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CFTC REWRITE:
HOW SHOULD FIRMS RESPOND?

Regulations are changing fast. No amount of point solutions can keep up or meet the exacting new standards. But technology has evolved to offer agility, transparency and governance.

How can firms embrace this? Find the latest insights from technology and industry experts on changing your approach to regulatory reporting.

TOP CFTC REWRITE QUESTIONS ANSWERED

  • The Commodity Futures Trading Commission (CFTC) Rewrite is an update to over-the-counter (OTC) derivatives reporting rules first introduced under the Dodd-Frank Act in 2010. It aims to improve reporting data quality and create more transparent markets and applies to Swap Data Repositories (SDRs) and reporting counterparties.

  • Phase I of the CFTC Rewrite goes into effect on 5 December, 2022. Phase II is expected to go live in late 2023.

  • The CFTC is adopting a much more prescriptive approach. Phase I of the CFTC Rewrite reduces the number of reportable fields to 128, introduces critical data elements (CDE) such as the Unique Transaction Identifier (UTI), shortens the deadline for swap reporting to T+1 and obliges firms to flag any reporting errors within seven days.

    Phase II will introduce the Unique Product Identifier (UPI) field and move to ISO20022 XML messaging standards.

  • The CFTC Rewrite covers trades of Non-Security-Based-Swaps (Swaps) regulated by the CFTC:

    • Interest Rate Swaps
    • FX swaps and forwards (excluded from central clearing and trade execution requirements)
    • Credit default swaps (CDS) or broad based indices; baskets of single name CDSs
    • Agricultural and Commodity Swaps
    • Some Total Return Swaps
    • All options based on rates (interest rates, currency rates)
    • All options based on commodities, with exceptions for some physically settled contracts
    • Metal and energy swaps, with some exceptions
    • Any guarantee of a swap

  • The US is a single-sided reporting regime. This means that one counterparty reports for both sides. However, it can be complicated to decide which counterparty is responsible for reporting (see below).

  • Firms trading over-the-counter (OTC) derivatives in the US, or US residents buying foreign OTC derivatives, must report the details of the trade to a Swap Data Repository (SDR). However, Dodd-Frank requires only single-sided reporting. Who should report the transaction is based on several criteria, including the type of asset being traded and the types of firms involved in the trade. Different criteria apply depending upon if one or both counterparties are US citizens. Entity types are ranked hierarchically with regards to reporting obligations, with Swap Dealers at the top.

    Find the full CFTC reporting guidelines here.

  • Swap Data Repositories (SDRs) were created under the Dodd-Frank Act. All cleared and uncleared swap transactions must be reported to registered SDRs. Under Section 21 of the Commodity Exchange Act, SDRs must register with the Commodity Futures Trading Commission (CFTC) and have core duties and responsibilities to fulfil. These include real-time reporting of swap transactions and pricing data.

The seven day notification is a very significant challenge. Fine, if you’re sending 10 swaps a day and one is wrong. If you’re sending 100,000 or 2 million or 10 million messages a day, and quality assurance tells you you’ve got error sets across 5% of it […] That whole operation of the notification process becomes extremely challenging.

Ewen Crawford

Senior Product Owner, Standard Chartered Bank

While regulators are trying to converge on the data and the changes, they’re also making a number of the changes in lockstep with one another. Because there is some variation, the challenge becomes a resourcing challenge, because very often the same subject matter experts across the organisation and across the architecture are dealing with these changes.

Loren Schwartz

Senior Director, Regulatory Technology, CIBC

It takes 50-54 days to build a complex reconciliation. So think about how long that’s going to take for your IT departments and your vendors if you’re going to have to reconcile for all of these different fields […] That’s going to be a long, long winter for everybody.

Virginie O’Shea

Founder, Firebrand Research

Financial services historically used to view regulatory change as a vertical problem, building incredibly fragile solutions for specific regulations. For me, the biggest development here is the recognition that all of this is actually a giant data problem, not a problem with MiFID or EMIR or CFTC, or anything like that.

Christian Nentwich

Founder and CEO, Duco

One-size-fits-all does not fit in this environment. People that think “oh, I’ve got a very robust cash-management reconciliation solution that’s going to be able to work for derivatives” are going to get a big shock and surprise. There’s nothing like a complex swap to break everybody’s brains and processes at the same time.

Loren Schwartz

Senior Director, Regulatory Technology, CIBC

AN AGILE NEW WAY TO MEET CFTC REPORTING
CHALLENGES

Stay ahead of regulatory change with our cloud-native platform, featuring flexible data ingestion, machine learning and no-code functionality. Ensure the accuracy of your reporting data, identify and resolve exceptions fast and easily adapt to changing requirements.

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