In its Proposing Release the Commission solicited responses to specific questions regarding the implementation of real-time public reporting, including whether (i) different reporting parties should have different implementation timeframes; (ii) different types of execution should have different reporting phase in timeframes; (iii) different asset classes, markets, or contracts should have different timeframes; and (iv) public dissemination of block trades should be implemented according to a different schedule than non-block trades.
The Commission received responsive comments from 47 market participants, including SDs, non-financial end-users, financial end-users, industry groups/ associations, asset managers, trading platforms and data vendors.416
Commenters discussed the following issues relating to implementation: (1) Timing for real-time reporting vis-a-vis other rules; (2) a phase in approach based on liquidity/standardization/asset class; (3) harmonization with the SEC and foreign regulators; (4)
implementation schedules; (5) a testing phase; (6) technology challenges; (7) comparison to TRACE phase in; (8) large notional swaps/customized swaps; (9) end-users should be phased in last; and (10) re-proposal and re-open comment period.
Twenty-seven comments supported a phase in approach with regard to real- time reporting requirements for the rules set forth in the Proposing Release. Commenters’ proposed approaches to phasing in the rules varied in timing and scope. One commenter further suggested that a phase in be adopted similar to that proposed in the SD/MSP Recordkeeping NPRM.417Five
commenters recommended that in implementing the part 43 rules the Commission follow the manner in which FINRA phased in TRACE;418
some supported a testing phase in period during which compliance would not be required.419These commenters
further suggested that such a phase in period would provide an opportunity to both address anticipated technology
challenges and allow parties to become familiar with the reporting process. Other comments advised the Commission to subject more liquid/ standardized contracts to public real- time reporting first and phase in less liquid contracts later.420Still others
recommended beginning with reporting of more advanced asset classes with established infrastructure for reporting (e.g., credit) or by entity/market
participants.421In addition, commenters
stated that real-time reporting for large notional swaps should be phased in.422
Twenty-six commenters contended that the Commission must first collect and analyze data per the Commission’s data recordkeeping and reporting and SDR registration rules, before adopting final rules addressing certain aspects of the block trade rules (e.g., calculations and time delay).423Consistent with this
approach, four commenters asserted that the entire rulemaking should be re- proposed after the Commission has had the opportunity to review and analyze the data collected by SDRs. One commenter requested that the
Commission wait until it publishes the standardized computer-readable algorithmic study before developing real-time reporting rules.424One
commenter urged the Commission to re- propose this rule, and all other rules establishing the new framework for swaps regulation, in the order in which they will be implemented—preferably starting with data gathering in order to capture most effectively the appropriate products and market participants. This commenter recommended a minimum sixty-day comment period for each of the re-proposed rules. While this process would delay implementation by some months, the commenter believed that the desire for an accelerated and/or premature regulatory certainty should not outweigh the need for
comprehensive consideration of the market impact and potential market disruptions prior to finalizing the regulatory requirements.425
Several commenters stated that the Commission should adopt an
implementation timeline similar to those of other federal regulators, including the SEC.426One commenter
observed that inconsistencies between the Commissions’ proposals would, if adopted, significantly complicate implementation.427Two additional
commenters recommended that the Commissions harmonize their phase in approaches.428
The Commission received comments from several commenters that
recommended specific implementation schedules for the Commission’s consideration.429
One of these comments supported re- proposing the rule after data are collected.430As discussed throughout
this Adopting Release, the Commission has determined not to adopt certain aspects of the block trade rules pending further collection and analysis of data.
One commenter stated that the Commission’s implementation period and process should be broadly
consistent with the proposed European implementation; in its view such consistency would foster consistency across regions and minimize regulatory arbitrage.431
The Commission also received several comments asserting that end-user swap data reporting should be delayed. For example, one of these commenters commented that non-bank SDs and end- users should be able to establish information technology systems related to business process for approximately one year before reporting is required.432
Another commenter stated that end- users should not begin reporting until an SDR has been registered and the systems between the SDR and end-user can be set up and tested.433Other
comments contended that end-users should be phased in last.434
A number of other commenters responded, directly or indirectly, to the Commission’s decision to reopen the comment periods for all Dodd-Frank Act rulemakings and specific request for comment on the order in which the Commission should consider final rulemakings under the Dodd-Frank
435See CL–ABA; CL–ABC/CIEBA; CL–COPE; CL– Citadel; CL–DC Energy; CL–BP; CL–Alice; CL– FHLBanks; CL–Cleary; CL–GFXD; CL–NFPEEU; CL–Working Group of Commercial Energy Firms; CL–FIA/FSR/IIB/IRI/ISDA/SIFMA/Chamber; and Meeting with Citi, MS and JPM (May 17, 2011). Act.435Six commenters challenged the
sequencing and timing of the Proposing Release in relation to the publication of the final entity and/or product
definitions rulemakings published after the Proposing Release. These
commenters contended that the Commission’s failure to sequence the proposals deprived them of the opportunity for meaningful, informed comment on the Proposing Release; they suggested that the Commission extend the comment periods on all
rulemakings.
Consistent with section 754 of the Dodd-Frank Act, part 43 of the Commission’s Regulation will be effective on March 9, 2012 (‘‘Effective Date’’). In that regard, however, the Commission wishes to emphasize that implementation or compliance dates for various regulatory requirements in part 43 are contingent upon the adoption and effective dates of other, related, regulatory provisions and definitions. In consideration of these contingencies and in response to commenters, the Commission is adopting a three-phase schedule for compliance with part 43, along with several new procedures. Compliance Date 1
On the first compliance date
(‘‘Compliance Date 1’’), all SEFs, DCMs, SDs and MSPs will be required to comply with all part 43 requirements with respect to publicly reportable swap transactions in the interest rate and credit asset classes, including reporting such transactions to an SDR pursuant to the rules of part 43. On Compliance Date 1, all publicly reportable swap transactions in the interest rate and credit asset classes that are either (1) executed on or pursuant to the rules of a SEF or DCM, or (2) ‘‘off-facility swaps’’ in which at least one party to the swap is an SD or MSP (collectively, ‘‘Compliance Date 1 transactions’’), must be reported to an SDR for public dissemination, pursuant to part 43. In addition, on Compliance Date 1, all SDRs for the interest rate and credit asset classes will be required to accept and publicly disseminate real-time swap transaction and pricing data for the Compliance Date 1 transactions pursuant to part 43 and appendix A to part 43. With respect to swaps in the interest rate and credit asset classes that are executed on or pursuant to the rules of a SEF or DCM, Compliance Date 1 will be the date that is the later of (1)
July 16, 2012, or (2) 60 calendar days after the publication in the Federal
Register of Commission regulations
defining the term ‘‘swap’’ pursuant to sections 721 and 712(d)(1) of the Dodd- Frank Act. With respect to swaps in the interest rate and credit asset classes that are not executed on or pursuant to the rules of a SEF or DCM and that have at least one party that is an SD or MSP, Compliance Date 1 will be the date that is the later of (1) July 16, 2012 of this Adopting Release in the Federal
Register, or (2) 60 calendar days after
the publication in the Federal Register of the last Commission regulations defining the terms ‘‘swap,’’ ‘‘swap dealer’’ and ‘‘major swap participant’’ pursuant to sections 721 and 712(d)(1) of the Dodd-Frank Act.
Compliance Date 2
On the second compliance date (‘‘Compliance Date 2’’), all SEFs, DCMs, SDs and MSPs will be required to comply with all part 43 requirements with respect to publicly reportable swap transactions in the foreign exchange, equity and ‘‘other commodity’’ asset classes, including reporting such transactions to an SDR pursuant to the rules of part 43. On Compliance Date 2, all publicly reportable swap
transactions in the foreign exchange, equity and ‘‘other commodity’’ asset classes that are either (1) executed on or pursuant to the rules of a SEF or DCM, or (2) off-facility swaps in which at least one party to the swap is an SD or MSP (collectively, ‘‘Compliance Date 2 transactions’’), must be reported to an SDR for public dissemination, pursuant to part 43. Consequently, on
Compliance Date 2, all SDRs for the interest rate, credit, equity, foreign exchange and ‘‘other commodity’’ asset classes will be required to accept and publicly disseminate the Compliance Date 2 transactions pursuant to part 43. Compliance Date 2 shall begin 90 calendar days after the commencement of Compliance Date 1.
Compliance Date 3
On the third compliance date (‘‘Compliance Date 3’’) all publicly reportable swap transactions in all asset classes will be required to comply with all part 43 requirements. Compliance Date 3 will require, among other part 43 requirements, the reporting and public dissemination of all publicly reportable swap transactions in all asset classes by all SEFs, DCMs and reporting parties, including reporting parties that are non- SDs or non-MSPs. Compliance Date 3 shall begin 90 calendar days after the commencement of Compliance Date 2.
If no SDR for a particular asset class is registered or provisionally registered at the commencement of one or more compliance dates, compliance for swaps in such asset class shall not be required until registration or provisional registration of an SDR occurs in the asset class. Reporting parties, SEFs and DCMs may share and publicly
disseminate swap transaction and pricing data without restriction until an SDR is registered or provisionally registered in an asset class. Further, the Commission notes that the compliance dates relating to the implementation of part 43 are not contingent on the publication of Commission regulations implementing Section 733 of the Dodd Frank Act relating to registration and compliance with core principles for SEFs.
In addition to the compliance dates, the Commission is adopting a number of phasing procedures in response to commenters’ concerns. As discussed above, the Commission expects to re- propose for comment a rulemaking to address the appropriate minimum block size criteria and determination.
Consequently, until such time as an appropriate minimum block size is established for particular swaps, the Commission is providing initial time delays for all swaps subject to the reporting requirement in § 43.5. Further, the Commission will be phasing in the time delays over time so that market participants can adjust hedging strategies and secure the technology or make arrangements necessary to comply with part 43. The Commission has provided longer time delays for the ‘‘other commodity’’ asset class, since such parties using such swaps tend to follow more complex hedging strategies to lay off risk. In response to comments regarding end-users, the Commission is providing longer time delays for public dissemination of swaps in which a non- SD/non-MSP is the reporting party since such parties may not have the
technology available to report swap transaction and pricing data.
Additionally, the Commission expects to address in the block trade re-proposal the reporting of publicly reportable swap transactions in the ‘‘other commodity’’ asset class that are not executed on or pursuant to a SEF or DCM and that do not reference one of the contracts listed in appendix B to part 43 or a swap that is economically related to such contracts. Until rules regarding such ‘‘other commodity’’ swaps are adopted, such swaps will not be subject to the real-time reporting requirements of part 43.
43644 U.S.C. 3501 et seq. 437See CL–Dominion.
438Id.; The Commission notes that its estimates regarding the costs related to ‘‘collections of information’’ required by the Proposing Release can be found in the supporting statement and form 83– I posted on the Office of Management and Budget’s Web site, which can be found at http://
www.reginfo.gov/public/do/PRAMain. The revised
supporting statement and form 83–I can be found at the same Web site.
439See CL–GXFD.
440CL–OMB Notice of Action (received 04/01/11). 441Rules related to block trades and large notional off-facility swaps will be addressed in a separate rulemaking.
442At the time of the Proposing Release there were 17 DCMs; there are now 18 DCMs.
44375 FR 76169.
444CFTC, President’s Budget and Performance Plan Fiscal Year 2012 (Feb. 2011), p. 13–14,
available at http://www.cftc.gov/ucm/groups/ public/@newsroom/documents/file/ cftcbudget2012.pdf. The estimated 140 SDs
includes ‘‘[a]pproximately 80 global and regional banks currently known to offer swaps in the United States;’’ ‘‘[a]pproximately 40 non-bank swap dealers currently offering commodity and other swaps;’’ and ‘‘[a]pproximately 20 new potential market makers that wish to become swap dealers.’’ Id. 445Letter from Thomas W. Sexton, Senior Vice President and General Counsel, NFA to Gary Barnett, Director, Division of Swap Dealer and Intermediary Oversight, CFTC (Oct. 20, 2011) (NFA Cost Estimates Letter).
446Part 43 no longer uses the term end-user, but uses the term ‘‘non-SD/non-MSP’’ to represent a reporting party who is not an SD or MSP.