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.
CFTC and EMIR reporting rewrites: Getting it done, getting it right for the future
Get expert views on the biggest challenges from the CFTC Rewrite and how firms can meet them in an agile, future-proofed way. Featuring speakers from Standard Chartered, CIBC, Firebrand Research and DerivSource.
5 key takeaways from our expert panel on the CFTC and EMIR rewrites
Duco CEO Christian Nentwich joined experts from Standard Chartered, CIBC and Firebrand Research to discuss strategies for tackling the CFTC Rewrite. Read the key takeaways from their conversation here.
Watch: The top reporting challenges from the CFTC Rewrite
We asked Firebrand Research founder Virginie O’Shea to share the top challenges of the CFTC Rewrite and what actions firms need to take to get ready.
TOP CFTC REWRITE QUESTIONS ANSWERED
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What is the CFTC Rewrite?
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.
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When does the CFTC Rewrite go live?
Phase I of the CFTC Rewrite goes into effect on 5 December, 2022. Phase II is expected to go live in late 2023.
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What are the main changes coming in the CFTC Rewrite?
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.
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What instruments are affected by the CFTC Rewrite?
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
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Is CFTC single-sided reporting?
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).
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Who has to report to the CFTC?
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.
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What is a Swap Data Repository?
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.
Industry experts weigh in on the CFTC Rewrite
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.”
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.”
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.”
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.”
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.”
These are personal views and do not necessarily represent the views of the individual’s firm.
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