(c)(1) is changed slightly from proposed Sec.  49.11(a) for 
clarity purposes, but similarly requires SDRs to establish, maintain, 
and enforce policies and procedures that address how the swap data 
repository will fulfill all of the applicable requirements of final 
Sec.  49.11. The policies and procedures must also include instructions 
on how each reporting counterparty, or third-party service provider 
acting on behalf of a reporting counterparty, can successfully utilize 
the mechanism to access swap data in order to perform the reporting 
counterparty's verification responsibilities under final Sec.  
45.14(b). This requirement is necessary to ensure that reporting 
counterparties are clearly instructed on how to access the verification 
mechanism and their relevant swap data, in order to ensure that 
verification is as efficient and seamless as possible. The Commission 
notes that the companion verification requirements for reporting 
counterparties in final Sec.  45.14(b) require reporting counterparties 
to follow the relevant SDR policies and procedures when performing 
verification.\104\
---------------------------------------------------------------------------

    \104\ See section III.C for a discussion of the verification 
requirements for reporting counterparties under final Sec.  
45.14(b).
---------------------------------------------------------------------------

    Final Sec.  49.11(c)(2) sets forth the requirements for an SDR that 
amends its verification policies and procedures, which were previously 
set forth in proposed Sec.  49.11(d). Final Sec.  49.11(c)(2), like 
proposed Sec.  49.11(d), requires each SDR to comply with the 
requirements of part 40 of the Commission's regulations in adopting or 
amending the verification policies and procedures required under final 
Sec.  49.11(c)(1). The Commission notes that SDRs would be required to 
comply with part 40 when adopting or amending the verification policies 
and procedures regardless of whether this requirement is included in 
Sec.  49.11(c)(2).
3. Comments on the Proposed Rule
    The Commission received many comments on the verification approach 
in proposed Sec.  49.11. Many commenters did not distinguish their 
comments between the verification requirements proposed for SDRs under 
proposed Sec.  49.11 and the verification requirements proposed for 
reporting counterparties under proposed Sec.  45.14, but the Commission 
has organized the discussion between the two different final rules 
based on its best estimation of whether particular comments applied to 
one or both of the proposed sections. The discussion of comments 
relevant to final Sec.  49.11 is contained in this section, while the 
discussion of comments that pertain to the verification requirements 
for reporting counterparties is contained in the discussion of final 
Sec.  45.14(b), unless otherwise noted below.\105\
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    \105\ Id.
---------------------------------------------------------------------------

    Many comments on specific requirements of proposed Sec.  49.11 are 
now moot, because the Commission is not adopting the proposed 
requirements. For example, some commenters addressed particular aspects 
and mechanics of the proposed verification of open swaps reports and 
the messages the Proposal would require reporting counterparties to 
send to SDRs related to verification results.\106\ These comments are 
no longer applicable, because the Commission is not adopting the 
proposed requirement that SDRs provide open swaps reports to reporting 
counterparties or the companion requirement that reporting 
counterparties verify the data in such reports and send messages to 
SDRs related to verification results. The Commission acknowledges these 
comments on specific proposed requirements and thanks the commenters 
for submitting these comments, but these requirements are not included 
in the final rule.
---------------------------------------------------------------------------

    \106\ See, e.g., GFMA at 4; IATP at 5; ICE TV at 3-4; ISDA/SIFMA 
at 40, 43-44; Joint SDR at 2-7.
---------------------------------------------------------------------------

    Many comments were generally supportive of the Commission's efforts 
to improve the accuracy of data reported to and maintained by 
SDRs.\107\ The Commission agrees with the many commenters and market 
participants who support the Roadmap rulemakings to improve the quality 
of swap data, and reiterates the importance of improved data accuracy 
and completeness.
---------------------------------------------------------------------------

    \107\ See Freddie Mac at 1, 2; IATP at 1-5; Joint SDR at 1; 
Markit at 2.
---------------------------------------------------------------------------

    Along with the comments of general support, the Commission received 
many comments supporting specific requirements in proposed Sec.  49.11. 
Comments in particular supported limiting data verification to swap 
data,\108\ and excluding non-reporting counterparties from data 
verification requirements.\109\ The Commission agrees with these 
comments and is finalizing Sec.  49.11 with requirements that only 
apply verification to swap data and only require verification for 
reporting counterparties.
---------------------------------------------------------------------------

    \108\ ISDA/SIFMA at 39-41, 44.
    \109\ GFMA at 4, ISDA/SIFMA at 39, Joint SDR at 2.
---------------------------------------------------------------------------

    Commenters also suggested alternatives for the proposed approach to 
verification, including alternatives that helped form the basis of the 
revised verification requirements in final Sec.  49.11. Multiple 
comments suggested that the Commission adopt a more ``principles 
based'' approach to verification.\110\ As part of a more principles-
based approach, one comment suggested monthly verification for SDs and 
quarterly for non-SDs, while also recommending that SDRs or the 
Commission should be able to request evidence that verification was 
conducted as required.\111\ Another comment advocated for requiring 
reporting counterparties to implement procedures to periodically 
reconcile swaps data reported to SDRs.\112\ The Commission also 
received one comment related to alternatives to verification of 
accuracy and notice of discrepancy messaging, which recommended an 
obligation on reporting counterparties to maintain, and make available 
to the Commission upon request, evidence that verification was 
conducted and any necessary corrections were submitted to the SDR.\113\
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    \110\ CS at 3, FIA at 7-8, ISDA/SIFMA at 45.
    \111\ ISDA/SIFMA at 45.
    \112\ CS at 3.
    \113\ Joint SDR at 6-8.
---------------------------------------------------------------------------

    The Commission recognizes the comments that provided robust 
alternatives to the proposed verification requirements that also met 
the Commission need for swap data to be verified in a thorough and 
timely manner. The Commission is finalizing Sec.  49.11 with more 
principles-based requirements that incorporate each of these 
suggestions, including that reporting counterparties periodically

[[Page 75614]]

reconcile the open swap data maintained by SDRs with the open swap data 
in their own books and records; that verification occur on a monthly 
basis for SD reporting counterparties (though the Commission will also 
require monthly verification for MSPs and DCOs) and quarterly for other 
reporting counterparties; and that reporting counterparties maintain 
and make available to the Commission evidence that verification was 
conducted properly and any discovered corrections submitted to the 
relevant SDR(s).\114\
---------------------------------------------------------------------------

    \114\ See section III.C for a more thorough discussion of the 
verification requirements for reporting counterparties under final 
Sec.  45.14(b).
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    The Commission also received other comments addressing issues that 
have been incorporated into the final verification requirements. Though 
largely included with comments related to the proposed open swaps 
reports, multiple comments advocated for flexibility in the form and 
manner that SDRs and reporting counterparties perform verification, as 
these entities already have established methods for communicating swap 
data and other information.\115\ These comments on the proposed open 
swaps reports also recommended that verification only be required for 
swap data as current at the time of verification, as opposed to 
verification on every data message.\116\ Another comment also requested 
clarification that the required distribution of open swaps reports is a 
minimum, not a maximum, and that SDRs are able to provide open swaps 
reports more frequently than the minimum.\117\
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    \115\ GFMA at 5, ISDA/SIFMA at 40, Joint SDR at 6.
    \116\ ISDA/SIFMA at 40, Joint SDR at 6.
    \117\ Joint SDR at 6-7.
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    The Commission recognizes the suggestions included with these 
comments and agrees with the comments. The Commission originally 
proposed, and is also now adopting, verification requirements that 
provide SDRs with flexibility in implementing the verification 
requirements. Thus, final Sec.  49.11(b) intentionally does not 
prescribe the form and manner of the verification mechanism and allows 
SDRs to determine the means for reporting counterparties access to 
their relevant swap data. The Commission expects that SDRs and 
reporting counterparties will work together to devise the most 
efficient and effective mechanism that meets the specific verification 
requirements in final Sec. Sec.  49.11 and 45.14. The Commission also 
proposed, and is now adopting, requirements that only require the 
verification of up-to-date swap data, as opposed to verification of all 
messages. Final Sec.  49.11(b)(2) only requires SDRs to make the 
relevant ``most current'' swap data available to reporting 
counterparties, as opposed to every message regarding swap data. Though 
no longer related to open swaps reports, the Commission is also 
adopting verification timing requirements in Sec.  45.14(b) that serve 
as a minimum frequency requirement, not a maximum. As the Commission 
detailed above in the discussion of final Sec.  49.11(b)(4), the SDRs 
must make the verification mechanism available to the reporting 
counterparties at least as often as needed for the reporting 
counterparties to perform their verification responsibilities under 
final Sec.  45.14(b), but that nothing prevents the SDRs from providing 
proper access more frequently. The Commission anticipates that some 
SDRs may choose to provide access to the mechanism on a more-frequent, 
even potentially continuous, basis.
    The Commission also received a comment related to open swaps 
reports that observed that SDRs would not be able perform verification 
with reporting counterparties or third-party service providers that are 
not members of the SDR. The comment suggested that the Commission 
modify the verification requirement to limit an SDR's verification 
responsibilities to reporting counterparties and third-party service 
providers that are members of the SDR.\118\ The Commission agrees with 
this comment and notes that it would not be practical for an SDR to 
perform verification with reporting counterparties or third-party 
service providers that are not connected to the SDR. To address this, 
the Commission is adopting final Sec.  49.11(b)(1), which specifically 
requires an SDR to provide a verification mechanism that grants swap 
data access to each ``reporting counterparty that is a user of the swap 
data repository,'' as required under final Sec.  49.11(b). The 
Commission notes that final Sec.  49.11(b)(5) contains provisions 
related to access for a third-party service provider working on behalf 
of a reporting counterparty and that final Sec.  49.11(c) requires SDR 
verification policies and procedures to address how a third-party 
service provider can successfully utilize the SDR verification 
mechanism on behalf of a reporting counterparty.
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    \118\ Joint SDR at 4-5.
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    The Commission also received a number of comments that made 
suggestions that are not being accepted. In the context of open swaps 
reports, one comment suggested that the Commission should specify that 
verification timing requirements be clarified as ``business days'' and 
``business hours,'' as this would facilitate the SDRs including the 
date and time that an open swap report was sent.\119\ The Commission is 
including verification timing requirements for reporting counterparties 
in final Sec.  45.14(b), but these timing requirements are stated in 
terms of calendar days, calendar months, and calendar quarters. The 
Commission notes that the comment is now moot, as there will be no open 
swaps reports from SDRs to the reporting counterparties that would 
necessitate a timestamp, but the Commission also believes that the 
final use of calendar timing instead of business timing will not cause 
any issues in regards to reporting counterparties and SDRs performing 
verification and will provide consistent parameters for when 
verification must be performed. The use of calendar time allows the 
reporting counterparties to choose the date most convenient for them to 
accomplish regular verification without the potential confusion arising 
from business days shifting based on weekends and holidays.
---------------------------------------------------------------------------

    \119\ ISDA/SIFMA at 40.
---------------------------------------------------------------------------

    One comment suggested that the Commission should remove the 
requirement in proposed Sec.  49.11(d) that SDRs make a filing under 
part 40 of the Commission's regulations when changing their 
verification policies and procedures, asserting that such a requirement 
is unnecessary because reporting counterparties will be required to 
follow SDR verification procedures.\120\ The Commission disagrees and 
is adopting the requirement in final Sec.  49.11(c)(2). The Commission 
notes that the requirements of part 40 of the Commission's regulations 
would apply to the SDR verification policies and procedures regardless 
of whether this provision is included in final Sec.  49.11(c)(2), 
because the verification policies and procedures are ``rules'' for the 
purposes of part 40 of the Commission's regulations.\121\ The 
Commission also believes that requiring SDRs to comply with part 40 to 
update verification policies and procedures will help alert reporting 
counterparties and other market participants to when an SDR seeks to 
change its policies and procedures, which will help ensure compliance 
with the verification

[[Page 75615]]

policies and procedures and help prevent errors in the verification 
process.
---------------------------------------------------------------------------

    \120\ Joint SDR at 7.
    \121\ See 17 CFR 40.1(i) (defining ``rule'' for the purposes of 
part 40 of the Commission's regulations).
---------------------------------------------------------------------------

    The Commission also received multiple comments suggesting changes 
that would narrow the data fields subject to verification. One comment 
recommended that verification be limited to data fields related to the 
``economic terms'' of the trade only, with the Commission identifying 
which fields are included in the economic terms.\122\ Comments also 
recommended limiting the reported information to information that would 
improve the Commission's market surveillance capabilities and promote 
price transparency, while also limiting optional fields and fields that 
do not apply to the relevant swaps.\123\ One comment suggested the 
Commission clarify the duties relating to static data elements.\124\ 
Other comments also suggested streamlining data fields to only those 
necessary for the Commission's work and to harmonize data fields with 
foreign regulators, if possible,\125\ and clarifying the data 
fields.\126\
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    \122\ GFMA at 10-11, 13-14.
    \123\ Joint Associations at 4-10, NGSA at 4.
    \124\ Markit at 2-3.
    \125\ Eurex at 1-2, GFMA at 14, Joint Associations at 4-10.
    \126\ CEWG at 2-3.
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    As described in more detail in the discussion of verification 
requirements under final Sec.  45.14(b),\127\ the Commission disagrees 
with comments suggesting that the Commission adopt any verification 
requirement that would allow reporting counterparties to verify 
anything less than all swap data fields for all of the reporting 
counterparty's relevant open swaps. All swap data fields are important 
and are necessary for the Commission to successfully fulfill its 
regulatory responsibilities, which extend beyond performing robust 
market surveillance and promoting price transparency. The Commission is 
adopting verification requirements that require the reporting 
counterparties to verify every swap data field for all swap data for 
every one of a reporting counterparty's relevant open swaps, and is 
adopting the requirements in final Sec.  49.11(b) that will facilitate 
this by requiring SDRs to provide a mechanism that allows the reporting 
counterparties to verify every data field for all relevant swap data. 
This requirement includes all static data elements, as errors are still 
possible in swap data maintained by SDRs, even if it is intended to be 
static. The Commission also notes that streamlining, clarifying, and 
harmonizing data fields is one of the express purposes of the Roadmap 
rulemakings, and that this work on data fields is accomplished in a 
separate Roadmap rulemaking.\128\
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    \127\ See section III.C for a more thorough discussion of the 
verification requirements for reporting counterparties under final 
Sec.  45.14(b).
    \128\ See generally 85 FR 21578, et seq. (Apr. 17, 2020).
---------------------------------------------------------------------------

    The Commission received several comments suggesting that 
verification is unnecessary and that the Commission can instead rely on 
SDR swap data validation, standardized and harmonized swap data fields, 
and/or the swap data error corrections requirements to improve data 
quality.\129\
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    \129\ CEWG at 2-3, Chatham at 3, Eurex at 2, NGSA at 4, Joint 
Associations at 6-10, Joint SDR at 7-8.
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    As described in more detail in the discussion of verification 
requirements under final Sec.  45.14(b), the Commission disagrees with 
the suggestions that verification is unnecessary and that swap data 
validation, standardized swap data fields, and error correction would 
be sufficient to meet the Commission's data quality goals. While swap 
data validation and standardized data fields are valuable tools to 
prevent certain types of swap data errors, such as swap data being 
reported without required data, they do not address the same errors 
that swap data verification is intended to address. Swap data 
verification, which is designed to inform and trigger the swap data 
error correction process, is intended to address plausible but 
incorrect swap data that would not be identified by validation because 
the incorrect data meets the technical standards for the standardized 
fields, such as a swap being reported with a notional value of 
$1,000,000 instead of the correct $10,000,000. These errors would only 
be found, and the error correction requirement triggered, by a party to 
the swap reviewing the data after it has been reported and discovering 
the error(s), such as through the verification process. The Commission 
also notes that swap data validation and standardized data fields can 
only prevent errors in swap data that have not yet been reported, as 
opposed to swap data verification, which will be useful for finding 
undiscovered errors in swap data for open swaps that have already been 
reported.
    Through its experience administering the data reporting 
regulations, the Commission is also aware of many examples of 
significant swap data errors that would not have been prevented by swap 
data validations, and that, in the absence of an adequate verification 
requirement, persisted for long periods of time before being discovered 
and corrected. Based on this experience, the Commission determined that 
swap data validation, standardized data fields, and the error 
correction requirements are not sufficient to meet the Commission's 
data quality goals without the addition of swap data verification. As a 
result, the Commission is adopting final Sec.  49.11, and the companion 
requirements in final Sec.  45.14(b), in order to require a robust and 
effective verification process for SDRs and reporting counterparties 
that the Commission expects will help ensure significant improvements 
in swap data quality.

H. Sec.  49.12--Swap Data Repository Recordkeeping Requirements

    Section 49.12 sets forth recordkeeping requirements for SDRs.\130\ 
The Commission proposed to amend Sec.  49.12 to incorporate the 
recordkeeping requirements for SDRs in current Sec.  45.2(f) and (g) 
\131\ into final Sec.  49.12, and to resolve ambiguities and potential 
inconsistencies between the regulations.\132\ The Commission has 
determined to adopt the amendments to Sec. Sec.  49.12 and 45.2 as 
proposed, except for a technical change discussed below.
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    \130\ 17 CFR 49.12. Current Sec.  49.12 sets forth specific 
recordkeeping requirements and references the public reporting 
requirements and recordkeeping requirements for SDRs included in 
parts 43 and 45.
    \131\ 17 CFR 45.2(f) and (g).
    \132\ Proposal at 84 FR 21055 (May, 13, 2019). Consolidating 
these regulations in part 49 will reduce confusion that may arise 
from having separate SDR recordkeeping requirements in two different 
rules.
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    Current Sec.  49.12(a) requires an SDR to maintain its books and 
records in accordance with the recordkeeping requirements of part 45. 
The Commission proposed to amend Sec.  49.12(a) to incorporate the 
provisions of current Sec.  45.2(f) and to clarify that the requirement 
in final Sec.  49.12(a) that an SDR keep records applies to records of 
all activities relating to the business of the SDR, not just records of 
swap data reported to the SDR.\133\ Accordingly, as amended, final 
Sec.  49.12(a) requires an SDR to keep full, complete, and systematic 
records, together with all pertinent data and memoranda, of all 
activities relating to the business of the SDR, including, but not 
limited to, all SDR information and all SDR data that is reported to 
the SDR. The amendments to Sec.  49.12(a) do not impose new 
requirements on an SDR; rather, the amendments incorporate the 
currently-applicable requirements of Sec.  45.2(f).
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    \133\ Id. Current Sec.  49.12(a) applies to swap data required 
to be reported to the SDR, whereas Sec.  45.2(g) applies to records 
of all activities relating to the business of the SDR and all swap 
data reported to the SDR.

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[[Page 75616]]

    Current Sec.  49.12(b) requires an SDR to maintain swap data 
(including all historical positions) throughout the existence of the 
swap and for five years following the final termination of the swap, 
during which time the records must be readily accessible by the SDR, 
and available to the Commission via real-time electronic access; and in 
archival storage from which the data is retrievable by the SDR within 
three business days.\134\
---------------------------------------------------------------------------

    \134\ 17 CFR 49.12(b).
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    The Commission is amending Sec.  49.12(b) by incorporating the 
requirements of Sec.  45.2(g) into final Sec.  49.12(b). Thus, as 
amended, final Sec.  49.12(b) will: (i) Clarify that the requirements 
of the regulation apply to all records required to be kept by an SDR, 
not just swap data reported to an SDR,\135\ and (ii) incorporate the 
additional ten-year retention period set forth in current Sec.  
45.2(g)(2).\136\
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    \135\ Proposal at 84 FR 21055 (May 13, 2019). Current Sec.  
49.12(b) applies to swap data, whereas Sec.  45.2(g) applies to all 
records required to be kept by an SDR.
    \136\ Section 45.2(g)(2) provides that all records required to 
be kept by an SDR must be kept in archival storage for ten years 
after the initial 5-year retention period under Sec.  45.2(g)(1). 
Current Sec.  49.12(b) only sets forth the initial 5-year retention 
period.
---------------------------------------------------------------------------

    Final Sec.  49.12(b) sets forth separate recordkeeping requirements 
for SDR information in final Sec.  49.12(b)(1) and SDR data reported to 
the SDR in final Sec.  49.12(b)(2). Section 49.12(b)(1) requires an SDR 
to maintain all SDR information, including, but not limited to, all 
documents, policies, and procedures required to be kept by the Act and 
the Commission's regulations, correspondence, memoranda, papers, books, 
notices, accounts, and other such records made or received by the SDR 
in the course of its business. An SDR must maintain such information in 
accordance with Sec.  1.31 of the Commission's regulations.\137\
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    \137\ Section 1.31 of the Commission's regulations is the 
Commission's general recordkeeping provision, which requires, among 
other things, that any regulatory records that do not pertain to 
specific transactions and are not retained oral communications be 
kept for no less than five years from their creation date. See 17 
CFR 1.31(b)(3). As noted in the Proposal, current Sec.  49.12(b) and 
Sec.  45.2 use the existence of the swap as the basis for the record 
retention timeframes specified therein, but this offers no guidance 
on how long to keep a record of SDR information, such as SDR 
policies and procedures. See Proposal at 21056. Therefore, the 
Commission is clarify in Sec.  49.12(b)(1) that the record retention 
period for such records is the generally applicable retention period 
under Sec.  1.31 of the Commission's regulations.
---------------------------------------------------------------------------

    As amended, final Sec.  49.12(b)(2) requires an SDR to maintain all 
SDR data and timestamps reported to or created by the SDR, and all 
messages related to such reporting, throughout the existence of the 
swap that is the subject of the SDR data and for five years following 
final termination of the swap, during which time the records must be 
readily accessible by the SDR and available to the Commission via real-
time electronic access, and for a period of at least ten additional 
years in archival storage from which such records are retrievable by 
the SDR within three business days.\138\
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    \138\ The retention period under Sec.  49.12(b)(2) is the 
current requirement for SDR records retention under Sec.  45.2(g).
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    The amendments to Sec.  49.12(b) are also intended to help 
harmonize the Commission's regulations with the SEC's regulations.\139\ 
The SDR information listed in final Sec.  49.12(b)(1) largely matches 
the SEC's requirement for SBSDR recordkeeping \140\ and the retention 
provisions of Sec.  1.31 largely match the requirement for SBSDRs.\141\ 
Any SDR that also registers with the SEC as an SBSDR will have to 
comply with both final Sec.  49.12 and Sec.  240.13n-7, and therefore 
consistency between the recordkeeping provisions is particularly 
beneficial to such SDRs.
---------------------------------------------------------------------------

    \139\ The concept of separate recordkeeping requirements for 
information similar to SDR information and for SDR data reported to 
an SDR has already been adopted by the SEC in its regulations 
governing SBSDRs. See 17 CFR 240.13n-7(b) (listing recordkeeping 
requirements for SBSDRs); 17 CFR 240.13n-7(d) (excluding 
``transaction data and positions'' from the recordkeeping 
requirements and instead referring to 17 CFR 240.13n-5 for such 
recordkeeping).
    \140\ See 17 CFR 240.13n-7(b)(1). This rule provides that every 
security-based swap data repository shall keep and preserve at least 
one copy of all documents, including all documents and policies and 
procedures required by the Securities Exchange Act and the rules and 
regulations thereunder, correspondence, memoranda, papers, books, 
notices, accounts, and other such records as shall be made or 
received by it in the course of its business as such.
    \141\ Compare 17 CFR 1.31(b)(3) (providing that a records entity 
shall keep each regulatory record for a period of not less than five 
years from the date on which the record was created) and 17 CFR 
1.31(b)(4) (providing that a records entity shall keep regulatory 
records exclusively created and maintained on paper readily 
accessible for no less than two years, and shall keep electronic 
regulatory records readily accessible for the duration of the 
required record keeping period) with 17 CFR 240.13n-7(b)(2) 
(providing that every SBSDR shall keep all such documents for a 
period of not less than five years, the first two years in a place 
that is immediately available to representative of the Securities 
and Exchange Commission for inspection and examination).
---------------------------------------------------------------------------

    The Commission again notes that the amendments to Sec.  49.12(b) do 
not change the requirements for SDRs; they merely consolidate existing 
requirements set forth in current Sec.  45.2(f) and (g) into final 
Sec.  49.12.\142\
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    \142\ See 17 CFR 45.2(f) and (g). Though the term ``swap data'' 
is defined in Sec.  49.2(a) to mean the specific data elements and 
information set forth in 17 CFR part 45, the Commission notes that 
the term ``swap data'' is not currently defined in part 45. Current 
Sec.  45.2(f) requires the SDR to keep full, complete, and 
systematic records, together with all pertinent data and memoranda, 
of all activities related to the business of the swap data 
repository and all swap data reported to the swap data repository, 
as prescribed by the Commission. This expansive requirement for all 
pertinent data and memoranda for all activities related to the 
business of the swap data repository and all swap data reported to 
the swap data repository reflects that Sec.  45.2(f) requires an SDR 
to keep records of data from activities beyond reporting pursuant to 
part 45, including, for example, all of the required swap 
transaction and pricing data reporting pursuant to part 43. The 
``full, complete, and systematic records'' that must be kept for 
``all activities related to the business'' of the SDR also include 
all messages related to the reported data, including all messages 
sent from the SDR and to the SDR. This recordkeeping obligation on 
SDRs is analogous to recordkeeping obligations on DCMs, SEFs, and 
DCOs. See 17 CFR 38.950, 37.1001, and 39.20(a).
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    The Commission is amending existing Sec.  49.12(c) and renumbering 
it as Sec.  49.12(d).\143\ In place of existing Sec.  49.12(c), final 
Sec.  49.12(c) requires an SDR to create and maintain records of SDR 
validation errors and SDR data reporting errors and omissions. Final 
Sec.  49.12(c)(1) requires an SDR to create and maintain an accurate 
record of all reported SDR data that fails to satisfy the SDR's data 
validation procedures. The records must include, but are not be limited 
to, records of all of the SDR data reported to the SDR that failed to 
satisfy the SDR data validation procedures, all SDR validation errors, 
and all related messages and timestamps.
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    \143\ As discussed below, as part of the amendments to Sec.  
49.12, the Commission is removing current Sec.  49.12(d).
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    Final Sec.  49.12(c)(2) requires an SDR to create and maintain an 
accurate record of all SDR data errors and omissions reported to the 
SDR and all corrections disseminated by the SDR pursuant to parts 43, 
45, 46, and 49 of the Commission's regulations. Section 49.12(c)(2) 
also requires SDRs to make the records available to the Commission on 
request.
    The Commission believes SDRs already receive the data validation 
information specified in final Sec.  49.12(c) via regular interaction 
with SEFs, DCMs, and reporting counterparties. The Commission 
emphasizes that such data must be maintained in order to allow for 
assessments of reporting compliance, including the initial reporting 
and the correction of the SDR data.
    The Commission notes that while final Sec.  49.12(c) specifies 
recordkeeping requirements for SDR data validation errors and SDR data 
reporting errors, these requirements do not in any way limit the 
applicability of the recordkeeping requirements in final Sec.  49.12 to 
these records. Thus, since the records specified in final Sec.  
49.12(c) are

[[Page 75617]]

comprised of, or relate to, SDR data reported to an SDR, all records 
created and maintained by an SDR pursuant to final Sec.  49.12(c) are 
subject to the requirements of final Sec.  49.12(b)(2).
    Existing Sec.  49.12(d) requires an SDR to comply with the real 
time public reporting and recordkeeping requirements of existing Sec.  
49.15 and part 43. The Commission believes that existing Sec.  49.12(d) 
\144\ is redundant because its requirements that an SDR comply with the 
real time public reporting and recordkeeping requirements set forth in 
Sec.  49.15 and part 43 are also required by final Sec.  49.12(b)(2) 
and Sec.  49.15, as well as part 43.
---------------------------------------------------------------------------

    \144\ See 17 CFR 49.12(d) (providing that a registered swap data 
repository shall comply with the real time public reporting and 
recordkeeping requirements prescribed in Sec.  49.15 and in 17 CFR 
part 43).
---------------------------------------------------------------------------

    Accordingly, the Commission is moving the text of existing Sec.  
49.12(c) to final Sec.  49.12(d) and amending the regulation to provide 
that (i) all records required to be kept pursuant to part 49 must be 
open to inspection upon request by any representative of the Commission 
or any representative of the U.S. Department of Justice; and (ii) an 
SDR must produce any record required to be kept, created, or maintained 
by the SDR in accordance with Sec.  1.31 of the Commission's 
regulations.
    Finally, the Commission proposed a technical change to move the 
existing requirements of Sec.  49.12(e) to proposed Sec.  49.13.\145\ 
However, as discussed below, the Commission is not adopting the 
proposed amendments to Sec.  49.13 at this time. Therefore, the 
Commission is not moving existing Sec.  49.12(e) to Sec.  49.13.
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    \145\ Current Sec.  49.12(e) requires an SDR to establish 
policies and procedures to calculate positions for position limits 
and for any other purpose as required by the Commission.
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    The Commission requested comment on all aspects of proposed Sec.  
49.12.\146\
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    \146\ The Commission also invited specific comment on the 
archival storage requirements of current Sec.  45.2(g)(2) and 
proposed Sec.  49.12(b)(2). See Proposal at 21057.
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    One comment supported consolidating the SDR recordkeeping 
requirements in part 45 into part 49.\147\ Another comment stated that 
the requirement in proposed Sec.  49.12(b)(2) for an additional ten-
year retention period following a five-year period after termination of 
a swap is excessive.\148\ This comment recommended that the Commission 
replace the proposed requirements for record retention in proposed 
Sec.  49.12 with a seven-year retention period following final 
termination of the swap, during which time the records would be readily 
accessible by the SDR and available to the Commission.\149\
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    \147\ ISDA/SIFMA at 43.
    \148\ Joint SDR at 11.
    \149\ Id. Joint SDR also stated the Commission ``should 
harmonize the SDR retention periods with that of Europe and other 
Commission regulated entities such as [DCMs, DCOs and SEFs],'' and 
that a 7-year retention period ``gets closer to a harmonized global 
standard.'' Id.
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    The Commission has determined to adopt the amendments to Sec. Sec.  
49.12 and 45.2 as proposed, except the Commission is not adopting the 
technical change of moving Sec.  49.12(e) to Sec.  49.13, as discussed 
below in Section II.I.
    With regard to record retention period comments, the Commission 
notes that retention period in final Sec.  49.12(b)(2) is the current 
retention period applicable to SDRs, not a new requirement, and that 
SDRs currently have this unique ten-year retention period because they 
are the source of all SDR data for the public and the CFTC. Further, 
the Commission believes the existing 10-year retention period has 
functioned well and did not propose to amend the retention period. 
Accordingly, the Commission declines to shorten the retention period.

I. Sec.  49.13--Monitoring, Screening, and Analyzing Data

    Existing Sec.  49.13 implements CEA section 21(c)(5), which 
requires SDRs to, at the direction of the Commission, establish 
automated systems for monitoring, screening, and analyzing swap data, 
including compliance and frequency of end-user clearing exemption 
claims by individuals and affiliated entities.\150\ Existing Sec.  
49.13 requires SDRs to: (i) Monitor, screen, and analyze all swap data 
in their possession as the Commission may require, including for the 
purpose of any standing swap surveillance objectives that the 
Commission may establish as well as ad hoc requests; and (ii) develop 
systems and maintain sufficient resources as necessary to execute any 
monitoring, screening, or analyzing functions assigned by the 
Commission.\151\
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    \150\ 7 U.S.C. 24a(c)(5).
    \151\ See generally 17 CFR 49.13.
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    The Commission proposed to amend Sec.  49.13 to provide more detail 
on the monitoring, screening, and analyzing tasks that an SDR may be 
required to perform as directed by the Commission. The Commission also 
proposed to amend Sec.  49.13 to make clear that the requirements of 
proposed Sec.  49.13 apply to SDR data reported to the SDR pursuant to 
parts 43, 45, and 46. The Commission received a number of comments on 
the proposed rule, both supporting and recommending against its 
adoption.\152\
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    \152\ IATP generally supported the proposed rule. IATP at 7. 
IATP further provided recommendations and support for adopting 
specific requirements for SDRs, such as a requirement to produce a 
report regarding ``mortgage swaps risks of reporting 
counterparties'' that would be relevant to assessing climate-related 
financial risks, and to calculate positions for market participants. 
Id. at 8-9. ISDA/SIFMA recommended adopting a requirement that SDRs 
produce rejection statistics reports. ISDA/SIFMA at 45. Joint SDR 
generally supported adopting rules that provide more detail about 
the tasks that the Commission may require an SDR to perform. Joint 
SDR at 12. However, Joint SDR recommended against adopting the 
proposed rule, stating that the requirements in the proposed rule 
exceed those authorized by the Act, would impermissibly require the 
SDRs to perform regulatory functions, and that it would be 
impracticable for the SDRs to fulfill the proposed requirements for 
lack of sufficient data. Joint SDR at 12-15.
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    The Commission has determined not to make any amendments to Sec.  
49.13 at this time. The Commission believes it may benefit from further 
consideration and experience with swap data following the 
implementation of the requirements of part 49, as amended in this final 
rule, as well as the implementation of the significantly amended rules 
in part 45 that the Commission is adopting as final along with this 
final rule. The Commission may consider the proposed amendments to 
Sec.  49.13 in a future rulemaking.
    As part of the Proposal, the Commission also proposed a technical 
change that would move existing Sec.  49.15(c) to Sec.  49.13.\153\ The 
Commission also proposed to move the requirements of existing Sec.  
49.12(e) to Sec.  49.13. While moving existing Sec. Sec.  49.15(c) and 
49.12(e) to Sec.  49.13 is not a substantive amendment, the Commission 
has determined that it would be more efficient to defer these proposed 
amendments along with the other proposed changes to existing Sec.  
49.13, and is therefore not adopting these amendments as part of this 
final rulemaking. Thus, the current text of Sec.  49.13 will remain in 
effect after this rulemaking.
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    \153\ Existing Sec.  49.15(c) provides that an SDR must notify 
the Commission of any swap transaction for which the real-time swap 
data was not received by the SDR in accordance with 17 CFR part 43. 
In addition to moving existing Sec.  49.15(c) to Sec.  49.13, the 
Commission proposed to amend the regulation to similarly require an 
SDR to notify the Commission with regard to data not received by the 
SDR pursuant to parts 45 and 46.
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J. Sec.  49.15--Real-Time Public Reporting by Swap Data Repositories

    The Commission proposed to amend existing Sec.  49.15 to conform 
the regulation to the proposed amended definitions in Sec.  49.2. As 
discussed above, the Commission also proposed to

[[Page 75618]]

move existing Sec.  49.15(c) to proposed Sec.  49.13(c). Additionally, 
the Commission proposed to amend existing Sec.  49.15(a) and Sec.  
49.15(b) to remove the term ``swap data,'' which is defined in Sec.  
49.2 as part 45 data, and replace it with text clarifying that Sec.  
49.15 pertains to swap transaction and pricing data submitted to an SDR 
pursuant to part 43. These non-substantive amendments do not affect the 
existing requirements of Sec.  49.15.
    The Commission did not receive any comments on the proposed 
amendments to Sec.  49.15(b) and is adopting the amendments as 
proposed, with the exception of the proposed movement of existing Sec.  
49.15(c) to proposed Sec.  49.13(c).

K. Sec.  49.16--Privacy and Confidentiality Requirements of Swap Data 
Repositories

    The Commission proposed to amend existing Sec.  49.16 to conform 
the regulation to the proposed amendments to the definitions in Sec.  
49.2.\154\ Specifically, the Commission proposed to amend Sec.  
49.16(a)(1) to clarify that the policy and procedure requirements of 
Sec.  49.16 apply to SDR information and to any SDR data that is not 
swap transaction and pricing data disseminated under part 43.\155\ The 
requirements include that an SDR have policies and procedures to 
protect the privacy and confidentiality of any and all SDR information 
and all SDR data (except for swap transaction and pricing data 
disseminated under part 43) that the SDR shares with affiliates and 
non-affiliated third parties. The proposed amendments also conform the 
text of Sec.  49.16 with the removal of the term ``reporting entity'' 
and the amended definitions of ``SDR data'' and ``swap data'' in final 
Sec.  49.2. The amendments are non-substantive and do not affect the 
existing requirements or applicability of Sec.  49.16.
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    \154\ See section II.A above.
    \155\ Proposal at 21059.
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    The Commission did not receive any comments on the proposed 
conforming amendments to Sec.  49.16 and is adopting the amendments as 
proposed.

L. Sec.  49.17--Access to SDR Data

    Section 49.17 sets forth the requirements and conditions for an SDR 
to provide access to SDR data to the Commission, foreign and domestic 
regulators, and swap counterparties, among others.\156\ The Commission 
proposed to amend Sec.  49.17 to clarify some of the requirements in 
the regulation with respect to the Commission's access to SDR data. One 
commenter recommended revisions to the proposed amendments to Sec.  
49.17, as discussed below. The Commission has determined to adopt the 
amendments to Sec.  49.17 as proposed.
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    \156\ See generally 17 CFR 49.17.
---------------------------------------------------------------------------

    As discussed in the Proposal, the Commission believes the 
amendments to the definition of ``direct electronic access'' in final 
Sec.  49.17(b)(3) will provide additional flexibility to implement 
methods for data transfers from SDRs to the Commission, and may 
facilitate the use of advancing technology and more efficient means of 
direct electronic access for the Commission. The amendments also make 
clear that the Commission may decide to accept other methods of access, 
as long as the method is able to efficiently provide the Commission 
with real-time access to SDR data and scheduled SDR data transfers to 
the Commission.
1. Amendments to Sec.  49.17(b)--Definition of Direct Electronic Access
    Existing Sec.  49.17(c)(1) requires an SDR to provide ``direct 
electronic access,'' a term defined in existing Sec.  49.17(b)(3),\157\ 
to the Commission or the Commission's designee, including another 
registered entity, in order for the Commission to carry out its legal 
and statutory responsibilities under the Act.\158\ The Commission is 
amending the definition of ``direct electronic access'' in final Sec.  
49.17(b)(3) to mean an electronic system, platform, framework, or other 
technology that provides internet-based or other form of access to 
real-time SDR data that is acceptable to the Commission and also 
provides scheduled data transfers to Commission electronic systems. The 
amended definition expands the potential means by which an SDR may 
provide direct electronic access to include ``other technology'' and 
``other forms of access.'' \159\ The amendments are intended to provide 
greater flexibility to SDRs and the Commission by making clear that the 
Commission may accept other technology or other forms of access that 
are not internet-based, as long as the access to SDR data is real-time 
and provides for scheduled SDR data transfers to the Commission. The 
Commission believes innovation and advances in technology may provide 
alternative, more-efficient means for data transfer, and the amended 
regulation is intended to facilitate the use of such technology by SDRs 
and the Commission.
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    \157\ 17 CFR 49.17(b)(3).
    \158\ 17 CFR 49.17(c)(1).
    \159\ Current Sec.  49.17(b)(3) defines direct electronic access 
as an electronic system, platform or framework that provides 
internet or Web-based access to real-time swap transaction data and 
also provides scheduled data transfers to Commission electronic 
systems.
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    The revised definition of direct electronic access also adds a 
condition that the technology or form of access be ``acceptable to the 
Commission'' in order to clarify that any form of direct electronic 
access, including any new technology, must be approved by the 
Commission. As discussed below, the Commission anticipates working with 
SDRs to determine acceptable forms of direct electronic access, 
consistent with the Commission's current practice of coordinating and 
collaborating with SDRs to facilitate transfers of, and real-time 
access to, SDR data.
    Finally, the amended definition of ``direct electronic access'' 
replaces the phrase ``real-time swap transaction data'' \160\ with 
``real-time SDR data,'' to eliminate confusion and maintain consistency 
with the use of the term ``SDR data'' in other amended provisions in 
part 49.\161\ This non-substantive amendment is not intended to change 
the existing requirements or current SDR practice for providing the 
Commission with direct electronic access to SDR data.
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    \160\ 17 CFR 49.17(b)(3).
    \161\ The Commission notes that the phrase ``real-time'' is 
often used to reference swap transaction and pricing data that is 
publicly reported pursuant to part 43. In this instance, the term 
refers to direct electronic access requiring that SDR data be 
available in real time to the entity granted direct electronic 
access (i.e., the Commission or its designee).
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2. Amendments to Sec.  49.17(c)--Commission Access
    The Commission is amending Sec.  49.17(c) to incorporate the 
requirements of current Sec.  45.13(a),\162\ which relates to the 
requirements for an SDR to maintain and transmit data to the 
Commission, and to make additional clarifications in the regulation. 
The Commission is also making non-substantive edits to final Sec.  
49.17 to conform terms used in the section with the rest of the 
Commission's regulations (e.g., replacing ``swap data and SDR 
Information'' with ``SDR data and SDR Information''). The amendments 
are intended to consolidate other related requirements into final Sec.  
49.17(c) and to improve the regulation's clarity and

[[Page 75619]]

consistency with other Commission regulations.
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    \162\ While the amendments consolidate the requirements for 
Commission access to SDR data, the Commission did not propose to 
modify current Sec.  45.13(a) in the Proposal. See Proposal at 
21060, n. 132. The Commission subsequently proposed amendments to 
current Sec.  45.13(a) that are consistent with final Sec.  49.17(c) 
in a separate notice of proposed rulemaking related to the Roadmap. 
See 85 FR at 21633.
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    Final Sec.  49.17(c) adds introductory text that requires an SDR to 
provide the Commission with access to all SDR data maintained by the 
SDR.\163\ Final Sec.  49.17(c)(1) retains the requirements of current 
Sec.  49.17(c)(1) and adds a provision to incorporate the requirements 
of current Sec.  45.13(a), with modifications.\164\ Specifically, final 
Sec.  49.17(c)(1) requires an SDR to maintain all SDR data reported to 
the SDR in a format acceptable to the Commission, and to transmit all 
SDR data requested by the Commission to the Commission as instructed by 
the Commission. Section 49.17(c)(1) also includes a new provision not 
found in current Sec.  45.13(a), stating that the Commission's 
instructions may include, but are not limited to, the method, timing, 
and frequency of transmission, as well as the format and scope of the 
SDR data to be transmitted. Final Sec.  49.17(c)(1) also revises the 
requirement in existing Sec.  45.13(a) that an SDR maintain and 
transmit ``swap data'' to ``SDR data,'' to make clear that an SDR must 
maintain all SDR data reported to the SDR in a format acceptable to the 
Commission and transmit all SDR data requested by the Commission.\165\
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    \163\ See 17 CFR 49.17(c)(1) (providing that a registered swap 
data repository shall provide direct electronic access to the 
Commission or the Commission's designee, including another 
registered entity, in order for the Commission to carry out its 
legal and statutory responsibilities under the Act and related 
regulations).
    \164\ Section 45.13(a) provides that an SDR shall maintain all 
swap data reported to it in a format acceptable to the Commission, 
and shall transmit all swap data requested by the Commission to the 
Commission in an electronic file in a format acceptable to the 
Commission.
    \165\ The Commission believes this revision is consistent with 
current SDR practice.
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3. Sec.  49.17(f)(2)--Technical Correction
    The Commission is amending existing Sec.  49.17 to replace an 
incorrect reference to ``Sec.  37.12(b)(7)'' at the end of paragraph 
(f)(2) with the correct reference to ``Sec.  39.12(b)(7).'' \166\ The 
Commission is also making non-substantive amendments to conform the 
terminology in final Sec.  49.17(f)(2) with the terms listed in final 
Sec.  49.2.
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    \166\ There is no Sec.  37.12(b)(7) in the Commission's 
regulations. See 17 CFR 37.12(b).
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4. Delegation of Authority--Sec.  49.17(i)
    The Commission is moving the delegation of authority provision in 
existing Sec.  49.17(i) \167\ to final Sec.  49.31(a)(7). Existing 
Sec.  49.17(i) delegates to the Director of DMO the authority reserved 
to the Commission in existing Sec.  49.17. This includes the authority 
to instruct an SDR on how to transmit SDR data to the Commission. As 
discussed below, the Commission proposed to consolidate the delegation 
of authority provisions in part 49 in final new Sec.  49.31. This 
amendment is not a substantive change, as all functions delegated to 
the Director of DMO under existing Sec.  49.17(i) will continue to be 
delegated under final Sec.  49.31.
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    \167\ 17 CFR 49.17(i).
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5. Comments
    The Commission requested comment on all aspects of proposed Sec.  
49.17. The Commission also requested specific comment on a whether 
there is a need to further clarify any of the requirements of proposed 
Sec.  49.17 and whether there are any aspects of existing or proposed 
Sec.  49.17 that would inhibit or prevent the development of new 
technological approaches to SDR operations or the provision of SDR data 
to the Commission.\168\
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    \168\ Proposal at 21061.
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    The Commission received one comment on the proposed rule. The 
comment agreed with the Commission that flexibility as to future 
technological advancements and innovations is an important 
consideration in an SDR's provision of direct electronic access to the 
Commission.\169\ This comment also, however, recommended a number of 
textual revisions to proposed Sec.  49.17 that would condition or limit 
the Commission's authority and discretion in making determinations 
regarding an SDR's maintenance and transfer of data pursuant to the 
regulation.\170\
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    \169\ DDR at 4.
    \170\ Id.
---------------------------------------------------------------------------

    Specifically, the comment asserted that the amended definition of 
direct electronic access in proposed Sec.  49.17(b)(3) is too broad 
because the term ``SDR data'' includes data reported pursuant to part 
46 of this chapter, and the Commission should not have a time-sensitive 
need for such data.\171\ The comment also recommended revising the text 
of the proposed definition to subject the Commission's determinations 
regarding methods of transmission to a reasonableness standard and 
require the Commission to work with SDRs in making such 
determinations.\172\
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    \171\ Id. (stating the Commission should replace the term ``SDR 
data'' which ``swap data and swap transaction and pricing 
information'').
    \172\ Id. (recommending the Commission replace the phrase ``that 
is acceptable to the Commission'' with ``that has been agreed to by 
the Commission, in its reasonable discretion, following consultation 
with the SDR'').
---------------------------------------------------------------------------

    In addition, the comment recommended the Commission remove the 
phrase ``in a format acceptable to the Commission'' from the second 
sentence of proposed Sec.  49.17(c)(1), asserting that the phrase 
deprives the SDRs of the flexibility and discretion needed with respect 
to the storage and maintenance of data without a clear regulatory 
purpose.\173\ Similarly, the comment recommended amending the text of 
the second sentence of proposed Sec.  49.17(c)(1) to provide 
``reasonable limitations'' on the Commission's discretion to instruct 
an SDR on the transmission of SDR data to the Commission.'' \174\
---------------------------------------------------------------------------

    \173\ Id.
    \174\ DDR at 4 (stating that the Commission should add the 
phrase ``as soon as practicable, given the nature of the 
instructions and the SDR's circumstances'' at the end of the second 
sentence of proposed Sec.  49.17(c)(1)).
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6. Final Rule
    The Commission has determined to adopt the amendments to 49.17 as 
proposed.
    With regard to the comment that the definition of direct electronic 
access is too broad and provides the Commission with too much 
discretion, the Commission believes the amendments to the definition 
are appropriately tailored to help ensure that the Commission's direct 
electronic access, and the data provided through this access, serves 
the Commission needs to meet its regulatory obligations, and ensures 
that an SDR does not change the means of direct electronic access in a 
manner that impairs the Commission's regulatory functions. The 
Commission intends to be flexible, when possible, in regards to the 
methods and forms of direct electronic access an SDR may utilize, 
especially in the context of technological advancement, and believes 
that the definition ensures an appropriate level of discretion as to 
whether a method of direct electronic access is acceptable.
    The Commission believes final Sec.  49.17(b)(3) will not hinder or 
prevent an SDR from incorporating new technology for collecting or 
maintaining SDR data, as long as the SDR data is collected by the SDR 
and provided to the Commission as required. The Commission does, 
however, expect an SDR to provide SEFs, DCMs, and reporting 
counterparties with commonly-used methods for reporting SDR data and to 
not force SEFs, DCMs, and reporting counterparties to unnecessarily 
expend resources on technology upgrades by unreasonably limiting 
available reporting methods. The Commission also expects SDRs to be 
particularly accommodating of non-SD/MSP/DCO reporting counterparties

[[Page 75620]]

that may have limited resources to devote to technology changes.
    Similarly, final Sec.  49.17(c)(1) is intended to provide clarity 
and certainty to SDRs regarding their responsibilities and the 
Commission's authority with respect to how an SDR maintains and 
transmits data to the Commission.\175\ The Commission believes it is 
critical that it has the ability to instruct SDRs regarding all aspects 
of SDR data transfers to the Commission, including, but not necessarily 
limited to, method of transmission (e.g., electronic or non-electronic 
transmission and file types used for transmission), the timing of data 
transmission, the frequency of data transmission, the formatting of the 
data to be transmitted (e.g., data feeds or batch transmission), and 
the actual SDR data to be transmitted. As noted above, innovation and 
advances in technology may provide alternative and more efficient means 
for data transfer, so this flexibility may facilitate the use of such 
technology by SDRs and the Commission. Also, the format, frequency, and 
related matters may well depend on the circumstances of a particular 
context, so an inflexible rule would not be appropriate.
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    \175\ While these revisions may appear to broaden the scope of 
the Commission's ability to define the terms of data transfer to the 
Commission, existing Sec.  45.13 provides the Commission broad 
discretion in instructing SDRs on how to send data to the Commission 
to enable the Commission to perform its regulatory functions, 
increase market transparency, and mitigate systemic risk. See Swap 
Data Recordkeeping and Reporting Requirements 77 FR 2136, 2169 (Jan. 
13, 2012) (requiring an SDR to maintain all swap data reported to it 
in a format acceptable to the Commission, and to transmit all swap 
data requested by the Commission to the Commission in an electronic 
file in a format acceptable to the Commission); see also Part 49 
Adopting Release at 54552 (stating that the Commission does not 
believe that SDRs should have the discretion or ability to determine 
the appropriate data sets that should be provided to the 
Commission).
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    With regard to the comments' suggested revisions, the Commission 
believes the revisions would unduly constrain the Commission's 
authority. The Commission notes that it currently works with SDRs to 
facilitate data transfers and implement technology changes.\176\ The 
Commission fully expects to continue to collaborate with SDRs to ensure 
any Commission instructions or changes requested pursuant its authority 
in Sec.  49.17(c)(1) are practical and reasonable, and provide SDRs 
with the requisite time for implementation. To do otherwise would be 
counterproductive and harmful to the Commission's ability to fulfill 
its regulatory functions. The Commission believes the coordination and 
collaboration between the Commission and SDRs is, and will be, 
supported and enhanced by clarity regarding the Commission's authority 
in this area. This, in turn, will encourage SDRs and the Commission to 
work together to devise the most efficient and effective ways for data 
transfer to the Commission, while ensuring that the Commission has the 
data it needs to perform its regulatory functions.
---------------------------------------------------------------------------

    \176\ Current SDR practice also reflects the Commission's wide 
discretion in instructing SDRs in how to send data to the 
Commission, as the SDRs currently send large amounts of data to the 
Commission on a regular basis in various formats, based on 
instructions provided by the Commission.
---------------------------------------------------------------------------

M. Sec.  49.18--Confidentiality Arrangement

    The Commission proposed to amend existing Sec.  49.18 \177\ to move 
the delegation of authority provision in Sec.  49.18(e) to proposed 
Sec.  49.31(a)(8).\178\ Existing Sec.  49.18(e) delegates to the 
Director of DMO all functions reserved to the Commission in Sec.  
49.18, including the authority to specify the form of confidentiality 
arrangements required prior to disclosure of swap data by an SDR to an 
appropriate domestic or foreign regulator, and the authority to limit, 
suspend, or revoke such appropriate domestic or foreign regulator's 
access to swap data held by an SDR.
---------------------------------------------------------------------------

    \177\ 17 CFR 49.18.
    \178\ Proposal at 84 FR 21061 (May 13, 2019).
---------------------------------------------------------------------------

    This non-substantive amendment does not change the functions 
delegated by the Commission and, as discussed further below, is 
intended to enable the Commission to locate most delegations of 
authority in proposed Sec.  49.31. The Commission did not receive any 
comments on the proposed amendments to Sec.  49.18 and is adopting 
amendments as proposed.

N. Sec.  49.20--Governance Arrangements (Core Principle 2)

    The Commission proposed to amend Sec.  49.20 \179\ to conform the 
regulation to the amended definitions and related numbering changes in 
final Sec.  49.2. Specifically, final Sec.  49.20 amends the citations 
to Sec.  49.2(a)(14) in Sec.  49.20(b)(2)(v) and to Sec.  49.2(a)(1) in 
Sec.  49.20(c)(1)(ii)(B) to citations to Sec.  49.2(a). The proposed 
amendments also conform the provisions of Sec.  49.20(b)(2)(vii) to 
reflect the amendments in final Sec.  49.2 to the definitions of ``SDR 
data,'' ``SDR information,'' ``registered swap data repository,'' and 
``reporting entity.'' \180\ These non-substantive amendments to final 
Sec.  49.20 do not affect the existing requirements of the regulation.
---------------------------------------------------------------------------

    \179\ 17 CFR 49.20.
    \180\ Id.
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    The Commission did not receive any comments on the proposed 
amendments to Sec.  49.20 and is adopting the amendments as proposed.

O. Sec.  49.22--Chief Compliance Officer

    Existing Sec.  49.22 sets forth an SDR's requirements with respect 
to its chief compliance officer (``CCO'').\181\ The Commission proposed 
to amend Sec.  49.22 to clarify an SDR's obligations, remove 
unnecessary requirements, and make technical corrections and non-
substantive changes. The Commission received a number of comments on 
the proposed amendments to Sec.  49.22, including on the proposed 
amendments to existing Sec.  49.22(d)(2) with respect to a CCO's 
obligation to resolve conflicts of interest.\182\
---------------------------------------------------------------------------

    \181\ 17 CFR 49.22.
    \182\ See, e.g., IATP at 9-10 (asserting that the proposed 
amendments that limit a CCO's obligation to resolve conflicts are 
not consistent with statutory requirements).
---------------------------------------------------------------------------

    The Commission has determined not to address the proposed 
amendments in this final rulemaking, with the exception of a number of 
technical changes to conform Sec.  49.22 to other regulations amended 
in this final rulemaking.\183\ The Commission notes that a number of 
the proposed amendments to Sec.  49.22, including provisions that were 
the subject of public comment, mirror the Commission's proposed 
amendments to the CCO requirements for SEFs under Sec.  37.1501,\184\ 
which have not been adopted to date. The Commission believes it may be 
appropriate to address the proposed amendments to the CCO requirements 
for SDRs and for SEFs concurrently, in order to maintain consistency in 
the CCO requirements for different registered entities, to the extent 
appropriate. The Commission may do so in a future rulemaking.
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    \183\ As discussed above, the conforming changes include the 
removal of the reference in Sec.  49.22(f)(2) to the annual filing 
of a Form SDR, which is not required under final Sec.  49.3(a)(5). 
The Commission is also making a technical correction to final Sec.  
49.22(f)(3) to correct a reference to nonexistent Sec.  
49.22(e)(67). The correct reference is to existing Sec.  
49.22(e)(6).
    \184\ 17 CFR 37.1501. See Swap Execution Facilities and Trade 
Execution Requirement, 83 FR 61946, 62032 (Nov. 30, 2018).
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P. Sec.  49.24--System Safeguards

    The Commission proposed to make non-substantive amendments Sec.  
49.24 \185\ to provide additional detail as to the duties and 
obligations of an SDR under the regulation and to make other conforming 
technical changes.\186\

[[Page 75621]]

Existing Sec.  49.24(d) requires an SDR's BC-DR plans, resources, and 
procedures to enable an SDR to resume operations and meet its 
regulatory duties and obligations, and sets forth a non-exhaustive list 
of those duties and obligations.\187\ The amendments to existing Sec.  
49.24 expand the non-exhaustive list of duties and obligations of an 
SDR under part 49 that are enumerated in final Sec.  49.24(d) to 
include specific reference to Sec. Sec.  49.10 to 49.21, Sec.  49.23, 
and Sec. Sec.  49.25 to 49.27. The Commission emphasizes that the part 
49 provisions listed in the amended regulation are only references 
intended for clarification, and the amendments to existing Sec.  
49.24(d) do not change any requirements applicable to an SDR.
---------------------------------------------------------------------------

    \185\ 17 CFR 49.24.
    \186\ Proposal at 21063.
    \187\ 17 CFR 49.24(d).
---------------------------------------------------------------------------

    The Commission also proposed to make technical amendments to Sec.  
49.24(i), to remove a reference to Sec.  45.2. As described above, the 
Commission is moving the SDR recordkeeping requirements contained in 
current Sec.  45.2(f) and (g) to Sec.  49.12 for consistency and 
clarity purposes. This proposed technical change would conform Sec.  
49.24(i) to final Sec. Sec.  45.2 and 49.12, but would not change any 
of the requirements applicable to SDRs.
    The Commission did not receive any comments on the proposed 
amendments to Sec.  49.24 and is adopting the amendments as proposed.

Q. Sec.  49.25--Financial Resources

    As discussed above, the Commission proposed conforming changes to 
existing Sec.  49.25 \188\ to remove the reference to existing Sec.  
49.9 and to core principle obligations identified in existing Sec.  
49.19.\189\ Proposed Sec.  49.25(a) would instead refer to SDR 
obligations under ``this chapter,'' to be broadly interpreted as any 
regulatory or statutory obligation specified in part 49 of the 
Commission's regulations. These technical amendments do not impact any 
existing obligations of SDRs.
---------------------------------------------------------------------------

    \188\ 17 CFR 49.25.
    \189\ Proposal at 21063.
---------------------------------------------------------------------------

    The Commission also proposed to amend existing Sec.  49.25(f)(3) to 
change the deadlines for an SDR to submit the financial resources 
report under Sec.  49.25.\190\ Existing Sec.  49.25(f)(3) requires an 
SDR to submit the report no later than 17 business days after the end 
of the SDR's fiscal quarter, or a later time that the Commission 
permits upon request. The proposed amendment to existing Sec.  
49.25(f)(3) provides that an SDR must submit its quarterly financial 
resources report to the Commission not later than 40 calendar days 
after the end of the SDR's first three fiscal quarters, and not later 
than 90 calendar days after the end of the SDR's fourth fiscal quarter, 
or such later time as the Commission may permit in its discretion. The 
Commission requested comment on all aspects of proposed Sec.  49.25.
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    \190\ Id.
---------------------------------------------------------------------------

    One comment supported the extension of the deadline for filings 
financial reports under Sec.  49.25, stating that the amendment reduces 
burdens on SDRs without material detriment to the CFTC's 
oversight.\191\
---------------------------------------------------------------------------

    \191\ DDR at 5.
---------------------------------------------------------------------------

    The Commission has determined to adopt the proposed amendments to 
Sec.  49.25, except for the proposed amendments to 49.25(f)(3),which 
would align the deadline for an SDR's fourth quarter financial 
resources report with the deadline for an SDR to submit its annual CCO 
report under proposed Sec.  49.22(f)(2). As discussed above, the 
Commission has determined not to address the proposed changes to the 
filing deadline for the annual compliance report under Sec.  
49.22(f)(2) in this final rulemaking, and accordingly, the Commission 
is not adopting the related proposed amendment to Sec.  49.25(f)(3).

R. Sec.  49.26--Disclosure Requirements of Swap Data Repositories

    Section 49.26 requires an SDR to furnish SEFs, DCMs, and reporting 
counterparties with an SDR disclosure document that sets forth the 
risks and costs associated with using the services of the SDR, and 
contains the information specified in Sec.  49.26(a) through (i).\192\ 
The Commission proposed to add a new Sec.  49.26(j) providing that an 
SDR disclosure document must set forth the SDR's policies and 
procedures regarding the reporting of SDR data to the SDR, including 
the SDR's data validation procedures, swap data verification 
procedures, and procedures for correcting SDR data errors.\193\ The 
Commission also proposed to amend existing Sec.  49.26 to conform terms 
in the regulation to proposed Sec.  49.2.\194\ The Commission has 
determined to adopt the amendments to Sec.  49.26 as proposed.
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    \192\ 17 CFR 49.26.
    \193\ Proposal at 21063-64.
    \194\ Id. at 21063. Specifically, the proposed amendments to the 
introductory paragraph of Sec.  49.26 reflect updates to the terms 
``SDR data,'' ``registered swap data repository,'' and ``reporting 
entity.'' These non-substantive amendments do not change the current 
requirements of Sec.  49.26.
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    The addition of final Sec.  49.26(j) is intended to provide 
information about an SDR's operations to market participants in order 
to assist them in making decisions regarding which SDR to use for swaps 
reporting.\195\ Moreover, requiring an SDR to disclose its data 
reporting policies and procedures, data validation procedures, swap 
data verification procedures, and SDR data correction procedures should 
reduce the number of data errors and improve data quality by providing 
SEFs, DCMs, and reporting counterparties with the information needed to 
properly design their reporting systems before any reporting 
occurs.\196\ The Commission notes that the disclosure requirements in 
Sec.  49.26(j) apply for all SDR data required to be reported, as 
applicable.
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    \195\ See id.
    \196\ See id.
---------------------------------------------------------------------------

    The Commission requested comment on all aspects of proposed Sec.  
49.26. The Commission also invited specific comment on whether the 
Commission should require an SDR to disclose any other information 
under Sec.  49.26.\197\
---------------------------------------------------------------------------

    \197\ Id. at 21064.
---------------------------------------------------------------------------

    Two comments supported the proposed disclosure requirements under 
Sec.  49.26(j).\198\ One of these comments also suggested requiring an 
SDR to disclose any revisions to the policies specified in proposed 
49.26(j) at a reasonable time before implementation.\199\ Similarly, 
the other comment suggested that an SDR should be required to provide 
any revisions to such policies and procedures promptly to a reporting 
counterparty.\200\
---------------------------------------------------------------------------

    \198\ ISDA/SIFMA at 43; CS at 3.
    \199\ ISDA/SIFMA at 43.
    \200\ CS at 3.
---------------------------------------------------------------------------

    The Commission has determined to adopt the amendments to Sec.  
49.26(j) as proposed. With regard to the suggestions in the comments, 
the Commission notes that the requirement to make the specified 
disclosures in Sec.  49.26 is an ongoing requirement that applies to an 
SDR ``[b]efore accepting any swap data from [the relevant party] . . . 
'' Accordingly, the Commission believes Sec.  49.26(j), as proposed and 
adopted, requires an SDR to update the required disclosures if the SDR 
revises the policies or procedures specified in Sec.  49.26(j). 
Moreover, under part 40, an SDR would be required to file with the 
Commission revisions to the policies and procedures required to be 
disclosed Sec.  49.26(j).\201\ Under part 40, such filings are 
generally required to be made publicly available.\202\
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    \201\ See 17 CFR 40.6(a).
    \202\ See, e.g., 17 CFR 40.6(a)(2) (requiring a registered 
entity that self-certifies a rule or rule amendment under Sec.  40.6 
to post a notice of pending certification with the Commission and a 
copy of the submission, concurrent with the filing of a submission 
with the Commission, on the registered entity's website); See also 
17 CFR 40.8(c) (providing that a registered entity's filing of new 
rules and rule amendments for Commission review and approval or 
pursuant to the self-certification procedures in part 40 shall be 
treated as public information unless accompanied by a request for 
confidential treatment).

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[[Page 75622]]

S. Sec.  49.28--Operating Hours of Swap Data Repositories

    The Commission proposed to add a new Sec.  49.28 to address an 
SDR's obligations with respect to its hours of operation, which are 
currently set forth in existing Sec.  43.3(f) and (g).\203\ The 
Commission proposed to (i) move the provisions in existing Sec.  
43.3(f) and (g) to proposed Sec.  49.28 and (ii) amend the provisions 
so that the operating hours requirements also apply with respect to an 
SDR's responsibilities under parts 45, 46, and 49.\204\ The amendments 
to these requirements reflect the Commission's belief that SDRs should 
operate as continuously as possible while still being afforded the 
opportunity to perform necessary testing, maintenance, and upgrades of 
their systems.
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    \203\ Proposal at 21064. The Commission believes that is 
beneficial to SDRs and market participants to move all SDR operating 
hours requirements to part 49 from part 43.
    \204\ Id.
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    The Commission has determined to adopt Sec.  49.28 as proposed. The 
Commission continues to believe that the continuous operation of SDRs 
is critical to the proper functioning of the swaps market and the SDR 
data reporting process. Moreover, the need for continuous operation of 
SDRs is not limited to the receipt and dissemination of swap 
transaction and pricing data pursuant to part 43. Rather, an SDR must 
be able to continuously perform all of its responsibilities under the 
Commission's regulations. To this end, proposed and final Sec.  49.28 
expands the obligations of an SDR to continuously accept, promptly 
record, and publicly disseminate all SDR data reported to the SDR.
    While the Commission strongly encourages SDRs to adopt redundant 
systems to allow public reporting during closing hours, final Sec.  
49.28 continues to allow SDRs to schedule downtime to perform system 
maintenance. However, the Commission continues to believe that 
disruptions to the data reporting process due to closing hours should 
be as limited as possible, with advance notice of, or, if not possible, 
notice promptly after, closing.
    The need for continuous operations of SDRs also mandates that SDRs 
minimize and mitigate disruptions caused by necessary downtime or 
unexpected disruptions, to the extent reasonably possible. Therefore, 
final Sec.  49.28 requires an SDR to have the capacity to receive and 
hold in queue data reported to it, and to process and disseminate that 
data following a resumption in its operations. The Commission 
emphasizes that it expects SDRs to be able to accept and hold in queue 
SDR data that is reported during closing hours. The inability to accept 
and hold in queue SDR data should be a rare occurrence that results 
from unanticipated emergency situations, and the provisions in final 
Sec.  49.28(c)(2) are intended as a last resort to prevent data loss.
    As discussed below, the requirements of final Sec.  49.28 also 
include many of the requirements of the SEC's operating hours 
regulations governing SBSDRs in order to increase consistency between 
the regulations for SDRs and SBSDRs.\205\
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    \205\ The SEC's operating hours regulations are contained in 17 
CFR 242.904. While current Sec.  43.3(f) allows SDRs to schedule 
closing hours while avoiding the times that, in an SDR's estimation, 
U.S. markets and major foreign markets are most active, and requires 
the SDRs to provide advance notice of closing hours to market 
participants and the public, current Sec.  43.3(f) does not make a 
distinction between regular closing hours and special closing hours. 
The distinction is present, however, in operating hours requirements 
for SBSDRs, and final Sec.  49.28(a)(1) and (2) largely adopts the 
SBSDR requirements. These requirements make clear that an SDR may 
establish both normal and special closing hours and allow an SDR 
that also registers with the SEC as an SBSDR to effectively follow 
the same operating hours requirements for both requirements.
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1. General Requirements--Sec.  49.28(a)
    Existing Sec.  43.3(f) requires an SDR to have systems in place to 
continuously receive and publicly disseminate swap transaction and 
pricing data in real-time. Existing Sec.  43.3(f) allows an SDR to 
declare closing hours to perform system maintenance, while requiring 
that the SDR must, to the extent reasonably possible, avoid scheduling 
closing hours when, in its estimation, the U.S. market and major 
foreign markets are most active.\206\
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    \206\ 17 CFR 43.3(f).
---------------------------------------------------------------------------

    These provisions were adopted based on the Commission's belief that 
the global nature of the swaps market necessitates that SDRs be able to 
publicly disseminate swap transaction and pricing data at all times and 
that SDRs should generally be fully operational 24 hours a day, seven 
days a week.\207\
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    \207\ See Real-Time Public Reporting of Swap Transaction Data, 
77 FR 1182, 1204 (Jan. 9, 2012).
---------------------------------------------------------------------------

    Proposed and final Sec.  49.28(a) require an SDR to have systems in 
place to continuously accept and promptly record all SDR data reported 
to the SDR, and publicly disseminate swap transaction and pricing data 
reported to the SDR as required under part 43.
    Final Sec.  49.28(a)(1) allows an SDR to establish normal closing 
hours to perform system maintenance during periods when, in the SDR's 
reasonable estimation, the SDR typically receives the least amount of 
SDR data.\208\ Under final Sec.  49.28(a)(1), an SDR must provide 
reasonable advance notice of its normal closing hours to market 
participants and to the public.
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    \208\ This reflects a minor change from the existing 
requirements of Sec.  43.3(f)(2), which provides that an SDR shall, 
to the extent reasonably possible, avoid scheduling closing hours 
when, in its estimation, the U.S. market and major foreign markets 
are most active. The Commission believes that final Sec.  
49.28(a)(1) provides a better measure of when an SDR should schedule 
closing hours.
---------------------------------------------------------------------------

    Final Sec.  49.28(a)(2) allows an SDR to declare, on an ad hoc 
basis, special closing hours to perform system maintenance that cannot 
wait until normal closing hours. Similar to final Sec.  49.28(a)(1), 
final Sec.  49.28(a)(2) requires an SDR to schedule special closing 
hours during periods when, in the SDR's reasonable estimation, the 
special closing hours would, to the extent possible given the 
circumstances prompting the special closing hours, be least disruptive 
to the SDR satisfying its SDR data-related responsibilities. Final 
Sec.  49.28(a)(2) also requires an SDR to provide reasonable advance 
notice of the special closing hours to market participants and the 
public whenever possible, and, if advance notice is not reasonably 
possible, to notify market participants and the public as soon as is 
reasonably possible after declaring special closing hours.
2. Part 40 Requirement for Closing Hours--Sec.  49.28(b)
    Proposed and final Sec.  49.28(b) require an SDR to comply with the 
requirements under part 40 of the Commission's regulations when 
adopting or amending normal closing hours and special closing 
hours.\209\ This requirement is already applicable to SDRs pursuant to 
current Sec.  43.3(f)(3).\210\ The Commission anticipates that, due to 
the unexpected and emergency nature of special closing hours, rule 
filings related to special closing hours will likely qualify for the 
emergency rule certification provisions of Sec.  40.6(a)(6).\211\
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    \209\ The establishment or change to closing hours constitutes a 
``rule'' for the purposes of part 40 requirements. See 17 CFR 40.1, 
et seq.
    \210\ See 17 CFR 43.3(f)(3) (providing that a registered swap 
data repository must comply with the requirements under 17 CFR part 
40 in setting closing hours and must provide advance notice of its 
closing hours to market participants and the public).
    \211\ See 17 CFR 40.6(a)(6) (setting forth the requirements for 
implementing rules or rule amendments in response to an emergency, 
as defined under 17 CFR 40.1(h)).

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[[Page 75623]]

3. Acceptance of SDR Data During Closing Hours--Sec.  49.28(c)
    Existing Sec.  43.3(g) addresses an SDR's obligations regarding 
swap transaction and pricing data sent to the SDR for publicly 
reportable swap transactions during closing hours. The Commission is 
moving existing Sec.  43.3(g) to final Sec.  49.28(c), and expanding 
the existing requirements for swap transaction and pricing data in 
current Sec.  43.3(g) \212\ to all SDR data. Proposed and final Sec.  
49.28(c) require an SDR to have the capability to accept and hold in 
queue any and all SDR data reported to the SDR during normal closing 
hours and special closing hours. Final Sec.  49.28(c) is intended to 
prevent the loss of any SDR data that is reported to an SDR during 
closing hours and to facilitate the SDR's prompt fulfillment of its 
data reporting responsibilities, including public dissemination of swap 
transaction and pricing data, as applicable, once the SDR reopens from 
closing hours. The requirements in Sec.  49.28(c) mirror the 
requirements for an SBSDR to receive and hold in queue information 
regarding security-based swaps.\213\
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    \212\ See 17 CFR 43.3(g) (providing that during closing hours, a 
registered swap data repository must have the capability to receive 
and hold in queue any data regarding publicly reportable swap 
transactions pursuant to part 43).
    \213\ See 17 CFR 242.904(c) (providing that during normal 
closing hours, and to the extent reasonably practicable during 
special closing hours, a registered security-based swap data 
repository must have the capability to receive and hold in queue 
information regarding security-based swaps that has been reported 
pursuant to Sec. Sec.  242.900 through 242.909).
---------------------------------------------------------------------------

    Final Sec.  49.28(c)(1) requires an SDR, on reopening from normal 
or special closing hours, to promptly process all SDR data received 
during the closing hours and, pursuant to part 43, publicly disseminate 
swap transaction and pricing data reported to the SDR that was held in 
queue during the closing hours. Final Sec.  49.28(c)(1) expands the 
existing requirements for an SDR to disseminate swap transaction and 
pricing data pursuant to Sec.  43.3(g)(1) \214\ to also include the 
prompt processing of all other SDR data received and held in queue 
during closing hours.\215\
---------------------------------------------------------------------------

    \214\ See 17 CFR 43.3(g)(1) (providing that upon reopening after 
closing hours, a registered swap data repository must promptly and 
publicly disseminate the swap transaction and pricing data of swaps 
held in queue, in accordance with the requirements of part 43).
    \215\ These requirements mirror the SBSDR requirements for 
disseminating transaction reports after reopening following closing 
hours. See 17 CFR 242.904(d) (providing that when a registered 
security-based swap data repository re-opens following normal 
closing hours or special closing hours, it must disseminate 
transaction reports of security-based swaps held in queue, in 
accordance with the requirements of Sec.  242.902).
---------------------------------------------------------------------------

    Final Sec.  49.28(c)(2) expands existing requirements for swap 
transaction and pricing data that an SDR cannot receive and hold in 
queue during closing hours in existing Sec.  43.3(g)(2) to all SDR data 
and also mirrors the requirements for an SBSDR that cannot receive and 
hold in queue information regarding security-based swaps during closing 
hours.\216\ Final Sec.  49.28(c)(2) requires an SDR to immediately 
issue a notice to all SEFs, DCMs, reporting counterparties, and the 
public in the event that an SDR is unable to receive or hold in queue 
any SDR data reported during normal closing hours or special closing 
hours. Final Sec.  49.28(c)(2) also requires an SDR to issue a notice 
to all SEFs, DCMs, reporting counterparties, and the public that the 
SDR has resumed normal operations immediately on reopening.\217\ 
Lastly, final Sec.  49.28(c)(2) requires a SEF, DCM, or reporting 
counterparty that was not able to report SDR data to an SDR because of 
the SDR's inability to receive and hold in queue any SDR data to 
immediately report the SDR data to the SDR after the SDR provides 
notice that it has resumed normal operations.
---------------------------------------------------------------------------

    \216\ See 17 CFR 242.904(e) (providing that if a registered 
security-based swap data repository could not receive and hold in 
queue transaction information that was required to be reported 
pursuant to Sec. Sec.  242.900 through 242.909, it must immediately 
upon re-opening send a message to all participants that it has 
resumed normal operations. Thereafter, any participant that had an 
obligation to report information to the registered security-based 
swap data repository pursuant to Sec. Sec.  242.900 through 242.909, 
but could not do so because of the registered security-based swap 
data repository's inability to receive and hold in queue data, must 
promptly report the information to the registered security-based 
swap data repository.).
    \217\ Consistent with the current requirements under part 43, an 
SDR may issue such notices to its participants and the public by 
publicizing the notices that the SDR is unable to receive and hold 
in queue any SDR data and that the SDR has resumed normal operations 
in a conspicuous place on the SDR's website. See 77 FR at 1205, n. 
208 (Jan. 9, 2012) (allowing SDRs to provide reasonable advance 
notice of its closing hours to participants and the public by 
providing notices directly to its participants or publicizing its 
closing hours in a conspicuous place on its website).
---------------------------------------------------------------------------

    Though final Sec.  49.28 expands the existing requirements of Sec.  
43.3(f) and (g) to apply to all SDR data, the Commission believes the 
regulation will not lead to significant changes in the operations of an 
SDR. The Commission understands that, under current practice, SDRs 
routinely receive and hold in queue all SDR data submitted during 
declared SDR closing hours, regardless of whether that data is being 
submitted pursuant to part 43. Additionally, because the requirements 
of final Sec.  49.28 largely mirror the requirements for an SBSDR to 
receive and hold in queue information regarding security-based swaps, 
final Sec.  49.28 will not impose additional requirements on an SDR 
that is also registered as an SBSDR. Therefore, the Commission believes 
that expanding the operating hours requirements to all SDR data would 
have little practical impact on current SDR operations.
    The Commission requested comment on all aspects of proposed Sec.  
49.28. The Commission also invited specific comment on whether proposed 
Sec.  49.28 provides SDRs sufficient flexibility to conduct necessary 
maintenance on their systems while facilitating the availability of SDR 
data for the Commission and the public.\218\
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    \218\ Proposal at 21065.
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    One comment stated that business flow considerations should be 
taken into account in addition to sufficient flexibility for SDRs when 
considering operating hours. The comment suggested that proposed Sec.  
49.28(a)(1) be revised to employ the phrase ``based on historical 
volume'' in place of ``in the reasonable estimation of the [SDR]'' to 
describe the basis on which an SDR may determine when it typically 
receives the least amount of SDR data.\219\
---------------------------------------------------------------------------

    \219\ ISDA/SIFMA at 42.
---------------------------------------------------------------------------

    Another comment supported the proposed requirements in Sec.  
49.28(a)(2) for normal closing hours and special closing hours.\220\ 
This comment, however, also opposed the requirement in proposed Sec.  
49.28(b) that the adoption or amendment of special closing hours be 
subject to part 40 filing requirements. The comment asserted that ``for 
the foreseeable future SDRs may need to frequently make use of special 
closing hours to accommodate changes to their systems'' and that 
requiring an SDR to comply with part 40 in each such instance would 
``impose an administrative burden that does not provide a corresponding 
benefit to impacted parties.'' \221\
---------------------------------------------------------------------------

    \220\ DDR at 6 (stating that these requirements ``recognize the 
importance of system maintenance to the safe operation of an SDR's 
systems'').
    \221\ Id. (recommending that, instead of a making a submission 
under part 40, an SDR should be required to notify the Commission 
along with market participants when declaring special closing 
hours).
---------------------------------------------------------------------------

    This comment also opposed the requirement in proposed Sec.  
49.28(c)(2) that an SDR provide notice of its resumption of normal 
activities following a period of time during which it was unable to 
receive and hold in queue any SDR data. The comment asserted such 
notice is unnecessary when the downtime was planned and

[[Page 75624]]

previously communicated to the SDR's members and the public.\222\
---------------------------------------------------------------------------

    \222\ Id. (stating that in these situations, the impacted 
parties would be prepared for the resumption of normal operations 
and, therefore, a notification to that effect is unnecessary).
---------------------------------------------------------------------------

    In response to the business flow considerations comment, the 
Commission believes an SDR is best situated to make a judgement 
regarding when it receives the least amount of SDR data. The Commission 
agrees that historical volume is one factor SDRs may consider, but 
other considerations may factor into an SDR's determination, so long as 
the estimation is reasonable.
    With regard to the comment on proposed Sec.  49.28(b), the 
Commission notes that the regulation, as adopted, does not impose 
requirements beyond what is already required under part 40. The 
Commission also notes that special closing hours are intended for 
unforeseeable, emergency situations, not planned system updates and 
maintenance, as described in the comment. For planned system updates or 
maintenance, under the normal closing hours provisions, an SDR could 
use a single part 40 filing for all planned updates or maintenance, to 
the extent that the SDR knows the schedule for such activities. The 
Commission would expect SDRs to plan anticipated system updates or 
maintenance, and the related closing hours determinations, well ahead 
of time and for SDRs to follow the normal closing hours requirements, 
and their reasonable discretion on timing of such closing hours, when 
performing the system updates or maintenance.
    With regard to the comment on proposed Sec.  49.28(c)(2), the 
Commission believes that in circumstances where an SDR is unable to 
receive and hold in queue SDR data, keeping impacted parties informed 
and updated as to changes to the SDR's operations is critical to 
limiting potential negative impacts caused by the disruption. The 
Commission expects that instances where an SDR is unable to receive and 
hold in queue SDR will be the result of emergency situations that 
prompt special closing hours, as opposed to planned and scheduled SDR 
system outages. Such situations do not easily allow for accurate 
planning or estimation of when the SDR will resume normal operations. 
Further, even for planned outages, the scheduled outage may not finish 
on schedule, for myriad reasons, and it would be extremely disruptive 
for market participants to begin reporting SDR data to an SDR based on 
an outdated estimate of when the SDR would resume normal operations. 
Accordingly, the Commission believes an SDR should be required to 
inform market participants and the public that it has resumed 
operations following a period during which it was unable to receive and 
hold SDR data, regardless of whether the inability to receive and hold 
SDR was planned and announced ahead of time.

T. Sec.  49.29--Information Relating to Swap Data Repository Compliance

    The Commission proposed to add a new Sec.  49.29 to require an SDR 
to provide, upon the Commission's request, information necessary for 
the Commission to perform its duties or to demonstrate the SDR's 
compliance with its obligations under the Act and Commission 
regulations.\223\
---------------------------------------------------------------------------

    \223\ Proposal at 21065-66.
---------------------------------------------------------------------------

    Proposed Sec.  49.29(a) would require an SDR, upon request by the 
Commission, to file with the Commission information related to its 
business as an SDR and information the Commission determines to be 
necessary or appropriate for the Commission to perform its duties under 
the Act and Commission regulations thereunder. The SDR must provide the 
requested information in the form and manner and within the time 
specified by the Commission in its request.
    Proposed Sec.  49.29(b) would require an SDR, upon request by the 
Commission, to file with the Commission a written demonstration, 
containing supporting data, information, and documents, that it is in 
compliance with its obligations under the Act and the Commission's 
regulations. SDRs must provide the written demonstration in the form 
and manner and within the time specified by the Commission in its 
request. The Commission notes that the requests may include, but are 
not limited to, demonstrating compliance with the core principles 
applicable to SDRs under CEA section 21(f) and with any or all 
requirements in part 49 of the Commission's regulations.
    The Commission requested comment on all aspects of proposed Sec.  
49.29 and received one comment in response. The comment generally 
supported proposed Sec.  49.29,\224\ but also recommended that the 
Commission revise Sec.  49.29(a) and 49.29(b) to include the phrase 
``as soon as practicable, given the nature of the request and the SDR's 
circumstances'' in order to recognize that SDRs will need a reasonable 
amount of time to comply with a request, and to encourage collaboration 
with the SDR in determining the appropriate form, manner and timing 
associated with the request.\225\ The comment also asserted that the 
proposed language of Sec.  49.29 is vague and lacking detail, which 
would hinder an SDR in determining what is required to comply with the 
proposed regulation.\226\
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    \224\ DDR at 6 (``DDR supports the Commission's inclusion of a 
requirement to provide information on an as needed basis in place of 
a requirement for SDRs to file an annual Form SDR update in proposed 
section 49.29.).''
    \225\ DDR at 6-7.
    \226\ DDR at 7.
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    The Commission has determined to adopt final Sec.  49.29 as 
proposed. The Commission believes that Sec.  49.29, as proposed and 
adopted, provides the Commission with the necessary flexibility to 
obtain information and documentation to determine whether an SDR is 
complying with applicable statutory and regulatory requirements, and to 
ensure that the Commission is able to fulfill its responsibilities in 
the oversight of SDRs. The Commission notes that requests under Sec.  
49.29 may be made for any Commission oversight purpose. For example, 
the Commission may request that an SDR provide information relating to 
its operations or its practices in connection with its compliance with 
particular regulatory duties and core principles, other conditions of 
its registration, or in connection with the Commission's general 
oversight responsibilities under the Act. Final Sec.  49.29 is also 
based on similar existing Commission requirements applicable to SEFs 
and DCMs, which have successfully assisted the Commission in obtaining 
needed information from these registered entities for many years 
without difficulty.\227\
---------------------------------------------------------------------------

    \227\ See 17 CFR 37.5 and 38.5.
---------------------------------------------------------------------------

    The Commission also notes that, as discussed above, final Sec.  
49.29 facilitates the removal of the requirement in Sec.  49.3(a)(5) 
that an SDR file an annual amendment to Form SDR, by allowing the 
Commission to request the relevant information as needed without 
requiring an SDR to file a full Form SDR update.
    The Commission believes the comment's proposed revisions would 
unduly constrain the Commission's ability to obtain needed information 
in a timely manner and inappropriately restrict the Commission in 
fulfilling its oversight responsibilities. However, the Commission 
emphasizes that it intends to coordinate and collaborate with SDRs in 
formulating information requests pursuant to Sec.  49.29 in order to 
ensure that such requests are reasonable, based on the facts and 
circumstances, as is the current practice between the Commission and 
the SDRs.

[[Page 75625]]

U. Sec.  49.30--Form and Manner of Reporting and Submitting Information 
to the Commission

    The Commission proposed to add a new Sec.  49.30 to place in one 
location the requirements governing the form and manner in which an SDR 
must provide information to the Commission.\228\ Final Sec.  49.30, as 
adopted in this final rulemaking, requires SDRs to provide reports and 
other information to the Commission in ``the form and manner'' 
requested or directed by the Commission. Other regulations within part 
49, such as final Sec.  49.29, require an SDR to provide reports and 
certain other information to the Commission in the ``form and manner'' 
requested or directed by the Commission. The Commission has determined 
to adopt Sec.  49.30 as proposed.
---------------------------------------------------------------------------

    \228\ Proposal at 21066.
---------------------------------------------------------------------------

    Final Sec.  49.30 sets forth the broad parameters of the ``form and 
manner'' requirement. Under final Sec.  49.30, unless otherwise 
instructed by the Commission, an SDR must submit SDR data reports and 
any other information required to be provided to the Commission under 
part 49 within the time specified, using the format, coding structure, 
and electronic data transmission procedures approved in writing by the 
Commission.
    The Commission requested comment on all aspects of proposed Sec.  
49.30. The Commission also invited specific comment on (i) whether the 
Commission should provide a single format or coding structure for each 
SDR to deliver reports and other information in a consistent manner; 
(ii) whether existing standards and formats are sufficient for 
providing the Commission with requested information; and (iii) whether 
the Commission should require specific electronic data transmission 
methods and/or protocols for SDRs to disseminate reports and other 
information to the Commission.\229\
---------------------------------------------------------------------------

    \229\ Id.
---------------------------------------------------------------------------

    One comment supported mandating messaging formats for transmission 
from an SDR to the Commission, but emphasized the Commission should not 
mandate the format for reporting from a reporting counterparty to an 
SDR.\230\
---------------------------------------------------------------------------

    \230\ ISDA/SIFMA at 42.
---------------------------------------------------------------------------

    Another comment recommended that the Commission revise the text of 
proposed Sec.  49.30 to include the phrase ``as soon as practicable, 
given the nature of the request and the SDR's circumstances'' after 
``[u]nless otherwise instructed by the Commission.'' \231\ The comment 
asserted that the suggested revision recognizes an SDR will need a 
reasonable amount of time to implement technical changes necessary to 
comply with the request and will encourage collaboration between an SDR 
and Commission in determining the appropriate form, manner and timing 
associated with the request.\232\ Similar to the comment on Sec.  
49.29, noted above, the comment also asserted that the proposed 
language of Sec.  49.30 is vague and lacking detail as to data 
transmission requirements, which may be determined by the Commission at 
a later time.\233\
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    \231\ DDR at 7.
    \232\ Id.
    \233\ Id.
---------------------------------------------------------------------------

    The Commission has determined to adopt Sec.  49.30 as proposed. The 
Commission notes that final Sec.  49.30 does not expand the existing 
substantive SDR informational requirements of part 49. Rather, the 
regulation authorizes the Commission to specify how information 
reported to an SDR under other requirements of part 49 should be 
formatted and delivered to the Commission.
    Under final Sec.  49.30, the format, coding structure, and 
electronic data transmission procedures an SDR uses for reports and 
submissions to the Commission pursuant to part 49 must be approved in 
writing by the Commission. These written specifications could include 
specifications similar to the ``guidebooks'' and other technical 
specifications currently published on the Commission's website.\234\ 
Specifications may also be more limited in their application, 
potentially involving more specific or tailored requirements applicable 
to a report or information required by the Commission from a particular 
SDR.
---------------------------------------------------------------------------

    \234\ The Commission's current published ``guidebooks'' include 
those published for reporting required by parts 15, 16, 17, 18, and 
20 of the Commission's regulations relating to ownership and control 
reports, large trader reports, and data reporting. These guidebooks 
are available on the Commission's website at http://www.cftc.gov/Forms/index.htm.
---------------------------------------------------------------------------

    The Commission believes the comment's proposed revision may unduly 
constrain the Commission's ability to adjust the process by which it 
obtains information. However, the Commission emphasizes that it intends 
to continue to coordinate and collaborate with SDRs in formulating 
information requests and specifications pursuant to Sec.  49.30 in 
order to ensure that such requests are reasonable, based on the facts 
and circumstances, as is the current practice for the Commission and 
the SDRs.

V. Sec.  49.31--Delegation of Authority to the Director of the Division 
of Market Oversight Relating to Certain Part 49 Matters

    The Commission proposed to add new Sec.  49.31 to set forth and 
consolidate delegations of authority for part 49 of the Commission's 
regulations.\235\ A number of current and proposed provisions in part 
49 require an SDR to perform various functions at the Commission's 
request or to provide information as prescribed or instructed by the 
Commission. The Commission proposed to adopt new Sec.  49.31 by which 
the Commission would delegate its authority under most these of the 
part 49 provisions to the Director of DMO. The new delegations are 
intended to enhance the Commission's ability to respond to changes in 
the swaps market and technological developments, to quickly and 
efficiently access information and data from SDRs to meet the 
Commission's oversight obligations, and to more efficiently perform the 
Commission's regulatory functions.
---------------------------------------------------------------------------

    \235\ Proposal at 21066-67.
---------------------------------------------------------------------------

    More specifically, the Commission proposed to delegate its 
authority under the current and proposed part 49 regulations, as set 
forth below, to the Director of DMO, and to such members of the 
Commission's staff acting under his or her direction as he or she may 
see fit from time to time.
    The Commission did not receive any comments on proposed Sec.  
49.31. The Commission continues to believe the proposed addition of 
Sec.  49.31 and the proposed new delegations thereunder will improve 
the Commission's ability to respond to developments in the swaps 
market, to access information and data from SDRs, and to fulfill the 
Commission's oversight obligations. Accordingly, the Commission is 
adopting Sec.  49.31 as proposed.
    Final Sec.  49.31(a)(1) delegates to the Director of DMO the 
Commission's authority to request documentation related to an SDR 
equity interest transfer pursuant to Sec.  49.5.\236\
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    \236\ See section II.C above.
---------------------------------------------------------------------------

    Final Sec.  49.31(a)(2) delegates to the Director of DMO the 
Commission's authority to instruct an SDR on transmitting open swaps 
reports to the Commission pursuant to Sec.  49.9.\237\
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    \237\ See section II.E above.
---------------------------------------------------------------------------

    Final Sec.  49.31(a)(3) delegates to the Director of DMO the 
Commission's authority under Sec.  49.10 to modify an SDR's required 
acceptance of all SDR data in a particular asset class for which the 
SDR accepts data.
    Final Sec.  49.31(a)(4) delegates to the Director of DMO the 
Commission's

[[Page 75626]]

authority under Sec.  49.12 to request records from an SDR.\238\
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    \238\ See section II.H above.
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    Final Sec.  49.31(a)(5) delegates to the Director of DMO the 
Commission's authority under Sec.  49.13 to require an SDR to monitor, 
screen, and analyze SDR data.\239\
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    \239\ See section II.I above.
---------------------------------------------------------------------------

    Final Sec.  49.31(a)(6) delegates to the Director of DMO the 
Commission's authority under Sec.  49.16 to request that an SDR 
disclose aggregated SDR data in the form and manner prescribed by the 
Commission.
    Final Sec.  49.31(a)(7) delegates to the Director of DMO the 
Commission's authority with respect to all functions reserved to the 
Commission under Sec.  49.17.\240\
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    \240\ This includes the authority to: prescribe the form of 
direct electronic access that an SDR must make available to the 
Commission; prescribe the format by which an SDR must maintain SDR 
data; request an SDR transmit SDR data to the Commission; and 
instruct an SDR on the transmission of SDR data to the Commission. 
See section II.L above.
---------------------------------------------------------------------------

    Final Sec.  49.31(a)(8) delegates to the Director of DMO the 
Commission's authority under Sec.  49.18 to permit an SDR to accept 
alternative forms of confidentiality arrangements and the ability to 
direct an SDR to limit, suspend, or revoke access to swap data.\241\
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    \241\ See section II.M above.
---------------------------------------------------------------------------

    Final Sec.  49.31(a)(9) delegates to the Director of DMO the 
authority under Sec.  49.22 to grant an SDR an extension to the annual 
compliance report filing deadline.
    Final Sec.  49.31(a)(10) delegates to the Director of DMO the 
Commission's authority under Sec.  49.23 to require an SDR to exercise 
emergency authority and to request the documentation underlying an 
SDR's decision to exercise its emergency authority.
    Final Sec.  49.31(a)(11) delegates to the Director of DMO the 
Commission's authority under Sec.  49.24 to determine an SDR to be a 
``critical SDR'' and to request copies of BC-DR books and records, 
assessments, test results, plans, and reports.
    Final Sec.  49.31(a)(12) delegates to the Director of DMO the 
Commission's authority under Sec.  49.25, including the authority under 
Sec.  49.25(b)(2) to deem other financial resources as acceptable; the 
authority under Sec.  49.25(c) to review and require changes to an 
SDR's computations of projected operating costs; the authority under 
Sec.  49.25(f)(1) to request reports of financial resources; and the 
authority under Sec.  49.25(f)(3) to extend the deadline by which an 
SDR must file a quarterly financial report.
    Final Sec.  49.31(a)(13) delegates to the Director of DMO the 
Commission's authority under Sec.  49.29 to request information from an 
SDR, and to require an SDR to provide a written demonstration of its 
compliance with the Act and Commission regulations, including the 
authority to specify the form, manner and time for the an SDR's 
provision of such information or written demonstration.\242\
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    \242\ See section II.T above.
---------------------------------------------------------------------------

    Final Sec.  49.31(a)(14) delegates to the Director of DMO the 
Commission's authority under Sec.  49.30 to establish the format, 
coding structure, and electronic data transmission procedures for the 
submission of SDR data reports and any other information required by 
the Commission under part 49.\243\
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    \243\ See section II.U above.
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III. Amendments to Part 45

A. Sec.  45.1--Definitions

    The Commission is adding a definition for the term ``open swap'' to 
final Sec.  45.1 that will define the term as an executed swap 
transaction that has not reached maturity or expiration, and has not 
been fully exercised, closed out, or terminated. The definition is 
identical to the definition for ``open swap'' added to final Sec.  49.2 
and is intended to create consistency between defined terms in parts 45 
and 49 of the Commission's regulations. The term ``open swap'' is used 
is both final part 45 and part 49, particularly in regards to the 
requirements related to swap data verification, and consistency in the 
use of the term across both parts is crucial to ensure swap data 
verification functions properly. See section II.A.3 above for a more 
robust discussion of the definition of ``open swap.''

B. Sec.  45.2--Swap Recordkeeping

    As discussed above in Section II.H, as part of the amendments to 
Sec.  49.12, the Commission proposed to consolidate the SDR 
recordkeeping requirements set forth in current Sec.  45.2(f) and (g) 
into Sec.  49.12. As discussed above, the Commission has determined to 
adopt the consolidation of Sec.  45.2(f) and (g) into Sec.  49.12, as 
proposed.

C. Sec.  45.14--Correcting Errors in Swap Data and Verification of Swap 
Data Accuracy

1. Background and Summary of the Final Rule
    Pursuant to CEA section 2(a)(13)(G), all swaps must be reported to 
an SDR.\244\ The requirements for reporting swaps to an SDR, including 
requirements regarding swap data, are set forth in part 45 of the 
Commission's regulations.\245\ If the information for a specific data 
element that is required to be reported is incorrect, or swap data was 
not reported as required, the SEF, DCM, DCO, or reporting counterparty 
that was required to report has not satisfied its obligations under the 
Act and the Commission's regulations. There is no expiration for the 
requirement in the CEA and the Commission's regulations to report 
swaps, and therefore, the requirement to report swap data remains in 
effect until satisfied. Accordingly, if swap data is not completely and 
accurately reported, the obligation to report the swap data remains in 
effect. The Commission also interprets the statutory requirement to 
report swaps to include a requirement to ensure that the reporting was 
performed completely and accurately. Further, as discussed in section 
II.G above, CEA section 21(c)(2) requires SDRs to confirm the accuracy 
of swap data with both counterparties. The Commission interprets this 
provision to require each counterparty to participate in ensuring the 
completeness and accuracy of swap data.
---------------------------------------------------------------------------

    \244\ 7 U.S.C. 2(a)(13)(g).
    \245\ See generally 17 CFR part 45.
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    Accordingly, in order to ensure the high quality of swap data, the 
Commission is adopting the proposed rules, with modifications, to 
require counterparties to take steps to ensure the accuracy and 
completeness of swap data reported to SDRs. In response to comments, 
the Commission is modifying final Sec.  45.14 to make the error-
correction and verification processes less burdensome and more flexible 
than the processes set forth in proposed Sec.  45.14. To this end, 
final Sec.  45.14(a)(1), as does current Sec.  45.14, requires each 
SEF, DCM, and reporting counterparty to correct errors \246\ relating 
to swap data that it was required to report under part 45. Further, 
final Sec.  45.14(b) requires reporting counterparties to verify the 
accuracy and completeness of the swap data for their open swaps. Final 
Sec.  45.14(a)(2) requires each non-reporting

[[Page 75627]]

counterparty to notify the reporting counterparty if it discovers an 
error.
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    \246\ The Commission notes that current Sec.  45.14 and proposed 
Sec.  45.14 both use the phrases ``errors and omissions'' and 
``errors or omissions'' in the correction requirements. See 
generally 17 CFR 45.14 and Proposal at 21098-99. The Commission is 
not including the word ``omission'' in final Sec.  45.14 for 
simplicity purposes, but the Commission emphasizes that all 
omissions of required swap data, whether the omissions are the 
failure to report individual data elements for a swap or the failure 
to report all swap data for a swap, are errors that must be 
corrected under final Sec.  45.14, just as the omissions must be 
corrected under current Sec.  45.14. The Commission makes clear in 
final Sec.  45.14(c), discussed below, that all omissions of 
required swap data are errors under final Sec.  45.14.
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    Final Sec.  45.14(a)(1) provides that any SEF, DCM, or reporting 
counterparty that by any means \247\ becomes aware of any error 
relating to swap data that it was required to report under part 45 must 
correct the error. This correction requirement includes swap data for a 
swap that has terminated, matured, or otherwise is no longer considered 
to be an open swap. As noted, there is no expiration on the requirement 
to report swaps, and the requirement includes all swaps regardless of 
the state of the swap.
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    \247\ The Commission notes that, as explained in the Proposal, 
``by any means'' includes absolutely any means that alerts a SEF, 
DCM, or reporting counterparty to an error in the relevant swap 
data. Awareness or discovery of errors to be corrected would 
include, but would not be limited to, errors present in the swap 
data during the verification process specified in final Sec.  
45.14(b). This would include swap data for any open swaps that 
should be present in the swap data accessible through the applicable 
SDR verification mechanism that are omitted, or swap data for swaps 
that are no longer open that is still accessible through the 
verification mechanism, in addition to any other errors in the swap 
data accessible through the verification mechanism. The requirement 
would also include, but is not limited to, a SEF, DCM, or reporting 
counterparty being informed of errors by an outside source, such as 
a non-reporting counterparty under final Sec.  45.14(a)(2), a SEF or 
DCM, or the Commission; errors discovered by a SEF, DCM, or 
reporting counterparty during a review of its own records or a 
voluntary review of swap data maintained by the SDR, including the 
discovery of any over-reporting or under-reporting of swap data; and 
the discovery of errors during the investigation of a separate 
issue. The Commission also expects that a SEF, DCM, or reporting 
counterparty that repeatedly discovers errors, especially repeated 
errors that follow a pattern, such as the reporting for a certain 
type of swap regularly resulting in errors, would evaluate its 
reporting systems to discover and correct any issues. See Proposal 
at 21069-70.
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    However, final Sec.  45.14(a)(3) provides that the error correction 
requirement in final Sec.  45.14(a)(1) does not apply to swaps for 
which the record retention periods under Sec.  45.2 of this part have 
expired as of the time that the errors are discovered. The Commission 
determined that this exclusion is appropriate, as SEFs, DCMs, and 
reporting counterparties are not required to maintain records related 
to their swaps beyond the applicable retention periods in Sec.  45.2. 
The exclusion therefore removes any potential confusion as to the 
correction of swaps beyond the retention period for these swaps. The 
Commission further notes that, with the adoption of the verification 
requirement, the Commission expects that errors will generally be 
discovered during the record retention period and the exclusion will 
not have a significant impact on the accuracy of swap data for future 
swaps. The Commission emphasizes that a SEF, DCM, or reporting 
counterparty may not in any way attempt to avoid ``discovering'' 
errors, including, but not limited to, by not performing thorough 
verification as required under final Sec.  45.14(b).
    Final Sec.  45.14(a)(1)(i) provides that corrections must be made 
as soon as technologically practicable after discovery of an error. In 
all cases, errors must be corrected within seven business days after 
discovery. This deadline is necessary to ensure that errors are 
corrected in a timely manner. Final Sec.  45.14(a)(1)(ii) provides that 
if an error will not be corrected in a timely fashion, the entity 
required to correct must notify the Director of DMO, or such other 
employee or employees of the Commission as the Director may designate 
from time to time, of the error. The notification must be made within 
twelve hours of when the determination is made that the error will not 
be corrected in time. This notification requirement is necessary to 
alert the Commission to problems with the quality of swap data. The 
notification must be made according to the instructions that will be 
specified by the Director of DMO, or such other employee or employees 
of the Commission as the Director may designate from time to time. The 
notification must generally include an initial assessment of the scope 
of the error or errors. If an initial remediation plan exists, the 
notification must include the initial remediation plan as well.\248\
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    \248\ The Commission notes that, while final Sec.  
45.14(a)(1)(ii) only requires the entity to provide an initial 
remediation plan with the notice if such a plan exists, the 
Commission may also request additional information regarding any 
error(s) and the correction process at any time, including 
requesting an updated or fully-developed remediation plan.
---------------------------------------------------------------------------

    Final Sec.  45.14(b) requires each reporting counterparty to verify 
the accuracy and completeness of swap data for all of its open swaps. 
To perform verification, each reporting counterparty must utilize the 
mechanism adopted for verification under Sec.  49.11 by each SDR the 
reporting counterparty uses for swap data reporting. Each reporting 
counterparty must use the relevant SDR mechanism to compare all swap 
data for each open swap that is maintained by the SDR for which it is 
the reporting counterparty with all swap data contained in the 
reporting counterparty's internal books and records to verify that 
there are no errors.
    Final Sec.  45.14(a)(1)(i) provides that any error that is 
discovered or could have been discovered during the performance of the 
verification process is considered discovered as of the moment the 
verification process began, and the error must be corrected 
accordingly. The Commission determined that this rule is necessary in 
order to ensure that reporting counterparties diligently perform 
verification.
    Under final Sec.  45.14(b)(1) and final Sec.  49.11(b)(2), the 
verification requirement entails verifying that there are no errors for 
each data field for each open swap that the reporting counterparty was 
required to report under this part. The Commission determined that all 
swap data is relevant, and that none of the data that the Commission 
requires to be reported is unnecessary. All swap data fields are 
necessary to ensure the quality of all swap data available to the 
Commission, which the Commission uses to fully perform its regulatory 
mission. Accordingly, the verification requirement applies to all 
reporting counterparties, for all open swaps, and for each required 
data element. However, the Commission determined that it is only 
necessary for reporting counterparties to verify that there are no 
errors in the up-to-date swap data for each data field that is required 
to be reported under part 45 of this chapter, and it is unnecessary to 
require verification of data reporting messages. Accordingly, SDRs are 
only required to make available to reporting counterparties the most 
current swap data the SDR maintains using the verification mechanism, 
as discussed above in II.G, and reporting counterparties are only 
required to verify using the swap data available through this mechanism 
under final Sec.  45.14(b).
    Final Sec.  45.14(b)(4) provides the minimum frequency at which a 
reporting counterparty must perform verification. A reporting 
counterparty that is an SD, MSP, or DCO, must perform verification once 
every thirty calendar days. All other reporting counterparties must 
perform verification once every calendar quarter, provided that there 
are at least two calendar months between verifications.
    The Commission determined that these time frames are sufficient to 
ensure the quality of swap data because SDs, MSPs, and DCOs serve as 
reporting counterparties for the overwhelming majority of swap 
data,\249\ meaning the overwhelming majority of open swaps would be 
verified on a monthly basis.

[[Page 75628]]

The Commission also believes that non-SD/MSP/DCO reporting 
counterparties may include various entities that would bear a 
significant burden to verify swap data more often than quarterly, 
without a corresponding increase in data quality, because these 
entities are more likely to not have the same resources and experience 
to devote to verification as SD/MSP/DCO reporting counterparties and 
are only responsible for verifying a small proportion of swaps. The 
Commission further determined that final Sec.  45.14(b)(4)(ii) 
requiring a duration of at least two calendar months between quarterly 
verifications for non-SD/MSP/DCO reporting counterparties is necessary 
to ensure that there is sufficient time between verifications to 
adequately ensure data quality.
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    \249\ See De Minimis Exception to the Swap Dealer Definition, 83 
FR 56666, 56674 (Nov. 13, 2018) (stating that, in 2017, 
approximately 98 percent of swap transactions involved at least one 
registered SD).
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    Under final Sec.  45.14(b), a reporting counterparty is not 
required to notify the relevant SDR regarding the result of a 
verification,\250\ as was required under proposed Sec.  45.14(a).\251\ 
The Commission determined that in order to ensure the quality of swap 
data, it is sufficient for the Commission to have the ability to 
confirm that verification was performed timely and properly, and to 
enforce the verification and error correction requirements. Therefore, 
the notification of the result of a verification is not necessary to 
ensure data quality or to fulfill the SDR's obligation to confirm the 
accuracy of data under CEA section 21. Accordingly, final Sec.  
45.14(b)(5) requires each reporting counterparty to keep a log of each 
verification that it performs. The log must include all errors 
discovered during the verification, as well as the corrections made 
under final Sec.  45.14(a). Final Sec.  45.14(b)(5) further clarifies 
that the requirement to keep a verification log is in addition to all 
other applicable recordkeeping requirements.
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    \250\ However, as noted, under final Sec.  45.14(a)(1)(i) and 
final Sec.  45.14(b)(3), if the reporting counterparty discovered, 
or could have discovered, an error, the reporting counterparty is 
required to correct the error under final Sec.  45.14(a)(1).
    \251\ See Proposal at 21099.
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    Non-reporting counterparties must also participate in ensuring that 
errors in swap data are corrected, although to a much smaller degree 
than reporting counterparties. Final Sec.  45.14(a)(2) provides that a 
non-reporting counterparty that by any means discovers an error must 
notify the reporting counterparty of the error. The notification must 
be made as soon as technologically practicable after discovery, but not 
later than three business days following discovery of the error. The 
Commission notes that non-reporting counterparties are not required to 
verify swap data, and that the notification only needs to include the 
errors that the non-reporting counterparty discovers. To the extent 
that an error exists, the reporting counterparty will be required to 
correct the error under the requirements of final Sec.  45.14(a)(1). 
The Commission determined that this notification requirement is 
necessary to ensure the quality of swap data. The Commission further 
determined that the three-business-day notification deadline is 
necessary to ensure that the non-reporting counterparty will notify the 
reporting counterparty of errors in a timely manner.
    The Commission recognizes that a non-reporting counterparty may not 
know the identity of the reporting counterparty. Accordingly, Sec.  
45.14(a)(2) provides that when the non-reporting counterparty does not 
know the identity of the reporting counterparty, the non-reporting 
counterparty must notify the SEF or DCM where the swap was executed of 
the error in the same time frame for notifying the reporting 
counterparty. Such notification constitutes discovery of the error for 
the SEF or DCM for purpose of the SEF's or DCM's error correction 
requirement under final Sec.  45.14(a).
    Errors are described in final Sec.  45.14(c), which provides that 
for the purposes of Sec.  45.14, there is an error when swap data is 
not completely and accurately reported. Under final Sec.  45.14(c)(1), 
errors include, but are not limited to, where swap data is reported to 
an SDR, or is maintained by an SDR, containing incorrect information 
(i.e. the swap data is present, but is incorrect); where some required 
swap data for a swap is reported to an SDR, or is maintained by an SDR, 
and other required swap data is omitted (i.e. some required swap data 
elements are blank); where no required swap data for a swap is reported 
to an SDR, or maintained by an SDR, at all (i.e. none of the swap data 
was reported as required and/or is missing from the SDR); and where 
swap data for swaps that are no longer open is maintained by an SDR as 
if the swaps are still open (i.e., swap data for swaps that are no 
longer open swaps is still available during the verification 
process).\252\ In each of these circumstances, among others, swap data 
is not complete and accurate.
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    \252\ The Commission notes that for each of these examples the 
entity responsible for the error may or may not be the entity that 
is required to correct the error. For example, if an SDR fails to 
record swap data that a reporting counterparty properly reported, it 
will still be the reporting counterparty that reports the error. The 
Commission emphasizes that the error correction process is one 
overarching requirement intended to result in accurate and complete 
swap data, regardless of the entities involved and their respective 
roles in any particular error correction. The SEFs, DCMs, and 
reporting counterparties have the responsibility to correct errors 
to the SDR once they are discovered, even if the SEF, DCM, or 
reporting counterparty is not at fault for the error, which is an 
independent responsibility from the responsibility to successfully 
report or maintain swap data. The Commission would endeavor to hold 
the entity responsible for the reporting error accountable for the 
failure to correctly report or maintain the erroneous swap data, as 
applicable, regardless of which entity corrects the error under 
final Sec.  45.14.
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    Under Sec.  45.14(c)(2), there is a presumption that, for the 
purposes of Sec.  45.14, an error exists if the swap data that is 
maintained and disseminated by an SDR for a swap is not complete and 
accurate. The Commission determined that this presumption is necessary 
because the swap data maintained and disseminated by the SDRs is the 
same as the swap data available to the Commission and it is necessary 
to ensure the accuracy of that swap data for the Commission's 
regulatory purposes. Further, the presumption that the swap data 
maintained and disseminated by SDRs is the same as the swap data that 
was reported is implicit in the structure of swap data reporting under 
CEA section 21. Under CEA section 21(c)(4) and (7), an SDR is required 
to make the swap data it maintains available to the Commission and to 
certain other regulators. This requirement only serves its purpose if 
there is a presumption that the swap data maintained by the SDR is the 
same as the swap data that was reported to the SDR.
2. Comments on the Proposal
    The Commission received a number of comments on the Proposal 
recommending limitations on the scope of the error correction rules. 
Comments recommended that the error correction rules should only apply 
to open swaps \253\ or that error correction rules should only apply in 
a limited fashion to swaps that are not open.\254\ These comments 
included recommendations to add a materiality threshold to the 
requirement to correct errors for swaps that are not open; \255\ to 
limit the requirement to correct errors to specific data elements, such 
as counterparty, price, and product; \256\ to limit the requirement to 
correct errors to errors that are discovered within the relevant record 
retention period for the swap; \257\ and to limit the requirement to 
correct errors to certain reporting counterparties.\258\
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    \253\ FIA at 9; Chatham at 4-5.
    \254\ ISDA/SIFMA at 46; FIA at 9.
    \255\ CS at 3.
    \256\ ISDA/SIFMA at 47; FIA at 9.
    \257\ Id.
    \258\ Joint Associations at 10-12.

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[[Page 75629]]

    The Commission generally does not agree with the recommendations to 
exclude swaps that are no longer open from the full requirement to 
correct errors. There is no expiration in the CEA and the Commission's 
regulations on the requirement to report swap data. If there is an 
error in the reporting of swap data, the reporting counterparty has not 
fulfilled its requirement to report swap data. Further, the Commission 
utilizes data regarding swaps that are no longer open in a variety of 
ways, including in its market and economic analyses and in its 
enforcement and administration of the provisions of the CEA. It is 
therefore necessary to ensure that swap data for these swaps does not 
contain errors. Although the Commission is limiting the verification 
requirements to open swaps, the Commission is doing so because the 
verification of swaps that are no longer open is not as practicable as 
with open swaps, not because it is unnecessary to ensure that swap data 
from these swaps is free from error.
    The Commission similarly declines to accept recommendations to 
limit the scope of the error correction rules by adopting a materiality 
requirement, or by limiting the application of the rules to only 
certain data elements. A reporting counterparty does not satisfy the 
requirement to report swap data until all required elements are 
accurately reported. Further, all the required swap data elements are 
significant and required in order for the Commission to perform its 
regulatory functions. As a result, it is necessary for the Commission 
to ensure that the swap data for every data element is accurate.
    However, the Commission agrees with the recommendation to exclude 
errors that are discovered after the expiration of the relevant 
recordkeeping requirement. The Commission recognizes that it would be 
impracticable for SEFs, DCMs, and reporting counterparties to be 
required to correct such errors, as these entities are not required to 
keep records of swap data beyond the applicable retention periods, and 
these records would be necessary to discover and correct errors. 
Accordingly, final Sec.  45.14(a)(3) excludes such errors from the 
error correction requirement.
    The Proposal provided that errors must be corrected as soon as 
technologically practicable after discovery, but no later than three 
business days after discovery.\259\ The Proposal, like final Sec.  
45.14(a)(1)(ii), also included a requirement to notify the Director of 
DMO if an error will not be timely corrected.\260\ The Commission 
received a number of comments on these rules. Comments generally 
recommended limiting the notification requirement by expanding the time 
frame to correct errors.\261\ Comments also stated that three business 
days may not be sufficient time to identify the scope of the errors and 
develop a remediation plan.\262\ Other comments recommended including a 
materiality threshold to the notification requirement,\263\ and 
adopting a principles-based rule that would provide greater flexibility 
regarding the deadline for correcting errors.\264\ Other comments 
recommended not adopting the three-day deadline and the notification 
requirement,\265\ and instead replacing the notification requirement 
with a requirement to maintain a log of errors and remediation and only 
require notification for material errors and only after ``due review of 
the facts and circumstances.'' \266\
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    \259\ See Proposal at 21099 (proposed Sec.  45.14(b)(1)(i)).
    \260\ See id. (proposed Sec.  45.14(b)(1)(ii)).
    \261\ See, e.g., CEWG at 5.
    \262\ Id.; ISDA/SIFMA at 46.
    \263\ Id. at 5-6.
    \264\ ICE Clear at 3-4.
    \265\ FIA at 8; Joint Associations at 13.
    \266\ ISDA/SIFMA at 46.
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    The Commission does not agree with the recommendations to replace 
or not adopt the notification requirement. The purpose of the 
notification requirement is to provide the Commission with the 
information that it needs to assess the accuracy of swap data. The 
notification requirement is not punitive. However, to make the 
notification more useful to the Commission, the Commission accepts the 
recommendation for a longer notification time frame and final Sec.  
45.14(a)(1)(ii) extends the notification deadline for correcting errors 
to seven business days. This longer time frame will provide the entity 
making the correction time to develop a more accurate understanding of 
the scope of the error. The Commission also agrees with the 
recommendations that it may not be feasible in every case to develop an 
initial remediation plan. Accordingly, final Sec.  45.14(a)(1)(ii) 
provides that the notification needs to include the initial remediation 
plan, but only if one exists.\267\
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    \267\ The current common practice for market participants is to 
notify DMO after discovering reporting errors and to develop a 
remediation plan once a solution for the errors is formulated. The 
Commission expects that this practice will continue, but notes that 
final Sec.  45.14(a)(1)(ii) does not require the notification of the 
failure to timely correct an error to include an initial remediation 
plan if one does not yet exist.
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    The Commission received several comments recommending against 
requiring reporting counterparties to verify their swap data. Several 
commenters stated that improving SDR validations and the required data 
elements is a more efficient way to increase data accuracy than the 
proposed verification rules.\268\ Other commenters stated that 
verification is unnecessary because it would only marginally improve 
the data accuracy, and the burden on reporting counterparties outweighs 
that marginal gain.\269\ Other commenters stated that verification is 
unnecessary because the extent of errors in swap data is unknown.\270\ 
The Commission also received several comments generally supporting the 
proposed verification rule, asserting that it will help to ensure the 
high quality of swap data.\271\
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    \268\ Chatham at 6; FIA at 7-8; ICE TV at 2-4; NGSA at 4; Joint 
Associations at 6-10; Eurex at 2; CEWG at 2-3.
    \269\ FIA at 2-3.
    \270\ Chatham at 5; GIFMA at 14.
    \271\ Joint SDR at 1; IATP at 1-7; LCH at 4; Markit at 2.
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    The Commission does not agree with the recommendations against 
requiring verification. As noted above, the Commission interprets the 
requirement to report data to an SDR in section 2(a)(13)(G) of the CEA 
to include a requirement that the reporting counterparty verifies that 
it accurately complied with the requirement. The Commission also 
interprets the requirement in section 21(c)(2) of the CEA for SDRs to 
confirm the accuracy of reported data with the counterparties to also 
include a requirement for counterparties to participate in ensuring the 
swap data accuracy, as not including counterparties in the confirmation 
process would render the statutory requirement useless. The purpose of 
the verification requirement is to ensure the quality of swap data, as 
required by the Act. Improving SDR validations and standardizing the 
data elements alone will not accomplish this, because a swap data error 
that is still a plausible value, such as reporting a notional value of 
$1,000,000 instead of the correct notional value of $10,000,000, would 
not be caught by validations. Only a review of the swap data by the 
counterparty that is responsible for reporting the swap data would 
catch this error.
    Additionally, the Commission has ample experience with the 
existence of swap data errors that would pass validations that, in the 
absence of an adequate verification requirement, persisted for long 
periods of time before being discovered and corrected. The Commission 
cannot know the precise nature and scope of existing errors that have 
not been corrected, which the

[[Page 75630]]

verification requirement is designed to address, because the errors are 
not obvious from the swap data and will not be knowable to the 
Commission unless and until they are discovered and corrected. However, 
based on its experience, the Commission has determined that data 
quality can be further improved by requiring verification, and doing so 
is consistent with the requirements in the Act to report swap data and 
to verify the accuracy of the reported swap data.
    The Commission also received comments regarding which 
counterparties should be required to perform verifications. Comments 
recommended excluding specific reporting counterparties, including end 
users with centralized trading structures,\272\ non-bank SDs and 
reporting counterparties that are not SDs or MSPs,\273\ ``unregistered 
end users,'' \274\ reporting counterparties that report less than 
fifty-one swaps per month,\275\ and DCOs.\276\ The Commission rejects 
these recommendations to exempt any classes of reporting counterparties 
from verification. As noted, the requirement under section 2(a)(13)(G) 
of the CEA to verify that swap data was reported correctly and the 
requirement under section 21(c)(2) to confirm the accuracy of swap data 
applies to all reporting counterparties, regardless of size, 
registration status, type, or how frequently the reporting counterparty 
report swaps. All reporting counterparties are, by definition, also 
users of at least one SDR and are fully capable of communicating with 
an SDR to report swap data and correct swap data as required, whether 
directly or through the use of a third-party service provider, and are 
also therefore fully capable of verifying swap data through an SDR-
provided mechanism, as required by final Sec.  45.14(b). Further, all 
swap data for all swaps is significant, material, and important for the 
Commission's performance of its regulatory responsibilities. 
Verification is necessary to ensure that the swap data is free from 
errors, and every reporting counterparty performing verification as 
required is essential to rooting out swap data errors.
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    \272\ Prudential at 1-2.
    \273\ NGSA at 1-4.
    \274\ Freddie Mac at 2.
    \275\ COPE at 3.
    \276\ lCH at 3-4; ICE Clear at 2.
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    The Commission notes that although CEA section 21(c)(2) also 
includes non-reporting counterparties in the obligation to confirm the 
accuracy of reported swap data, the Commission determined that it is 
unnecessary to require non-reporting counterparties to perform 
verification. The Act places the burden of reporting on the reporting 
counterparty, and, as the only counterparty with swap data reporting 
responsibilities, the reporting counterparty is best positioned to 
perform verification. Commenters generally supported this 
determination.\277\ Comments stated that non-reporting counterparties 
will generally not be able to communicate with the relevant SDR(s), and 
that it will be very uncommon for there to be discrepancies between the 
data maintained by the reporting counterparty and the non-reporting 
counterparty, such that the reporting counterparty's verification is 
sufficient to ensure the quality of swap data.\278\
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    \277\ Joint Associations at 13; ISDA/SIFMA at 39; Chatham at 1-
2; COPE at 2; Joint SDR at 2; ICI at 10-11.
    \278\ GIFMA at 4; Chatham at 1-2.
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    The Commission also received comments recommending changes to the 
proposed verification rule. The proposed rule required reporting 
counterparties that are SDs, MSPs, or DCOs to perform verification 
weekly and all other reporting counterparties to perform verification 
monthly.\279\ Instead, commenters recommended adopting a rule that 
would require verification to be performed less frequently. One 
suggested alternative was to adopt a more ``principles based'' 
approach, under which reporting counterparties would periodically 
perform verification less frequently than the proposed rule 
required.\280\ One comment recommended that verification should only be 
required to be performed monthly by all reporting counterparties.\281\ 
Another comment recommended that verification should only be required 
to be performed monthly by reporting counterparties that are SDs, and 
quarterly by all other reporting counterparties.\282\ The Commission 
accepts the recommendation that it is not necessary for verification to 
be performed with the frequency of the Proposal in order to meet the 
Commission's swap data quality needs. Accordingly, final Sec.  
45.14(b)(4) provides that a reporting counterparty that is an SD, MSP 
or DCO must perform verification once every thirty calendar days, and 
all other reporting counterparties must perform verification once every 
calendar quarter, provided that there are at least two calendar months 
between the quarterly verifications.
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    \279\ Proposal at 84 FR 21103 (May 13, 2019).
    \280\ CS at 3; FIA at 7-8; ISDA/SIFMA at 45.
    \281\ GIFMA at 5.
    \282\ ISDA/SIFMA at 45.
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    The Commission also received comments on the scope of the data that 
must be verified. The verification rule in the Proposal would apply to 
all required swap data fields for all open swaps.\283\ The Commission 
received comments in support of limiting the verification requirement 
to only the required swap data elements and not to all swap data 
messages.\284\ The Commission also received a comment recommending that 
the verification rule should be limited to specific data elements, such 
as economic terms.\285\
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    \283\ Proposal at 21098, 21103.
    \284\ GIFMA at 4-6; ISDA/SIFMA at 40-41; IATP at 5.
    \285\ GIFMA at 10.
---------------------------------------------------------------------------

    The Commission declines to accept the recommendation to limit the 
scope of the verification requirement. Every data field that is 
required to be reported to the Commission is significant and necessary 
for the Commission's performance of its regulatory responsibilities, 
and to ensure the quality of all swap data.
    One comment recommended limiting the verification requirement to 
once per swap, meaning that once swap data for a particular swap has 
been verified, the reporting counterparty no longer is required to 
verify the data for that swap.\286\ The Commission does not agree with 
this recommendation. Swap data is often updated frequently through 
continuation data reporting, including lifecycle event reporting and 
valuation reporting, and errors can occur throughout the life of the 
swap. Regular verification of open swaps is necessary to ensure that 
the swap data for each open swap remains free from errors throughout 
the life of the swap.
---------------------------------------------------------------------------

    \286\ ISDA/SIFMA at 45.
---------------------------------------------------------------------------

    The Commission also received comments regarding the requirements on 
non-reporting counterparties to ensure that swap data is free from 
errors. Comments supported excluding non-reporting counterparties from 
the verification requirements.\287\ Comments also supported not 
requiring non-reporting counterparties to submit error corrections to 
SDRs.\288\ The Commission received one comment recommending against 
requiring a non-reporting counterparty to notify the reporting 
counterparty when it discovers an error.\289\ The Commission does not 
agree with this recommendation. The confirmation requirement in CEA

[[Page 75631]]

section 21(c)(2) requires both counterparties to confirm the accuracy 
of swap data. The Commission has excluded non-reporting counterparties 
from the requirement to verify swap data, but if a non-reporting 
counterparty discovers an error, it must take steps to correct the 
error by notify the reporting counterparty.
---------------------------------------------------------------------------

    \287\ Joint Associations at 13; ISDA/SIFMA at 39; Chatham at 1-
2; COPE at 2; Joint SDR at 2; ICI at 10-11.
    \288\ COPE at 2.
    \289\ Joint Associations at 13.
---------------------------------------------------------------------------

    The Commission also received comments on the proposed Sec.  
45.14(b)(2),which provided, in part, that a reporting counterparty, 
SEF, or DCM that is notified of an error by a non-reporting 
counterparty is only required to correct the error if it agrees with 
the non-reporting counterparty that an error exists.\290\ Comments 
recommended against adopting the requirement that the non-reporting 
counterparty and the reporting counterparty, SEF, or DCM must agree to 
the error,\291\ and comments requested that the requirement be 
clarified.\292\
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    \290\ CEWG at 5, Joint Associations at 13.
    \291\ Joint Associations at 13.
    \292\ CEWG at 5.
---------------------------------------------------------------------------

    The Commission is not adopting the requirement. Final Sec.  
45.14(a) explicitly applies to errors regardless of the how the SEF, 
DCM, or reporting counterparty becomes aware of the error. If the non-
reporting counterparty notifies the reporting counterparty of the 
error, and the SEF, DCM, or reporting counterparty disagrees that there 
is an error, then the SEF, DCM, or reporting counterparty has not 
discovered an error and there is nothing to correct. The Commission 
does however note that a SEF, DCM, or reporting counterparty refusing 
to acknowledge an error that does exist, and therefore not correcting 
the error, would violate the Commission's regulations.

IV. Amendments to Part 43

A. Sec.  43.3(e)--Correction of Errors

    The Commission is adopting proposed Sec.  43.3(e), with 
modifications. Final Sec.  43.3(e) is identical in substance to Sec.  
45.14(a), described in III.B, above, except that Sec.  45.14(a) 
provides the rules for correcting errors \293\ in swap data, while 
Sec.  43.3(e) provides the rules for correcting errors in swap 
transaction and pricing data. As in Sec.  45.14(a), Sec.  43.3(e) 
generally requires each SEF, DCM, and reporting counterparty to correct 
any error it discovers, including for swaps that are no longer open. 
The Commission notes that, although market participants generally treat 
the current error correction requirements in Sec.  43.3(e) and Sec.  
45.14 as if they are consistent, existing Sec. Sec.  43.3(e) and 45.14 
do not share consistent terminology and style. In addition to the 
substantive amendments and rules that are described above in section 
III.C, the Commission determined that the terminology and style of the 
error correction rules final Sec. Sec.  45.14(a) and 43.3(e) should be 
consistent. This will add clarity to the error correction requirements, 
which may result in increased compliance. The Commission received 
numerous comments on the proposed amendments to the error correction 
rules The Commission did not receive any comments that apply only to 
Sec.  43.3(e), and is assessing all comments on error correction as if 
they apply equally to both Sec. Sec.  43.3(e) and 45.14(a).\294\ The 
comments are described above in section III.C.
---------------------------------------------------------------------------

    \293\ The Commission notes that, as with final Sec.  45.14, 
current Sec.  43.3(e) and proposed Sec.  43.3(e) both use the 
phrases ``errors and omissions'' and ``errors or omissions'' in the 
correction requirements. See generally 17 CFR 43.3(e) and Proposal 
at 84 FR 21097-98 (May 13, 2019). The Commission is not including 
the word ``omission'' in final Sec.  43.3(e) for simplicity 
purposes, but the Commission emphasizes that all omissions of 
required swap transaction and pricing data, whether the omissions 
are the failure to report individual data elements for a swap or the 
failure to report all swap transaction and pricing data for a swap, 
are errors that must be corrected under final Sec.  43.3(e), just as 
the omissions must be corrected under current Sec.  43.3(e). The 
Commission makes clear in final Sec.  43.3(e)(4) that all omissions 
of required swap data are errors under final Sec.  43.3(e).
    \294\ See e.g., ISDA/SIFMA at 47 (``Refer to responses above for 
proposed Sec.  45.14 which also apply similarly to Sec.  43.3.'').
---------------------------------------------------------------------------

B. Removal of Sec.  43.3(f) and (g)

    Current Sec.  43.3(f) and (g) set forth the operating hours 
requirements for SDRs.\295\ As discussed above, the Commission proposed 
to remove Sec.  43.3(f) and (g) and to incorporate the provisions in 
new Sec.  49.28.\296\ The Commission believes these provisions are 
better placed in part 49 of this chapter because they address SDR 
operations and, as amended, final Sec.  49.28 applies to all SDR data 
and also incorporates provisions from SBSDR operating hours 
requirements. Accordingly, the Commission is adopting the proposed 
removal of Sec.  43.3(f) and (g).
---------------------------------------------------------------------------

    \295\ 17 CFR 43.3(f) and (g).
    \296\ See section II.S above. Current Sec.  43.3(f) contains the 
hours of operations requirements and current Sec.  43.3(g) contains 
the requirements for SDRs to accept swap transaction and pricing 
data during closing hours.
---------------------------------------------------------------------------

V. Amendments to Part 23

Sec.  23.204--Reports to Swap Data Repositories, and Sec.  23.205--
Real-Time Public Reporting

    The Commission proposed additions to Sec. Sec.  23.204 and 23.205 
of the Commission's regulations. The proposed additions would require 
each SD and MSP to establish, maintain, enforce, review, and update as 
needed written policies and procedures that are reasonably designed to 
ensure that the SD or MSP complies with all obligations to report swap 
data to an SDR, consistent with parts 43 and 45. The Proposal noted 
that pursuant to other Commission regulations, SDs and MSPs are already 
expected to establish policies and procedures related to their swap 
market activities, including but not limited to, swaps reporting 
obligations.\297\ The Commission proposed to make this expectation 
explicit with respect to swaps reporting obligations. Commenters 
recommended that the Commission take a less prescriptive approach than 
the Proposal, and noted that it is unnecessary to add specificity for 
swaps reporting obligations for data reporting policies and 
procedures.\298\ The Commission notes that existing Sec. Sec.  23.204 
and 23.205 require SDs and MSPs to report all swap data and swap 
transaction and pricing data they are required to report under parts 43 
and 45, and to have in place the electronic systems and procedures 
necessary to transmit electronically all such information and 
data.\299\ As noted above, these requirements are encompassed by the 
existing requirement that SDs and MSPs establish policies and 
procedures. Therefore, the Commission agrees with the comments and 
determines that it is unnecessary to make the proposed additions. 
Accordingly, the Commission does not adopt any amendments to Sec.  
23.204 or 23.205.
---------------------------------------------------------------------------

    \297\ See, e.g., 17 CFR 3.3(d)(1) (requiring a chief compliance 
officer to administer each of the registrant's policies and 
procedures relating to its business as an SD/MSP that are required 
to be establish pursuant to the Act and the Commission's 
regulations); 17 CFR 3.2(c)(3)(ii) (requiring the National Futures 
Association to assess whether an entity's SD/MSP documentation 
demonstrates compliance with the Section 4s Implementing Regulation 
to which it pertains, which includes Sec.  23.204 and Sec.  23.205).
    \298\ ISDA/SIFMA at 48; GFMA at 12.
    \299\ 17 CFR 23.204, 23.205.
---------------------------------------------------------------------------

VI. Compliance Date

    In the Proposal, the Commission stated that it intended to provide 
a unified compliance date for all three of the Roadmap rulemakings 
because all three must work in tandem to achieve the Commission's 
goals.\300\ The Commission also stated its intention to provide 
sufficient time for market participants to implement the changes in the 
rulemakings prior to the

[[Page 75632]]

compliance date.\301\ The Commission is adopting a unified compliance 
date for all three Roadmap rulemakings, May 25, 2022, unless otherwise 
noted.
---------------------------------------------------------------------------

    \300\ Proposal at 84 FR 21046 (May 13, 2019).
    \301\ Id.
---------------------------------------------------------------------------

    The Commission received comments recommending a staggered 
implementation period instead of a unified one,\302\ comments 
supporting an implementation period of one year,\303\ and a comment 
stating that one year is insufficient and recommending a compliance 
date that allows for a two-year implementation period.\304\ The 
Commission disagrees with comments recommending a staggered 
implementation period. The various rules in the Roadmap rulemakings, 
including verification and error correction, address different 
compliance areas and will achieve the overall goal of improved data 
quality only by working in tandem. The Commission agrees with the 
comment recommending an implementation period longer than a year, but 
the Commission disagrees that the implementation period should extend 
for two years. The amendments and additions in these final rules, as 
well as the related Roadmap rulemakings, are critical steps in 
implementing the requirements of the Act and ensuring high quality swap 
data. Accordingly, the Commission believes that an implementation 
period longer than eighteen months is unwarranted and to ensure that 
all market participants have sufficient time to implement the changes 
required in these rulemakings, the Commission has determined to provide 
an eighteen month implementation period.
---------------------------------------------------------------------------

    \302\ GFMA at 13; GFXD at 35.
    \303\ ISDSA/SIFMA at 36; LCH at 2 and 4; ICE SDR at 2 and 5.
    \304\ FIA at 10-11.
---------------------------------------------------------------------------

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.\305\ The Commission has previously established certain 
definitions of ``small entities'' to be used by the Commission in 
evaluating the impact of its rules on small entities in accordance with 
the RFA.\306\ The changes to parts 43, 45, 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,\307\ DCOs,\308\ MSPs,\309\ SDs,\310\ SDRs \311\, 
and SEFs \312\ are not small entities for purpose of the RFA.
---------------------------------------------------------------------------

    \305\ See 5 U.S.C. 601 et seq.
    \306\ See Policy Statement and Establishment of ``Small 
Entities'' for purposes of the Regulatory Flexibility Act, 47 FR 
18618 (Apr. 30, 1982).
    \307\ See id.
    \308\ See Derivatives Clearing Organization General Provisions 
and Core Principles, 76 FR 69334, 69428 (Nov. 8, 2011).
    \309\ See Swap Dealer and Major Swap Participant Recordkeeping, 
Reporting, and Duties Rules, 77 FR 20128, 20194 (Apr. 3, 2012) 
(basing determination in part on minimum capital requirements).
    \310\ See Swap Trading Relationship Documentation Requirements 
for Swap Dealers and Major Swap Participants, 76 FR 6715 (Feb. 8, 
2011).
    \311\ 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).
    \312\ Core Principles and Other Requirements for Swap Execution 
Facilities, 78 FR 33476, 33548 (June 4, 2013).
---------------------------------------------------------------------------

    Various changes to parts 43, 45, 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 that 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 
pursuant to the rules of a DCM.\313\ The Commission has previously 
certified that ECPs are not small entities for purposes of the 
RFA.\314\
---------------------------------------------------------------------------

    \313\ See 7 U.S.C. 2(e).
    \314\ See Opting Out of Segregation, 66 FR 20740, 20743 (Apr. 
25, 2001). The Commission also notes that this determination was 
based on the definition of ECP as provided in the Commodity Futures 
Modernization Act of 2000. The Dodd-Frank 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 \315\ 
across all five asset classes to determine the number and identities of 
non-SD/MSP/DCOs that are reporting counterparties to swaps under the 
Commission's jurisdiction. A recent Commission staff review of swap 
data, including swaps executed on or pursuant to the rules of a DCM, 
identified nearly 1,600 non-SD/MSP/DCO reporting counterparties. Based 
on its review of publicly available data, the Commission believes that 
the overwhelming majority of these non-SD/MSP/DCO reporting 
counterparties are either ECPs or do not meet the definition of ``small 
entity'' established in the RFA. Accordingly, the Commission does not 
believe the rules would affect a substantial number of small entities.
---------------------------------------------------------------------------

    \315\ 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 default 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 that 
this Final Rule will have a significant economic impact on a 
substantial number of small entities. Therefore, the Chairman, on 
behalf of the Commission, pursuant to 5 U.S.C. 605(b), hereby certifies 
that the Final Rule will not have a significant economic impact on a 
substantial number of small entities.

B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (``PRA'') \316\ 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 three control 
numbers from the Office of Management and Budget (``OMB''), one for 
each of the information collections impacted by this rulemaking: (1) 
OMB Control Number 3038-0096 (Swap Data Reporting and Recordkeeping 
Requirements), relating to part 45 swap data recordkeeping and 
reporting; (2) OMB Control Number 3038-0070 (Real-Time Public Reporting 
and Block Trades), relating to part 43 real-time swap transaction and 
pricing data; and (3) OMB Control Number 3038-0086 (Swap Data 
Repositories; Registration and Regulatory Requirements), relating to 
part 49 SDR regulations. Persons otherwise required to respond to an 
information collection are not required to respond to the collection of 
information unless a currently valid OMB control number is displayed.
---------------------------------------------------------------------------

    \316\ 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 43, 44, and 49, including changes to reflect 
adjustments that were made to the final rules in response to comments 
on the Proposal (not relating to the PRA).

[[Page 75633]]

1. Revisions to Collection 3038-0096 (Relating to Part 45 Swap Data 
Recordkeeping and Reporting)
i. Sec.  45.2--Swap Recordkeeping
    The Commission is adopting changes that remove paragraphs (f) and 
(g) from Sec.  45.2 and move the requirements of these paragraphs to 
amended Sec.  49.12. Paragraphs (f) and (g) contain recordkeeping 
requirements specific to SDRs. Existing Sec.  49.12 already 
incorporates the requirements of current Sec.  45.2(f) and (g), and 
amended Sec.  49.12 includes the same requirements, but deleting this 
requirement from Sec.  45.2 and amending Sec.  49.12 to clarify the 
requirements better organizes the regulations for SDRs by locating 
these SDR requirements in part 49 of the Commission's regulations. 
These amendments modify collection 3038-0096 because it removes these 
recordkeeping requirements from part 45 of the Commission's 
regulations. The Commission estimates that moving these requirements 
results in a reduction of 50 annual burden hours for each SDR in 
collection 3038-0096, for a total reduction of 150 annual burden hours 
across all three SDRs.
ii. Sec.  45.14--Verification of Swap Data Accuracy and Correcting 
Errors and Omissions in Swap Data
    Final Sec.  45.14(a) requires SEFs, DCMs, and reporting 
counterparties to correct errors and omissions in swap data previously 
reported to an SDR, or erroneously not reported to an SDR as required, 
as soon as technologically practicable after discovery of the errors or 
omissions, similar to existing Sec.  45.14. Also, similar to existing 
Sec.  45.14, final Sec.  45.14(a) requires a non-reporting counterparty 
to report a discovered error or omission to the relevant SEF, DCM, or 
reporting counterparty as soon as technologically practicable after 
discovery of the error or omission.\317\ These requirements, being 
effectively the same as the requirements in existing Sec.  45.14, do 
not require amendments to the collection.
---------------------------------------------------------------------------

    \317\ The Commission notes that final Sec.  45.14(a)(2) does add 
provisions that are not present in current Sec.  45.14(a) to address 
the situation where a non-reporting counterparty does not know the 
identity of the reporting counterparty. The Commission does not 
believe that these additions have PRA implications, as the amount of 
information the non-reporting counterparty must provide and the 
frequency with which it must be provided remain the same and are de 
minimis. The only change is the requirement that non-reporting 
counterparties inform the SEF or DCM of errors, instead of the 
reporting counterparty. SEFs and DCMs have correction 
responsibilities under current Sec.  45.14(b) and final Sec.  
45.14(a)(2) does not change these responsibilities.
---------------------------------------------------------------------------

    Final Sec.  45.14(a)(1)(ii) includes the new requirement for SEFs, 
DCMs, and reporting counterparties to notify the Director of DMO when 
errors or omissions cannot be timely corrected and, in such case, to 
provide the Director of DMO with an initial assessment of the errors 
and omissions and an initial remediation plan if one exists. The 
notification shall be made in the form and manner, and according to the 
instructions, specified by the Director of DMO. This requirement 
constitutes a new collection of information. The Commission estimates 
that each SEF, DCM, and reporting counterparty will, on average need to 
provide notice to the Commission under final Sec.  45.14(a)(1)(ii) once 
per year and that each instance will require 6 burden hours.\318\ As 
there are approximately 1,729 SEFs, DCMs, and reporting counterparties 
that handle swaps, the Commission estimates an overall additional 
annual hours burden of 10,374, hours related to this requirement. This 
estimate is based on the Commission's experience with the current 
practices of SEFs, DCMs, and reporting counterparties regarding the 
reporting of errors and omissions, including the initial assessments 
and remediation plans that SEFs, DCMs, and reporting counterparties 
provide to the Commission under current practice. The Commission does 
not anticipate any one-time, initial burdens related to final Sec.  
45.14(b)(1)(ii).
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    \318\ The Commission notes that, currently, it receives 
significantly less than one notice and initial assessment of 
reporting errors and omissions per SEF, DCM, or reporting 
counterparty per year, but estimates one notice annually, as the 
final requirements of Sec.  45.14(a) may reveal more reporting 
errors to reporting counterparties that would then require 
corrections pursuant to final Sec.  45.14(b).
---------------------------------------------------------------------------

    Final Sec.  45.14(b) requires all reporting counterparties to 
verify the accuracy and completeness of all swap data for all open 
swaps to which they are the reporting counterparty. Reporting 
counterparties comply with this provision by utilizing the relevant 
mechanism(s) to compare all swap data for each open swap for which it 
serves as the reporting counterparty maintained by the relevant swap 
data repository or repositories with all swap data contained in the 
reporting counterparty's internal books and records for each swap, to 
verify that there are no errors in the relevant swap data maintained by 
the swap data repository. Additionally, reporting counterparties must 
conform to each relevant swap data repository's verification policies 
and procedures created pursuant to final Sec.  49.11. Final Sec.  
45.14(b)(5) requires each reporting counterparty to keep a log of each 
verification that it performs. The log must include all errors 
discovered during the verification and the corrections performed under 
Sec.  45.14(a). Compliance with Sec.  45.14(b) constitutes a collection 
of information not currently included in collection 3038-0096, and 
therefore requires a revision of that collection.
    The Commission expects that compliance with Sec.  45.14(b) will 
include: (1) A one-time hours burden to establish internal systems 
needed to perform their verification responsibilities, and (2) an 
ongoing hours burden to complete the verification process for each 
report provided by an SDR.
    In order to comply with the relevant SDR verification policies and 
procedures as required to complete the verification process, the 
Commission believes that reporting counterparties will create their own 
verification systems or modify their existing connections to the SDRs. 
The Commission estimates that each reporting counterparty will incur an 
initial, one-time burden of 100 hours to build, test, and implement 
their verification systems based on SDR instructions. This burden may 
be reduced, if complying with SDR verification requirements only 
requires reporting counterparties to make small modifications to their 
existing SDR reporting systems, but the Commission is estimating the 
burden based on the creation of a new system. The Commission also 
estimates an ongoing annual burden of 10 hours per reporting 
counterparty to maintain their verification systems and to make any 
needed updates to verification systems to conform to any changes to SDR 
verification policies and procedures. As there are approximately 1,702 
reporting counterparties based on data available to the Commission, the 
Commission estimates a one-time overall hours burden of 170,200 hours 
to build reporting counterparty verification systems and an ongoing 
annual overall hours burden of 17,020 hours to maintain the reporting 
counterparty verification systems.
    Under final Sec.  45.14(b)(4), SD, MSP, or DCO reporting 
counterparties must perform verification once every thirty days for 
each SDR where the reporting counterparty maintains any open swaps. 
Non-SD/MSP/DCO reporting counterparties must perform verification once 
every calendar quarter for each SDR where the reporting counterparty 
maintains any opens swaps. The Commission also expects, based on 
discussions with SDRs and reporting

[[Page 75634]]

counterparties, that the verification process will be largely automated 
for all parties involved. The Commission estimates an average burden of 
two hours per verification performed at each SDR per reporting 
counterparty.
    As there are 117 SDs, MSPs, or DCOs that clear swaps registered 
with the Commission, the Commission estimates \319\ that these 117 
reporting counterparties will, at maximum, be required to verify data 
13 times per year at a maximum of 3 SDRs, for an overall additional 
annual hours burden of 9,126 ongoing burden hours related to the 
verification process for these reporting counterparties. The Commission 
also estimates, based on data available to the Commission, that there 
are 1,585 non-SD/MSP/DCO reporting counterparties.\320\ The Commission 
estimates that these 1,585 reporting counterparties will be required 
to, at maximum, verify data 4 times per year at a maximum of 3 SDRs, 
for an overall additional annual hours burden of 38,040 burden hours 
related to verification process for these reporting counterparties.
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    \319\ Though there are 117 SDs, MSPs, or DCOs that clear swaps 
registered with the Commission that could be a reporting 
counterparty, not all potential reporting counterparties will 
perform data verification for any given verification cycle. Only 
those reporting counterparties with open swaps are required to 
perform data verification for that verification cycle.
    \320\ Though there are 1,585 non-SD/MSP/DCOs that could be a 
reporting counterparty, not all potential reporting counterparties 
will perform data verification for any given verification cycle. 
Only those reporting counterparties with open swaps are required to 
perform data verification for that verification cycle.
---------------------------------------------------------------------------

    The Commission therefore estimates that the overall burden for 
updated Information Collection 3038-0096 will be as follows:

    Estimated number of respondents affected: 1,732 SEFs, DCMs, DCOs, 
SDRs, and reporting counterparties.
    Estimated annual number of responses per respondent: 257,595.
    Estimated total annual responses: 446,154,540.
    Estimated burden hours per response: 0.005.
    Estimated total annual burden hours per respondent: 1,316.
    Estimated aggregate total burden hours for all respondents: 
2,279,312.
2. Revisions to Collection 3038-0070 (Real-Time Transaction Reporting)
Sec.  43.3--Method and Timing for Real-Time Public Reporting
    Final Sec.  43.3(e) requires SEFs, DCMs, and reporting 
counterparties to correct errors and omissions in swap transaction and 
pricing data as soon as technologically practicable after discovery. 
Final Sec.  43.3(e) also requires a non-reporting counterparty to 
report a discovered error or omission to the relevant SEF, DCM, or 
reporting counterparty as soon as technologically practicable after 
discovery of the error or omission. These final rules clarify the 
requirements to be consistent with the requirements in final Sec.  
45.14(b), but are also effectively the same as the requirements of 
exiting Sec.  43.3(e).\321\ These requirements therefore do not require 
amendments to the collection.
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    \321\ The Commission notes that final Sec.  43.3(e)(2) does add 
provisions that are not present in current Sec.  43.3(e)(1) to 
address the situation where a non-reporting counterparty does not 
know the identity of the reporting counterparty. The Commission does 
not believe that these additions have PRA implications, as the 
amount of information the non-reporting counterparty must provide 
and the frequency with which it must be provided remain the same as 
the current requirement and are de minimis. The only change is the 
requirement that non-reporting counterparties inform the SEF or DCM 
of errors, instead of the reporting counterparty. SEFs and DCMs have 
correction responsibilities under current Sec.  43.3(e)(1) and final 
Sec.  43.3(e)(2) does not change these responsibilities.
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    Final Sec.  43.3(e)(1)(ii) includes the new requirement for SEFs, 
DCMs, and reporting counterparties to notify the Director of DMO when 
errors or omissions cannot be timely corrected and, in such case, to 
provide the Director of DMO with an initial assessment of the errors 
and omissions and an initial remediation plan if one exists. This 
requirement constitutes a new collection of information. The Commission 
estimates that each SEF, DCM, and reporting counterparty will, on 
average need to provide notice to the Commission under final Sec.  
43.3(e)(1)(ii) once per year and that each instance will require 6 
burden hours.\322\ As there are approximately 1,729 SEFs, DCMs, and 
reporting counterparties that handle swaps, the Commission estimates an 
overall additional annual hours burden of 10,374 hours related to this 
requirement. This estimate is based on the Commission's experience with 
SEFs, DCMs, and reporting counterparties current practices regarding 
the reporting of errors and omissions, including the initial 
assessments that SEFs, DCMs, and reporting counterparties provide to 
the Commission under current practice. The Commission does not 
anticipate any one-time, initial burdens related to final Sec.  
43.3(e)(1)(ii).
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    \322\ The Commission notes that, currently, it receives 
significantly less than one notice and initial assessment of 
reporting errors and omissions per SEF, DCM, or reporting 
counterparty per year, but estimates one notice annually, as the 
final requirements of Sec.  45.14(a) may reveal more reporting 
errors to reporting counterparties that would then require 
corrections pursuant to final Sec.  43.3(e).
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    The Commission is also removing paragraphs (f) and (g) from Sec.  
43.3 in order to move the requirements of these paragraphs to final 
Sec.  49.28. Paragraphs (f) and (g) contain requirements for SDRs 
related to their operating hours. Final Sec.  49.28 includes all of the 
current Sec.  43.3(f) and (g) requirements, and this deletion and move 
is intended to better organize regulations for SDRs by locating as many 
SDR requirements as possible in part 49 of the Commission's 
regulations. Moving the requirements modifies collections 3038-0070 and 
3038-0086 because it removes these recordkeeping requirements from part 
43 of the Commission's regulations and adds them to part 49 of the 
Commission's regulations. The Commission estimates that the public 
notice requirements of existing Sec.  43.3(f) and (g) require SDRs to 
issue three notices per year and spend five hours creating and 
disseminating each notice, for a total of 15 hours annually for each 
SDR, for a total of 45 annual burden hours being moved across all three 
SDRs. As a result, the Commission estimates that moving these 
requirements will result in a total reduction of 45 annual burden hours 
for SDRs in collection 3038-0070.
    The Commission therefore estimates that the total overall burdens 
for updated Information Collection 3038-0070 will be as follows:

    Estimated number of respondents affected: 1,732 SEFs, DCMs, DCOs, 
SDRs, and reporting counterparties.
    Estimated annual number of responses per respondent: 21,247.
    Estimated total annual responses: 36,799,804.
    Estimated burden hours per response: 0.033.
    Estimated total annual burden hours per respondent: 701.
    Estimated aggregate total burden hours for all respondents: 
1,214,392.
3. Revisions to Collection 3038-0086 (Relating to Part 49 SDR 
Regulations) 323
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    \323\ The Commission is also proposing to reduce the number of 
SDRs used in collection 3038-0086 to calculate burdens and costs 
from 4 to 3. There are currently three SDRs provisionally registered 
with the Commission. The Commission has not received any 
applications for SDR registration since 2012.
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    The Commission is revising collection 3038-0086 to account for 
changes in certain SDR responsibilities under the final amendments to 
Sec. Sec.  49.3, 49.5, 49.6, 49.9, 49.10, 49.11, and 49.26, and to the 
addition of Sec. Sec.  49.28, 49.29, and 49.30. The estimated hours 
burdens and costs provided below are in addition to or subtracted from 
the existing hours burdens and costs in collection 3038-

[[Page 75635]]

0086. The Commission also describes a number of changes to sections 
that do not have PRA implications below, for clarity.
i. Sec.  49.3--Procedures for Registration
    The final amendments to Sec.  49.3(a)(5) remove the requirement for 
each SDR to file an annual amendment to its Form SDR. This reduces the 
PRA burden for SDRs by lowering the number of filings required for each 
SDR. The Commission estimates that the PRA burden for each SDR will 
remain at 15 hours per filing, but that the number of filings per year 
will be reduced from three to two, meaning that the final amendments to 
Sec.  49.3(a)(5) reduces the burden on SDRs by 15 hours per year, for a 
total reduction of 45 annual burden hours across all three SDRs. This 
estimate is based on the Commission's experience with current SDR 
practices and the original supporting statement for collection 3038-
0086.\324\ The Commission does not anticipate any one-time, initial 
burden changes related to final Sec.  49.3(a)(5).
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    \324\ The original supporting statement for collection 3038-0086 
estimated that the requirements of current Sec.  49.3(a)(5) will 
necessitate three filings per year and 15 hours per filing.
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ii. Sec.  49.5--Equity Interest Transfers
    The final amendments to Sec.  49.5 require SDRs to file a 
notification with the Commission for each transaction involving the 
direct or indirect transfer of ten percent or more of the equity 
interest in the SDR within ten business days of the firm obligation to 
transfer the equity interest, to provide the Commission with supporting 
documentation for the transaction upon the Commission's request, and, 
within two business days of the completion of the equity interest 
transfer, to file a certification with the Commission that the SDR will 
meet all of its obligations under the Act and the Commission's 
regulations. The Commission estimates that the requirements of final 
Sec.  49.5 create a burden of 15 hours per SDR for each qualifying 
equity interest transfer. Equity interest transfers for SDR are rare, 
so the Commission estimates that each SDR will provide information 
pursuant to final Sec.  49.5 no more often than once every three years. 
As a result, the estimated average annual PRA burden related to final 
Sec.  49.5 is 5 hours per SDR, for a total estimated ongoing annual 
burden of 15 hours total for all three SDRs. The Commission does not 
anticipate any one-time, initial burdens related to final Sec.  49.5.
iii. Sec.  49.6--Request for Transfer of Registration
    The final amendments to Sec.  49.6 require an SDR seeking to 
transfer its registration to another legal entity due to a corporate 
change to file a request for approval with the Commission before the 
anticipated corporate change, including the specific documents and 
information listed in final Sec.  49.6(c). The Commission estimates 
that the requirements of final Sec.  49.6 create a burden of 15 hours 
per SDR for each transfer of registration. Transfers of registration 
for SDR are rare, so the Commission estimates that each SDR will 
provide information pursuant to final Sec.  49.6 no more often than 
once every three years. As a result, the estimated average annual PRA 
burden related to final Sec.  49.6 is 5 hours per SDR, for a total 
estimated ongoing annual burden of 15 hours total for all three SDRs. 
The Commission does not anticipate any one-time, initial burdens 
related to final Sec.  49.6.
iv. Sec.  49.9--Open Swaps Reports Provided to the Commission
    The final amendments to Sec.  49.9 remove the current text of the 
section and replace it with requirements related to SDRs providing open 
swaps reports to the Commission, as instructed by the Commission. The 
instructions may include the method, timing, frequency, and format of 
the open swaps reports.
    The Commission estimates that SDRs will incur a one-time initial 
burden of 250 hours per SDR to create or modify their systems to 
provide the open swaps reports to the Commission as instructed, for a 
total estimated hours burden of 750 hours. This burden may be mitigated 
by the fact that SDRs currently have systems in place to provide 
similar information to the Commission, which may reduce the effort 
needed to create or modify SDRs' systems. The Commission additionally 
estimates 30 hours per SDR annually to perform any needed maintenance 
or adjustments to SDR systems.
    The Commission expects that the process for providing the open 
swaps reports to the Commission will be largely automated and therefore 
estimates a burden on the SDRs of 2 hours per report. Though the 
Commission is not prescribing the frequency of the open swaps reports 
at this time, the Commission estimates, only for the purposes of this 
burden calculation, that the SDRs will provide the Commission with 365 
open swaps reports per year, meaning that the estimated ongoing annual 
additional hours burden for generating the open swaps reports and 
providing the reports to the Commission is 730 hours per SDR.
    The Commission therefore estimates a total ongoing additional 
annual hours burden related to final Sec.  49.9 of 760 hours per SDR, 
\325\ for a total estimated ongoing annual burden of 2,280 hours.
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    \325\ 730 hours for the open swaps reports, and 30 hours to 
perform system maintenance.
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v. Sec.  49.10--Acceptance of Data
    Final Sec.  49.10(e) requires SDRs to accept, process, and 
disseminate corrections to SDR data errors and omissions. Final Sec.  
49.10(e) also requires SDRs to have policies and procedures in place to 
fulfill these requirements.
    The Commission estimates that SDRs will incur a one-time initial 
burden of 100 hours per SDR to update and implement the systems, 
policies, and procedures necessary to fulfill their obligations under 
final Sec.  49.10(e), for a total increased initial hours burden of 300 
hours across all three SDRs. This burden may be mitigated by the fact 
that SDRs already have systems, policies, and procedures in place to 
accomplish corrections to SDR data and that the SDRs currently make 
such corrections on a regular basis. The Commission additionally 
estimates 30 hours per SDR annually to perform any needed maintenance 
on correction systems and to update corrections policies and procedures 
as needed.
    The Commission anticipates that the process for SDRs to perform 
corrections will be largely automated, as this is the case with current 
SDR corrections. Based on swap data available to the Commission and 
discussions with the SDRs, the Commission estimates that an SDR will 
perform an average of approximately 2,652,000 data corrections per 
year. Based on the same information, the Commission estimates that 
performing each correction will require 2 seconds from an SDR. As a 
result, the Commission estimates that the ongoing burden of performing 
the actual corrections to SDR data will be approximately 1,473 hours 
per SDR annually, on average. The Commission anticipates that once 
applicable, the verification rules may have the short term effect of 
increasing the number of corrections per year, as reporting 
counterparties discover errors in open swaps. The Commission further 
anticipates that the number of corrections will then decrease as the 
new validation rules and revised technical specifications improve the 
quality and accuracy of initial reporting, reducing the number of 
corrections.

[[Page 75636]]

    The Commission therefore estimates a total additional annual hours 
burden related to final Sec.  49.10(e) of 1,503 hours per SDR annually, 
for a total estimated ongoing burden of 4,509 hours.
vi. Sec.  49.11--Verification of Swap Data Accuracy
    The final amendments to Sec.  49.11 modify the existing obligations 
on SDRs to confirm the accuracy and completeness of swap data. Final 
Sec.  49.11(b) requires SDRs to provide a mechanism that allows each 
reporting counterparty that is a user of the swap data repository to 
access all swap data maintained by the swap data repository for each 
open swap for which the reporting counterparty is serving as the 
reporting counterparty. Final Sec. Sec.  49.11(a) and 49.11(c) \326\ do 
not have PRA implications beyond the burdens discussed for paragraph 
(b) below.
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    \326\ The Commission notes that requirements of part 40 of the 
Commission's regulations apply to SDRs amending their verification 
policies and procedures regardless of final Sec.  49.11(c), because 
verification policies and procedures fall under the part 40 
definition of a ``rule.'' See 17 CFR 40.1(i) (definition of rule for 
the purposes of part 40). PRA implications for final Sec.  49.11(c) 
are included under the existing approved PRA collection for part 40 
of the Commission's regulations.
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    While SDRs are already required to confirm the accuracy and 
completeness of swap data under current Sec.  49.11, the requirements 
in final Sec.  49.11 impose different burdens on the SDRs than the 
current regulation. The Commission estimates that each SDR will incur 
an initial, one-time burden of 300 hours to build, test, and implement 
updated verification systems, for a total of 900 initial burden hours 
across all SDRs. The Commission also estimates 30 hours per SDR 
annually for SDRs to maintain their verification systems and make any 
needed updates to verification policies and procedures required under 
final Sec.  49.11(a) and (c).
    Currently, SDRs are required to confirm swap data by contacting 
both counterparties for swaps that are not submitted by a SEF, DCM, 
DCO, or third-party service provider every time the SDR receives swap 
data related to the swap. For swaps reported by a SEF, DCM, DCO, or 
third-party service provider, the SDRs must currently assess the swap 
data to form a reasonable belief that the swap data is accurate every 
time swap data is submitted for a swap. Under final Sec.  49.11(b) and 
(c), SDRs are only required to provide the mechanism that will allow 
reporting counterparties to perform verification, as described above. 
The Commission also anticipates, based on discussions with SDRs and 
other market participants, that the verification process will be 
largely automated once the processes are in place, and will consist of 
an annual burden of 30 hours per SDR.
    The Commission therefore estimates a total additional ongoing hours 
burden related to final Sec.  49.11 of 60 hours per SDR annually,\327\ 
for a total estimated ongoing burden of 180 hours.
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    \327\ 30 hours for system maintenance and 30 hours for the 
verification process.
---------------------------------------------------------------------------

vii. Sec.  49.12--Swap Data Repository Recordkeeping Requirements
    The final amendments to Sec.  49.12(a) and (b) incorporate existing 
SDR recordkeeping obligations from Sec.  45.2(f) and (g) respectively, 
which are already applicable to SDRs under current Sec.  49.12(a). As 
the recordkeeping requirements being moved from Sec.  45.2 already 
apply to SDRs under current Sec.  49.12, the Commission does not 
believe that amended Sec.  49.12(a) or (b) requires any revision to 
hours burden related to Sec.  49.12 already included in collection 
3038-0086. Final amendments to Sec.  49.12(c) require SDRs to maintain 
records of data validation errors and of data reporting errors, which 
include records of data subsequently corrected by a SEF, DCM, or 
reporting counterparty pursuant to parts 43, 45, and 46. Final Sec.  
49.12(c) does not, however, add any new requirement to part 49, as all 
of the records to be kept are already required to be kept by existing 
recordkeeping obligations as data submitted under part 43, 45, or 46. 
As a result, the Commission does not believe that final Sec.  49.12(c) 
requires an additional PRA burden beyond that already included in 
collection 3038-0086.
viii. Sec.  49.26--Disclosure Requirements of Swap Data Repositories
    Final new Sec.  49.26(j) requires SDRs to provide their users and 
potential users with the SDR's policies and procedures on reporting SDR 
data, including SDR data validation procedures, swap data verification 
procedures, and SDR data correction procedures. The Commission 
anticipates that SDRs will incur a one-time burden of 20 burden hours 
to draft written documents to provide to their users and potential 
users, for a total increase of 60 one-time burden hours across SDRs. 
The Commission also anticipates that SDRs will update their policies 
once per year and incur a recurring burden of 10 hours annually from 
providing any updated reporting policies and procedures to their users 
and potential users, as needed, for a for a total estimated ongoing 
annual burden of 30 hours across the three SDRs.
ix. Sec.  49.28--Operating Hours of Swap Data Repositories
    Final new Sec.  49.28 incorporates existing provisions of Sec.  
43.3(f) and (g) with respect to hours of operation with minor changes 
and clarifications. Final Sec.  49.28 extends the provisions of current 
Sec.  43.3(f) and (g) to include all SDR data and clarifies the 
different treatment of regular closing hours and special closing hours. 
SDRs currently have closing hours systems, policies, and procedures 
that apply to all SDR functions and all SDR data under the current 
requirements. The final requirements related to declaring regular 
closing hours and special closing hours also effectively follow current 
requirements, without necessitating changes to current SDR systems or 
practices. The Commission does, however, anticipate that the SDRs will 
need to issue notices to the public related to closing hours under 
final Sec.  49.28(a) and (c). The Commission estimates that each SDR 
will issue three notices per year and spend five hours creating and 
disseminating each notice, for a total of 15 hours per year preparing 
and providing public notices per SDR, for a for a total estimated 
ongoing annual burden of 45 hours per year across all SDRs.
x. Sec.  49.29--Information Relating to Swap Data Repository Compliance
    Final new Sec.  49.29 requires each SDR to provide, upon request by 
the Commission, information relating to its business as an SDR, and 
such other information that the Commission needs to perform its 
regulatory duties. This provision also requires each SDR, upon request 
by the Commission, to provide a written demonstration of compliance 
with the SDR core principles and other regulatory obligations. The PRA 
burden associated with such responses is dependent on the number of 
requests made and the complexity of such requests. Based on its 
experience with requests to DCMs, the Commission estimates that each 
SDR will likely receive on average between three and five requests per 
year, considering that an SDR is a newer type of registered entity than 
a DCM. The Commission anticipates that the number of requests will 
decrease over time. The Commission also anticipates that each such 
request will require the SDR to spend 20 hours to gather information 
and formulate a response, and bases its estimate of burden hours 
assuming five such requests per year, for a total additional hours 
burden of 100 hours per SDR per year, for a total estimated ongoing 
annual burden of 300 hours per

[[Page 75637]]

year across all SDRs. The Commission does not anticipate that SDRs will 
incur any one-time hours burden or costs in complying with this 
regulation.
    The Commission therefore estimates that the total overall burdens 
for updated Information Collection 3038-0086 will be as follows:

    Estimated number of respondents affected: 3 SDRs.
    Estimated annual number of responses per respondent: 154,327,169.
    Estimated total annual responses: 462,981,508.
    Estimated burden hours per response: 0.0006.
    Estimated total annual burden hours per respondent: 99,197.
    Estimated aggregate total burden hours for all respondents: 
297,591.

C. Cost-Benefit Considerations

1. Introduction
    Section 15(a) \328\ of the CEA requires the Commission to consider 
the costs and benefits of its actions before promulgating a regulation 
under the CEA or issuing certain orders. Section 15(a) further 
specifies that the costs and benefits shall be evaluated in light of 
five broad areas of market and public concern: (1) Protection of market 
participants and the public; (2) efficiency, competitiveness, and 
financial integrity of markets; (3) price discovery; (4) sound risk 
management practices; and (5) other public interest considerations. The 
Commission considers the costs and benefits resulting from its 
discretionary determinations with respect to the section 15(a) factors.
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    \328\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------

    In this release, the Commission is revising existing regulations in 
parts 43, 45, and 49. The Commission is also issuing new regulations in 
part 49. Together, these revisions and additions are intended to 
address swap data verification and to improve the quality of data 
reporting generally. Some of the amendments are substantive. A number 
of amendments, however, are non-substantive or technical, and therefore 
will not have associated cost-benefits implications.\329\
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    \329\ The Commission believes there are no cost-benefit 
implications for Final Sec. Sec.  49.2, 49.15, 49.16, 49.18, 49.20, 
49.24, and 49.31.
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    In the sections that follow, the Commission discusses the costs and 
benefits associated with the final rule and reasonable alternatives are 
considered. Comments addressing the associated costs and benefits of 
the rule are addressed in the appropriate sections. Wherever possible, 
the Commission has considered the costs and benefits of the final rule 
in quantitative terms.
    Given that many aspects of the Proposal did not dictate the means 
by which SDRs or reporting counterparties must comply, the Commission 
recognized that the quantitative impact of the proposed rule would vary 
by each entity because the affected market participants vary in 
technological and staffing structure and resources. The Commission also 
noted in the Proposal that because of differences in the sizes of SDR 
operations, many of the costs associated with the proposed rulemaking 
were not readily quantifiable without relying on and potentially 
divulging confidential information. The Commission believed that many 
of the proposed rules would have affected a wide variety of proprietary 
reporting systems developed by SDRs and reporting counterparties.
    With these understandings, the Commission asked the public to 
provide information regarding quantitative costs and benefits related 
to complying with the Commission's proposed rules. The Commission 
received comments from market participants, such as SDRs and reporting 
counterparties, and other interested public commenters. Some of the 
commenters asserted that some of the proposed rules would generate 
significant or burdensome costs, but no commenters quantified such 
costs. Nor did commenters, in particular the limited universe of market 
participants required to report and collect data, quantify costs they 
currently expend to comply with current swap data reporting 
requirements.\330\ If the Commission possessed information regarding 
current and actual costs, the Commission could consider current 
monetary outlays against the anticipated quantitative costs and 
benefits needed to comply with the rules in this final rulemaking.
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    \330\ See section I above for discussion of the history behind 
swaps data reporting required by CEA section 21.
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    As a result, the Commission has considered the costs and benefits 
of the rules in this final rulemaking and has provided broad ranges of 
estimates of the costs associated with implementing some of the rule 
changes. It is reasonable to use ranges because the final rules are 
flexible, which means SDRs and reporting counterparties will take 
different approaches to comply with the final rules. In addition, 
ranges account for variation in technological and staffing structure, 
resources, and operational sophistication of affected market 
participants.
    In several of the sections below, the Commission has estimated the 
number of hours it believes market participants will likely expend to 
comply with the final rules. These cost estimates focus on the 
technical aspects of the final rules and are separate from those listed 
in the Paperwork Reduction Act discussion above in section VII.B. The 
Commission has made reasonable estimations based, in part, on its 
familiarity with the work of SDRs and reporting counterparties, and its 
own experience in building systems to collect swap data. To monetize 
the hours, the Commission multiplies the number of hours and an hourly 
wage estimate. As most of the final rules may require technological 
changes, the Commission uses hourly wages for developers. The 
Commission estimated the hourly wages market participants will likely 
pay software developers to implement changes to be between $48 and $101 
per hour.\331\ The Commission recognizes that for some services--like 
compliance review, and legal drafting and review--the wage rates may be 
more or less than the $48 to $101 range for developers. The Commission 
believes, however, that the estimated cost ranges, discussed below, 
will cover most budgets for tasks, regardless of the exact nature of 
the tasks needed to comply with the final rules.
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    \331\ Hourly wage rates were based on the Software Developers 
and Programmers category of the May 2019 National Occupational 
Employment and Wage Estimates Report produced by the U.S. Bureau of 
Labor Statistics, available at https://www.bls.gov/oes/current/oes_nat.htm. The 25th percentile was used for the low range and the 
90th percentile was used for the upper range ($36.89 and $78.06, 
respectively). Each number was multiplied by an adjustment factor of 
1.3 for overhead and benefits (rounded to the nearest whole dollar) 
which is in line with adjustment factors the Commission has used for 
similar purposes in other final rules adopted under the Dodd-Frank 
Act. See, e.g., 77 FR at 2173 (Jan. 13, 2012) (using an adjustment 
factor of 1.3 for overhead and other benefits). These estimates are 
intended to capture and reflect U.S. developer hourly rates market 
participants are likely to pay when complying with the proposed 
changes. The Commission recognizes that individual entities may, 
based on their circumstances, incur costs substantially above or 
below the estimated averages.
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2. Background

    Since their promulgation in 2011, the provisions in part 49 have 
required SDRs to, among other things, accept and confirm data reported 
to SDRs. The Commission believes SDRs' collection and maintenance of 
swap data as required in parts 45 and 49 has allowed the Commission to 
better monitor the overall swaps market and individual market 
participants. In contrast, before the adoption of the Dodd-Frank Act 
and its implementing regulations, the swaps

[[Page 75638]]

market generally, and transactions and positions of individual market 
participants in particular, were not transparent to regulators or the 
public.
    Under the current data reporting requirements, the Commission has 
had the opportunity to work directly with SDR data reported to, and 
held by, SDRs. Based on its experience working with SDR data, along 
with extensive feedback and comments received from market participants, 
the Commission believes that improving SDR data quality will help 
enhance the data's usefulness. In this final rulemaking, the Commission 
has focused on the operation and implementation of CEA section 21,\332\ 
which contains requirements related to SDRs, including the requirement 
to confirm data.\333\ The Commission also is modifying a number of 
other regulations for clarity and consistency and to enhance the 
Commission's ability to monitor and supervise the swaps market.
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    \332\ See 7 U.S.C. 24a.
    \333\ See 7 U.S.C. 24a(c)(2).
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    Prior to discussing the rule changes, the Commission describes 
below the current environment that will be impacted by these changes. 
Three SDRs are currently provisionally registered with the Commission: 
CME, DDR, and ICE. Each SDR has unique characteristics and structures 
that determine how the rule changes will impact its operations. For 
example, SDRs affiliated with DCOs tend to receive a large proportion 
of their SDR data from swaps cleared through those affiliated DCOs, 
while independent SDRs tend to receive SDR data from a wider range of 
market participants.
    The current reporting environment also involves third-party service 
providers. These entities assist market participants with fulfilling 
the applicable data reporting requirements, though the reporting 
requirements do not apply to third-party service providers directly.
    Current regulations have not resulted in data quality that meets 
the Commission's expectations. For example, current regulations do not 
include a specific affirmative obligation for swap counterparties to 
review reported swap data for errors.\334\ Swap counterparties are 
required to correct data errors only if inaccurate data is discovered, 
and therefore data quality is partially dependent on processes that are 
not mandated by the Commission. The result has been that market 
participants too often have not reviewed data and corrected any errors. 
It is not uncommon for Commission staff to find discrepancies between 
open swaps information available to the Commission and reported data 
for the same swaps. For example, in processing open swaps reports to 
generate the CFTC's Weekly Swaps Report,\335\ Commission staff has 
observed instances where the notional amount of a swap differs from the 
swap data reported to an SDR for the same swap. Other common examples 
of discrepancies include incorrect references to an underlying 
currency, such as a notional value incorrectly linked to U.S. dollars 
instead of Japanese Yen. These examples, among others, strongly suggest 
a need for better verification of reported swap data.
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    \334\ See 17 CFR 43.3(e); 17 CFR 45.14.
    \335\ See CFTC's Weekly Swaps Report, available at https://www.cftc.gov/MarketReports/SwapsReports/index.htm.
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    Weaknesses in SDR policies and procedures also have created 
additional challenges for swap data accuracy. As discussed above, 
certain SDR policies and procedures for swap data have been based on 
negative affirmation, i.e., predicated on the assumption that reported 
swap data is accurate and confirmed if a reporting counterparty does 
not inform the SDR of errors, or otherwise make subsequent 
modifications to the swap data, within a certain period of time.\336\ 
As reporting counterparties are typically not reviewing their reported 
swap data maintained by SDRs, the data is effectively assumed to be 
accurate, and errors are not sufficiently discovered and corrected. The 
volume of inaccurate swap data that is discovered by market 
participants or the Commission shows that current regulations are 
ineffective in producing the quality of swap data the Commission 
expects and needs to fulfill its regulatory responsibilities.
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    \336\ See 17 CFR 49.11(b)(1)(ii) and (b)(2)(ii).
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    The Commission believes that amendments and additions to certain 
regulations, particularly in parts 43, 45, and 49, will improve data 
accuracy and completeness. The regulatory changes in this final 
rulemaking aim to meet this objective.
    This final rulemaking also includes amendments to part 49 to 
improve and streamline the Commission's oversight of SDRs. These 
amendments include new provisions allowing the Commission to request 
demonstrations of compliance and other information from SDRs.
    For each amendment discussed below, the Commission summarizes the 
changes,\337\ and identifies and discusses the costs and benefits 
attributable to the changes. The Commission then considers reasonable 
alternatives to the rules. Finally, the Commission considers the costs 
and benefits of all of the rules jointly in light of the five public 
interest considerations in CEA section 15(a).
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    \337\ As described throughout this release, the Commission is 
also proposing a number of non-substantive, conforming rule 
amendments in this release, such as renumbering certain provisions 
and modifying the wording of existing provisions. Non-substantive 
amendments of this nature may be described in the cost-benefit 
portion of this release, but the Commission will note that there are 
no costs or benefits to consider.
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    The Commission notes that 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 United States, with leading industry members 
often conducting operations both within and outside the United States, 
and with market participants commonly following substantially similar 
business practices wherever located. Where the Commission does not 
specifically refer to matters of location, the discussion of costs and 
benefits refers to the rules' effects on all swaps activity, whether by 
virtue of the activity's physical location in the United States or by 
virtue of the activity's connection with, or effect on, U.S. commerce 
under CEA section 2(i).\338\ The Commission contemplated this cross-
border perspective in 2011 when it adopted Sec.  49.7, which applies to 
trade repositories located in foreign jurisdictions.\339\
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    \338\ See 7 U.S.C. 2(i). CEA section 2(i) limits the 
applicability of the CEA provisions enacted by the Dodd-Frank Act, 
and Commission regulations promulgated under those provisions, to 
activities within the U.S., unless the activities have a direct and 
significant connection with activities in, or effect on, commerce of 
the U.S.; or contravene such rules or regulations as the Commission 
may prescribe or promulgate as are necessary or appropriate to 
prevent the evasion of any provision of the CEA enacted by the Dodd-
Frank Act. The application of section 2(i)(1) to Sec.  45.2(a), to 
the extent it duplicates Sec.  23.201, with respect to SDs/MSPs and 
non-SD/MSP counterparties is discussed in the Commission's final 
rule, ``Cross-Border Application of the Registration Thresholds and 
Certain Requirements Applicable to Swap Dealers and Major Swap 
Participants,'' 85 FR 56924, 56965-66 (Sept. 14, 2020).
    \339\ See 17 CFR 49.7.
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3. Baseline
    There are separate baselines for the costs and benefits that arise 
from the finalized regulations in this release. The baseline for final 
Sec.  43.3(e) is existing Sec.  43.3(e). The baseline for final Sec.  
45.14 is existing Sec.  45.14. The baseline for amendments to current 
part 49 regulations is the existing part 49 and current practices. For 
final Sec.  49.12, the baseline is existing Sec.  49.12, as well as

[[Page 75639]]

Sec.  45.2(f) and (g), which will be replaced by final Sec.  49.12. For 
final Sec.  49.17, the baseline is current Sec. Sec.  49.17 and 45.13.
    The Commission is also finalizing four new regulations: Sec. Sec.  
49.28, 49.29, 49.30, and 49.31. For final Sec.  49.28 the baseline is 
existing Sec.  43.3(f) and (g), because the requirements in Sec.  
43.3(f) and (g) are being moved to final Sec.  49.28. For final 
Sec. Sec.  49.29 and 49.30, the baselines are current practices. Final 
Sec.  49.31 concerns internal Commission practices and is not subject 
to consideration of costs and benefits.
4. Costs and Benefits of Amendments to Part 49
i. Sec.  49.2--Definitions
    The Commission is adopting editorial and conforming amendments to 
certain definitions in final Sec.  49.2. The Commission considers the 
definitions to have no cost-benefit implications on their own. In 
addition, the Commission believes the amendments to Sec.  49.2 are non-
substantive changes that will not impact existing obligations on SDRs 
or reporting counterparties, and, therefore, the amended definitions 
have no cost-benefit implications.
ii. Sec.  49.3--Procedures for Registration
    The Commission is adopting the amendments to Sec.  49.3(a)(5) and 
the conforming amendments to Form SDR and Sec.  49.22(f)(2) as proposed 
in part and is not adopting the proposed amendments in part. The 
Commission is removing the current requirements for SDRs to file an 
annual amendment to Form SDR but declines to amend the requirement to 
update the Form SDR after the Commission grants an SDR registration 
under Sec.  49.3(a).\340\ The annual Form SDR filing requirement is 
unnecessary for the Commission to successfully perform its regulatory 
functions.
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    \340\ See 17 CFR 49.3(a)(5).
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    The amendments to Sec.  49.3(a)(5) benefit SDRs by reducing the 
amount of information that SDRs must provide to the Commission on an 
annual basis and the frequency with which SDRs must deliver information 
updating Form SDR.
    By removing the requirement to file an annual update to Form SDR in 
current Sec.  49.3(a)(5), SDRs will benefit from expending fewer 
resources to provide information to the Commission. The Commission 
believes that the eliminated requirement is burdensome and unnecessary, 
as the SDRs already submit, and will continue to submit, the same 
updated information in the required periodic Form SDR amendments. The 
Commission believes that costs of eliminating the annual Form SDR 
update requirement, in terms of impairing the Commission's access to 
information, will be minimal. The costs related to the changes to Sec.  
49.3(a)(5) will largely be associated with any needed adjustments to 
SDR policies and procedures related to reducing the number of updates 
to Form SDR.
    Notwithstanding the anticipated incremental costs, the Commission 
believes this change to Sec.  49.3(a)(5) is warranted in light of the 
anticipated benefits.
iii. Sec.  49.5--Equity Interest Transfers
    The Commission is finalizing various amendments to Sec.  49.5 to 
simplify and streamline the requirements for when an SDR enters into an 
agreement involving the transfer of an equity interest of ten percent 
or more in the SDR. The Commission also is extending the notice filing 
deadline.
    Current Sec.  49.5 requires three actions by an SDR as part of an 
equity interest transfer: (1) Issue a notice to the Commission within 
one business day of committing to the transfer; (2) submit specific 
documents to the Commission, as well as update its Form SDR; and (3) 
certify compliance with CEA section 21 and Commission regulations 
adopted thereunder within two business days of the transfer of equity.
    Final Sec.  49.5 is less demanding than current Sec.  49.5. Final 
Sec.  49.5 ensures that the Commission is apprised of a change that 
might impact SDR operations and provided with information to aid any 
evaluation processes the Commission undertakes. Yet, final Sec.  49.5 
gives an SDR more time in which to notify the Commission of an equity 
interest transfer and eliminates unnecessary filings. Final Sec.  
49.5(a) requires an SDR: (i) To notify the Commission of each 
transaction involving the direct or indirect transfer of ten percent or 
more of the equity interest in the SDR within ten business days of ``a 
firm obligation to transfer''; and (ii) to provide the Commission with 
supporting documentation upon request. Final Sec.  49.5(b) requires 
that the notice in Sec.  49.5(a) be filed electronically with the 
Secretary of the Commission and DMO at the earliest possible time, but 
in no event later than ten business days following the date upon which 
a firm obligation is made for the equity interest transfer. Final Sec.  
49.5(c) requires that upon the transfer, whether directly or 
indirectly, the SDR shall file electronically with the Secretary of the 
Commission and DMO a certification that the SDR meets all of the 
requirements of CEA section 21 and the Commission regulations 
thereunder, no later than two business days following the date on which 
the equity interest was acquired.
    The Commission requested the public to comment on the cost-benefit 
considerations related to proposed Sec.  49.5, but the Commission did 
not receive any comments. Consequently, the Commission continues to 
believe that the amendments will benefit SDRs by lowering the burdens 
related to notifying the Commission of equity interest transfers and by 
extending the time SDRs have to file the notice with the Commission. 
The amendments benefit SDRs by reducing the burden to notify the 
Secretary of the Commission and DMO of transfers by extending the 
available time from one business day to ten business days. More time 
will give SDRs greater latitude in managing how they use their time and 
allocate resources to file the required notices and certification.
    In addition, SDRs will no longer have the obligations in current 
Sec.  49.5(a) to update Form SDR and in current Sec.  49.5(b) to 
provide specifically-identified documents to the Commission with the 
equity interest transfer notification. Final Sec.  49.5 instead states 
that the Commission may request supporting documentation for the 
transaction. Even if the request causes the SDR to submit more 
documents than the ones listed in the current regulation or Form SDR, 
the requested documents will be tailored to the Commission's evaluation 
of the equity transfer. SDRs will benefit from not expending resources 
and time to collect, file, record, and track documents listed in 
current Sec.  49.5 that may have no value to the Commission's review. 
The Commission's ability to request supporting documentation mitigates 
costs in terms of detrimental effects that could arise from less 
information about the transfer being available to the Commission.
    Additional costs to SDRs, if any, will stem from the inclusion of 
``indirect transfers'' of equity interest in Sec.  49.5. This could 
increase the costs to SDRs, if the inclusion of indirect transfers 
results in more equity interest transfers being subject to the 
regulation and the associated need to provide information to the 
Commission. The inclusion of indirect transfers benefits the Commission 
by providing greater insight into equity interest transfers that could 
affect the business of an SDR, even though the equity interest transfer 
does not involve the SDR directly. As equity interest transfers are 
rare occurrences and the Commission does not anticipate that including 
indirect transfers will result in substantially more equity interest 
transfers, the

[[Page 75640]]

Commission expects the potential additional costs connected to final 
Sec.  49.5 to be small.
    Notwithstanding the anticipated incremental costs, the Commission 
believes the changes to Sec.  49.5 are warranted in light of the 
anticipated benefits.
iv. Sec.  49.6--Request for Transfer of Registration
    The Commission is finalizing Sec.  49.6 as proposed. Final Sec.  
49.6(a) requires an SDR seeking to transfer its SDR registration 
following a corporate change to file a request for approval to transfer 
the registration with the Secretary of the Commission in the form and 
manner specified by the Commission. Final Sec.  49.6(b) specifies that 
an SDR file a request for transfer of registration as soon as 
practicable before the anticipated corporate change. Final Sec.  
49.6(c) sets forth the information that must be included in the request 
for transfer of registration, including the documentation underlying 
the corporate change, the impact of the change on the SDR, governance 
documents, updated rulebooks, and representations by the transferee 
entity, among other things. Final Sec.  49.6(d) specifies that upon 
review of a request for transfer of registration, the Commission, as 
soon as practicable, shall issue an order either approving or denying 
the request for transfer of registration.
    The Commission sought public comment on its cost-benefit 
considerations related to Sec.  49.6. The Commission did not receive 
any comments.
    The Commission continues to believe that Sec.  49.6 will not impose 
any additional costs on SDRs compared to the current requirements that 
include meeting filing deadlines for submitting a Form SDR. The 
amendments to Sec.  49.6 create several benefits that include 
simplifying the process for requesting a transfer of SDR registration 
and reducing the burdens on SDRs for successfully transferring an SDR 
registration to a successor entity. Final Sec.  49.6 eliminates 
duplicative filings by requiring a more limited scope of information 
and representations from the transferor and transferee entities than 
existing Sec.  49.6, which requires a full application for registration 
on Form SDR, including all Form SDR exhibits. Final Sec.  49.6 focuses 
on ensuring the Commission receives relevant information needed to 
approve a request for a transfer of an SDR registration promptly.
v. Sec.  49.9--Open Swaps Reports Provided to the Commission
    The Commission is finalizing Sec.  49.9 as proposed. Final Sec.  
49.9 creates a new regulatory obligation by requiring an SDR to provide 
the Commission with an open swaps report that contains an accurate 
reflection of data for every swap data field required to be reported 
under part 45 for every open swap maintained by the SDR.
    Final Sec.  49.9 alters current Sec.  49.9 substantially. Current 
Sec.  49.9 does not specifically discuss open swaps reports; rather, it 
outlines twelve SDR duties through cross-references to other part 49 
regulations. For example, current Sec.  49.9 states that SDRs must 
``accept swap data as prescribed in Sec.  49.10;'' provide direct 
electronic access to the Commission ``as prescribed in Sec.  49.17;'' 
and adopt disaster recovery plans ``as prescribed in Sec.  49.23 and 
Sec.  49.13.'' \341\ The Commission is removing the list of duties in 
Sec.  49.9 and replacing it with a regulation that assigns SDRs the 
obligation to issue open swaps reports to the Commission.\342\
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    \341\ 17 CFR 49.9(a).
    \342\ The Commission believes that removing the list of duties 
in Sec.  49.9 is a non-substantive change that does not implicate 
cost or benefit considerations, because the list consists of cross-
references to other regulations. The costs and benefits of the 
addition of new requirements in final Sec.  49.9 are considered 
below.
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    The Commission requested public comment on its consideration of the 
costs and benefits related to proposed Sec.  49.9. The Commission did 
not receive any comments.
    The Commission believes that while there may be costs imposed by 
final Sec.  49.9, costs will be mitigated by the fact that SDRs already 
send the Commission reports that are similar to the open swaps reports 
required by final Sec.  49.9. Given that SDRs already have systems to 
issue reports, the adjustments SDRs must undertake to comply with final 
Sec.  49.9 should be incremental in terms of financial and 
administrative outlays to modify technological infrastructures to meet 
the Commission's requirements. The Commission believes the costs may 
include expenditures to modify current reporting systems to meet the 
requirements for the open swaps reporting systems and costs to maintain 
SDR systems.
    Currently, SDRs produce reports using differing approaches to 
calculations and formats. There may be costs to change systems to meet 
the Commission's required standardized format for open swaps reports. 
The Commission, however, does not expect the format of these reports to 
change frequently. The Commission believes a standardized report will 
ensure the report is in a more usable format that assists and improves 
the Commission's regulatory efforts. The Commission uses current SDR 
reports to perform market risk and position calculations. The 
Commission also uses SDR reports to create and publish the Commission's 
weekly swaps report and quarterly entity-netted notional reports. The 
Commission-issued reports benefit market participants and the public by 
providing and analyzing data sourced directly from the SDRs. This 
information on open swaps is unique and is not available to the public 
until the Commission publishes its reports.
    The Commission recognizes that the three existing SDRs vary in size 
of operations. They also service and process different volumes of data 
for various asset classes. As a result, the qualitative and 
quantitative costs to comply with Sec.  49.9 will differ between SDRs. 
Notably, however, no commenters submitted estimates of time or 
monetized costs for proposed Sec.  49.9 or the amount of current costs 
to produce reports. Based on the Commission's knowledge of SDRs and its 
own technological experience, the Commission estimates that each SDR 
will expend 250 hours to establish an open swaps report system that 
complies with Sec.  49.9. Thereafter, the Commission estimates that 
each SDR will spend 30 hours on maintenance and 730 hours dedicated to 
issuing open swaps reports annually. The Commission monetizes the 
initial set-up and annual hours by multiplying by the wage-rate range 
of $48 to $101 to estimate that each SDR will expend $12,000 to $25,250 
to establish an open swaps report system and then expend $36,480 to 
$76,760 for annual maintenance and reporting.\343\
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    \343\ See supra note 344 (discussion of BLS wage estimates). 
These estimates, discussed here and below, 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 market 
participant or reporting entity level are listed in the Paperwork 
Reduction Act discussion above in section VII.B and reflect blended 
burden costs as defined in the supporting statement for Part 49. 
Those costs are not repeated in this section. Wherever appropriate, 
quantified costs reflected in the Paperwork Reduction Act discussion 
are noted below.
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    The Commission considered and rejected the alternative of not 
adopting Sec.  49.9. The Commission believes that the absence of a 
requirement for open swaps reports creates regulatory ambiguity and the 
possibility that SDRs might stop voluntarily producing open swaps 
reports. If the latter were to

[[Page 75641]]

occur, the weekly swaps report would be adversely impacted, possibly 
temporarily eliminated, and efforts to inform the public of 
developments in swaps markets would be hindered. This cost is 
significant because SDR reports and Commission-issued reports have 
become invaluable to the public's and the Commission's understanding of 
derivatives markets.
    Notwithstanding the costs and in light of the drawbacks of possible 
alternatives, the Commission believes Sec.  49.9 is warranted in light 
of the anticipated benefits.
vi. Sec.  49.10--Acceptance of Data
    Final Sec.  49.10(e) requires an SDR to accept corrections for 
errors in SDR data that was previously reported, or erroneously not 
reported, to SDRs. The Commission is finalizing Sec.  49.10(e)(1) 
through (4) generally as proposed, with modifications and textual 
clarifications in response to public comments. The final rule sets 
forth the specific requirements SDRs will need to satisfy under Sec.  
49.10(e): (i) Accept corrections for errors reported to, or erroneously 
not reported to, the SDR until the end of the record-keeping retention 
period under Sec.  49.12(b)(2); (ii) record corrections as soon as 
technologically practicable after accepting the corrections; (iii) 
disseminate corrected SDR data to the public and the Commission, as 
applicable; and (iv) establish, maintain, and enforce policies and 
procedures designed to fulfill these responsibilities under Sec.  
49.10(e)(1) through (3).
    In the Proposal, the Commission explained that Sec.  49.10(e) could 
impose some costs on SDRs, but that the costs would not be significant 
and are largely related to any needed updates to SDR error correction 
systems. The Commission based its belief, in part, on the fact that 
SDRs are currently required to identify cancellations, corrections, and 
errors under parts 43 and 45.\344\ Joint SDR commented that this is an 
incorrect understanding because SDRs ``make available facilities to 
reporting entities to meet their obligations to make such 
corrections.'' \345\ Joint SDR added: ``In order for an SDR to take on 
the new obligation of making corrections, rather than allowing a 
reporting entity to submit corrections themselves, would necessitate 
significant changes to the SDR's systems.'' \346\ Joint SDR also stated 
that it would be costly to make corrections to data for dead swaps. 
They specifically explained: ``This requirement would be costly for the 
SDRs as data will need to be maintained in a readily accessible format 
for an unlimited amount of time and the SDR will be unable to archive 
the data in accordance with its internal policies and procedures.'' 
\347\
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    \344\ See 17 CFR 43.3(e)(1), (3), and (4); 17 CFR 45.14(c).
    \345\ Joint SDR at 8 n. 28.
    \346\ Joint SDR at 8 n. 28.
    \347\ Joint SDR at 9.
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    The Commission is persuaded by commenters' statements that proposed 
Sec.  49.10(e) would be costly and burdensome without changes. Given 
that final Sec.  49.10(e) must be read with final Sec. Sec.  43.3(e), 
45.14, and 49.11, SDRs' costs related to Sec.  49.10(e) should be far 
less than anticipated.
    The Commission believes that there will be costs connected with 
implementing final Sec.  49.10(e). Currently, SDRs must accept and 
record data, as well as disseminate calculations and corrections to SDR 
data.\348\ Final Sec.  49.10(e) might require SDRs to expend 
incremental costs in terms of financial and staff outlays to adjust 
systems to ``accept'' and ``record'' corrections. These incremental 
costs should be limited because, as mentioned earlier, SDRs already 
make facilities available to reporting counterparties to make 
corrections. The Commission believes that the commenter misunderstands 
the requirements of proposed and final Sec.  49.10(e) and the 
associated costs as requiring more direct participation in the 
correction process than is currently required. Nothing in proposed or 
final Sec.  49.10(e) would require the SDRs to change a current 
approach based on making facilities available that allow market 
participants to submit corrections or obligate an SDR to do anything 
more to accept, record, and disseminate corrections than is currently 
required.
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    \348\ 17 CFR 49.10 (SDR ``shall accept and promptly record all 
swap data. . . .''). See also Sec.  43.3(e)(1), (3), and (4); 17 CFR 
45.14(c).
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    The Commission also believes that the inclusion of the technical 
specification and validation requirements for SDR data in parallel 
Commission rulemaking \349\ will help prevent certain types of SDR data 
reporting errors before they occur, and, therefore, reduce the need for 
market participants and the SDRs to correct those types of errors and, 
as a result, the corresponding costs incurred by SDRs to correct errors 
will likely decrease over time.
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    \349\ See generally 85 FR 21516, et seq. (Apr. 17, 2020); 85 FR 
21578, et seq. (Apr. 17, 2020).
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    Final Sec.  49.10(e) will also limit SDR error correction 
requirements to the applicable recordkeeping obligation in final Sec.  
49.12. SDRs will not be obligated to indefinitely maintain storage and 
legacy systems for dead swaps or to correct dead swaps for which the 
records retention period has expired.
    SDRs also might incur incremental costs related to establishing, 
maintaining, and enforcing the policies and procedures required by 
final Sec.  49.10(e). The Commission, however, believes that costs will 
be limited to initial creation costs and update costs for the policies 
and procedures as needed, as mitigated by any existing SDR error 
correction policies and procedures.
    The Commission continues to believe that one of the main benefits 
of Sec.  49.10(e) is improved data quality resulting from SDRs 
collecting and disseminating accurate swaps data. Accurate and complete 
datasets will enable the Commission to better understand markets and 
trading behavior, and guard against abusive practices. In addition, the 
Commission uses swap SDR data to produce public information on the 
swaps markets, such as the weekly swaps reports. The Commission 
believes that accurate data reflected in the weekly swaps report will 
improve the quality and reliability of the reports. All market 
participants and the public benefit from complete and accurate SDR 
data.
    Final Sec.  49.10(e) is linked closely to final Sec. Sec.  43.3(e), 
45.14, and 49.11. Because of the changes to current Sec. Sec.  43.3(e), 
45.14, and 49.11, there will be costs associated with Sec.  49.10(e). 
The Commission, however, believes that the benefits related to using 
accurate data sets warrant the costs of changes to Sec.  49.10(e).
vii. Sec.  49.11--Verification of Swap Data Accuracy
    In response to comments, the Commission is modifying final Sec.  
49.11 so that the verification process is less burdensome and more 
flexible than the process set forth in proposed Sec.  49.11. Final 
Sec.  49.11 requires an SDR to: (i) Verify the accuracy and 
completeness of swap data that the SDR receives from a SEF, DCM, or 
reporting counterparty, or third-party service providers acting on 
their behalf; and (ii) establish, maintain, and enforce policies and 
procedures reasonably designed to verify the accuracy and completeness 
of that swap data. In terms of implementation, Sec.  49.11 requires an 
SDR to provide a mechanism that allows each reporting counterparty that 
is a user of the SDR to access all swap data maintained by the SDR for 
each open swap for which the reporting counterparty is serving as the 
reporting counterparty. Under companion provisions in Sec.  45.14, a 
reporting counterparty is required to perform verifications of the 
relevant

[[Page 75642]]

swap data at specified intervals, using the mechanism provided by an 
SDR under Sec.  49.11, and to correct any errors discovered.
    The Commission anticipates that the final rule will provide 
benefits, as compared to the current regulation, by improving the 
quality of data received and maintained by SDRs. The final rule is 
expected to lead to swap data errors being discovered and corrected 
more frequently and earlier than is often the case under the current 
regulations. Existing Commission regulations and SDRs rules and 
policies allow counterparties to presume data is accurate when it may 
not be. The absence of an affirmative verification requirement has also 
resulted in counterparties not discovering errors, including many 
obvious errors, and therefore not correcting the errors, for extended 
periods.
    The new requirements in final Sec.  49.11 will also impose costs. 
As discussed in more detail below, commenters provided qualitative 
comments on the Commission's consideration of the costs and benefits of 
proposed Sec.  49.11, but did not provide quantitative information. As 
final Sec.  49.11 grants SDRs the flexibility to devise their own 
processes to allow reporting counterparties to access swap data for 
verification, it is difficult to determine the amount of hours and 
effort SDRs will need to comply with Sec.  49.11. Based on comments, 
the Commission believes that SDRs will be able to leverage current 
technological systems to provide access to reporting counterparties to 
verify data under Sec.  49.11.\350\ In the absence of information from 
commenters, the Commission estimates that it will take each SDR up to 
500 hours to build, test, and implement verification systems that are 
of their own design.\351\ The Commission estimates that SDRs will 
expend 50 hours or fewer annually to maintain systems and revise 
policies and procedures. The Commission monetizes the hours by 
multiplying by a wage rate of $48 to $101.\352\ The Commission 
estimates that the initial costs to an SDR of implementing Sec.  49.11 
will range between $24,000 and $50,500. The annual costs will range 
between $2,400 and $5,050.
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    \350\ Joint SDR at 6 n. 28.
    \351\ In the Proposal, the Commission estimated burden hours 
based on proposed Sec.  49.11. Because final Sec.  49.11 is more 
flexible and does not require the creation of open swaps reports or 
the building of systems to send and receive messages with reporting 
counterparties, the Commission believes that SDRs and reporting 
counterparties will employ less onerous and more economical 
approaches to meeting their Sec.  49.11 and Sec.  45.14 obligations. 
Therefore, the Commission is using the estimated burden hours in the 
Proposal as upper limits on the number of hours entities will use to 
develop and maintain data verification systems.
    \352\ See supra note 344 (discussion of BLS wage estimates).
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    Before adopting the verification requirements in final Sec.  49.11, 
the Commission considered the two following requirements that were in 
the Proposal: (1) Requiring an SDR to establish, maintain, and enforce 
policies and procedures reasonably designed for the SDR to successfully 
receive verifications of data accuracy and notices of discrepancy from 
reporting counterparties \353\ and (2) requiring SDRs to issue open 
swaps reports to reporting counterparties on a weekly or monthly basis, 
depending on the type of reporting counterparty involved.\354\
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    \353\ Proposal at 84 FR 21051-55 (May 13, 2019).
    \354\ Id.
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    The Commission received numerous comments on these two requirements 
in response to the Commission's request for comment. ISDA/SIFMA 
suggested that the Commission issue a more principles-based 
verification process than the one described in proposed Sec. Sec.  
45.14(a) and 49.11(b).\355\ ISDA/SIFMA recommended eliminating the 
requirement that reporting counterparties reconcile swaps data with 
SDR-issued open swaps reports as well as obligations that SDRs manage 
or monitor such reconciliations.\356\ ISDA/SIFMA proposed a 
verification process that would require reporting counterparties, via 
required policies and procedures, ``to periodically reconcile the 
relevant SDR data with the data from their internal books and records 
for accuracy.'' \357\ Reporting counterparties that are SDs, MSPs, or 
DCOs would be required to perform verifications monthly and all other 
reporting counterparties would be required to verify data 
quarterly.\358\ The reporting counterparties would need to keep a 
record of verifications and make that information available to SDRs or 
the Commission upon request.\359\ This approach would enable reporting 
counterparties to leverage their own data validation efforts and 
eliminate the burden of sending multiple notifications.\360\
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    \355\ ISDA/SIFMA at 45.
    \356\ Id.
    \357\ Id.
    \358\ Id.
    \359\ Id.
    \360\ Id.
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    As explained in section II.G above, the Commission is persuaded by 
comments that a more flexible verification process will have the same, 
if not better, effect on data quality as the proposed verification 
process. As final Sec.  49.11 does not include the requirement for SDRs 
to distribute open swaps reports to reporting counterparties or to have 
policies and procedures to receive verifications of accuracy and 
notices of discrepancy from reporting counterparties, SDRs will have 
greater flexibility in managing their relationships with reporting 
counterparties than they were expected to have under the Proposal.
    The differences between final Sec.  49.11 and the Proposal also 
affect the Commission's cost considerations. In the Proposal, the 
Commission recognized that the SDRs would bear most of the costs 
associated with the proposed amendments to Sec.  49.11.\361\ The 
Commission stated that there would be initial costs from establishing 
systems to generate open swaps reports and to successfully distribute 
these reports to all reporting counterparties. There also would be 
recurring costs related to any needed adjustments to SDR systems over 
time and to accommodate the arrival or departure of reporting 
counterparties. The Commission also stated that an SDR's costs would be 
insignificant because an SDR would automate the verification 
process.\362\
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    \361\ Proposal at 84 FR 21084 (May 13, 2019).
    \362\ Proposal at 84 FR 21084 (May 13, 2019) (``these changes 
would [not] be significant because, based on discussion with the 
SDRs and other market participants, the Commission believes SDRs 
would largely automate the verification process.'')
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    Joint SDR disagreed with the Commission's cost assessments for 
proposed Sec.  49.11.\363\ Joint SDR commented that ``chasing reporting 
counterparties who have not provided verification of data accuracy or a 
notice of discrepancy in order to establish the SDR made a `full, good-
faith effort to comply' '' would require an expenditure of significant 
resources.\364\ Joint SDR also highlighted that the ``cost of creating 
and maintaining a system to verify each message would be significant.'' 
\365\ Joint SDR encouraged the Commission to recognize that any new 
message types impose development costs on SDRs, reporting 
counterparties, and all third-parties or vendors who build and maintain 
reporting systems.\366\
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    \363\ Joint SDR at 2-3.
    \364\ Joint SDR at 3.
    \365\ Joint SDR at 6. See also ICE Clear at 3 (referencing Joint 
SDR).
    \366\ Joint SDR at 6 and n. 22.
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    Other commenters characterized their objections to the proposed 
message-based verification process as a costly endeavor. FIA requested 
a more principles-based approach to verifying swaps under Sec.  49.11, 
because they

[[Page 75643]]

believed the approach in proposed Sec.  49.11 would create more burdens 
than benefits.\367\ FIA added that ``verification requirements will 
have little marginal benefit relative to the increased costs on 
reporting counterparties, in particular those that are not registered 
[SDs].'' \368\ ISDA/SIFMA stated that they believe the ``proposed 
prescriptive approach to verification would result in considerable 
costs for reporting parties to implement.'' \369\ ICE Clear commented 
that the Commission failed to discuss how the additional verification 
and messaging costs ``would result in increased levels of data accuracy 
sufficient to warrant imposing the obligations.'' \370\
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    \367\ See FIA May at 7-8; ISDA/SIFMA at 44-45.
    \368\ FIA May at 7.
    \369\ ISDA/SIFMA at 44.
    \370\ ICE Clear at 3.
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    The Commission believes that the costs resulting from the 
verification process under Sec.  49.11 as finalized will be less 
burdensome than the costs the Commission estimated in the Proposal. For 
instance, SDRs would have incurred costs to create and distribute 
weekly and monthly open swaps reports as the Commission initially 
proposed, but will not incur these costs under final Sec.  49.11.\371\ 
Under final Sec.  49.11, SDRs and other entities will incur fewer costs 
because they will be able to employ different data-accuracy approaches 
that will not include the costs of building-out and maintaining 
message-based verification systems that rely on open swaps reports.
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    \371\ Proposal at 84 FR 21084 (May 13, 2019) (discussion of 
costs related to generating and distributing open swaps reports).
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    The Commission is not eliminating the overall verification 
requirement because it believes verifying data is crucial to ensure 
data quality. Data review and verification improves the reliability and 
usability of swap data, and more accurate swap data helps the 
Commission in monitoring risk; analyzing metrics for such indicators as 
volume, price, and liquidity; and developing policy. Thus, final Sec.  
49.11 will benefit the Commission and the public by improving the 
accuracy of data they will receive.
    Besides considering proposed Sec.  49.11, the Commission also 
considered and rejected the idea of maintaining current Sec.  49.11. 
The Commission rejected this approach because of concerns about the 
quality of data received under current regulations, as swap data 
quality has not sufficiently improved under current regulations. As 
explained above, the presumption that reported swap data is accurate 
along with the absence of an affirmative verification requirement, have 
resulted in many instances of inaccurate or unusable swap data being 
provided to the Commission under current regulations and procedures. In 
the nine years since the Commission issued the data reporting 
regulations, it has become apparent that the current requirements are 
inadequate to ensure swap data accuracy and that processes like 
verification can improve the accuracy and completeness of data sets. 
Accurate data sets are crucial for overseeing modern markets and for 
understanding the structure and operations of the markets.
    Notwithstanding the anticipated incremental costs of final Sec.  
49.11 and after considering alternatives, the Commission believes the 
amendments to Sec.  49.11 are warranted in light of the anticipated 
benefits.
viii. Sec.  49.12--Swap Data Repository Recordkeeping Requirements
    The Commission is finalizing Sec.  49.12 as proposed. Final Sec.  
49.12(a) requires an SDR to keep full, complete, and systematic 
records, together with all pertinent data and memoranda, of all 
activities relating to the business of the SDR, including, but not 
limited to, all SDR information and all SDR data reported to the SDR.
    Final Sec.  49.12(b)(1) requires an SDR to maintain all SDR 
information received by the SDR in the course of its business. Final 
Sec.  49.12(b)(2) requires an SDR to maintain all SDR data and 
timestamps, and all messages to and from an SDR, related to SDR data 
reported to the SDR throughout the existence of the swap to which the 
SDR data relates and for five years following final termination of the 
swap, during which time the records must be readily accessible by the 
SDR and available to the Commission via real-time electronic access, 
and then for an additional period of at least ten years in archival 
storage from which such records are retrievable by the SDR within three 
business days.
    Final Sec.  49.12(c) requires an SDR to create and maintain records 
of errors related to SDR data validations and errors related to SDR 
data reporting. Final Sec.  49.12(c)(1) requires an SDR to create and 
maintain an accurate record of all SDR data that fails to satisfy the 
SDR's data validation procedures. Final Sec.  49.12(c)(2) requires an 
SDR to create and maintain an accurate record of all SDR data errors 
reported to the SDR and all corrections disseminated by the SDR 
pursuant to parts 43, 45, 46, and 49. SDRs must make the records 
available to the Commission on request.
    Final Sec.  49.12(d) contains the requirements of existing Sec.  
49.12(c) and provides that: (i) All records required to be kept 
pursuant to part 49 must be open to inspection upon request by any 
representative of the Commission or any representative of the U.S. 
Department of Justice; and (ii) an SDR must produce any record required 
to be kept, created, or maintained by the SDR in accordance with Sec.  
1.31.
    The Commission did not receive any comments concerning its 
consideration of costs and benefits related to the recordkeeping 
requirements in proposed Sec.  49.12.
    The Commission continues to believe that the costs of amendments to 
Sec.  49.12 will primarily be incurred by the SDRs as they make any 
needed adjustments to create and maintain all required records. The 
Commission believes these incremental costs will be limited, as the 
recordkeeping requirements in Sec.  49.12 are largely the same as the 
requirements in existing Sec.  49.12 and existing Sec.  45.2(f) and 
(g).
    The amendments to Sec.  49.12 related to SDR information will also 
be substantially similar to the SEC's requirements for its SBSDRs.\372\ 
The Commission expects that there will be substantial overlap in these 
requirements for SDRs that are also SBSDRs and these entities will be 
able to leverage resources to reduce any duplicative costs.
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    \372\ See 17 CFR 240.13n-7 (detailing the SBSDR recordkeeping 
requirements).
---------------------------------------------------------------------------

    Joint SDR objected to the requirements moved to final Sec.  
49.12(b) that requires SDRs to retain data ``for a period of at least 
ten additional years in archival storage from which such records are 
retrievable by the swap data repository within three business days.'' 
\373\ Joint SDR suggested that the Commission harmonize retention 
periods with that of Europe and other Commission-regulated 
entities.\374\ Joint SDR pointed-out that the Commission collects its 
own data from SDRs so the Commission ``can itself retain relevant data 
in accordance with its own recordkeeping policies.'' \375\
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    \373\ Final Sec.  49.12(b); See Joint SDR at 11.
    \374\ Joint SDR at 11.
    \375\ Id.
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    The Commission recognizes that the ten-year archival storage is 
lengthy, but the Commission notes that this period is the current SDR 
retention periods for the same data under existing Sec.  45.2(f) and 
(g) \376\ and that the Commission has not proposed to modify this 
current requirement. The amendments to Sec.  49.12(b) are part of the 
Commission's effort to better organize its own rules, not the result of 
the Commission changing a current requirement. As a

[[Page 75644]]

result, there are no new costs to SDRs associated with the retention 
period in final Sec.  49.12(b). The Commission also continues to 
believe the ten-year period is reasonable. Archived data is important 
to regulatory oversight and the SDRs serve as the source of SDR data 
for the Commission. The Commission benefits from access to archived 
swap data, for the purpose of understanding trends in swaps markets, 
such as exposures, trades, and positions, and guarding against abusive 
practices.
---------------------------------------------------------------------------

    \376\ 17 CFR 45.2(f) and (g).
---------------------------------------------------------------------------

    The Commission believes that the amendments to Sec.  49.12 will 
provide greater clarity to SDRs in regards to their recordkeeping 
responsibilities. The amendments also will help improve efforts to 
track data reporting errors, because the requirements for SDRs to 
maintain records of reporting errors will be clearer. Data 
recordkeeping should lead to better quality data by allowing an SDR and 
the Commission to look for patterns in records that may lead to 
adjustments to SDR systems or future adjustments to reporting policies. 
The availability of quality records is also crucial for the Commission 
to effectively perform its market surveillance and enforcement 
functions, which benefit the public by protecting market integrity and 
identifying risks within the swaps markets.
    Notwithstanding the anticipated incremental costs of Sec.  49.12, 
the Commission believes this change is warranted in light of the 
anticipated benefits.
ix. Sec.  49.17--Access to SDR Data
    The Commission is finalizing Sec.  49.17 as proposed. Final Sec.  
49.17(b)(3) amends the definition of ``direct electronic access'' to 
mean an electronic system, platform, framework, or other technology 
that provides internet-based or other form of access to real-time SDR 
data that is acceptable to the Commission and also provides scheduled 
data transfers to Commission electronic systems.
    Final Sec.  49.17(c) requires an SDR to provide access to the 
Commission for all SDR data maintained by the SDR pursuant to the 
Commission's regulations. Final Sec.  49.17(c)(1) requires an SDR to 
provide direct electronic access to the Commission or its designee in 
order for the Commission to carry out its legal and statutory 
responsibilities under the CEA and Commission regulations. Final Sec.  
49.17(c)(1) also requires an SDR to maintain all SDR data reported to 
the SDR in a format acceptable to the Commission, and transmit all SDR 
data requested by the Commission to the Commission as instructed by the 
Commission.
    Final Sec.  49.17(c)(1) amends the requirements of existing Sec.  
45.13(a) from maintaining and transmitting ``swap data'' to maintaining 
and transmitting ``SDR data,'' to make clear that an SDR must maintain 
all SDR data reported to the SDR in a format acceptable to the 
Commission and transmit all SDR data requested by the Commission, not 
just swap data.
    Final Sec.  49.17(c)(1) also modifies the requirements of existing 
Sec.  45.13(a) from ``transmit all swap data requested by the 
Commission to the Commission in an electronic file in a format 
acceptable to the Commission'' to ``transmit all SDR data requested by 
the Commission to the Commission as instructed by the Commission,'' and 
explains what these instructions may include.
    The Commission also is finalizing amendments to Sec.  49.17(f) to 
replace the incorrect reference to Sec.  ``37.12(b)(7)'' at the end of 
paragraph (f)(2) with a correct reference to Sec.  ``39.12(b)(7)'' of 
the Commission's regulations, as there is no Sec.  37.12(b)(7) in the 
Commission's regulations.
    The Commission's amendments also include the movement of the 
delegation of authority in existing Sec.  49.17(i) to final Sec.  
49.31(a)(7).
    The Commission believes that Sec.  49.17 will generate costs and 
benefits. In the Proposal, the Commission asked for public comment on 
its consideration of costs and benefits. DDR commented that an SDR 
cannot estimate costs of proposed Sec.  49.17(c)(1) because the 
proposed rule provided ``no specificity as to the method, timing, 
format or transmission frequency for required transmission of SDR data 
requested by the Commission'' and left ``the requirements associated 
with both the provision of direct electronic access and the maintenance 
of SDR data to be determined by the Commission at a later date.'' \377\ 
While the Commission agrees that costs may be difficult to determine, 
the Commission notes that no commenters provided information related to 
current costs associated with responding to the similar current 
requirements for scheduled data transfers. If the Commission possessed 
current financial and staffing outlays, the Commission could consider 
incremental increases or decreases that might result from finalizing 
Sec.  49.17.
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    \377\ DDR at 5.
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    The Commission continues to believe that the costs imposed by the 
changes to Sec.  49.17(c) will fall mainly on SDRs, because SDRs will 
incur costs to provide the Commission with direct electronic access to 
all SDR data and to provide access to SDR data as instructed. The costs 
associated with the use of the term ``direct electronic access'' in 
Sec.  49.17(c) are negligible, as SDRs are currently required to 
provide the Commission with direct electronic access and the definition 
is being modified to allow SDRs more flexibility in providing the 
Commission with direct electronic access to SDR data, subject to the 
Commission's approval. The other amendments to Sec.  49.17(c) grant the 
Commission greater flexibility to instruct SDRs on how to transfer SDR 
data to the Commission at the Commission's request. As mentioned above, 
the Commission currently works closely with SDRs to facilitate data 
transfers and implement technology changes. The Commission anticipates 
that because the rule changes reinforce the existing working 
relationships, there will be better communications between the 
Commission and SDRs that will help both parties devise efficient and 
cost-effective ways to facilitate the transfer of SDR data to the 
Commission. As explained in the Proposal, SDRs are already required to 
transmit data under existing Sec.  49.17(b)(3) and (c)(1), and are 
required to transmit all swap data requested by the Commission to the 
Commission in an electronic file in a format acceptable to the 
Commission under existing Sec.  45.13(a). It is also current market 
practice for SDRs to regularly provide SDR data to the Commission as 
instructed by Commission staff. The changes in final Sec.  49.17 do not 
substantially change the current requirements or market practices.
    The final changes to Sec.  49.17(b)(3) that modify the definition 
of ``direct electronic access'' to allow for more technological 
flexibility will likely reduce future costs for SDRs because the 
amendment allows the Commission to consider any technology that may 
provide direct electronic access. This will allow the Commission to 
adapt to changing technology more quickly and may allow SDRs to save 
costs by having more efficient technology and processes approved in the 
future.
    The Commission continues to believe that the amendments to Sec.  
49.17 will be beneficial to SDRs by including the data access 
requirements applicable to SDRs in one section and by more clearly 
stating the Commission's ability to instruct SDRs on all aspects of 
providing SDR data to the Commission.
    Notwithstanding the anticipated incremental costs of Sec.  49.12, 
the Commission believes the changes are warranted in light of the 
anticipated benefits.

[[Page 75645]]

x. Sec.  49.25--Financial Resources
    The Commission is finalizing changes to Sec.  49.25 as proposed, 
except for the proposed amendments to Sec.  49.25(f)(3). The conforming 
changes to Sec.  49.25 eliminate the reference to Sec.  49.9 and to 
core principle obligations identified in Sec.  49.19. Final Sec.  
49.25(a) refers to SDR obligations under ``this chapter,'' to be 
broadly interpreted as any regulatory or statutory obligation specified 
in part 49. The Commission considered these to be non-substantive 
changes that will not impact existing obligations on SDRs, and 
therefore have no cost-benefit implications. The Commission did not 
receive any comments on this point.
    The Commission is not finalizing proposed amendments to Sec.  
49.25(f)(3) to extend the time SDRs have to submit their quarterly 
financial resources reports to 40 calendar days after the end of the 
SDR's first three fiscal quarters, and 90 days after the end of the 
SDR's fourth fiscal quarter, or a later time that the Commission 
permits upon request. As discussed above, the Commission has determined 
not to address the proposed changes to the filing deadline for the 
annual compliance report under Sec.  49.22(f)(2) in this final 
rulemaking. Accordingly, the Commission is not adopting the related 
proposed amendment to Sec.  49.25(f)(3).
xi. Sec.  49.26--Disclosure Requirements of Swap Data Repositories
    The Commission is finalizing Sec.  49.26 as proposed. Final Sec.  
49.26 includes updates to the introductory paragraph of Sec.  49.26 to 
reflect updates to the terms ``SDR data,'' ``registered swap data 
repository,'' and ``reporting entity'' in final Sec.  49.2. The 
Commission is also finalizing updates to other defined terms used in 
the section to conform to the amendments to Sec.  49.2. These non-
substantive amendments do not change the requirements of Sec.  49.26 
and do not have cost-benefit implications.
    The Commission also is finalizing Sec.  49.26(j) as proposed. Final 
Sec.  49.26(j) requires that the SDR disclosure document set forth the 
SDR's policies and procedures regarding the reporting of SDR data to 
the SDR, including the SDR data validation and swap data verification 
procedures implemented by the SDR, and the SDR's procedures for 
correcting SDR data errors and omissions (including the failure to 
report SDR data as required pursuant to the Commission's regulations).
    The Commission requested public comments on its cost-benefit 
considerations related to Sec.  49.26, but the Commission did not 
receive any comments.
    The Commission believes that costs related to final Sec.  49.26 
will be limited and incremental given that current Sec.  49.26 requires 
every SDR to issue disclosure documents.\378\ Costs will likely entail 
the costs related to adding information required under final Sec.  
49.26(j) to the required SDR disclosure document and updating the 
document as needed. For example, there may be administrative and staff 
costs to revise current SDR disclosure documents to include the 
required information.
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    \378\ See 17 CFR 49.26(a) through (i).
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    The Commission expects that the addition of final Sec.  49.26(j) 
will benefit market participants by providing more instructive 
information regarding data reporting to SDR users. The availability of 
this information should improve data reporting, because SDR users will 
be able to align their data reporting systems with SDRs' data reporting 
systems before using the SDRs' services. SDR users will be able to 
prepare operations and train staff before reporting SDR data and, 
thereby, able reduce reporting errors and potential confusion.
    Notwithstanding the anticipated incremental costs associated with 
Sec.  49.26, the Commission believes this change is warranted in light 
of the anticipated benefits.
xii. Sec.  49.28--Operating Hours of Swap Data Repositories
    The Commission is finalizing Sec.  49.28 as proposed. Final Sec.  
49.28 provides more detail on an SDR's responsibilities with respect to 
hours of operation. Final Sec.  49.28(a) requires an SDR to have 
systems in place to continuously accept and promptly record all SDR 
data reported to the SDR, and, as applicable, publicly disseminate all 
swap transaction and pricing data reported to the SDR pursuant to part 
43. Final Sec.  49.28(a)(1) allows an SDR to establish normal closing 
hours to perform system maintenance when, in the SDR's reasonable 
estimation, the SDR typically receives the least amount of SDR data, 
and requires the SDR to provide reasonable advance notice of its normal 
closing hours to market participants and the public.
    Final Sec.  49.28(a)(2) allows an SDR to declare, on an ad hoc 
basis, special closing hours to perform system maintenance that cannot 
wait until normal closing hours. Final Sec.  49.28(a)(2) requires an 
SDR to schedule special closing hours during periods when, in the SDR's 
reasonable estimation while considering the circumstances that prompt 
the need for the special closing hours, the special closing hours will 
be least disruptive to the SDR's data reporting responsibilities. Final 
Sec.  49.28(a)(2) also requires the SDR to provide reasonable advance 
notice of the special closing hours to market participants and the 
public whenever possible, and, if advance notice is not reasonably 
possible, to give notice to the public as soon as is reasonably 
possible after declaring special closing hours.
    Final Sec.  49.28(b) requires an SDR to comply with the 
requirements under part 40 of the Commission's regulations when 
adopting or amending normal closing hours or special closing 
hours.\379\
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    \379\ This requirement already applies to SDRs pursuant to 
current Sec.  43.3(f)(3). See 17 CFR 43.3(f)(3).
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    Final Sec.  49.28(c) requires an SDR to have the capability to 
accept and hold in queue any and all SDR data reported to the SDR 
during normal closing hours and special closing hours \380\ Final Sec.  
49.28(c)(1) requires an SDR, on reopening from normal or special 
closing hours, to promptly process all SDR data received during the 
closing hours and, pursuant to part 43, publicly disseminate swap 
transaction and pricing data reported to the SDR that was held in queue 
during the closing hours.\381\ Final Sec.  49.28(c)(2) requires an SDR 
to immediately issue notice to all SEFs, DCMs, reporting 
counterparties, and the public in the event that the SDR is unable to 
receive and hold in queue any SDR data reported during normal closing 
hours or special closing hours. Final Sec.  49.28(c)(2) also requires 
an SDR to issue notice to all SEFs, DCMs, reporting counterparties, and 
the public that the SDR has resumed normal operations immediately on 
reopening. Final Sec.  49.28(c)(2) requires a SEF, DCM, or reporting 
counterparty that was not able to report SDR data to an SDR because of 
the SDR's inability to receive and hold in queue SDR data to report the 
SDR data to the SDR immediately after receiving such notice that the 
SDR has resumed normal operations.\382\
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    \380\ Final Sec.  49.28(c) expands the similar existing 
requirements for swap transaction and pricing data in current Sec.  
43.3(g) to all SDR data and largely follows the SBSDR requirements 
to receive and hold in queue information regarding security-based 
swaps.
    \381\ Final Sec.  49.28(c)(1) expands the similar existing 
requirements for the SDRs to disseminate swap transaction and 
pricing data pursuant to current Sec.  43.3(g)(1) to also include 
the prompt processing of all other SDR data received and held in 
queue during closing hours. The requirements also largely follow the 
SBSDR requirements for disseminating transaction reports after 
reopening following closing hours.
    \382\ Final Sec.  49.28(c)(2) expands the similar existing 
requirements for swap transaction and pricing data in current Sec.  
43.3(g)(2) to all SDR data and is largely consistent with the SBSDR 
requirements to receive and hold in queue information regarding 
security-based swaps.

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[[Page 75646]]

    The Commission requested public comment on its consideration of 
costs and benefit related to Sec.  49.28 but did not receive any.
    The Commission continues to believe that the final requirements, 
which are largely based on existing rule text found in current Sec.  
43.3(f) and (g), will have limited cost implications for SDRs. There 
may be costs associated with any needed modification to SDR systems to 
accommodate all SDR data during closing hours, as opposed to only swap 
transaction and pricing data. These costs will be incremental because 
all SDRs currently have policies, procedures, and systems in place to 
accommodate all SDR data during closing hours under the current 
requirements.
    The Commission also still believes that SDRs, market participants, 
and the public will benefit from final Sec.  49.28 because the 
requirements for setting closing hours and handling SDR data during 
closing hours will be clearer. Final Sec.  49.28 removes discrepancies 
between current requirements for SDRs and SBSDRs related to closing 
hours, which will allow SDRs that are also registered as SBSDRs to 
comply with one consistent requirement.
    Notwithstanding the anticipated incremental costs related to Sec.  
49.28, the Commission believes the addition of Sec.  49.28 is warranted 
in light of the anticipated benefits.
xiii. Sec.  49.29--Information Relating to Swap Data Repository 
Compliance
    The Commission is finalizing new Sec.  49.29 as proposed, which 
requires an SDR to respond to Commission information requests 
regarding, among other things, its business as an SDR and its 
compliance with SDR regulatory duties and core principles.
    Final Sec.  49.29(a) requires an SDR, upon request of the 
Commission, to file certain information related to its business as an 
SDR or other such information as the Commission determines to be 
necessary or appropriate for the Commission to perform its regulatory 
duties. An SDR must provide the requested information in the form and 
manner and within the time specified by the Commission in its request.
    Final Sec.  49.29(b) requires an SDR, upon the request of the 
Commission, to demonstrate compliance with its obligations under the 
CEA and Commission regulations, as specified in the request. An SDR 
must provide the requested information in the form and manner and 
within the time specified by the Commission in its request. Final Sec.  
49.29 is based on similar existing Commission requirements applicable 
to SEFs and DCMs.\383\
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    \383\ See, e.g., 17 CFR 37.5 and 38.5.
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    The costs associated with responding to requests for information 
include the staff hours required to prepare and submit materials 
related to the Commission's requests. These costs will vary among SDRs 
depending upon the nature and frequency of Commission inquiries. The 
Commission expects these requests to be limited in both size and scope, 
which will likely mitigate the associated costs for SDRs. While final 
Sec.  49.29 allows the Commission to make requests on an ad hoc basis, 
the Commission expects that the need for these requests will decrease 
over time as SDR data quality and SDR compliance with Commission 
regulations improve.\384\
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    \384\ The Commission currently exercises similar authority fewer 
than ten times per year in total with other registered entities, 
such as SEFs, DCMs, and DCOs.
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    DDR commented that because proposed Sec.  49.29 provided ``no 
detail as to the potential scope of a request or to the form, manner 
and timing associated with satisfying the request'' an SDR could not 
assess accurately costs associated with the rule.\385\ While the 
Commission agrees that costs are difficult to accurately determine, the 
Commission notes that no commenters provided current costs associated 
with responding to requests for information, as currently SDRs 
routinely provide the same information to the Commission on request. If 
the Commission possessed current cost information related to responding 
to requests, the Commission could consider incremental increases or 
decreases that might result from finalizing Sec.  49.29 as proposed. 
Without that information as a reference, the Commission continues to 
believe that there will be an incremental cost for each response. Yet, 
the Commission also believes that that costs will be mitigated by the 
fact that current practice is for SDRs to provide similar information 
to the Commission on request and that the SDRs do so regularly. In 
addition, SDRs will be required to adhere to form and manner 
specifications established pursuant to final Sec.  49.30. The 
Commission expects that clearly defining the form and manner for each 
response will further mitigate the cost burden to SDRs that may arise 
from any uncertainty as to the information to be provided.
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    \385\ DDR at 7.
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    Benefits attributed to final Sec.  49.29 include improving the 
Commission's oversight of SDRs due to Commission inquiries. The 
Commission expects that this oversight will lead to improved data 
quality and SDR compliance with Commission regulations. Better data 
quality will help improve the Commission's ability to fulfill its 
regulatory responsibilities and help to increase the Commission's 
understanding of the swaps market. These improvements are expected to 
benefit the public because accurate and complete SDR data reporting 
improves the Commission's analyses and oversight of the swaps markets, 
and increases market integrity due to the Commission's improved ability 
to detect and investigate noncompliance issues and oversee their 
correction.
    The Commission also continues to believe that final Sec.  49.29 
will help the Commission to obtain the information it needs to perform 
its regulatory functions more effectively, as opposed to requiring SDRs 
to supply information on a set schedule, such as under the current 
requirement for annual Form SDR updates in Sec.  49.3(a)(5). This will 
reduce the burden on SDRs, as the SDRs will no longer need to expend 
resources to prepare annual filings.
    Notwithstanding the anticipated incremental costs related to Sec.  
49.29, the Commission believes the addition of Sec.  49.29 is warranted 
in light of the anticipated benefits.
xiii. Sec.  49.30--Form and Manner of Reporting and Submitting 
Information to the Commission
    The Commission is finalizing new Sec.  49.30 as proposed to address 
the form and manner of information the Commission requests from SDRs.
    Final Sec.  49.30 establishes the broad parameters of the ``form 
and manner'' requirements found in part 49. The form and manner 
requirement in Sec.  49.30 will not supplement or expand upon existing 
substantive provisions of part 49, but instead, will allow the 
Commission to specify how information reported by SDRs should be 
formatted and delivered to the Commission. Final Sec.  49.30 provides 
that an SDR must submit any information required under part 49, within 
the time specified, using the format, coding structure, and electronic 
data transmission procedures approved in writing by the Commission.
    The Commission continues to believe that the form and manner 
requirements will have costs associated with conforming reports and 
information to Commission specifications. For instance, there may be 
costs associated with staff hours and technology used to format 
reports. DDR commented that because proposed Sec.  49.30 was vague, an

[[Page 75647]]

SDR could not assess accurately costs associated with the rule.\386\ 
While the Commission agrees that costs are difficult to determine, the 
Commission notes that no commenters provided current reporting costs or 
projections for staffing and systems costs, which the Commission could 
use to consider incremental increases or decreases that might result 
from finalizing Sec.  49.30 as proposed.
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    \386\ DDR at 7.
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    The Commission continues to believe that, in practice, the 
incremental costs of Sec.  49.30 will be limited, because SDRs have 
ample experience working with Commission staff to deliver data, 
reports, and other information in the form and manner requested by 
Commission staff. The Commission believes that this experience will 
significantly mitigate the costs of similar activities under this 
requirement. The Commission also still believes that the Commission 
will benefit through increased standardization of information provided 
by SDRs, thereby aiding the Commission in the performance of its 
regulatory obligations by ensuring the provided information is in 
useable formats and delivered by usable methods. The ability to 
standardize the form and manner of information provided to the 
Commission will also help SDRs to efficiently fulfill their obligations 
to provide information to the Commission.
    Notwithstanding the anticipated incremental costs related to Sec.  
49.30, the Commission believes the addition of Sec.  49.30 is warranted 
in light of the anticipated benefits.
5. Costs and Benefits of Amendments to Part 45
i. Sec.  45.2--Swap Recordkeeping
    The Commission is moving existing Sec.  45.2(f) and (g) (SDR 
recordkeeping and SDR records retention, respectively) to final Sec.  
49.12. As such, all costs and benefits associated with this change are 
discussed in the section, above, that discusses the amendments to Sec.  
49.12.
ii. Sec.  45.14--Correcting Errors and Omissions in Swap Data and 
Verification of Swap Data Accuracy
    The Commission is adopting proposed Sec.  45.14, with 
modifications, to improve the requirements to correct data errors and 
to verify data. Currently, the Commission requires error corrections 
but it does not directly require reporting counterparties to verify 
data. In the Proposal, the Commission outlined error correction and 
verification processes that included specific actions and timelines for 
those actions. In response to comments on the Proposal, the Commission 
is modifying final Sec.  45.14 so that the error-correction and 
verification processes for reporting counterparties are less burdensome 
and more flexible than the processes set forth in the Proposal. The 
Commission will discuss the final error-correction process first, and 
then the final verification process.
    Final Sec.  45.14(a) sets forth requirements for correcting swap 
data errors. Final Sec.  45.14(a) requires a SEF, DCM, or reporting 
counterparty to correct swap data errors as soon as technologically 
practicable, but no later than seven business days, after discovery. 
Final Sec.  45.14(a) requires a SEF, DCM, or reporting counterparty to 
correct errors and omissions for open swaps and dead swaps, but Sec.  
45.14(a)(3) provides that the error correction requirement does not 
apply to swaps for which the applicable record retention period under 
Sec.  45.2 has expired. Final Sec.  45.14(a)(2) requires a non-
reporting counterparty that becomes aware of an error to notify the 
reporting counterparty of the error as soon as technologically 
practicable, but no later than three business days, after discovery. If 
a non-reporting counterparty does not know the identity of the 
reporting counterparty, the non-reporting counterparty must notify the 
SEF or DCM where the swap was executed of the error as soon as 
technologically practicable, but no later than three business days, 
following the discovery.
    Final Sec.  45.14(a) differs from current Sec.  45.14, because it 
provides more parameters for SEFs, DCMs, and reporting counterparties 
correcting errors and sets timelines for correcting errors or issuing 
error notices to the Commission. Current Sec.  45.14(a) requires each 
registered entity or swap counterparty to report discovered data errors 
and omissions as soon as technologically practicable, but there is no 
deadline for making a correction.\387\ Current Sec.  45.14(b) requires 
a non-reporting counterparty to promptly notify the reporting 
counterparty of any errors or omissions, but the rule does not define 
promptly.\388\ Proposed Sec.  45.14(b) would have required a SEF, DCM, 
or reporting counterparty to correct errors or notify the Director of 
DMO within three business days of discovery of errors, regardless of 
the state of the swap.
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    \387\ 17 CFR 45.14(a).
    \388\ 17 CFR 45.14(b).
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    In final Sec.  45.14(a), the Commission establishes a seven-day 
correction period in response to comments that the proposed three-day 
period to correct or notify would not be practicable.\389\ One 
commenter asserted that the Commission's proposed rule was a ``one size 
fits all'' approach that failed to account for ``different errors and 
omission scenarios and levels of materiality'' with an impractical 
error remediation period that would result in an excessive volume of 
notifications being sent to the director of DMO \390\ The proposed 
three-day period was based on the Commission's preliminary belief that 
the costs related to correcting errors and omissions or drafting 
remediation plans and sending notices would not impose an undue burden 
on reporting counterparties. Commenters stated that the requirements of 
proposed Sec.  45.14(b), such as the notification requirement, would 
consume significant resources, even for immaterial errors, that would 
take away resources needed to actually correct errors.\391\ Commenters 
also explained that the proposed three-day deadline would be burdensome 
because the process for identifying errors and then resolving such 
issues often takes more than three business days.\392\ The Commission 
is persuaded by comments that the three-day period, as proposed, would 
hamper the correction of errors.
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    \389\ ISDA/SIFMA at 46. FIA May at 8-9; ICE Clear at 3.
    \390\ ISDA/SIFMA at 45-46. See also FIA May at 8 (``Verification 
of swap data and/or remediation of known errors or omission is not a 
``one-size-fits-all' task'').
    \391\ ISDA/SIFMA at 46. See also GFMA at 6, 12 (timeframe should 
be in business days); CEWG at 5-6 (For a non-registrant reporting 
counterparty, it would be difficult to address a reporting error 
while simultaneously commit resources to file a report with the 
Commission).
    \392\ FIA May at 8 (``Members report that these reviews 
routinely take significantly more than three business days to 
determine scope, let alone to outline a remediation plan to a 
regulator.''); ISDA/SIFMA at 45-46 (three days would often not be 
enough time to fine the causes and scope of errors and omissions and 
submit a report); GFMA at 13 (proposed verification process would 
impose significant headcount costs).
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    The Commission believes there will be costs associated with 
correcting errors under the revised seven-business day correction 
period. Market participants correcting errors will need to expend 
technological and staff resources to identify the causes of data errors 
and resources to correct errors. The amount of resources used will 
likely be dictated by the complexity of the error. The Commission notes 
that these costs will be minimal, compared to current requirements, 
because the current requirements would necessitate the same cause 
identification and error correction. The seven-day deadline in final 
Sec.  45.14, however, will require

[[Page 75648]]

some reporting counterparties to allocate resources differently to meet 
the deadline, because the current error-correction rule has no time 
deadline.\393\
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    \393\ See generally 17 CFR 45.14.
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    The Commission believes that market participants will benefit from 
the seven-day correction period because it eliminates any uncertainty 
about the time period in which market participants must correct errors 
before notifying the Commission of an issue. A time period also helps 
market participants manage time in terms of scheduling and assigning 
resources to correct errors. The Commission believes seven business 
days is sufficient time to complete the steps needed to identify, 
investigate, and rectify most errors or omissions. The Commission also 
believes that the seven-day period, as compared to the absence of a 
deadline in current Sec.  45.14, will not negatively affect the 
Commission's regulatory duties, including its ability to monitor swaps 
markets. Under the current error correction requirements, 
counterparties have neglected to inform SDRs of errors or omissions for 
extended periods, which has meant that SDRs have transmitted inaccurate 
data to the Commission and the Commission may have relied on inaccurate 
data while performing its regulatory responsibilities.
    The Commission is also modifying, in final Sec.  45.14, the 
proposed requirement for a reporting counterparty to produce 
remediation plans and issue notices to the Commission, and for a non-
reporting counterparty to notify a reporting counterparty, SEF, or DCM 
of errors, as applicable.\394\ Current Sec.  45.14 does not require 
market participants to issue any error notices or submit a remediation 
plan, if one exists, to the Commission. Final Sec.  45.14 requires SEF, 
DCM, or reporting counterparties to notify the Commission of any error 
that cannot be corrected within seven business days of discovery. The 
notice must include an initial assessment of the scope of the error and 
an initial remediation plan, if one exists. This notification must be 
made within twelve hours of the SEF's, DCM's, or reporting 
counterparty's determination that it will fail to timely correct the 
error.
---------------------------------------------------------------------------

    \394\ Proposal at 84 FR 21069-70 (May 13, 2019) (discussion of 
proposed Sec.  45.14(b)(1)(ii) and the current practices for 
remediation plans).
---------------------------------------------------------------------------

    The Commission believes that the final Sec.  45.14 requirement to 
issue error notices will generate costs. Market participants will need 
to expend technological and staff resources to develop and maintain 
notification systems. SEF's, DCM's, and reporting counterparties will 
incur additional costs to develop systems to assess the scope of an 
error and to submit initial remediation plans, if they decide to use 
such plans. For SEFs, DCMs, and reporting counterparties that already 
send the Commission error-correction notices and remediation plans, the 
costs will be incremental.\395\
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    \395\ Proposal at 84 FR 20170 (May 13, 2019).
---------------------------------------------------------------------------

    The Commission believes that error correction notices are 
beneficial because they will help alert the Commission to data that is 
unreliable and to reporting issues. Notices also will help the 
Commission monitor whether market participants are complying with 
Commission regulations. If a market participant creates an initial 
remediation plan, it will be useful to the market participants and the 
Commission because such plans help with tracking errors, identifying 
data issues, discovering recurring errors, and preventing errors from 
reoccurring. The Commission also believes that the inclusion of the 
technical specification and validation requirements for swap data in 
parallel Commission rulemaking \396\ will help reduce certain types of 
swap data reporting errors, and reduce the need for market participants 
to correct those types of errors and, as a result, the corresponding 
costs incurred by market participants to correct swap data errors will 
likely decrease over time. Finally, the Commission believes that the 
error correction process becomes less burdensome and less disruptive 
when market participants remedy data errors as soon as possible and in 
an organized manner.
---------------------------------------------------------------------------

    \396\ See generally 85 FR 21578, et seq. (Apr. 17, 2020).
---------------------------------------------------------------------------

    The Commission also believes that the final Sec.  45.14 error 
correction process will improve data accuracy and will enable the 
Commission to better monitor risk and identify issues in the swaps 
markets. As discussed above, the Commission currently issues a weekly 
swaps report and quarterly entity-netted notional reports using swaps 
data.\397\ Using swap data, the weekly swaps report has the capacity to 
illustrate trends in exposures, trades, and positions, and the entity-
netted notional reports measure the transfer of risk in swaps markets. 
Both reports give the Commission and the public greater insight into 
trading behavior, liquidity, pricing, various types of risk, and how 
swaps markets work in general--all factors important in developing 
policy and allocating oversight resources. More accurate swap data will 
increase the usefulness of these reports.
---------------------------------------------------------------------------

    \397\ The weekly swaps report is available at: https://www.cftc.gov/MarketReports/SwapsReports/index.htm. ENNs reports for 
different asset classes are available at: https://www.cftc.gov/About/EconomicAnalysis/ReportsOCE/index.htm.
---------------------------------------------------------------------------

    The Commission is requiring error corrections for all swaps that 
are within their respective records retention periods. In a change from 
the Proposal, and is response to comments received, the Commission is 
finalizing a limit on the SEFs', DCMs', and reporting counterparties' 
obligations to correct errors in swap data that confines the error 
correction requirements to errors discovered during the relevant 
recordkeeping periods for the relevant swaps under Sec.  45.2. The 
Commission recognizes the comments that argued that correcting swaps 
that are outside of their record retention periods is burdensome and 
impractical. ISDA/SIFMA explained that as dead swaps ``no longer pose 
risks to U.S. markets, it is unclear how correcting any errors would 
enhance the Commission's ability to monitor risk.'' \398\ ISDA/SIFMA 
also remarked that there would be costs incurred by SDRs and reporting 
counterparties that are associated with correcting dead swaps, such as 
maintaining and storing data and building validations that can 
accommodate the reporting of dead swaps.\399\
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    \398\ ISDA/SIFMA at 47.
    \399\ Id.
---------------------------------------------------------------------------

    The Commission acknowledges that the burden shouldered by market 
participants to expend resources to correct older data and to maintain 
legacy formats will affect costs and complexity of compliance.\400\ 
However, there is value in correcting dead swaps, as the Commission is 
charged with ensuring market integrity and guarding against fraud and 
manipulation, among its other regulatory responsibilities, which 
includes the use of data for dead swaps. With accurate data, including 
for dead swaps, the Commission will be able to better analyze years of 
market activity, study market events, perform back-testing, and, 
ultimately, use the swap data to inform policy.\401\ The

[[Page 75649]]

correction of dead swaps also provides a strong incentive for market 
participants to properly design their reporting systems, to perform 
thorough verification, and to promptly correct errors, to avoid or 
mitigate the cost of correcting data errors, which will improve data 
quality.
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    \400\ Id. at 46-47. See also FIA May at 9.
    \401\ For example, since January 2013, the Commission has 
produced weekly swaps data, and since early 2018, the Commission has 
issued quarterly, ENNs reports. Over time, Commission staff will be 
able to produce studies using historical swaps data, similar to the 
papers about futures trading. See, e.g., ``Commodity Index Trading 
and Hedging Costs,'' Celso Brunetti and David Reiffen, August 2014, 
Journal of Financial Markets, vol. 21, pp. 153-180, available at: 
https://doi.org/10.1016/j.finmar.2014.08.001 (authors used 10 years 
of futures data, 2003-2012; ``The Lifecycle of Exchange-traded 
Derivatives,'' Grant Cavanaugh and Michael Penick, July 2014, 
Journal of Commodity Markets, vol. 10, pp. 47-68, available at 
https://doi.org/10.1016/j.jcomm.2018.05.007 (authors studied over 50 
years of futures data from 1954 to the 2000s).
---------------------------------------------------------------------------

    In final Sec.  45.14(b), the Commission is requiring reporting 
counterparties to verify data. Currently, there are no specific 
verification requirements for reporting counterparties. The Commission 
is adopting verification requirements in final Sec.  45.14(b) that 
differ from the process described in the Proposal.
    Proposed Sec.  45.14(a) outlined a verification process that 
involved an exchange of open swaps reports and messaging between SDRs 
and reporting counterparties. Proposed Sec.  45.14(a) would have 
required reporting counterparties to reconcile open swaps reports with 
their internal records for the swap data and to submit to an SDR a 
verification of the accuracy or notice of discrepancy for the relevant 
swap data within a 48- or 96-hour period, as applicable,\402\ after 
receipt of open swaps reports from the SDR. Proposed 49.11 would have 
required an SDR to distribute open swaps reports for verification by 
reporting counterparties who are SDs, MSPs or DCOs on a weekly basis 
and to other reporting counterparties on a monthly basis. By not 
adopting certain elements in proposed Sec.  49.11--that is, the 
messaging process based on open swaps reports issued by SDRs--SDRs and 
reporting counterparties will have more flexibility (as compared to the 
Proposal) in determining how reporting counterparties verify data and 
correct errors pursuant to Sec.  45.14.
---------------------------------------------------------------------------

    \402\ Under the Proposal, SDs, MSPs and DCOs are subject to a 
shorter 48-hour time frame for verification.
---------------------------------------------------------------------------

    Final Sec.  45.14(b) modifies the proposed verification process. 
Final Sec.  45.14(b)(1) requires a reporting counterparty to utilize 
the mechanism provided by an SDR pursuant to final Sec.  49.11 to 
access and verify swap data by comparing its internal records for swap 
data with the relevant swap data maintained by the SDR. Under final 
Sec.  45.14(b)(2), a reporting counterparty must conform to the 
relevant SDR's policies and procedures for verification. In final Sec.  
45.14(b)(4), the Commission is setting the verification frequency at 
every thirty calendar days for reporting counterparties that are SDs, 
MSPs, or DCOs, and at every quarter for other reporting counterparties. 
Final Sec.  45.14(b)(5) requires a reporting counterparty to maintain a 
verification log, wherein the reporting counterparty records the 
verifications it performed, errors discovered during the verification 
processes, and corrections made. The reporting counterparty must 
provide the verification log to the Commission on request.
    The Commission understands that the costs of verification processes 
under final Sec.  45.14 will involve time and personnel resources for 
reporting counterparties. A reporting counterparty may be required to 
expend resources to develop processes to access swap data through one 
or more SDR mechanisms and to compare swap data maintained by SDRs with 
its internal data and records for open swaps. The absence of a 
verification process under the Commission's current rules has been 
costly in terms of the harmful effect erroneous and incomplete swaps 
data submissions have had on the Commission's regulatory efforts, 
especially when data errors that could have been discovered through 
verification are not discovered and not corrected.
    The Commission believes there may be recurring costs associated 
with performing monthly and quarterly verifications and with preparing 
verification logs. The Commission proposed more frequent verifications 
than are included in the final requirement, and some commenters 
suggested that the Commission reduce the frequency of the verification 
process and focus on key economic fields for trades to alleviate the 
costs and the challenges of verification.\403\ A number of commenters 
believed that the Commission's technical specifications and validation 
requirements proposed from other Roadmap rules would mean that data is 
reliable enough for verification to be performed less frequently than 
proposed.\404\ The Commission agrees with these comments, and has 
reduced the frequency of verifications from the proposed weekly/monthly 
to monthly/quarterly, as recommended by commenters.
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    \403\ See, e.g., GFMA at 13.
    \404\ See ICE Clear at 3 (``By focusing on obtaining a critical 
set of data elements, utilizing existing and future upfront data 
validations, and leveraging existing requirements to correct errors 
and omissions, the Commission has crafted a reporting framework that 
should substantially enhance the accuracy, reliability and utility 
of swap data.'')
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    The Commission believes that the final frequency of verifications 
will still support the Commission's objectives for high-quality data 
without overburdening reporting counterparties and SDRs.\405\ Monthly 
and quarterly verifications, depending on the type of reporting 
counterparty, will also require the use of resources, such as personnel 
and time, but the Commission believes that reporting counterparties' 
verification processes will become more efficient and, in some cases, 
automated as experience and technology develops. Also, as commenters 
suggested, it is likely that the Commission's enhanced validation and 
technical specifications will produce more accurate and reliable data, 
in certain respects, which, in turn, will reduce the reduce the amount 
of time needed to verify data. Validations and standardized data fields 
would help eliminate inappropriately blank data fields, though they 
would not eliminate the reporting of incorrect but plausible swap data, 
meaning that verification is still a necessity. Reducing or eliminating 
the number of inappropriately blank data fields will, however reduce 
the number of errors to be discovered in verification and the number of 
errors to be corrected.
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    \405\ ISDA/SIFMA at 45 (ISDA/SIFMA suggested monthly 
verifications for reporting counterparties that are SDs, MSPs, or 
DCOs, and quarterly verifications for all other reporting 
counterparties).
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    The Commission also believes that Sec.  45.14 encourages 
accountability, because reporting counterparties must record their data 
verification efforts. Under the current regulations, there is little 
accountability for counterparties that do not participate in the 
confirmation process.
    The Commission believes that verification processes that lead to 
accurate data are vital to meaningful regulation and essential to 
fulfilling the purposes of CEA section 21. With more accurate data, the 
Commission can better identify discrepancies in swaps markets, 
determine whether market participants are complying with Commission 
regulations, and guard against abusive practices. Accurate data also 
benefits the public, because it is used to inform the Commission's 
policy decisions that help support well-functioning markets.
    For proposed Sec.  45.14, like proposed Sec.  49.11, commenters 
provided qualitative comments in response to the Commission's 
consideration of costs and benefits. Commenters did not provide 
quantitative information.
    Based on the Commission's familiarity with reporting counterparty 
operations and the currently collected data, the Commission recognizes 
there will be monetary costs for reporting counterparties to comply 
with the error-correction and verification requirements

[[Page 75650]]

in Sec.  45.14. For the error-correction process, the Commission 
estimates that SEFs, DCMs, and reporting counterparties will each spend 
about 30 hours per year correcting data previously submitted to SDRs, 
providing notices to the Commission, and submitting remediation plans, 
if such plans exist.\406\ Those hours will not be new time commitments 
because reporting counterparties are currently required to correct 
errors. The Commission monetizes the hours by multiplying by a wage 
rate of $48 to $101.\407\ Accordingly, the Commission estimates that 
each reporting counterparty will expend between $1,440 and $3,030 
annually to implement Sec.  45.14(a), and each non-reporting 
counterparty will expend between $48 and $101.
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    \406\ Proposal at 84 FR 21076 (May 13, 2019).
    \407\ See supra note 344 (discussion of BLS wage estimates).
---------------------------------------------------------------------------

    The Commission estimates that the hours needed for reporting 
counterparties to meet their verification obligations under the final 
rules will be less than the hours estimated to be required under the 
Proposal, as a result of the technical specifications and validation 
requirements from other Roadmap rulemakings, which the Commission 
expects will reduce errors in the first instance, and because the 
verification process under final Sec.  45.14(b) will be less time-
consuming than the requirements under proposed Sec. Sec.  45.14(a) and 
49.11. The Commission understands that the hours and rates will vary 
based on many factors, including each reporting counterparty's 
expertise in data reporting and operational size. The Commission 
estimates that the initial efforts to implement Sec.  45.14(b) will 
require 100 hours on average, meaning each reporting counterparty will 
expend up to 100 hours a year to establish systems to verify data and 
prepare verification logs. The Commission estimates these efforts to 
cost between $4,800 to $10,100, which are the sums of the hours 
multiplied by a wage rate of $48 to $101.\408\ The Commission estimates 
that reporting counterparties will expend up to two hours every 30 days 
to verify data, or 24 hours annually. The annual costs to verify data 
every 30 days for some reporting counterparties will range between 
$1,152 and $2,424. The annual costs to expend up to two hours every 
quarter to verify data for other reporting counterparties will range 
between $384 and $808.
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    \408\ See supra note 344 (discussion of BLS wage estimates).
---------------------------------------------------------------------------

    Besides considering proposed Sec.  45.14, the Commission considered 
and rejected the idea of maintaining current Sec.  45.14. The 
Commission rejected this approach because it has become evident that 
mandates to correct errors and verification processes improve data 
quality, and that current requirements have proven inadequate for 
providing the Commission with the level of data quality that it 
requires to perform its regulatory functions. As explained above, the 
current regulations for confirmation and error correction have resulted 
in the Commission receiving data that is presumed accurate, when this 
is often not the case. The Commission also has observed that the 
absence of a verification requirement has resulted in counterparties 
neglecting to inform SDRs of errors, or otherwise not discovering even 
glaring errors in swap data, often for long periods of time. This 
leaves the Commission with flawed data, which hinders the Commission's 
ability to understand the nature of swaps, price fluctuations, and 
markets generally, and hampers the Commission's ability to perform its 
regulatory functions. Thus, the Commission believes the alternative of 
retaining current Sec.  45.14 would undermine the Commission's 
regulatory efforts and hinder the Commission's ability to make informed 
decisions using accurate data.
    Notwithstanding the anticipated incremental costs related to final 
Sec.  45.14 and after considering alternative approaches, the 
Commission believes the amendments to Sec.  45.14 are warranted in 
light of the anticipated benefits.
6. Costs and Benefits of Amendments to Part 43
Sec.  43.3(e)--Error Correction
    The Commission is amending the error correction requirements of 
existing Sec.  43.3(e) to conform to the error correction requirements 
in Sec.  45.14. The amendments to Sec.  43.3(e) create regulatory 
consistency and reduce any confusion around error-correction 
requirements for data under Part 43 and swap data required under Part 
45.
    Final Sec.  43.3(e)(1) requires any SEF, DCM, or reporting 
counterparty that by any means becomes aware of any errors in swap 
transaction and pricing data previously-reported, or not properly 
reported, to an SDR by the SEF, DCM, or reporting counterparty to 
submit corrected swap transaction and pricing data to the SDR 
regardless of the state of the swap, including swaps that have 
terminated, matured, or are otherwise no longer open. Final Sec.  
43.3(e)(1)(i) requires a SEF, DCM, or reporting counterparty to correct 
swap transaction and pricing data as soon as technologically 
practicable following discovery of the errors, but no later than seven 
business days following the discovery of the error. Under final Sec.  
43.3(e)(1)(ii), if a SEF, DCM, or reporting counterparty is unable to 
correct the errors within seven business days following discovery of 
the errors, the SEF, DCM, or reporting counterparty must inform the 
Director of DMO, or his or her designee, of such errors or omissions 
and provide an initial assessment of the scope of the errors or 
omissions and an initial remediation plan for correcting the errors, if 
one exists, within 12 hours of determining that the correction cannot 
be made within the required time frame. Final Sec.  43.3(e)(1)(iii) 
requires that a SEF, DCM, or reporting counterparty conform to an SDR's 
policies and procedures for corrections of errors in previously-
reported swap transaction and pricing data and reporting of omitted 
swap transaction and pricing data.
    Final Sec.  43.3(e)(2) applies to a non-reporting counterparty that 
becomes aware of any errors in swap transaction and pricing data. Final 
Sec.  43.3(e)(2) requires a non-reporting counterparty to inform the 
reporting counterparty for the swap of the error, but does not require 
the non-reporting counterparty to correct the error. A non-reporting 
counterparty has three business days following the discovery of the 
errors or omissions to notify the reporting counterparty of the error, 
instead of the seven business days provided for corrections under final 
Sec.  43.3(e)(1). If a non-reporting counterparty does not know the 
identity of the reporting counterparty, the non-reporting counterparty 
must notify the SEF or DCM where the swap was executed of the errors 
and omissions no later than three business days after the discovery.
    The Commission is moving all of the requirements of existing Sec.  
43.3(f) and (g) to new Sec.  49.28. As such, all costs and benefits 
associated with this change are discussed above in section discussing 
Sec.  49.28.
    The costs related to final Sec.  43.3(e)(1) are similar to the 
costs to correct errors under final Sec.  45.14(a)(1), as the final 
rules to each section are intended to be consistent. Final Sec.  
43.3(e) will impose costs on SEFs, DCMs, and reporting counterparties 
for correcting errors and submitting remediation plans, if they exist, 
to the Director of DMO within a seven-day period. Market participants 
are also currently required to correct errors under existing Sec.  
43.3(e), so costs associated with Sec.  43.3(e) are only those

[[Page 75651]]

that result from the modified requirements as compared to the existing 
requirements, such as the requirement for notices. Costs to correct 
errors and issue error notices with initial remediation plans, if they 
exist, will be mitigated by the fact that the duties under Sec.  
43.3(e) are similar to duties in final Sec.  45.14. The Commission also 
believes that the costs related to remediation plans will be 
incremental because reporting counterparties typically provide a 
remediation plan to the Commission as part of current practice. The 
seven-day deadline will require some reporting counterparties to 
allocate resources differently to meet the deadline because the current 
rule does not have a specific time deadline.\409\ The Commission also 
believes that the inclusion of the technical specification and 
validation requirements for swap transaction and pricing data in 
parallel Commission rulemaking \410\ will help reduce certain types of 
swap transaction and pricing data reporting errors, and, therefore, 
reduce the need for market participants to correct those types of 
errors and, as a result, the corresponding costs incurred by market 
participants to correct swap transaction and pricing data errors will 
likely decrease over time.
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    \409\ See generally 17 CFR 43.3(e).
    \410\ See generally 85 FR 21516, et seq. (Apr. 17, 2020).
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    Non-reporting counterparties also may incur additional costs 
related to the requirements in Sec.  43.3(e)(2). Non-reporting 
counterparties may expend resources to make the required notification 
within the three-day period under final Sec.  43.3(e)(2). Under current 
Sec.  43.3(e)(1)(i), non-reporting counterparties must act ``promptly'' 
so the three-day deadline under the final rule may require non-
reporting counterparties to allocate resources differently to meet the 
deadline. The additional requirement in final Sec.  43.3(e)(2) for a 
non-reporting counterparty to inform a SEF or DCM of an error if the 
identity of the reporting counterparty is not known is intended to 
accommodate non-reporting counterparties in fulfilling their role in 
the data correction process for swaps executed anonymously. The 
Commission expects that non-reporting counterparties will not incur 
many costs to notify a SEF or DCM of errors and omissions beyond the 
cost currently incurred when notifying reporting counterparties.
    As discussed in the section regarding the benefits of final Sec.  
45.14, the Commission believes consistent error correction requirements 
for swap data and swap transaction and pricing data will help ensure 
that the Commission has access to accurate and complete swap 
transaction and pricing data in order to fulfill its various regulatory 
responsibilities. Accurate swap transaction and pricing data helps the 
Commission to monitor and surveil market activity and risks within the 
swaps markets. Accurate and complete swap transaction and pricing data 
is also beneficial to market participants and the public, who rely on 
the data in their swaps-related decision-making. Inaccurate or 
incomplete swap transaction and pricing data can create market 
volatility. Additionally, the Commission believes that accurate swap 
transaction and pricing data is necessary for effective risk management 
for swap counterparties, and the correction requirements under the 
final rule will help ensure that swap counterparties have access to 
accurate and complete swap transaction and pricing data.
    SDRs and counterparties also benefit from consistent regulations. 
The final rule establishes a swap data error-correction framework for 
reporting counterparties in Sec.  45.14. The requirements in final 
Sec.  43.3(e) are consistent with the requirements in final Sec.  
45.14(a). Both of these rules complement amendments to Part 49 that 
require SDRs to provide reporting counterparties with access to swaps 
data reporting systems to identify errors and make corrections. The 
Commission believes that inconsistent requirements may lead to 
confusion and unnecessary efforts by covered entities. By ensuring that 
obligations in final Sec.  43.3(e) are consistent with the obligations 
to Sec.  45.14, these issues should be avoided. Finally, the Commission 
believes its ability to monitor swaps markets is not compromised by the 
three-day or seven-day correction and notification periods in final 
Sec.  43.3(e). While incorrect data might affect market analysis in the 
short-term, there is greater value in possessing accurate data for the 
life of a swap that can provide insight into market activity for months 
and years; support a point-in-time examination of the data, and enable 
back-testing.
    The Commission recognizes there will be monetary costs for 
reporting counterparties and non-reporting counterparties to comply 
with the error-correction and notification requirements in Sec.  
43.3(e). For the error-correction and remediation process, the 
Commission estimates that 1,729 SEFs, DCMs, and reporting 
counterparties will each spend about 30 hours a year correcting swap 
transaction and pricing data, providing notices to the Commission and 
submitting remediation plans, if such plans exist.\411\ Those hours 
will not be new time commitments because reporting counterparties are 
currently required to correct errors. Because the Commission believes 
that error notifications by non-reporting counterparties will be 
infrequent, it estimates that non-reporting counterparties will expend 
no more than one hour issuing error notices. The Commission monetizes 
the hours by multiplying by a wage rate of $48 to $101.\412\ 
Accordingly, the Commission estimates that each reporting counterparty 
will expend between $1,440 and $3,030 annually to implement Sec.  
43.3(e), and each non-reporting counterparty will expend between $48 
and $101 annually.
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    \411\ Proposal at 84 FR 21076-77 (May 13, 2019).
    \412\ See supra note 344 (discussion of BLS wage estimates).
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    While the Commission does anticipate incremental costs associated 
with Sec.  43.3(e), the Commission believes the amendments to Sec.  
43.3(e) are warranted in light of the anticipated benefits related to 
error-correction processes that lead to accurate data.
7. Section 15(a) Factors
    The Dodd-Frank Act sought to promote the financial stability of the 
United States, in part, by improving financial system accountability 
and transparency. More specifically, Title VII of the Dodd-Frank Act 
directs the Commission to promulgate regulations to increase swaps 
market transparency and thereby reduce the potential for counterparty 
and systemic risk.\413\ 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. SEFs, DCMs, and 
reporting counterparties that submit data to SDRs are central to 
achieving the legislation's objectives related to swap reporting.
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    \413\ 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 1 
(June 17, 2009) at 47-48.
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    Section 15(a) of the Act requires the Commission to consider the 
costs and benefits of the amendments to parts 43, 45, and 49 with 
respect to the following factors:
     Protection of market participants and the public;
     Efficiency, competitiveness, and financial integrity of 
markets;
     Price discovery;

[[Page 75652]]

     Sound risk management practices; and
     Other public interest considerations.
    A discussion of these amendments in light of section 15(a) factors 
is set out immediately below.
i. Protection of Market Participants and the Public
    In the Part 49 Adopting Release, the Commission noted that it 
believed that the registration and regulation of SDRs will serve to 
better protect market participants by providing the Commission and 
other regulators with important oversight tools to monitor, measure, 
and comprehend the swaps markets. Inaccurate and incomplete data 
reporting hinders the Commission's ability to oversee the swaps market. 
The final rules adopted in this release mostly focus on ensuring that 
SDRs and reporting counterparties verify and correct errors or 
omissions in data reported to SDRs and on streamlining and simplifying 
the requirements for SDRs. Both error-correction and verification 
processes are steps in a series of data checks or techniques needed to 
build accurate data sets. Regardless of whether verification is done 
automatically or manually, the accuracy of SDR data should improve 
under these final regulations because inaccuracies will be removed.
    Overall, the Commission believes that the adoption of all the 
amendments to parts 43, 45, and 49 will improve the quality of the data 
reported, increase transparency, and enhance the Commission's ability 
to fulfill its regulatory responsibilities, including its market 
surveillance and enforcement capabilities. In some cases, as discussed 
above, the final regulations are expected to be more flexible as 
compared to the requirements in the Proposal. The Commission does not 
believe that this increased flexibility will encumber the benefits from 
better quality data. Rather, the Commission believes that monitoring of 
potential risks to financial stability will be more effective with more 
accurate data. More accurate data will therefore lead to improved 
protection of market participants and the public.
ii. Efficiency, Competitiveness, and Financial Integrity of Markets
    The Commission believes that the adoption of the amendments to 
parts 43, 45, and 49, together with the swap data recordkeeping and 
reporting requirements in parts 43 and 45, will provide a robust source 
of information on swaps markets that is expected to promote increased 
efficiency and competition. Under the final Roadmap regulations, parts 
43, 45, and 49 will work together to establish a data validation and 
verification system for SDRs and reporting counterparties. The result 
is a data reporting system that fulfills the CEA's mandate that the 
Commission prescribe data collection and maintenance standards for 
SDRs, and, ultimately, supports the collection of accurate and complete 
data.
    The Commission believes that accurate swap transaction and pricing 
data will lead to greater efficiencies for market participants 
executing swap transactions due to a better understanding of their 
overall positions within the context of the broader market. This 
improved understanding will be facilitated by two distinct channels. 
First, amendments adopted in this final rulemaking are expected to 
result in improved swap transaction and pricing data being made 
available to the public, which will improve the ability of market 
participants to monitor real-time activity by other participants and to 
respond as they see fit. Second, amendments that result in improved 
swap data will improve the Commission's ability to monitor the swaps 
markets for abusive practices and improve the Commission's ability to 
create policies that ensure the integrity of the swaps markets. This 
improvement will be facilitated by the Commission's improved oversight 
and enforcement capabilities and the reports and studies published as 
part of the Commission's research and information programs.
    In particular, the amendments to Sec. Sec.  45.14, 49.2, 49.10, 
49.11, 49.12, and 49.26 will help improve the financial integrity of 
markets. For example, the verification and correction of swap data will 
improve the accuracy and completeness of swap data available to the 
Commission. The verification and correction processes also will assist 
the Commission with, among other things, improving monitoring of risk 
exposures of individual counterparties, monitoring concentrations of 
risk exposure, and evaluating systemic risk. The efficient oversight 
and accurate data reporting enabled by these amendments will improve 
the financial integrity of the swaps markets.
    In the Part 49 Adopting Release, the Commission expected that the 
introduction of SDRs would further automate the reporting of swap data. 
The Commission expected that automation would benefit market 
participants and reduce transactional risks through the SDRs and other 
service providers offering important ancillary services, such as 
confirmation and matching services, valuation, pricing, reconciliation, 
position limits management, and dispute resolution. These benefits did 
follow and have enhanced the efficiency, competitiveness, and financial 
integrity of markets.\414\ The Commission believes that the amendments 
in this release will help to further enhance these benefits.
---------------------------------------------------------------------------

    \414\ See Part 49 Adopting Release at 54573.
---------------------------------------------------------------------------

iii. Price Discovery
    The CEA requires that swap transaction and pricing data be made 
publicly available. The CEA and its existing regulations in part 43 
also require swap transaction and pricing data to be available to the 
public in real-time. Combined, parts 43 and 49 achieve the statutory 
objective of providing transparency and enhanced price discovery to 
swap markets in a timely manner. The amendments to Sec. Sec.  43.3, 
49.2, 49.10, 49.11, 49.12, and 49.26 improve the fulfillment of these 
objectives. The amendments, both directly and indirectly, upgrade the 
quality of real-time public reporting of swap transaction and pricing 
data by improving the accuracy of information that is reported to the 
SDRs and disseminated to the public.
    As explained above, many of the final rules adopted in this release 
focus on a system for verifying swap data reported to and maintained by 
SDRs, who are also charged with disseminating such data to the 
Commission. The value of the swap data to the Commission depends on its 
accuracy and completeness. Swap data that contains errors or missing 
information has limited value because the Commission cannot rely on it 
to monitor risk and pricing, measure volume and liquidity, or inform 
policy.
    Similarly, the Commission believes that inaccurate and incomplete 
swap transaction and pricing data hinders the public's use of the data, 
which harms transparency and price discovery. The Commission is aware 
of at least three publicly-available studies that support this point. 
The studies examined data and remarked on incomplete, inaccurate, and 
unreliable data. The first study analyzed the potential impact of the 
Dodd-Frank Act on OTC transaction costs and liquidity using real-time 
CDS trade data. The study found that more than 5,000 reports had 
missing data and more than 15,000 reports included a price of zero, 
leaving a usable sample of 180,149 reports.\415\ The second study 
reported a number of data fields that

[[Page 75653]]

were routinely null or missing, making it difficult to analyze swap 
market volumes.\416\ The third study assessed the size of the 
agricultural swaps market and described problems in identifying the 
underlying commodity as well as other errors in the reported data that 
made some data unusable, including, for example, swaps with a reported 
notional quantity roughly equal to the size of the entire U.S. soybean 
crop.\417\ The Commission expects the final rules will result in more 
accurate and complete data, which will improve market participants' 
ability to analyze swap transaction and pricing data. This, in turn, 
should improve transparency and price discovery.
---------------------------------------------------------------------------

    \415\ Y.C. Loon, Z. (Ken) Zhong, ``Does Dodd-Frank affect OTC 
transaction costs and liquidity? Evidence from real-time trade 
reports,'' Journal of Financial Economics (2016), available at 
http://dx.doi.org/10.1016/j.jfineco.2016.01.019.
    \416\ See Financial Stability Report, Office of Financial 
Research (Dec. 15, 2015) at 84-85, available at https://financialresearch.gov/financial-stability-reports/files/OFR_2015-Financial-Stability-Report_12-15-2015.pdf.
    \417\ Peterson, P.E. 2014. ``How Large is the Agricultural Swaps 
Market?'' Proceedings of the NCCC-134 Conference on Applied 
Commodity Price Analysis, Forecasting, and Market Risk Management. 
St. Louis, MO, available at http://www.farmdoc.illinois.edu/nccc134.
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iv. Sound Risk Management Practices
    In the Part 49 Adopting Release, the Commission stated that part 49 
and part 45 will strengthen the risk management practices of the swaps 
market.\418\ Prior to the adoption of the Dodd-Frank Act, participants 
in the swaps markets operated without obligations to disclose 
transactions to regulators or to the public. The Dodd-Frank Act 
specifically changed the transparency of the swaps market with the 
adoption of CEA section 21 and the establishment of SDRs as the 
entities to which swap data and swap transaction and pricing data are 
reported and maintained for use by regulators or disseminated to the 
public. The Commission believes that the improved reporting of data to 
SDRs will serve to improve risk management practices by market 
participants. To the extent that better swap transaction and pricing 
data improves the ability of market participants to gauge their risks 
in the context of the overall market, risk management practices should 
improve. Earlier and more-informed discussions between relevant market 
participants and regulators regarding systemic risk, facilitated by 
accurate swap data, will also lead to improved risk management 
outcomes. Market participants should also see improvements in their 
risk management practices, as improved swap data allows for more 
accurate and timely market analyses that are publicly disseminated by 
the Commission.
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    \418\ See Part 49 Adopting Release at 54574.
---------------------------------------------------------------------------

    The Commission believes that the amendments to parts 43, 45, and 49 
will improve the quality of SDR data reported to SDRs and, hence, 
improve the Commission's ability to monitor the swaps market, react to 
potential market emergencies, and fulfill its regulatory 
responsibilities generally. The amendments adopted in this final 
rulemaking place different obligations on SDRs and reporting 
counterparties to verify accuracy and completeness of SDR data. The 
Commission believes that access for regulators to accurate and reliable 
SDR data is essential for appropriate risk management and is especially 
important for regulators' ability to monitor the swaps market for 
systemic risk. Moreover, the Commission expects efforts to improve data 
quality will increase market participants' confidence in SDR data and 
therefore their confidence in any subsequent analyses based on the 
data.
v. Other Public Interest Considerations
    The Commission believes that the increased transparency resulting 
from improvements to the SDR data via the amendments to parts 43, 45, 
and 49 has other public interest considerations including: Creating 
greater understanding for the public, market participants, and the 
Commission of the interaction between the swaps market, other financial 
markets, and the overall economy; improving regulatory oversight and 
enforcement capabilities; and generating more information for 
regulators so that they may establish more effective public policies to 
reduce overall systemic risk.

D. Antitrust Considerations

    Section 15(b) of the CEA requires the Commission to take into 
consideration the public interest to be protected by the antitrust laws 
and 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 (including any exemption under section 4(c) or 
4c(b)), or in requiring or approving any bylaw, rule, or regulation of 
a contract market or registered futures association established 
pursuant to section 17 of the CEA.\419\ The Commission believes that 
the public interest to be protected by the antitrust laws is generally 
to protect competition.
---------------------------------------------------------------------------

    \419\ 7 U.S.C. 19(b).
---------------------------------------------------------------------------

    The Commission requested comments on whether the Proposal may have 
the potential to be inconsistent with the anti-trust laws or anti-
competitive in nature. The Commission has considered this final rule to 
determine whether it is anticompetitive and has identified no 
anticompetitive effects.
    Because the Commission has determined that the final rule is not 
anticompetitive and has no anticompetitive effects, the Commission has 
not identified any less anticompetitive means of achieving the purposes 
of the CEA.

List of Subjects

17 CFR Part 43

    Real-time public swap reporting.

17 CFR Part 45

    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 43--REAL-TIME PUBLIC REPORTING

0
1. The authority citation for part 43 continues to read as follows:

    Authority: 7 U.S.C. 2(a), 12a(5) and 24a, as amended by Pub. L. 
111-203, 124 Stat. 1376 (2010).


0
2. Amend Sec.  43.3 by revising paragraph (e) to read as follows:


Sec.  43.3  Method and timing for real-time public reporting.

* * * * *
    (e) Correction of errors--(1) Swap execution facilities, designated 
contract markets, and reporting counterparties. Any swap execution 
facility, designated contract market, or reporting counterparty that by 
any means becomes aware of any error relating to swap transaction and 
pricing data that it was required to report under this part shall 
correct the error. To correct an error, the swap execution facility, 
designated contract market, or reporting counterparty shall submit 
complete and accurate swap transaction and pricing data to the swap 
data repository that maintains the swap transaction and pricing data 
for the relevant swap, or completely and accurately report swap 
transaction and pricing data for a swap that was not previously 
reported to a swap data repository as required under this part, as 
applicable. Except as otherwise provided in this section, the 
requirement to correct any error applies regardless of the state of the 
swap that is the subject of the swap transaction and pricing data, 
including a swap that has terminated, matured, or otherwise is no 
longer considered to be an open swap.

[[Page 75654]]

    (i) Timing requirement for correcting errors. The swap execution 
facility, designated contract market, or reporting counterparty shall 
correct any error as soon as technologically practicable after 
discovery of the error. In all cases, errors shall be correc