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CFTC finalizes alternative compliance regime for non-US DCOs, updates swap data rules

Commission also offered a supplement to previously proposed Part 190 bankruptcy rules

18 September 2020

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The US Commodity Futures Trading Commission unanimously approved an alternative compliance regime for non-US derivatives clearing organizations (DCOs) by a 5-0 vote on 17 September. The rulemaking effectively defers many CFTC oversight requirements to relevant home-country regulatory regimes for foreign DCOs.

The CFTC also unanimously finalized three rulemakings related to swap data reporting and recording-keeping requirements in a series of 5-0 votes, and also unanimously voted to seek public comment on a supplement to previously proposed amendments to its Part 190 bankruptcy rules.

CFTC Chairman Heath Tarbert noted that this was the 15th meeting held by the agency in the last 12 months and commented that the CFTC  "is busier than ever" despite the challenges of the COVID-19 pandemic.

Final Rule: Registration with Alternative Compliance for Non-US Derivatives Clearing Organizations

The CFTC's commissioners voted 5-0 to approve an alternative compliance regime for non-US DCOs registered with the CFTC, part of the agency’s broader effort to avoid duplicative regulation where the CFTC and home country regulators overlap in oversight. The final rule allows a non-US DCO to rely on compliance with its home country's regulatory regime, provided that it does not pose a substantial risk to the US financial system and its home country regulatory regime meets certain core principles and remains in good standing with the CFTC.

"Provided that a foreign regulatory system produces similar outcomes to the CFTC's core principles, it makes sense to afford it flexibility in how to do it," said Tarbert. "The rule acknowledges that, while a foreign jurisdiction may take a different route, it can still reach the same endpoint."

Final Rules: Amendments to Real-Time Public Reporting Requirements (Part 43), Amendments to Swap Data Recordkeeping and Reporting Requirements (Part 45), and Amendments to the CFTC’s Regulations Relating to Certain Swap Data Repository and Data Reporting Requirements (43, 45, and 49 Verification)

After more than three hours of extensive debate, the CFTC's commissioners unanimously voted 5-0 to finalize three separate proposals to amend Part 43, 45, and 49 of the CFTC’s regulations related to swap data reporting and record keeping requirements. The amendments relate to the real-time public reporting of swap pricing and transaction data, regulatory reporting of swap data to the CFTC, and data verification and oversight processes.

Originally, the Part 43 proposal would have established a 48-hour delay for block trade reporting, but in his opening remarks Tarbert announced the removal of this provision from the final adopted rule.

Despite supporting the final rule on block trade reporting, Commissioner Brian Quintenz offered several concerns with the new requirements. "The final rule before us today clearly favors transparency over market liquidity, with the sacrifice of the latter being particularly more acute given the nature of the swaps market" he said.  "I remain unconvinced that the move from the 50% notional amount calculation for block sizes to the 67% notional amount calculation is necessary or appropriate." However, Quintenz noted he could support the rule in part because it provides market participants with an expanded 30-month compliance period and affords the CFTC an additional 12 months to revisit this issue and further analyze data before full implementation.

In a public statement supporting the rulemakings, Tarbert noted the rulemakings "reflect a hard look at the data we need and the data we collect," noting that "more data does not necessarily mean better information." Tarbert also noted that each commissioner had their own unique concerns despite voting in favor of the new rulemaking, and pledged his commitment to revisiting the new rules in the future if future data or public comments reveal the need for further improvements, particularly in regards to block trades.

Supplemental Notice of Proposed Rulemaking: Part 190 Bankruptcy Regulations

The CFTC also voted unanimously to amend a prior proposal to update Part 190 of the CFTC’s bankruptcy regulations and solicited public comment on the supplement as part of the broader rulemaking. The supplement aims to accommodate broader bank capital requirements, including qualifying master netting agreement, as part of insolvency proceedings. FIA submitted public comments related to this measure.

The supplemental notice will be open for public comments for 30 days after publication in the Federal Register, and those comments will be considered as part of the broader Part 190 bankruptcy proposal  advanced unanimously by the CFTC in April.

Statements and additional documents

View an archived recording and agenda from the meeting

Statement of Chairman Heath P. Tarbert in Support of Final Rules on Swap Data Reporting

Supporting Statement of Commissioner Brian Quintenz Regarding Final Rules Amending the Swap Data Recordkeeping and Reporting Requirements (Part 45)

Supporting Statement of Commissioner Brian Quintenz Regarding Amendments to the Commission’s Regulations Relating to SDR and Data Reporting Requirements

Statements of Concurrence by Commissioner Rostin Behnam Regarding Final Rules on Real-Time Public Reporting, Swap Data Recordkeeping, and Swap Data Repositories

Statement of Commissioner Dawn D. Stump Regarding Final Rules: Swap Data Reporting

Statement of Commissioner Dan M. Berkovitz Regarding Amendments to the Swap Data Reporting Rules

Supporting Statement of Commissioner Brian D. Quintenz Regarding Final Rules Amending the Real-Time Reporting Requirements (Part 43)

Statement of Commissioner Dawn D. Stump Regarding Block Size Threshold in Final Rule: Amendments to Real-Time Public Reporting Requirements

Statement of Chairman Heath P. Tarbert in Support of Final Rule on Alternative Compliance for Non-U.S. Clearinghouses

Statement of Commissioner Rostin Behnam Regarding Registration with Alternative Compliance for Non-U.S. DCOs

Statement of Commissioner Dawn D. Stump Regarding Registration with Alternative Compliance for Non-U.S. Derivatives Clearing Organizations

Statement of Commissioner Dan M. Berkovitz Regarding Registration with Alternative Compliance for Non-U.S. Derivatives Clearing Organizations

Statement of Commissioner Dan M. Berkovitz Regarding Part 190 Bankruptcy Regulations, Supplemental Proposal

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