Portfolio Reconciliation Requirements for Swap Dealers and Major Swap Participants-Revision of “Material Terms” Definition, 223-229 [2020-26536]
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Rules and Regulations
Federal Register
Vol. 86, No. 2
Tuesday, January 5, 2021
This section of the FEDERAL REGISTER
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents.
[FR Doc. 2020–27191 Filed 1–4–21; 8:45 am]
BILLING CODE 6705–01–P
COMMODITY FUTURES TRADING
COMMISSION
FARM CREDIT ADMINISTRATION
17 CFR Part 23
12 CFR Part 620
RIN 3038–AF08
RIN 3052–AD37
Portfolio Reconciliation Requirements
for Swap Dealers and Major Swap
Participants—Revision of ‘‘Material
Terms’’ Definition
District Financial Reporting
Farm Credit Administration.
Notification of effective date.
AGENCY:
ACTION:
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Commodity Futures Trading
Commission.
ACTION: Interim final rule; request for
comment.
AGENCY:
The Farm Credit
Administration (FCA or we) is
amending our regulations governing
how a Farm Credit bank presents
information on its related associations
when preparing annual bank financial
statements on a stand-alone basis. The
final rule provides two presentation
options when disclosing related
association financial information in an
annual bank report: By footnote or
attached in a supplement.
DATES: The regulation amending 12 CFR
part 620 published on October 8, 2020
(85 FR 63428) is effective on December
4, 2020.
FOR FURTHER INFORMATION CONTACT:
Technical information: Joi Neal,
Senior Accountant, Office of Regulatory
Policy, (703) 883–4223, TTY (703) 883–
4056, nealj@fca.gov.
Legal information: Laura McFarland,
Senior Counsel, Office of General
Counsel, (703) 883–4020, TTY (703)
883–4056, mcfarlandl@fca.gov.
SUPPLEMENTARY INFORMATION: On
October 8, 2020, FCA issued a final rule
to improve shareholder access to district
financial information by providing an
additional method of presenting
financial information on a bank’s related
associations to those banks preparing
annual financial statements on a standalone basis.
In accordance with 12 U.S.C.
2252(c)(1), the effective date of the rule
is no earlier than 30 days from the date
of publication in the Federal Register
during which either or both Houses of
Congress are in session. Based on the
records of the sessions of Congress, the
effective date of the regulation is
December 4, 2020.
SUMMARY:
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Dated: December 7, 2020.
Dale Aultman,
Secretary, Farm Credit Administration Board.
The Commodity Futures
Trading Commission (‘‘Commission’’ or
‘‘CFTC’’) is adopting, and invites
comments on, an interim final rule
(‘‘Interim Final Rule’’) to amend the
definition of ‘‘material terms’’ to
maintain current portfolio reconciliation
requirements for swap dealers and
major swap participants following the
effective date of changes to a recently
amended Commission regulation.
DATES:
Effective Date. This interim final rule
is effective January 5, 2021.
Comment Date: Comments must be
received on or before March 8, 2021.
Comments submitted by mail will be
accepted as timely if they are
postmarked on or before that date.
ADDRESSES: You may submit comments,
identified by RIN 3038–AF08, by any of
the following methods:
• CFTC Comments Portal: https://
comments.cftc.gov. Select the ‘‘Submit
Comments’’ link for this rulemaking and
follow the instructions on the Public
Comment Form.
• Mail: Send to Christopher
Kirkpatrick, Secretary of the
Commission, Commodity Futures
Trading Commission, Three Lafayette
Center, 1155 21st Street NW,
Washington, DC 20581.
• Hand Delivery/Courier: Follow the
same instructions as for Mail, above.
Please submit your comments using
only one of these methods. Submissions
through the CFTC Comments Portal are
encouraged.
SUMMARY:
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Instructions: All submissions received
must include the agency name and RIN
number for this rulemaking. For
additional details on submitting
comments, see the ‘‘Public
Participation’’ heading of the
SUPPLEMENTARY INFORMATION section of
this document.
FOR FURTHER INFORMATION CONTACT:
Joshua Sterling, Director, (202) 418–
6056, jsterling@cftc.gov; Jacob Chachkin,
Special Counsel, (202) 418–5496,
jchachkin@cftc.gov; or Gregory Scopino,
Special Counsel, gscopino@cftc.gov,
202–418–5175, Market Participants
Division (‘‘MPD’’), Commodity Futures
Trading Commission, Three Lafayette
Centre, 1155 21st Street NW,
Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Background
Commission regulation 23.502 1
requires swap dealers (‘‘SDs’’) and major
swap participants (‘‘MSPs’’), as defined
in § 1.3 of the Commission’s
regulations,2 to reconcile their swap
portfolios with one another and provide
non-SD and non-MSP counterparties
with regular opportunities for portfolio
reconciliation.3 Commission regulation
23.500(i) defines ‘‘portfolio
reconciliation’’ as any process by which
the two counterparties to one or more
swaps exchange the material terms and
valuations of all swaps in the swap
portfolio between the counterparties
and resolve any identified discrepancy
in such material terms and valuations.4
Commission regulation 23.500(g)
defines ‘‘material terms’’ to mean the
minimum ‘‘primary economic terms’’ of
a swap, as defined in appendix 1 of part
45 of the Commission’s regulations,
with the exception of 24 enumerated
terms that were excluded from the
definition of ‘‘material terms’’ as part of
a Commission effort to reduce the
regulatory burden on SDs and MSPs by
eliminating the need to reconcile data
field terms that were static or did not
1 17 CFR 23.502. Commission regulations referred
to herein are found at 17 CFR chapter I.
2 17 CFR 1.3.
3 17 CFR 23.502; see Confirmation, Portfolio
Reconciliation, Portfolio Compression, and Swap
Trading Relationship Documentation Requirements
for Swap Dealers and Major Swap Participants, 77
FR 55904, 55926 (Sept. 11, 2012) (‘‘Portfolio
Reconciliation Final Rule’’).
4 17 CFR 23.500(i).
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impact the valuation of swaps.5 In
explaining the rationale for requiring
SDs and MSPs to engage in portfolio
reconciliation, the Commission noted
that portfolio reconciliation can identify
and reduce overall risk ‘‘[b]y identifying
and managing mismatches in key
economic terms and valuation for
individual transactions across an entire
portfolio.’’ 6
On September 17, 2020, the
Commission adopted a final rule
revising parts 45, 46 and 49 of its
regulations on swap data recordkeeping
and reporting requirements for swap
data repositories (‘‘SDRs’’), derivatives
clearing organizations (‘‘DCOs’’), swap
execution facilities, derivatives contract
markets, SDs, MSPs, and swap
counterparties that are neither SDs nor
MSPs (‘‘SDR Rule’’).7 As part of the SDR
Rule, the Commission made significant
changes to appendix 1 of part 45 of the
Commission regulations, which, as
discussed above, is referenced in the
definition of ‘‘material terms’’ set forth
in Commission regulation 23.500(g). As
a result of these changes, among other
things, the new appendix 1 will no
longer use the concept of ‘‘primary
economic terms’’ and will no longer
contain the data fields that are explicitly
referenced in § 23.500(g).8
II. Interim Final Rule
To maintain the status quo for
portfolio reconciliation requirements
under § 23.502 and ensure that SDs and
MSPs can continue to engage in their
required portfolio reconciliation
exercises without disruption, in this
Interim Final Rule the Commission is
copying existing appendix 1 of part 45
as a new appendix 1 to subpart I of part
23, and amending § 23.500(g) to
reference appendix 1 to subpart I of part
23 instead of appendix 1 to part 45.9 By
5 17
CFR 23.500(g).
Reconciliation Final Rule, 77 FR at
55927.
7 See Swap Data Recordkeeping and Reporting
Requirements, 85 FR 75503 (Nov. 25, 2020). The
SDR Rule did not expressly contemplate making
changes to the Portfolio Reconciliation Final Rule
for SDs and MSPs.
8 See 17 CFR 23.500(g).
9 Because appendix 1 to subpart I of part 23 only
will be used as a reference in connection with the
requirements for portfolio reconciliation exercises,
the appendix will include only those terms that SDs
and MSPs are required to reconcile under
regulation 23.502.
Because § 45.5 is being amended by the SDR Rule
and will no longer discuss unique swap identifiers
(‘‘USIs’’), for clarity the Commission has changed
only the explanatory comment in appendix 1 for
each USI field from ‘‘As provided in § 45.5.’’ to
‘‘The USI is a unique identifier assigned to all swap
transactions which identifies the transaction (the
swap and its counterparties) uniquely throughout
its duration.’’ The Commission believes this change
will mitigate possible confusion and serve to
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6 Portfolio
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doing so, the Commission will enable
SDs and MSPs to avoid having to
modify their portfolio reconciliation
procedures and practices under § 23.502
despite the changes made by the SDR
Rule. By this Interim Final Rule, the
Commission is making technical
organizational changes to its regulations
to ensure that market participants will
continue engaging in portfolio
reconciliation exercises in their current
manner, without disruption. Thus, the
goal of these technical amendments is to
maintain the Commission’s regulatory
requirements in connection with
portfolio reconciliation without change.
Without these amendments, market
participants would lack meaningful
regulatory reference concerning how to
perform portfolio reconciliation
exercises in light of changes made to
appendix 1 of part 45 by the SDR Rule.
III. Public Participation
The Commission is issuing this
Interim Final Rule to maintain the status
quo for portfolio reconciliation
requirements under § 23.502 and ensure
that SDs and MSPs can continue to
engage in their required portfolio
reconciliation exercises without
disruption, as discussed above. This
approach enables these regulatory
changes to take effect sooner than would
be possible with the publication of a
notice of proposed rulemaking in
advance. Nonetheless, the Commission
welcomes public comments from
interested persons regarding any aspect
of its consideration of, and the changes
made by, this Interim Final Rule, as well
as the following pertaining to potential
additional amendments in the future.
Should the Commission propose
modifying appendix 1 to subpart I of
part 23 (as adopted by this Interim Final
Rule) to make it more consistent with
appendix 1 to part 45 (as amended by
the SDR Rule) or make other changes?
If yes, what specific modifications
should the Commission propose and
why? In addition, should the
Commission provide that the
reconciliation of a Unique Product
Identifier (‘‘UPI’’) constitutes the
reconciliation of each other material
term that is included in the UPI? Why
or why not?
All comments must be submitted in
English, or if not, accompanied by an
English translation. Please refer to the
ADDRESSES section above. Except as
described below regarding confidential
business information, all comments are
considered part of the public record and
will be posted as received to https://
maintain current portfolio reconciliation processes
for SDs and MSPs.
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comments.cftc.gov for public inspection.
The information made available online
includes personal identifying
information (such as name and address)
which is voluntarily submitted by the
commenter. You should submit only
information that you wish to make
available publicly.
If you want to submit material that
you consider to be confidential business
information as part of your comment,
but do not want it to be posted online,
you must submit your comment by mail
or hand delivery/courier and include a
petition for confidential treatment as
described in § 145.9 of the
Commission’s regulations.10
The Commission reserves the right,
but shall have no obligation, to review,
pre-screen, filter, redact, refuse or
remove any or all of your submission
from https://comments.cftc.gov that it
may deem to be inappropriate for
publication, such as obscene language.
All submissions that have been redacted
or removed that contain comments on
the merits of the rulemaking will be
retained in the rulemaking record and
will be considered as required under the
Administrative Procedure Act
(‘‘APA’’) 11 and other applicable laws,
and may be accessible under the
Freedom of Information Act.12
IV. Related Matters
A. Administrative Procedure Act
The APA generally requires federal
agencies to publish a notice of proposed
rulemaking and provide an opportunity
for public comment before issuing a
new rule.13 However, an agency may
issue a new rule without a prepublication public comment period
when it for ‘‘good cause’’ finds that
prior notice and comment is
‘‘impracticable, unnecessary, or contrary
to the public interest.’’ 14 The
Commission has determined that there
is good cause to find that a prepublication comment period is
unnecessary because this Interim Final
Rule involves technical, ministerial
changes that simply move the
placement of the current requirements
from one part of the Commission’s
regulations (part 45) to another (part 23)
to retain the status quo for purposes of
part 23’s mandated portfolio
reconciliation exercises.15 For this
10 17
CFR 145.9.
U.S.C. 553 et seq.
12 5 U.S.C. 552.
13 See 5 U.S.C. 553(b).
14 See 5 U.S.C. 553(b)(3)(B).
15 Further, if the Commission were to provide an
opportunity for notice and comment prior to the
amendments’ effectiveness, the SDR Rule may take
effect during the intervening period, causing
11 5
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reason, the Commission finds that it is
unnecessary to publish notice of these
amendments under section 553(b)(3)(B)
of the APA.
For the same reason, the Commission
also finds good cause to dispense with
the 30-day delayed effective date
requirement under section 553(d)(3) of
the APA.16 Accordingly, the
amendments will be effective
immediately upon publication in the
Federal Register.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act 17
requires federal agencies to consider
whether the rules they propose will
have a significant economic impact on
a substantial number of small entities
and, if so, to provide a regulatory
flexibility analysis regarding the
economic impact on those entities.
Because, as discussed above, the
Commission is not required to publish
a notice of proposed rulemaking for this
rule, a regulatory flexibility analysis is
not required.18
C. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(‘‘PRA’’) 19 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
Commission may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a currently valid
Office of Management and Budget
control number.
Because it maintains the status quo
under § 23.502, this final rulemaking
will not impose any new recordkeeping
or information collection requirements,
or other collections of information.
D. Consideration of Costs and Benefits
Section 15(a) of the CEA 20 requires
the Commission to ‘‘consider the costs
and benefits’’ of its actions before
promulgating a regulation under the
CEA. 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 futures 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.
This Interim Final Rule does not
impose any substantive regulatory
obligations on any person. Rather, the
Commission is adopting technical
amendments to part 23 of its regulations
to maintain the status quo for portfolio
reconciliation requirements under
§ 23.502 and ensure that SDs and MSPs
can continue to engage in their required
portfolio reconciliation exercises
without disruption, as discussed above.
Accordingly, relative to the status quo
baseline there are no material,
quantifiable costs or benefits associated
with this rulemaking. This Interim Final
Rule does not impact the efficiency,
competitiveness, and financial integrity
of the futures markets because this
Interim Final Rule is nothing more than
a technical, administrative action that
moves specific requirements from part
45 of the Commission’s regulations to
part 23.
E. Antitrust Laws
Section 15(b) of the CEA 21 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 as well as the
policies and purposes 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
225
approving any bylaw, rule, or regulation
of a contract market or registered futures
association established pursuant to
section 17 of the CEA.
The Commission believes that the
public interest to be protected by the
antitrust laws is the promotion of
competition. The Commission has
considered this Interim Final Rule to
determine whether it is anticompetitive
and has identified no anticompetitive
effects. Having done so, it also has not
identified any less anticompetitive
means of achieving the purposes of the
CEA.
List of Subjects in 17 CFR Part 23
Authority delegations (Government
agencies), Commodity futures,
Reporting and recordkeeping
requirements.
For the reasons stated in the
preamble, the Commodity Futures
Trading Commission amends 17 CFR
part 23 as set forth below:
PART 23—SWAP DEALERS AND
MAJOR SWAP PARTICIPANTS
1. The authority citation for part 23
continues to read as follows:
■
Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b–
1, 6c, 6p, 6r, 6s, 6t, 9, 9a, 12, 12a, 13b, 13c,
16a, 18, 19, 21.
Section 23.160 also issued under 7 U.S.C.
2(i); Sec. 721(b), Pub. L. 111–203, 124 Stat.
1641 (2010).
2. In § 23.500, revise paragraph (g) to
read as follows:
■
§ 23.500
Definitions.
*
*
*
*
*
(g) Material terms means the
minimum primary economic terms as
defined in appendix 1 of subpart I of
part 23 of this chapter.
*
*
*
*
*
■ 3. Add Appendix 1 to subpart I of part
23 to read as follows:
Part 23, Subpart I, Appendix 1
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EXHIBIT A—MINIMUM PRIMARY ECONOMIC TERMS DATA—CREDIT SWAPS AND EQUITY SWAPS
Data categories and fields for all swaps
Comment
Asset Class ...............................................................................................
The Unique Swap Identifier for the swap .................................................
Field values: Credit, equity, FX, interest rates, other commodities.
The USI is a unique identifier assigned to all swap transactions which
identifies the transaction (the swap and its counterparties) uniquely
throughout its duration.
As provided in § 45.6, or substitute identifier for a natural person.
Yes/No.
The Legal Entity Identifier of the reporting counterparty .........................
An indication of whether the reporting counterparty is a derivatives
clearing organization with respect to the swap.
The Legal Entity Identifier of the non-reporting party ..............................
The Unique Product Identifier assigned to the swap ...............................
confusion regarding SD and MSP portfolio
reconciliation requirements.
16 5 U.S.C. 553(d)(3).
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As provided in § 45.6, or substitute identifier for a natural person.
As provided in § 45.7.
17 5
20 7
18 See
U.S.C. 601 et seq.
5 U.S.C. 603(a).
19 44 U.S.C. 3501 et seq.
21 7
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U.S.C. 19(a).
U.S.C. 19(b).
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EXHIBIT A—MINIMUM PRIMARY ECONOMIC TERMS DATA—CREDIT SWAPS AND EQUITY SWAPS—Continued
Data categories and fields for all swaps
Comment
If no Unique Product Identifier is available for the swap because the
swap is not sufficiently standardized, the taxonomic description of the
swap pursuant to the CFTC-approved product classification system.
If no CFTC-approved UPI and product classification system is yet available, the internal product identifier or product description used by the
swap data repository.
An indication of the counterparty purchasing protection ..........................
An indication of the counterparty selling protection .................................
Information identifying the reference entity ..............................................
Contract type ............................................................................................
Execution venue .......................................................................................
Start date ..................................................................................................
Maturity, termination or end date .............................................................
The price ...................................................................................................
The notional amount, and the currency in which the notional amount is
expressed.
The amount and currency (or currencies) of any up-front payment ........
Payment frequency of the reporting counterparty ....................................
Payment frequency of the non-reporting counterparty ............................
Clearing exception or exemption type ......................................................
Indication of collateralization ....................................................................
Any other term(s) of the swap matched or affirmed by the counterparties in verifying the swap.
Field values: LEI, or substitute identifier for a natural person.
Field values: LEI, or substitute identifier for a natural person.
The entity that is the subject of the protection being purchased and
sold in the swap. Field values: LEI, or substitute identifier for a natural person.
E.g., swap, swaption, forward, option, basis swap, index swap, basket
swap.
The swap execution facility or designated contract market on or pursuant to the rules of which the swap was executed. Field values: LEI of
the swap execution facility or designated contract market, or ‘‘off-facility’’ if not so executed.
The date on which the swap starts or goes into effect.
The date on which the swap expires.
E.g., strike price, initial price, spread.
A description of the payment stream of the reporting counterparty, e.g.,
coupon.
A description of the payment stream of the non-reporting counterparty,
e.g., coupon.
The type of clearing exception or exemption being claimed. Field values: End user, Inter-affiliate or Cooperative.
Is the swap collateralized, and if so to what extent? Field values:
Uncollateralized, partially collateralized, one-way collateralized, fully
collateralized.
Use as many fields as required to report each such term.
EXHIBIT B—MINIMUM PRIMARY ECONOMIC TERMS DATA—FOREIGN EXCHANGE TRANSACTIONS
[Other than cross-currency swaps]
Data fields for all swaps
Comment
Asset Class ...............................................................................................
The Unique Swap Identifier for the swap .................................................
Field values: Credit, equity, FX, interest rates, other commodities.
The USI is a unique identifier assigned to all swap transactions which
identifies the transaction (the swap and its counterparties) uniquely
throughout its duration.
As provided in § 45.6, or substitute identifier for a natural person.
Yes/No.
The Legal Entity Identifier of the reporting counterparty .........................
An indication of whether the reporting counterparty is a derivatives
clearing organization with respect to the swap.
The Legal Entity Identifier of the non-reporting party ..............................
The Unique Product Identifier assigned to the swap ...............................
If no Unique Product Identifier is available for the swap because the
swap is not sufficiently standardized, the taxonomic description of the
swap pursuant to the CFTC-approved product classification system.
If no CFTC-approved UPI and product classification system is yet available, the internal product identifier or product description used by the
swap data repository.
Contract type ............................................................................................
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Execution venue .......................................................................................
Currency 1 ................................................................................................
Currency 2 ................................................................................................
Notional amount 1 ....................................................................................
Notional amount 2 ....................................................................................
Exchange rate ..........................................................................................
Delivery type .............................................................................................
Settlement or expiration date ...................................................................
Clearing exception or exemption type ......................................................
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As provided in § 45.6, or substitute identifier for a natural person.
As provided in § 45.7.
E.g., forward, non-deliverable forward (NDF), non-deliverable option
(NDO), vanilla option, simple exotic option, complex exotic option.
The swap execution facility or designated contract market on or pursuant to the rules of which the swap was executed. Field values: LEI of
the swap execution facility or designated contract market, or ‘‘off-facility’’ if not so executed.
ISO code.
ISO code.
For currency 1.
For currency 2.
Contractual rate of exchange of the currencies.
Physical (deliverable) or cash (non-deliverable).
Settlement date, or for an option the contract expiration date.
The type of clearing exception or exemption being claimed. Field values: End user, Inter-affiliate or Cooperative.
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227
EXHIBIT B—MINIMUM PRIMARY ECONOMIC TERMS DATA—FOREIGN EXCHANGE TRANSACTIONS—Continued
[Other than cross-currency swaps]
Data fields for all swaps
Comment
Indication of collateralization ....................................................................
Is the trade collateralized, and if so to what extent? Field values:
Uncollateralized, partially collateralized, one-way collateralized, fully
collateralized.
E.g., for options, premium, premium currency, premium payment date;
for non-deliverable trades, settlement currency, valuation (fixing)
date; indication of the economic obligations of the counterparties.
Use as many fields as required to report each such term.
Any other term(s) of the trade matched or affirmed by the counterparties in verifying the trade.
EXHIBIT C—MINIMUM PRIMARY ECONOMIC TERMS DATA—INTEREST RATE SWAPS
[Including cross-currency swaps]
Data fields for all swaps
Comment
Asset Class ...............................................................................................
The Unique Swap Identifier for the swap .................................................
Field values: Credit, equity, FX, interest rates, other commodities.
The USI is a unique identifier assigned to all swap transactions which
identifies the transaction (the swap and its counterparties) uniquely
throughout its duration.
As provided in § 45.6, or substitute identifier for a natural person.
Yes/No.
The Legal Entity Identifier of the reporting counterparty .........................
An indication of whether the reporting counterparty is a derivatives
clearing organization with respect to the swap.
The Legal Entity Identifier of the non-reporting counterparty ..................
The Unique Product Identifier assigned to the swap ...............................
If no Unique Product Identifier is available for the swap because the
swap is not sufficiently standardized, the taxonomic description of the
swap pursuant to the CFTC-approved product classification system.
If no CFTC-approved UPI and product classification system is yet available, the internal product identifier or product description used by the
swap data repository.
Contract type ............................................................................................
Execution venue .......................................................................................
Start date ..................................................................................................
Maturity, termination or end date .............................................................
Day count convention ...............................................................................
Notional amount (leg 1) ............................................................................
Notional currency (leg 1) ..........................................................................
Notional amount (leg 2) ............................................................................
Notional currency (leg 2) ..........................................................................
Payer (fixed rate) ......................................................................................
Payer (floating rate leg 1) .........................................................................
Payer (floating rate leg 2) .........................................................................
Direction ....................................................................................................
Option type ...............................................................................................
Fixed rate ..................................................................................................
Fixed rate day count fraction ....................................................................
Floating rate payment frequency ..............................................................
Floating rate reset frequency ...................................................................
Floating rate index name/rate period .......................................................
Clearing exception or exemption type ......................................................
Indication of collateralization ....................................................................
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Any other term(s) of the swap matched or affirmed by the counterparties in verifying the swap.
As provided in § 45.6, or substitute identifier for a natural person.
As provided in § 45.7.
E.g., swap, swaption, option, basis swap, index swap.
The swap execution facility or designated contract market on or pursuant to the rules of which the swap was executed. Field values: LEI of
the swap execution facility or designated contract market, or ‘‘off-facility’’ if not so executed.
The date on which the swap starts or goes into effect.
The date on which the swap expires or ends.
The current active notional amount.
ISO code.
The current active notional amount.
ISO code.
Is the reporting party a fixed rate payer? Yes/No/Not applicable.
If two floating legs, the payer for leg 1.
If two floating legs, the payer for leg 2.
For swaps: Whether the principal is paying or receiving the fixed rate.
For float-to-float and fixed-to-fixed swaps: Indicate N/A.
For non-swap instruments and swaptions: Indicate the instrument that
was bought or sold.
E.g., put, call, straddle.
E.g., actual 360.
E.g., USD-Libor-BBA.
The type of clearing exception or exemption being claimed. Field values: End user, Inter-affiliate or Cooperative.
Is the swap collateralized, and if so to what extent? Field values:
Uncollateralized, partially collateralized, one-way collateralized, fully
collateralized.
E.g., early termination option clause. Use as many fields as required to
report each such term.
EXHIBIT D—MINIMUM PRIMARY ECONOMIC TERMS DATA—OTHER COMMODITY SWAPS
Data field for all swaps
Comment
Asset Class ...............................................................................................
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Field values: Credit, equity, FX, interest rates, other commodities.
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Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Rules and Regulations
EXHIBIT D—MINIMUM PRIMARY ECONOMIC TERMS DATA—OTHER COMMODITY SWAPS—Continued
Data field for all swaps
Comment
The Unique Swap Identifier for the swap .................................................
The USI is a unique identifier assigned to all swap transactions which
identifies the transaction (the swap and its counterparties) uniquely
throughout its duration.
As provided in § 45.6, or substitute identifier for a natural person.
Yes/No.
The Legal Entity Identifier of the reporting counterparty .........................
An indication of whether the reporting counterparty is a derivatives
clearing organization with respect to the swap.
The Legal Entity Identifier of the non-reporting party ..............................
The Unique Product Identifier assigned to the swap ...............................
If no Unique Product Identifier is available for the swap because the
swap is not sufficiently standardized, the taxonomic description of the
swap pursuant to the CFTC-approved product classification system.
If no CFTC-approved UPI and product classification system is yet available, the internal product identifier or product description used by the
swap data repository.
Contract type ............................................................................................
Execution venue .......................................................................................
Start date ..................................................................................................
Maturity, termination, or end date ............................................................
Buyer ........................................................................................................
Seller .........................................................................................................
Quantity unit .............................................................................................
Quantity ....................................................................................................
Quantity frequency ...................................................................................
Total quantity ............................................................................................
Settlement method ...................................................................................
Price ..........................................................................................................
Price unit ...................................................................................................
Price currency ...........................................................................................
Buyer pay index ........................................................................................
Buyer pay averaging method ...................................................................
Seller pay index ........................................................................................
Seller pay averaging method ...................................................................
Grade ........................................................................................................
Option type ...............................................................................................
Option style ...............................................................................................
Option premium ........................................................................................
Hours from through ..................................................................................
Hours from through time zone .................................................................
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Days of week ............................................................................................
Load type ..................................................................................................
Clearing exception or exemption type ......................................................
Indication of collateralization ....................................................................
Any other term(s) of the swap matched or affirmed by the counterparties in verifying the swap.
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As provided in § 45.6, or substitute identifier for a natural person.
As provided in § 45.7.
E.g., swap, swaption, option, basis swap, index swap.
The swap execution facility or designated contract market on or pursuant to the rules of which the swap was executed. Field values: LEI of
the swap execution facility or designated contract market, or ‘‘off-facility’’ if not so executed.
The date on which the swap commences or goes into effect (e.g., in
physical oil, the pricing start date).
The date on which the swap expires or ends (e.g., in physical oil, the
pricing end date).
The counterparty purchasing the product: (E.g., the payer of the fixed
price (for a swap), or the payer of the floating price on the underlying
swap (for a put swaption), or the payer of the fixed price on the underlying swap (for a call swaption). Field values: LEI, if available, or
substitute identifier, for a natural person.
The counterparty offering the product: (E.g., the payer of the floating
price (for a swap), the payer of the fixed price on the underlying
swap (for a put swaption), or the payer of the floating price on the
underlying swap (for a call swaption). Field values: LEI, or substitute
identifier, for a natural person.
The unit of measure applicable for the quantity on the swap. E.g., barrels, bushels, gallons, pounds, tons.
The amount of the commodity (the number of quantity units) quoted on
the swap.
The rate at which the quantity is quoted on the swap. E.g., hourly,
daily, weekly, monthly.
The quantity of the commodity for the entire term of the swap.
Physical delivery or cash.
The price of the swap. For options, the strike price.
The unit of measure applicable for the price of the swap.
ISO code.
The published price as paid by the buyer (if applicable). For swaptions,
applies to the underlying swap.
The averaging method used to calculate the index of the buyer pay
index. For swaptions, applies to the underlying swap.
The published price as paid by the seller (if applicable). For swaptions,
applies to the underlying swap.
The averaging method used to calculate the index of the seller pay
index. For swaptions, applies to the underlying swap.
If applicable, the grade of the commodity to be delivered, e.g., the
grade of oil or refined product.
Descriptor for the type of option transaction. E.g., put, call, straddle.
E.g., American, European, European Daily, European Monthly, Asian.
The total amount paid by the option buyer.
For electric power, the hours of the day for which the swap is effective.
For electric power, the time zone prevailing for the hours during which
electricity is transmitted.
For electric power, the profile applicable for the delivery of power.
For electric power, the load profile for the delivery of power.
The type of clearing exception or exemption being claimed. Field values: End user, Inter-affiliate or Cooperative.
Is the swap collateralized, and if so to what extent? Field values:
Uncollateralized, partially collateralized, one-way collateralized, fully
collateralized.
Use as many fields as required to report each such term.
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Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Rules and Regulations
*
*
*
*
*
Issued in Washington, DC, on November
25, 2020, by the Commission.
Robert Sidman,
Deputy Secretary of the Commission.
Appendices to Portfolio Reconciliation
Requirements for Swap Dealers and
Major Swap Participants—Revision of
‘‘Material Terms’’ Definition—Voting
Summary and Chairman’s and
Commissioners’ Statements
Appendix 1—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
Commissioner Dan M. Berkovitz
I support today’s interim final rule that
will maintain the continuity of swap
portfolio reconciliation requirements for
swap dealers. In September 2012, the
Commission established in regulation 23.502
the requirement for swap dealers to regularly
reconcile key material terms of swaps in
portfolios with certain counterparties. These
portfolios can include hundreds, thousands,
and even tens of thousands of individual
swap transactions. Regularly reconciling
economic terms that determine the periodic
payments made on swap portfolios reduces
the likelihood of significant disputes and
potential payment shortfalls or interruptions.
Reducing these events reduces risk in the
financial system, particularly during times of
market stress.1
On September 17, 2020, the Commission
adopted a final rule revising parts 45, 46, and
49 of its regulations on swap data
recordkeeping and reporting requirements. In
the amendments, significant changes were
made to material terms that are crossreferenced in regulation 23.502. The
unintended consequence would be to render
the portfolio reconciliation requirement
ineffective when the swap data regulations go
into effect in approximately 60 days. The IFR
corrects this unintended consequence by
reestablishing the same material economic
terms identified for regulation 23.502,
thereby maintaining the status quo for the
portfolio reconciliation requirement. This is
a necessary action to maintain the risk
reducing effects of that requirement.
[FR Doc. 2020–26536 Filed 1–4–21; 8:45 am]
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BILLING CODE 6351–01–P
1 See Confirmation, Portfolio Reconciliation,
Portfolio Compression, and Swap Trading
Relationship Documentation Requirements for
Swap Dealers and Major Swap Participants, 77 FR
55904, 55927 (Sept. 11, 2012).
16:32 Jan 04, 2021
Jkt 253001
17 CFR Part 23
I. Background
Commodity Futures Trading
Commission.
ACTION: Final rule.
AGENCY:
The Commodity Futures
Trading Commission (‘‘Commission’’ or
‘‘CFTC’’) is adopting amendments
(‘‘Final Rule’’) to its margin
requirements for uncleared swaps for
swap dealers (‘‘SDs’’) and major swap
participants (‘‘MSPs’’) for which there is
not a prudential regulator (‘‘CFTC
Margin Rule’’). The Commission is
amending the CFTC Margin Rule to
revise the calculation method for
determining whether certain entities
come within the scope of its initial
margin (‘‘IM’’) requirements for
uncleared swaps beginning in the last
phase of the phased compliance
schedule, which starts on September 1,
2022, and the timing for compliance
with the IM requirements after the end
of the phased compliance schedule.
These amendments align certain aspects
of the CFTC Margin Rule with the Basel
Committee on Banking Supervision and
the International Organization of
Securities Commissions’ (‘‘BSBS/
IOSCO’’) Framework for margin
requirements for non-centrally cleared
derivatives (‘‘BCBS/IOSCO
Framework’’). The Commission is also
amending the CFTC Margin Rule to
allow SDs and MSPs subject to the
CFTC Margin Rule to use the risk-based
model calculation of IM of a
counterparty that is a CFTC-registered
SD or MSP to determine the amount of
IM to be collected from the counterparty
and to determine whether the IM
threshold amount for the exchange of
IM has been exceeded such that
documentation concerning the
collection, posting, and custody of IM
would be required.
DATES: This rule is effective February 4,
2021.
FOR FURTHER INFORMATION CONTACT:
Joshua B. Sterling, Director, 202–418–
6056, jsterling@cftc.gov; Thomas J.
Smith, Deputy Director, 202–418–5495,
tsmith@cftc.gov; Warren Gorlick,
Associate Director, 202–418–5195,
wgorlick@cftc.gov; or Carmen MoncadaTerry, Special Counsel, 202–418–5795,
cmoncada-terry@cftc.gov, Market
Participants Division, Commodity
SUMMARY:
PO 00000
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Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street NW,
Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
RIN 3038–AF05
Margin Requirements for Uncleared
Swaps for Swap Dealers and Major
Swap Participants
Note: The following appendices will not
appear in the Code of Federal Regulations.
VerDate Sep<11>2014
COMMODITY FUTURES TRADING
COMMISSION
229
Sfmt 4700
Section 4s(e) of the Commodity
Exchange Act (‘‘CEA’’ or ‘‘Act’’) 1
requires the Commission to adopt rules
establishing minimum initial and
variation margin requirements for all
swaps 2 that are (i) entered into by an SD
or MSP for which there is no prudential
regulator 3 (collectively, ‘‘covered swap
entities’’ or ‘‘CSEs’’) 4 and (ii) not
cleared by a registered derivatives
clearing organization (‘‘uncleared
swaps’’).5 To offset the greater risk to the
SD 6 or MSP 7 and the financial system
arising from the use of uncleared swaps,
these requirements must (i) help ensure
the safety and soundness of the SD or
MSP and (ii) be appropriate for the risk
associated with the uncleared swaps
held by the SD or MSP.8
Pursuant to its rulemaking authority
under section 4s(e), the Commission in
2016 promulgated Regulations 23.150
through 23.161, namely the CFTC
Margin Rule, which requires CSEs to
17
U.S.C. 6s(e) (capital and margin requirements).
section 1a(47), 7 U.S.C. 1a(47) (swap
definition); Regulation 1.3, 17 CFR 1.3 (further
definition of a swap). A swap includes, among other
things, an interest rate swap, commodity swap,
credit default swap, and currency swap.
3 CEA section 1a(39), 7 U.S.C. 1a(39) (defining the
term ‘‘prudential regulator’’ to include the Board of
Governors of the Federal Reserve System; the Office
of the Comptroller of the Currency; the Federal
Deposit Insurance Corporation; the Farm Credit
Administration; and the Federal Housing Finance
Agency). The definition of prudential regulator
further specifies the entities for which these
agencies act as prudential regulators. The
prudential regulators published final margin
requirements in November 2015. See generally
Margin and Capital Requirements for Covered Swap
Entities, 80 FR 74840 (Nov. 30, 2015) (‘‘Prudential
Margin Rule’’). The Prudential Margin Rule is
substantially similar to the CFTC Margin Rule,
including with respect to the CFTC’s phasing-in of
margin requirements.
4 CEA section 4s(e)(1)(B), 7 U.S.C. 6s(e)(1)(B). SDs
and MSPs for which there is a prudential regulator
must meet the margin requirements for uncleared
swaps established by the applicable prudential
regulator. CEA section 4s(e)(1)(A), 7 U.S.C.
6s(e)(1)(A).
5 CEA section 4s(e)(2)(B)(ii), 7 U.S.C.
6s(e)(2)(B)(ii). In Regulation 23.151, the
Commission further defined this statutory language
to mean all swaps that are not cleared by a
registered derivatives clearing organization or a
derivatives clearing organization that the
Commission has exempted from registration as
provided under the CEA. 17 CFR 23.151.
6 CEA section 1a(49), 7 U.S.C. 1a(49) (swap dealer
definition); Regulation 1.3 (further definition of
swap dealer).
7 CEA section 1a(32), 7 U.S.C. 1a(32) (major swap
participant definition); Regulation 1.3 (further
definition of major swap participant).
8 CEA section 4s(e)(3)(A), 7 U.S.C. 6s(e)(3)(A).
2 CEA
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]]>Agencies
[Federal Register Volume 86, Number 2 (Tuesday, January 5, 2021)]
[Rules and Regulations]
[Pages 223-229]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26536]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 23
RIN 3038-AF08
Portfolio Reconciliation Requirements for Swap Dealers and Major
Swap Participants--Revision of ``Material Terms'' Definition
AGENCY: Commodity Futures Trading Commission.
ACTION: Interim final rule; request for comment.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (``Commission'' or
``CFTC'') is adopting, and invites comments on, an interim final rule
(``Interim Final Rule'') to amend the definition of ``material terms''
to maintain current portfolio reconciliation requirements for swap
dealers and major swap participants following the effective date of
changes to a recently amended Commission regulation.
DATES:
Effective Date. This interim final rule is effective January 5,
2021.
Comment Date: Comments must be received on or before March 8, 2021.
Comments submitted by mail will be accepted as timely if they are
postmarked on or before that date.
ADDRESSES: You may submit comments, identified by RIN 3038-AF08, by any
of the following methods:
CFTC Comments Portal: https://comments.cftc.gov. Select
the ``Submit Comments'' link for this rulemaking and follow the
instructions on the Public Comment Form.
Mail: Send to Christopher Kirkpatrick, Secretary of the
Commission, Commodity Futures Trading Commission, Three Lafayette
Center, 1155 21st Street NW, Washington, DC 20581.
Hand Delivery/Courier: Follow the same instructions as for
Mail, above.
Please submit your comments using only one of these methods.
Submissions through the CFTC Comments Portal are encouraged.
Instructions: All submissions received must include the agency name
and RIN number for this rulemaking. For additional details on
submitting comments, see the ``Public Participation'' heading of the
SUPPLEMENTARY INFORMATION section of this document.
FOR FURTHER INFORMATION CONTACT: Joshua Sterling, Director, (202) 418-
6056, [email protected]; Jacob Chachkin, Special Counsel, (202) 418-
5496, [email protected]; or Gregory Scopino, Special Counsel,
[email protected], 202-418-5175, Market Participants Division
(``MPD''), Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street NW, Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Background
Commission regulation 23.502 \1\ requires swap dealers (``SDs'')
and major swap participants (``MSPs''), as defined in Sec. 1.3 of the
Commission's regulations,\2\ to reconcile their swap portfolios with
one another and provide non-SD and non-MSP counterparties with regular
opportunities for portfolio reconciliation.\3\ Commission regulation
23.500(i) defines ``portfolio reconciliation'' as any process by which
the two counterparties to one or more swaps exchange the material terms
and valuations of all swaps in the swap portfolio between the
counterparties and resolve any identified discrepancy in such material
terms and valuations.\4\ Commission regulation 23.500(g) defines
``material terms'' to mean the minimum ``primary economic terms'' of a
swap, as defined in appendix 1 of part 45 of the Commission's
regulations, with the exception of 24 enumerated terms that were
excluded from the definition of ``material terms'' as part of a
Commission effort to reduce the regulatory burden on SDs and MSPs by
eliminating the need to reconcile data field terms that were static or
did not
[[Page 224]]
impact the valuation of swaps.\5\ In explaining the rationale for
requiring SDs and MSPs to engage in portfolio reconciliation, the
Commission noted that portfolio reconciliation can identify and reduce
overall risk ``[b]y identifying and managing mismatches in key economic
terms and valuation for individual transactions across an entire
portfolio.'' \6\
---------------------------------------------------------------------------
\1\ 17 CFR 23.502. Commission regulations referred to herein are
found at 17 CFR chapter I.
\2\ 17 CFR 1.3.
\3\ 17 CFR 23.502; see Confirmation, Portfolio Reconciliation,
Portfolio Compression, and Swap Trading Relationship Documentation
Requirements for Swap Dealers and Major Swap Participants, 77 FR
55904, 55926 (Sept. 11, 2012) (``Portfolio Reconciliation Final
Rule'').
\4\ 17 CFR 23.500(i).
\5\ 17 CFR 23.500(g).
\6\ Portfolio Reconciliation Final Rule, 77 FR at 55927.
---------------------------------------------------------------------------
On September 17, 2020, the Commission adopted a final rule revising
parts 45, 46 and 49 of its regulations on swap data recordkeeping and
reporting requirements for swap data repositories (``SDRs''),
derivatives clearing organizations (``DCOs''), swap execution
facilities, derivatives contract markets, SDs, MSPs, and swap
counterparties that are neither SDs nor MSPs (``SDR Rule'').\7\ As part
of the SDR Rule, the Commission made significant changes to appendix 1
of part 45 of the Commission regulations, which, as discussed above, is
referenced in the definition of ``material terms'' set forth in
Commission regulation 23.500(g). As a result of these changes, among
other things, the new appendix 1 will no longer use the concept of
``primary economic terms'' and will no longer contain the data fields
that are explicitly referenced in Sec. 23.500(g).\8\
---------------------------------------------------------------------------
\7\ See Swap Data Recordkeeping and Reporting Requirements, 85
FR 75503 (Nov. 25, 2020). The SDR Rule did not expressly contemplate
making changes to the Portfolio Reconciliation Final Rule for SDs
and MSPs.
\8\ See 17 CFR 23.500(g).
---------------------------------------------------------------------------
II. Interim Final Rule
To maintain the status quo for portfolio reconciliation
requirements under Sec. 23.502 and ensure that SDs and MSPs can
continue to engage in their required portfolio reconciliation exercises
without disruption, in this Interim Final Rule the Commission is
copying existing appendix 1 of part 45 as a new appendix 1 to subpart I
of part 23, and amending Sec. 23.500(g) to reference appendix 1 to
subpart I of part 23 instead of appendix 1 to part 45.\9\ By doing so,
the Commission will enable SDs and MSPs to avoid having to modify their
portfolio reconciliation procedures and practices under Sec. 23.502
despite the changes made by the SDR Rule. By this Interim Final Rule,
the Commission is making technical organizational changes to its
regulations to ensure that market participants will continue engaging
in portfolio reconciliation exercises in their current manner, without
disruption. Thus, the goal of these technical amendments is to maintain
the Commission's regulatory requirements in connection with portfolio
reconciliation without change. Without these amendments, market
participants would lack meaningful regulatory reference concerning how
to perform portfolio reconciliation exercises in light of changes made
to appendix 1 of part 45 by the SDR Rule.
---------------------------------------------------------------------------
\9\ Because appendix 1 to subpart I of part 23 only will be used
as a reference in connection with the requirements for portfolio
reconciliation exercises, the appendix will include only those terms
that SDs and MSPs are required to reconcile under regulation 23.502.
Because Sec. 45.5 is being amended by the SDR Rule and will no
longer discuss unique swap identifiers (``USIs''), for clarity the
Commission has changed only the explanatory comment in appendix 1
for each USI field from ``As provided in Sec. 45.5.'' to ``The USI
is a unique identifier assigned to all swap transactions which
identifies the transaction (the swap and its counterparties)
uniquely throughout its duration.'' The Commission believes this
change will mitigate possible confusion and serve to maintain
current portfolio reconciliation processes for SDs and MSPs.
---------------------------------------------------------------------------
III. Public Participation
The Commission is issuing this Interim Final Rule to maintain the
status quo for portfolio reconciliation requirements under Sec. 23.502
and ensure that SDs and MSPs can continue to engage in their required
portfolio reconciliation exercises without disruption, as discussed
above. This approach enables these regulatory changes to take effect
sooner than would be possible with the publication of a notice of
proposed rulemaking in advance. Nonetheless, the Commission welcomes
public comments from interested persons regarding any aspect of its
consideration of, and the changes made by, this Interim Final Rule, as
well as the following pertaining to potential additional amendments in
the future.
Should the Commission propose modifying appendix 1 to subpart I of
part 23 (as adopted by this Interim Final Rule) to make it more
consistent with appendix 1 to part 45 (as amended by the SDR Rule) or
make other changes? If yes, what specific modifications should the
Commission propose and why? In addition, should the Commission provide
that the reconciliation of a Unique Product Identifier (``UPI'')
constitutes the reconciliation of each other material term that is
included in the UPI? Why or why not?
All comments must be submitted in English, or if not, accompanied
by an English translation. Please refer to the ADDRESSES section above.
Except as described below regarding confidential business information,
all comments are considered part of the public record and will be
posted as received to https://comments.cftc.gov for public inspection.
The information made available online includes personal identifying
information (such as name and address) which is voluntarily submitted
by the commenter. You should submit only information that you wish to
make available publicly.
If you want to submit material that you consider to be confidential
business information as part of your comment, but do not want it to be
posted online, you must submit your comment by mail or hand delivery/
courier and include a petition for confidential treatment as described
in Sec. 145.9 of the Commission's regulations.\10\
---------------------------------------------------------------------------
\10\ 17 CFR 145.9.
---------------------------------------------------------------------------
The Commission reserves the right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse or remove any or all of your
submission from https://comments.cftc.gov that it may deem to be
inappropriate for publication, such as obscene language. All
submissions that have been redacted or removed that contain comments on
the merits of the rulemaking will be retained in the rulemaking record
and will be considered as required under the Administrative Procedure
Act (``APA'') \11\ and other applicable laws, and may be accessible
under the Freedom of Information Act.\12\
---------------------------------------------------------------------------
\11\ 5 U.S.C. 553 et seq.
\12\ 5 U.S.C. 552.
---------------------------------------------------------------------------
IV. Related Matters
A. Administrative Procedure Act
The APA generally requires federal agencies to publish a notice of
proposed rulemaking and provide an opportunity for public comment
before issuing a new rule.\13\ However, an agency may issue a new rule
without a pre-publication public comment period when it for ``good
cause'' finds that prior notice and comment is ``impracticable,
unnecessary, or contrary to the public interest.'' \14\ The Commission
has determined that there is good cause to find that a pre-publication
comment period is unnecessary because this Interim Final Rule involves
technical, ministerial changes that simply move the placement of the
current requirements from one part of the Commission's regulations
(part 45) to another (part 23) to retain the status quo for purposes of
part 23's mandated portfolio reconciliation exercises.\15\ For this
[[Page 225]]
reason, the Commission finds that it is unnecessary to publish notice
of these amendments under section 553(b)(3)(B) of the APA.
---------------------------------------------------------------------------
\13\ See 5 U.S.C. 553(b).
\14\ See 5 U.S.C. 553(b)(3)(B).
\15\ Further, if the Commission were to provide an opportunity
for notice and comment prior to the amendments' effectiveness, the
SDR Rule may take effect during the intervening period, causing
confusion regarding SD and MSP portfolio reconciliation
requirements.
---------------------------------------------------------------------------
For the same reason, the Commission also finds good cause to
dispense with the 30-day delayed effective date requirement under
section 553(d)(3) of the APA.\16\ Accordingly, the amendments will be
effective immediately upon publication in the Federal Register.
---------------------------------------------------------------------------
\16\ 5 U.S.C. 553(d)(3).
---------------------------------------------------------------------------
B. Regulatory Flexibility Act
The Regulatory Flexibility Act \17\ requires federal agencies to
consider whether the rules they propose will have a significant
economic impact on a substantial number of small entities and, if so,
to provide a regulatory flexibility analysis regarding the economic
impact on those entities. Because, as discussed above, the Commission
is not required to publish a notice of proposed rulemaking for this
rule, a regulatory flexibility analysis is not required.\18\
---------------------------------------------------------------------------
\17\ 5 U.S.C. 601 et seq.
\18\ See 5 U.S.C. 603(a).
---------------------------------------------------------------------------
C. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (``PRA'') \19\ 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 Commission may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless it displays a currently valid Office of Management
and Budget control number.
---------------------------------------------------------------------------
\19\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------
Because it maintains the status quo under Sec. 23.502, this final
rulemaking will not impose any new recordkeeping or information
collection requirements, or other collections of information.
D. Consideration of Costs and Benefits
Section 15(a) of the CEA \20\ requires the Commission to ``consider
the costs and benefits'' of its actions before promulgating a
regulation under the CEA. 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
futures 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.
---------------------------------------------------------------------------
\20\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------
This Interim Final Rule does not impose any substantive regulatory
obligations on any person. Rather, the Commission is adopting technical
amendments to part 23 of its regulations to maintain the status quo for
portfolio reconciliation requirements under Sec. 23.502 and ensure
that SDs and MSPs can continue to engage in their required portfolio
reconciliation exercises without disruption, as discussed above.
Accordingly, relative to the status quo baseline there are no material,
quantifiable costs or benefits associated with this rulemaking. This
Interim Final Rule does not impact the efficiency, competitiveness, and
financial integrity of the futures markets because this Interim Final
Rule is nothing more than a technical, administrative action that moves
specific requirements from part 45 of the Commission's regulations to
part 23.
E. Antitrust Laws
Section 15(b) of the CEA \21\ 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 as well as the policies and purposes 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.
---------------------------------------------------------------------------
\21\ 7 U.S.C. 19(b).
---------------------------------------------------------------------------
The Commission believes that the public interest to be protected by
the antitrust laws is the promotion of competition. The Commission has
considered this Interim Final Rule to determine whether it is
anticompetitive and has identified no anticompetitive effects. Having
done so, it also has not identified any less anticompetitive means of
achieving the purposes of the CEA.
List of Subjects in 17 CFR Part 23
Authority delegations (Government agencies), Commodity futures,
Reporting and recordkeeping requirements.
For the reasons stated in the preamble, the Commodity Futures
Trading Commission amends 17 CFR part 23 as set forth below:
PART 23--SWAP DEALERS AND MAJOR SWAP PARTICIPANTS
0
1. The authority citation for part 23 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b-1, 6c, 6p, 6r, 6s, 6t,
9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21.
Section 23.160 also issued under 7 U.S.C. 2(i); Sec. 721(b),
Pub. L. 111-203, 124 Stat. 1641 (2010).
0
2. In Sec. 23.500, revise paragraph (g) to read as follows:
Sec. 23.500 Definitions.
* * * * *
(g) Material terms means the minimum primary economic terms as
defined in appendix 1 of subpart I of part 23 of this chapter.
* * * * *
0
3. Add Appendix 1 to subpart I of part 23 to read as follows:
Part 23, Subpart I, Appendix 1
Exhibit A--Minimum Primary Economic Terms Data--Credit Swaps and Equity
Swaps
------------------------------------------------------------------------
Data categories and fields for all
swaps Comment
------------------------------------------------------------------------
Asset Class............................ Field values: Credit, equity,
FX, interest rates, other
commodities.
The Unique Swap Identifier for the swap The USI is a unique identifier
assigned to all swap
transactions which identifies
the transaction (the swap and
its counterparties) uniquely
throughout its duration.
The Legal Entity Identifier of the As provided in Sec. 45.6, or
reporting counterparty. substitute identifier for a
natural person.
An indication of whether the reporting Yes/No.
counterparty is a derivatives clearing
organization with respect to the swap.
The Legal Entity Identifier of the non- As provided in Sec. 45.6, or
reporting party. substitute identifier for a
natural person.
The Unique Product Identifier assigned As provided in Sec. 45.7.
to the swap.
[[Page 226]]
If no Unique Product Identifier is ...............................
available for the swap because the
swap is not sufficiently standardized,
the taxonomic description of the swap
pursuant to the CFTC-approved product
classification system.
If no CFTC-approved UPI and product ...............................
classification system is yet
available, the internal product
identifier or product description used
by the swap data repository.
An indication of the counterparty Field values: LEI, or
purchasing protection. substitute identifier for a
natural person.
An indication of the counterparty Field values: LEI, or
selling protection. substitute identifier for a
natural person.
Information identifying the reference The entity that is the subject
entity. of the protection being
purchased and sold in the
swap. Field values: LEI, or
substitute identifier for a
natural person.
Contract type.......................... E.g., swap, swaption, forward,
option, basis swap, index
swap, basket swap.
Execution venue........................ The swap execution facility or
designated contract market on
or pursuant to the rules of
which the swap was executed.
Field values: LEI of the swap
execution facility or
designated contract market, or
``off-facility'' if not so
executed.
Start date............................. The date on which the swap
starts or goes into effect.
Maturity, termination or end date...... The date on which the swap
expires.
The price.............................. E.g., strike price, initial
price, spread.
The notional amount, and the currency ...............................
in which the notional amount is
expressed.
The amount and currency (or currencies) ...............................
of any up-front payment.
Payment frequency of the reporting A description of the payment
counterparty. stream of the reporting
counterparty, e.g., coupon.
Payment frequency of the non-reporting A description of the payment
counterparty. stream of the non-reporting
counterparty, e.g., coupon.
Clearing exception or exemption type... The type of clearing exception
or exemption being claimed.
Field values: End user, Inter-
affiliate or Cooperative.
Indication of collateralization........ Is the swap collateralized, and
if so to what extent? Field
values: Uncollateralized,
partially collateralized, one-
way collateralized, fully
collateralized.
Any other term(s) of the swap matched Use as many fields as required
or affirmed by the counterparties in to report each such term.
verifying the swap.
------------------------------------------------------------------------
Exhibit B--Minimum Primary Economic Terms Data--Foreign Exchange
Transactions
[Other than cross-currency swaps]
------------------------------------------------------------------------
Data fields for all swaps Comment
------------------------------------------------------------------------
Asset Class............................ Field values: Credit, equity,
FX, interest rates, other
commodities.
The Unique Swap Identifier for the swap The USI is a unique identifier
assigned to all swap
transactions which identifies
the transaction (the swap and
its counterparties) uniquely
throughout its duration.
The Legal Entity Identifier of the As provided in Sec. 45.6, or
reporting counterparty. substitute identifier for a
natural person.
An indication of whether the reporting Yes/No.
counterparty is a derivatives clearing
organization with respect to the swap.
The Legal Entity Identifier of the non- As provided in Sec. 45.6, or
reporting party. substitute identifier for a
natural person.
The Unique Product Identifier assigned As provided in Sec. 45.7.
to the swap.
If no Unique Product Identifier is ...............................
available for the swap because the
swap is not sufficiently standardized,
the taxonomic description of the swap
pursuant to the CFTC-approved product
classification system.
If no CFTC-approved UPI and product ...............................
classification system is yet
available, the internal product
identifier or product description used
by the swap data repository.
Contract type.......................... E.g., forward, non-deliverable
forward (NDF), non-deliverable
option (NDO), vanilla option,
simple exotic option, complex
exotic option.
Execution venue........................ The swap execution facility or
designated contract market on
or pursuant to the rules of
which the swap was executed.
Field values: LEI of the swap
execution facility or
designated contract market, or
``off-facility'' if not so
executed.
Currency 1............................. ISO code.
Currency 2............................. ISO code.
Notional amount 1...................... For currency 1.
Notional amount 2...................... For currency 2.
Exchange rate.......................... Contractual rate of exchange of
the currencies.
Delivery type.......................... Physical (deliverable) or cash
(non-deliverable).
Settlement or expiration date.......... Settlement date, or for an
option the contract expiration
date.
Clearing exception or exemption type... The type of clearing exception
or exemption being claimed.
Field values: End user, Inter-
affiliate or Cooperative.
[[Page 227]]
Indication of collateralization........ Is the trade collateralized,
and if so to what extent?
Field values:
Uncollateralized, partially
collateralized, one-way
collateralized, fully
collateralized.
Any other term(s) of the trade matched E.g., for options, premium,
or affirmed by the counterparties in premium currency, premium
verifying the trade. payment date; for non-
deliverable trades, settlement
currency, valuation (fixing)
date; indication of the
economic obligations of the
counterparties. Use as many
fields as required to report
each such term.
------------------------------------------------------------------------
Exhibit C--Minimum Primary Economic Terms Data--Interest Rate Swaps
[Including cross-currency swaps]
------------------------------------------------------------------------
Data fields for all swaps Comment
------------------------------------------------------------------------
Asset Class............................ Field values: Credit, equity,
FX, interest rates, other
commodities.
The Unique Swap Identifier for the swap The USI is a unique identifier
assigned to all swap
transactions which identifies
the transaction (the swap and
its counterparties) uniquely
throughout its duration.
The Legal Entity Identifier of the As provided in Sec. 45.6, or
reporting counterparty. substitute identifier for a
natural person.
An indication of whether the reporting Yes/No.
counterparty is a derivatives clearing
organization with respect to the swap.
The Legal Entity Identifier of the non- As provided in Sec. 45.6, or
reporting counterparty. substitute identifier for a
natural person.
The Unique Product Identifier assigned As provided in Sec. 45.7.
to the swap.
If no Unique Product Identifier is ...............................
available for the swap because the
swap is not sufficiently standardized,
the taxonomic description of the swap
pursuant to the CFTC-approved product
classification system.
If no CFTC-approved UPI and product ...............................
classification system is yet
available, the internal product
identifier or product description used
by the swap data repository.
Contract type.......................... E.g., swap, swaption, option,
basis swap, index swap.
Execution venue........................ The swap execution facility or
designated contract market on
or pursuant to the rules of
which the swap was executed.
Field values: LEI of the swap
execution facility or
designated contract market, or
``off-facility'' if not so
executed.
Start date............................. The date on which the swap
starts or goes into effect.
Maturity, termination or end date...... The date on which the swap
expires or ends.
Day count convention................... ...............................
Notional amount (leg 1)................ The current active notional
amount.
Notional currency (leg 1).............. ISO code.
Notional amount (leg 2)................ The current active notional
amount.
Notional currency (leg 2).............. ISO code.
Payer (fixed rate)..................... Is the reporting party a fixed
rate payer? Yes/No/Not
applicable.
Payer (floating rate leg 1)............ If two floating legs, the payer
for leg 1.
Payer (floating rate leg 2)............ If two floating legs, the payer
for leg 2.
Direction.............................. For swaps: Whether the
principal is paying or
receiving the fixed rate. For
float-to-float and fixed-to-
fixed swaps: Indicate N/A.
For non-swap instruments and
swaptions: Indicate the
instrument that was bought or
sold.
Option type............................ E.g., put, call, straddle.
Fixed rate............................. ...............................
Fixed rate day count fraction.......... E.g., actual 360.
Floating rate payment frequency........ ...............................
Floating rate reset frequency.......... ...............................
Floating rate index name/rate period... E.g., USD-Libor-BBA.
Clearing exception or exemption type... The type of clearing exception
or exemption being claimed.
Field values: End user, Inter-
affiliate or Cooperative.
Indication of collateralization........ Is the swap collateralized, and
if so to what extent? Field
values: Uncollateralized,
partially collateralized, one-
way collateralized, fully
collateralized.
Any other term(s) of the swap matched E.g., early termination option
or affirmed by the counterparties in clause. Use as many fields as
verifying the swap. required to report each such
term.
------------------------------------------------------------------------
Exhibit D--Minimum Primary Economic Terms Data--Other Commodity Swaps
------------------------------------------------------------------------
Data field for all swaps Comment
------------------------------------------------------------------------
Asset Class............................ Field values: Credit, equity,
FX, interest rates, other
commodities.
[[Page 228]]
The Unique Swap Identifier for the swap The USI is a unique identifier
assigned to all swap
transactions which identifies
the transaction (the swap and
its counterparties) uniquely
throughout its duration.
The Legal Entity Identifier of the As provided in Sec. 45.6, or
reporting counterparty. substitute identifier for a
natural person.
An indication of whether the reporting Yes/No.
counterparty is a derivatives clearing
organization with respect to the swap.
The Legal Entity Identifier of the non- As provided in Sec. 45.6, or
reporting party. substitute identifier for a
natural person.
The Unique Product Identifier assigned As provided in Sec. 45.7.
to the swap.
If no Unique Product Identifier is ...............................
available for the swap because the
swap is not sufficiently standardized,
the taxonomic description of the swap
pursuant to the CFTC-approved product
classification system.
If no CFTC-approved UPI and product ...............................
classification system is yet
available, the internal product
identifier or product description used
by the swap data repository.
Contract type.......................... E.g., swap, swaption, option,
basis swap, index swap.
Execution venue........................ The swap execution facility or
designated contract market on
or pursuant to the rules of
which the swap was executed.
Field values: LEI of the swap
execution facility or
designated contract market, or
``off-facility'' if not so
executed.
Start date............................. The date on which the swap
commences or goes into effect
(e.g., in physical oil, the
pricing start date).
Maturity, termination, or end date..... The date on which the swap
expires or ends (e.g., in
physical oil, the pricing end
date).
Buyer.................................. The counterparty purchasing the
product: (E.g., the payer of
the fixed price (for a swap),
or the payer of the floating
price on the underlying swap
(for a put swaption), or the
payer of the fixed price on
the underlying swap (for a
call swaption). Field values:
LEI, if available, or
substitute identifier, for a
natural person.
Seller................................. The counterparty offering the
product: (E.g., the payer of
the floating price (for a
swap), the payer of the fixed
price on the underlying swap
(for a put swaption), or the
payer of the floating price on
the underlying swap (for a
call swaption). Field values:
LEI, or substitute identifier,
for a natural person.
Quantity unit.......................... The unit of measure applicable
for the quantity on the swap.
E.g., barrels, bushels,
gallons, pounds, tons.
Quantity............................... The amount of the commodity
(the number of quantity units)
quoted on the swap.
Quantity frequency..................... The rate at which the quantity
is quoted on the swap. E.g.,
hourly, daily, weekly,
monthly.
Total quantity......................... The quantity of the commodity
for the entire term of the
swap.
Settlement method...................... Physical delivery or cash.
Price.................................. The price of the swap. For
options, the strike price.
Price unit............................. The unit of measure applicable
for the price of the swap.
Price currency......................... ISO code.
Buyer pay index........................ The published price as paid by
the buyer (if applicable). For
swaptions, applies to the
underlying swap.
Buyer pay averaging method............. The averaging method used to
calculate the index of the
buyer pay index. For
swaptions, applies to the
underlying swap.
Seller pay index....................... The published price as paid by
the seller (if applicable).
For swaptions, applies to the
underlying swap.
Seller pay averaging method............ The averaging method used to
calculate the index of the
seller pay index. For
swaptions, applies to the
underlying swap.
Grade.................................. If applicable, the grade of the
commodity to be delivered,
e.g., the grade of oil or
refined product.
Option type............................ Descriptor for the type of
option transaction. E.g., put,
call, straddle.
Option style........................... E.g., American, European,
European Daily, European
Monthly, Asian.
Option premium......................... The total amount paid by the
option buyer.
Hours from through..................... For electric power, the hours
of the day for which the swap
is effective.
Hours from through time zone........... For electric power, the time
zone prevailing for the hours
during which electricity is
transmitted.
Days of week........................... For electric power, the profile
applicable for the delivery of
power.
Load type.............................. For electric power, the load
profile for the delivery of
power.
Clearing exception or exemption type... The type of clearing exception
or exemption being claimed.
Field values: End user, Inter-
affiliate or Cooperative.
Indication of collateralization........ Is the swap collateralized, and
if so to what extent? Field
values: Uncollateralized,
partially collateralized, one-
way collateralized, fully
collateralized.
Any other term(s) of the swap matched Use as many fields as required
or affirmed by the counterparties in to report each such term.
verifying the swap.
------------------------------------------------------------------------
[[Page 229]]
* * * * *
Issued in Washington, DC, on November 25, 2020, by the
Commission.
Robert Sidman,
Deputy Secretary of the Commission.
Note: The following appendices will not appear in the Code of
Federal Regulations.
Appendices to Portfolio Reconciliation Requirements for Swap Dealers
and Major Swap Participants--Revision of ``Material Terms''
Definition--Voting Summary and Chairman's and Commissioners' Statements
Appendix 1--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 Commissioner Dan M. Berkovitz
I support today's interim final rule that will maintain the
continuity of swap portfolio reconciliation requirements for swap
dealers. In September 2012, the Commission established in regulation
23.502 the requirement for swap dealers to regularly reconcile key
material terms of swaps in portfolios with certain counterparties.
These portfolios can include hundreds, thousands, and even tens of
thousands of individual swap transactions. Regularly reconciling
economic terms that determine the periodic payments made on swap
portfolios reduces the likelihood of significant disputes and
potential payment shortfalls or interruptions. Reducing these events
reduces risk in the financial system, particularly during times of
market stress.\1\
---------------------------------------------------------------------------
\1\ See Confirmation, Portfolio Reconciliation, Portfolio
Compression, and Swap Trading Relationship Documentation
Requirements for Swap Dealers and Major Swap Participants, 77 FR
55904, 55927 (Sept. 11, 2012).
---------------------------------------------------------------------------
On September 17, 2020, the Commission adopted a final rule
revising parts 45, 46, and 49 of its regulations on swap data
recordkeeping and reporting requirements. In the amendments,
significant changes were made to material terms that are cross-
referenced in regulation 23.502. The unintended consequence would be
to render the portfolio reconciliation requirement ineffective when
the swap data regulations go into effect in approximately 60 days.
The IFR corrects this unintended consequence by reestablishing the
same material economic terms identified for regulation 23.502,
thereby maintaining the status quo for the portfolio reconciliation
requirement. This is a necessary action to maintain the risk
reducing effects of that requirement.
[FR Doc. 2020-26536 Filed 1-4-21; 8:45 am]
BILLING CODE 6351-01-P
