CFTC goes live with amended swap rules

Following a delay in the original implementation date of 25 May 2022, the CFTC rewrite has now gone into effect with the aim of correcting errors in swap data.

The US Commodity Futures Trading Commission (CFTC) has gone live with the amendments of its swap data reporting framework, which now includes harmonised critical data elements developed by the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO).

The initial phase of amendments came into effect on 5 December, following the delay of its original implementation date of 25 May 2022, to provide market participants with more time to comply to the changes. The second phase of the CFTC rewrite is expected to be implemented in late 2023.

The delay of phase one of CFTC’s rewrite came as a result of a request for no action from the International Swaps and Derivatives Association (ISDA) and its members, which highlighted that the CFTC’s publication of its final technology specification in September last year and the finalised Swap Data Repository (SDR) rulebook, did not give the industry enough time to implement all the necessary changes. 

CFTC’s original data-related swaps rules were established under the Dodd-Frank Wall Street Reform and Consumer Protection Act, mandating the reporting of swaps data contracts to SDRs and the public dissemination of swap data, with the aim of improving transparency what was an opaque swaps market.

In 2009, G20 leaders internationally agreed that all over the counter (OTC) derivatives contracts should be reported to trade repositories (TRs) to improve transparency, mitigate systemic risk and prevent market abuse. The move, involving the aggregation of data being reported across TRs, expected to help authorities receive a comprehensive view of the OTC derivatives market and its activity.

Following the establishment of the swaps rules, amendments have now been made across regions to improve consistency globally. The rewrite also attempts to correct errors in swap data and for the verification of swap data to be achieved more accurately.

Among the amendments in the CFTC’s rewrite are obligations for firms to verify the completeness and accuracy of the data held at the SDR. Firms are also expected to fix any discovered errors as soon as technologically practical once an error has been discovered. Elsewhere, firms are obliged to notify the CFTC if it has been determined that errors cannot be fixed within the maximum seven days permitted for timely corrections.

“This long awaited re-write attempts to frequently verify the completeness and accuracy of information around swaps data. This sounds great in principle but could prove much harder to achieve in practice. For instance, regulators could specifically ask to see reconstructed trades from swap deals when markets are volatile. A lot of trades on frenetic trading days could well be executed over the phone, as opposed to more transparent electronic trading venues,” said Oliver Blower, chief executive of VoxSmart, speaking on the CFTC rewrite.

“This type of scenario presents a real challenge to banks who, more often than not, have their trade and communication data residing in two entirely separate buckets. The manual process of sifting through these disparate data sets and connecting the dots between trades, particularly during periods of heightened volatility, is a major headache. To meet the spirit of this CFTC re-write, expect financial institutions to lean on the support of automated technology to connect communication and trade data so that compliance teams can be empowered to check exceptional swaps trades almost instantly.”