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The long-awaited rewrite to the CFTC trade reporting rules was
approved on 17 September and, as of 25 November, published in the
Federal Register.
The 18-month clock now starts ticking, with an implementation
date set for 25 May 2022.
The rewrite is critically important as it delivers the most
comprehensive change to reporting rules in the United States since
OTC derivatives reporting was introduced by the CFTC under
Dodd-Frank in 2012.
The commission has been working on this rewrite for several
years and has reviewed hundreds of comments from the industry on
draft amended rules published in 2019.
The resulting final rules contain no big surprises; Key
highlights of the changes include:
Submission data requirements (new fields, validations,
enumerations, etc.)-The final Part 45
rule substantially reduces the number of data fields to be reported
to Swap Data Repositories (SDRs) to 128.
Part 45 reportingtiming -The
new rule requires Swap Dealer, Major Swap Participant and
Designated Clearing Organization (SD/MSP/DCO) reporting
counterparties to report swap data by T+1 following the execution
date, while non-SD/MSP/DCO reporting counterparties must report
swap data by T+2 following the execution date.
Collateral, valuation and margin reporting -
SD reporting counterparties will be required to report daily margin
and collateral data for uncleared swaps. Non-SD/MSP participant
reporting counterparties will have no requirement to report
valuation, margin or collateral information. This reduces the
burden as non-SDs currently report valuations quarterly.
Data verification requirements - SDRs will be
required to provide reporting counterparties access to their open
swap data in order to correct errors or omissions. All SD/MSP/DCO
reporting counterparties are required to perform verification, or
can delegated to a third party, of open swap data every 30 calendar
days, while non-SD/MSP/DCO reporting counterparties must perform
verification once every calendar quarter.
The capital markets, similar to other industries, likes and
needs certainty in regulations. Budgeting, planning, resource
allocation, analysis and implementation all require certainty on
timing and scope. These new obligations will impose a significant
burden on the compliance, legal, and technology departments across
the industry to address reporting obligations and impacts to their
respective systems.
To compound the complexity of the planning, firms that have
reporting obligations in the United States. and Canada have also
completed a significant North American re-architecture initiative
by the DTCC. They will, most likely need to keep their project
teams intact to start reviewing the final rules, tackle business
and technical analysis and undertake the same processes they just
finished.
In addition to the CFTC rewrite, reporting counterparties will
also need to track, plan for and solve reporting changes coming
down the pike over the next 12-18 months across the Securities and
Exchange Commission (SEC), Japan Financial Services Agency (JFSA)
and the Monetary Authority of Singapore (MAS).
With many major regulatory reporting changes, there is an
opportunity for reevaluation on how to best design, implement and
operationalize a reporting solution within an organization.
Firms must stop and consider whether the current model is
optimal or are there better solutions available in the
marketplace.
Many of the largest swap dealers initially built extensive
internal reporting solutions and still maintain significant
operational and technical teams to handle their own obligations and
those of their clients. The industry never anticipated the
complexity and cost of maintaining internal reporting solutions and
have started to question the rationale of keeping them
in-house.
The focus has been to keep up with every changing regulation,
but the cost of managing solutions internally is often
significantly higher than using outsourced providers. These costs
include the effort required with manual processing, infrastructure,
technology and the opportunity cost of dealing with operational
errors and constant change. Many outsourced solutions use
best-in-class technologies and processes that enable firms to
benefit from economies of scale and a wider pool of ideas that
continually drive and improve functionality and compliance.
Before business analysis starts on how to comply with and
implement the new CFTC rules, the next six months provide a unique
opportunity to have a comprehensive and strategic review of how to
implement a cost effective, future-proofed and compliant regulatory
trade reporting solution for your organization. The time is
now.
Posted 10 December 2020 by Igor Kaplun, Executive Director and North America Head of Business Development for IHS Markit’s Global Regulatory Reporting Solutions
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.
