CFTC’s Swap Reporting Advisory – Commodities/Derivatives/Stock Exchanges

Accurate and timely reporting of swap data is the cornerstone of
swap regulation. The CFTC had promulgated its swap reporting rules
in 2012, and were after 2012 among the first rules implementing the
Dodd-Frank Act to require, among other things, the anonymized
real-time reporting of swap data (Part 43 of CFTC regulations) as
well as more detailed regulatory reporting of swap data (Part 45)
to swap data repositories (“SDR”). These reports must be
provided by swap dealers (or the end-users that are trading with
other end-user counterparties), swap execution facilities
(“SEFs”), designated contract markets (“DCMs”),
and derivatives clearing organizations (“DCOs”). Swap
data includes both the primary economic terms of the swaps when
they were entered into (creation data) as well as any material
amendments and cancellations or terminations of swaps (continuation
data).

Since 2012, there have been numerous CFTC enforcement actions
sanctioning swap dealers and other reporting parties for failing to
comply with reporting rules, and, in fact, the CFTC’s
surveillance considers reporting a “low hanging fruit”
because some mistakes can be found at almost any reporting party.
Conversely, market participants have noted that the 2012 reporting
rules were ambiguous in many aspects as drafted, which leads to
reporting mistakes.

With this in mind, the CFTC had amended its reporting rules in
November 2020 to clarify many of the provisions, including Parts 43
and 45. The compliance date under the amended rules was May 25,
2022. However, the staff of the CFTC realized that the market was
still struggling with implementation of the new rules, and on
January 31, 2022 issued no action letter No 22-03 postponing
compliance to December 5, 2022.

One of the requirements of the rules is to correct swap data
that had been submitted to the SDRs if it is later discovered that
the data was erroneous. On June 10, 2022, the CFTC issued advisory
No 22-06 (“Advisory”) clarifying how correction reports
must be submitted to the SDRs and, if they cannot be submitted
timely, to the CFTC with the remediation plan.

Further, the Advisory reminds reporting parties that many of the
swaps that have been terminated remain reported as “open”
on SDR’s records, which significantly distorts CFTC’s
surveillance of the markets and assessment of the overall systemic
risks. It is a violation of the reporting rules not to submit the
continuation data indicating that the swaps have been terminated.
Swap trading entities should continue monitoring CFTC’s
guidance as it is likely that further advisories will be issued
before the compliance date.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.