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CFTC Shorts, Part 2

Why is the CFTC rolling out Swap Reporting 2.0?


This article is the second part of the ‘CFTC Shorts’, a series of bite-sized discussions around various aspects of the proposed changes to Dodd-Frank Part 43 & 45. Alan McIntyre, Senior BA and Industry Relations Lead at RegTek.Solutions drills into various aspects of the reporting requirements and identifies some of the challenges that firms will need to consider.

The answer can be summed up in two words: Data Quality.

I could stop there as that pretty much covers it. But I wouldn’t want you feeling short changed. And let’s face it, my editor might not let me off with just 11 words for an article. [Editor’s Note: And you were… correct. But nice try there Mr McIntyre!].

So let’s explore a bit more. Yes, there are other factors such as the progress made in other G20 OTC reporting regimes. And yes, there is also the progress and harmonization work undertaken at the CPMI-IOSCO & FSB level. But whilst these are definitely factors, the main driver is by far data quality. Let’s work backwards to try and understand the context here.

On the 24th of April 2019, the CFTC published a consultation paper entitled: Proposed Amendments to the Commission’s Regulations Relating to Certain Swap Data Repository and Data Reporting Requirements. The paper, which predominantly focuses on the Part 49 regulations governing the Swap Data Repositories, refers to data quality 15 times, data accuracy 54 times, and verify/verifying/verification a whopping 229 times. Not bad for a 309-page paper. I think it’s fair to conclude that there is a theme on the CFTC’s mind. For the US regulator, this rewrite is all about improving the quality and accuracy of the data being reported. In the summary at the start of the document, the CFTC describes its ambitions as follows:

The proposed amendments would modify existing requirements for SDRs to establish policies and procedures to confirm the accuracy of swap data with both counterparties to a swap.

The proposed amendments would further require reporting counterparties to verify the accuracy of swap data pursuant to those SDR procedures.

Looking slightly further back, there was the June 2017 release of the Roadmap. The title alone tells us everything we need to know about where this road is intended to lead: Roadmap to Achieve High Quality Swaps Data. This document outlined the CFTC’s intended approach and timeline to work towards improved Data Quality:

Recently, we directed the Division of Market Oversight (DMO) to take stock of our progress to date and assess required future steps to achieve the goal of high quality swaps data for post-trade transparency.

And strolling even further back down memory lane to December 2015 (as I commented here), there were two newsworthy items that had signalled what was to come in terms of Data Quality for CFTC reporting.

First, there was the CFTC’s Division of Swap Dealer and Intermediary Oversight (DSIO) letter warning firms about the swap reporting errors the regulator was seeing. These included readily apparent errors, incomplete reporting, calculation errors, and many others. They also took the opportunity to remind reporting firms of the various controls they are obliged to have in place such as Data Gatekeepers, Automated Review of Reported Data, Erroneous Record Checks etc.

Later that same month, there was the CFTC’s Request For Comment on Draft Technical Specifications for Certain Swap Data Elements which started the ball rolling in earnest on revising the Dodd-Frank Act’s OTC derivative reporting rules. The words of then Chairman Timothy Massad’s accompanying statement when the CFTC issued the Request for Comment made it clear that improving the consistency, accuracy and quality of the data was the goal:

December 22, 2015

Today, CFTC staff is taking an important step toward improving the quality of swap data reporting. This Request for Comment is a key component of the efforts I recently discussed to ensure that the swap data the CFTC receives is accurate, consistent and timely.

Skip forward a paragraph or two and the themes start to come out again:

Currently, for example, there is considerable variation in how different participants report the same fields to SDRs, and in how the SDRs themselves transmit information to the CFTC.

In our original rules, we purposely didn’t prescribe exactly how each field should be reported – for two principal reasons. First, when the agency issued the reporting rules, we didn’t yet have any data to inform our views. And second, we needed the industry to take coordinated steps toward standardizing its reporting. That, unfortunately, has not happened.

So to sum it up again: Swap Reporting 2.0 is all about improving DQ. It’s also a very significant undertaking that has been in the works for quite a while now and is clearly very important to the CFTC. There may be other drivers and inputs affecting this programme. But make no mistake, improving the accuracy, quality and usefulness of the Swap Reporting data is of paramount importance to the US regulator.

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