CFTC codifies no-action relief on DCO reporting

Proposals related to Part 40 and self-certification issues also advance

26 July 2023


The US Commodity Futures Trading Commission finalized a rule on reporting requirements for Derivatives Clearing Organizations (DCOs) at a public meeting on July 26, codifying existing no-action relief from the agency and forgoing previous proposals that would have required additional reporting related to cyber-related incidents.

The CFTC also began deliberation on three new proposals, including:

  • Amendments to provisions common to registered entities
  • Swap confirmation requirements for Swap Execution Facilities (SEFs)
  • The treatment of seeded funds and money market funds in relation to margin requirements

In his opening statement, CFTC Chairman Rostin Behnam acknowledged the importance of public comments and industry participation in the agency's advisory committees to help shape regulation.

"Today's final rule and proposals each seek to address needs articulated by stakeholders—including those sitting at this dais—pragmatically and in partnership," Behnam said. "Each has benefitted to some extent from the thoughtful dialogues and reports generated by the Commission's advisory committees."

Reporting and Information Requirements for Derivatives Clearing Organizations

CFTC rules had previously required a DCO to report daily to the Commission initial margin, variation margin, cash flow, and position information for each clearing member, by house origin and by each customer origin. In 2020, however, the CFTC amended this rule to also require DCOs to report this information by individual customer account.

FIA clearing firms, working with DCOs, raised concerns with CFTC staff that it was impossible for DCOs to provide to the Commission with daily variation margin and cash flows by individual customer account. Ultimately, FIA helped to secure relief from these reporting requirements.

The rule that was unanimously finalized by the commission formally codifies this relief, and is supported by FIA.

Additionally, the rule makes additional changes to the CFTC's regulations applicable to DCOs, including updating information requirements associated with commingling customer funds and positions in futures and swaps in the same account, addressing certain systems related reporting obligations regarding exceptional events, and revising certain daily and event-specific reporting requirements.

Notably removed from the final rule, however, were provisions of the earlier proposal related to systems-related events and cyber incidents. There were unanimous concerns raised by DCOs that these additional reporting requirements would be overly burdensome, expensive, and result in a significant increase in communication of non-material incidents to CFTC staff. The agency ultimately removed any additional reporting requirements from the final rule, though a number of CFTC commissioners expressed interest in revisiting the area of reporting and cyber risk in the near future.

Proposed rulemakings

The remainder of the CFTC's meeting focused on three separate proposed rulemakings for future consideration:

Provisions Common to Registered Entities – The CFTC began discussions on updates to its Part 40 regulations, which largely focus on the self-certification process and new rule and product submissions. Chairman Behnam noted this part of agency regulations has not seen comprehensive amendments since 2011, and said he hopes the proposed rulemaking will help "reflect the commission's experience applying the Part 40 regulations since 2011, and is intended to clarify and enhance the utility of Part 40." There was a spirited debate about the role of agency staff in the process, as well as concerns about how and when to identify unique products that might consider public debate. As an example, Commissioner Pham pointed to previous concerns raised by FIA in 2017 around shortfalls in the self-certification process.

Swap Confirmation Requirements for Swap Execution Facilities – In response to targeted no-action positions for SEFs, the CFTC advanced a proposal that would codify clarifications in areas including block trades and related execution.

Seeded Funds and Money Market Funds – The CFTC also advanced a proposal, with Commissioner Goldsmith Romero opposing, that would consider the treatment of eligible seeded funds and money market funds as they relate to margin requirements for uncleared swaps for swap dealers and major swap participants for which there is no prudential regulator. 

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