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					                                                  76574              Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules

                                                  COMMODITY FUTURES TRADING                               FOR FURTHER INFORMATION CONTACT:                      Appendix 1 to Part 45—Tables of Minimum
                                                  COMMISSION                                              David Taylor, Special Counsel, Division                  Primary Economic Terms Data and
                                                                                                          of Market Oversight, 202–418–5488,                       Minimum Valuation Data
                                                  17 CFR Part 45                                                                                                Appendix 2 to Part 45—Master Reference
                                                                                                          dtaylor@cftc.gov, or Irina Leonova,                      Generic Data Fields List
                                                                                                          Financial Economist, Division of Market
                                                  RIN 3038–AD19                                                                                                 I. Background
                                                                                                          Oversight, 202–418–5646,
                                                  Swap Data Recordkeeping and                             ileonova@cftc.gov; Commodity Futures                  A. Introduction
                                                  Reporting Requirements                                  Trading Commission, Three Lafayette
                                                                                                          Centre, 1155 21st Street, NW.,                           On July 21, 2010, President Obama
                                                  AGENCY:  Commodity Futures Trading                      Washington, DC 20851.                                 signed into law the Dodd-Frank Wall
                                                  Commission (CFTC).                                      SUPPLEMENTARY INFORMATION:
                                                                                                                                                                Street Reform and Consumer Protection
                                                  ACTION: Proposed Rulemaking.
                                                                                                                                                                Act (‘‘Dodd-Frank Act’’).2 Title VII of the
                                                                                                          Table of Contents                                     Dodd-Frank Act 3 amended the
                                                  SUMMARY:   The Commodity Futures                        Supplementary Information                             Commodity Exchange Act (‘‘CEA’’ or
                                                  Trading Commission (‘‘Commission or                     I. Background                                         ‘‘Act’’) 4 to establish a comprehensive
                                                  CFTC’’) is proposing rules to implement                    A. Introduction                                    new regulatory framework for swaps
                                                  new statutory provisions enacted by                        B. Swap Data Provisions of the Dodd-Frank          and security-based swaps. The
                                                  Title VII of the Dodd-Frank Wall Street                       Act                                             legislation was enacted to reduce
                                                                                                             C. International Developments Affecting            systemic risk, increase transparency,
                                                  Reform and Consumer Protection Act.                           Swap Data Reporting
                                                  These proposed rules apply to swap                         • G–20 and FSB
                                                                                                                                                                and promote market integrity within the
                                                  data recordkeeping and reporting                           • Standard Setting for Repositories and            financial system by, among other things:
                                                  requirements for swap data repositories,                      Data Reporting by IOSCO and CPSS                providing for the registration and
                                                  derivatives clearing organizations,                        • BIS                                              comprehensive regulation of swap
                                                  designated contract markets, swap                          • ODRF and ODSG                                    dealers (‘‘SDs’’) and major swap
                                                  execution facilities, swap dealers, major                  D. Regulatory Needs for Swap Data                  participants (‘‘MSPs’’); imposing clearing
                                                                                                             E. Existing Trade Repositories                     and trade execution requirements on
                                                  swap participants, and swap
                                                                                                             F. Consultations With Other U.S. Financial         standardized derivative products;
                                                  counterparties who are neither swap                           Regulators
                                                  dealers nor major swap participants                        G. Consultations With International
                                                                                                                                                                creating rigorous recordkeeping and
                                                  (including counterparties who qualify                         Regulators                                      data reporting regimes with respect to
                                                  for the end user exception with respect                    Data Reporting Approaches                          swaps, including real time reporting;
                                                  to particular swaps).                                   II. Proposed New Regulations, Part 45                 and enhancing the Commission’s
                                                  DATES: Comments must be received on
                                                                                                             A. Recordkeeping Requirements                      rulemaking and enforcement authorities
                                                                                                             B. Swap Data Reporting                             with respect to, among others, all
                                                  or before February 7, 2011.                                • Swap Creation Data                               registered entities, intermediaries, and
                                                  ADDRESSES: You may submit comments,                        • Swap Continuation Data                           swap counterparties subject to the
                                                  identified by RIN number 3038–AD19,                        C. Unique Identifiers
                                                                                                                                                                Commission’s oversight.
                                                  by any of the following methods:                           • Need for Unique Identifiers
                                                     • Agency Web site, via its Comments                     • Unique Swap Identifiers                          B. Swap Data Provisions of the Dodd-
                                                  Online process: http://                                    • Unique Counterparty Identifiers                  Frank Act
                                                                                                             • Unique Product Identifiers
                                                  comments.cftc.gov. Follow the                              D. Determination of Which Counterparty                To enhance transparency, promote
                                                  instructions for submitting comments                          Must Report                                     standardization, and reduce systemic
                                                  through the Web site.                                      E. Third Party Facilitation of Swap Data           risk, Section 728 of the Dodd-Frank Act
                                                     • Mail: David A. Stawick, Secretary of                     Reporting                                       establishes a newly-created registered
                                                  the Commission, Commodity Futures                          F. Reporting to a Single SDR                       entity—the swap data repository
                                                  Trading Commission, Three Lafayette                        G. Swap Data Reporting for Swaps in Asset          (‘‘SDR’’) 5—to collect and maintain data
                                                  Centre, 1155 21st Street, NW.,                                Classes Not Accepted by Any Swap Data
                                                                                                                Repository                                      related to swap transactions as
                                                  Washington, DC 20581.                                                                                         prescribed by the Commission, and to
                                                                                                             H. Required Data Standards
                                                     • Hand Delivery/Courier: Same as                        Reporting of Errors and Omissions in               make such data electronically available
                                                  mail above.                                                   Previously Reported Data                        to regulators.6
                                                     • Federal eRulemaking Portal: http://                III. Related Matters                                     Section 728 directs the Commission to
                                                  www.regulations.gov. Follow the                            A. Regulatory Flexibility Act                      prescribe standards for swap data
                                                  instructions for submitting comments.                      B. Paperwork Reduction Act                         recordkeeping and reporting.
                                                     All comments must be submitted in                       Cost-Benefit Analysis                              Specifically, Section 728 provides that:
                                                  English, or must be accompanied by an                   Proposed Effective Data
                                                                                                          IV. General Solicitation of Comments                    The Commission shall prescribe standards
                                                  English translation. Contents will be                                                                         that specify the data elements for each swap
                                                                                                          Proposed Rules
                                                  posted as received to http://                              § 45.1 Definitions
                                                  www.cftc.gov. You should submit only                       § 45.2 Swap Recordkeeping                            2 See Dodd-Frank Wall Street Reform and
                                                  information that you wish to make                          § 45.3 Swap Data Reporting                         Consumer Protection Act, Public Law 111–203, 124
                                                  available publicly. If you wish the                        § 45.4 Unique Identifiers                          Stat. 1376 (2010). The text of the Dodd-Frank Act
                                                  Commission to consider information                         § 45.5 Determination of Which                      may be accessed at http://www.cftc.gov./
                                                                                                                                                                LawRegulation/OTCDERIVATIVES/index.htm.
                                                  that may be exempt from disclosure                            Counterparty Must Report                          3 Pursuant to Section 701 of the Dodd-Frank Act,
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                                                  under the Freedom of Information Act,                      § 45.6 Third-Party Facilitation of Data
                                                                                                                                                                Title VII may be cited as the ‘‘Wall Street
                                                  a petition for confidential treatment of                      Reporting                                       Transparency and Accountability Act of 2010.’’
                                                                                                             § 45.7 Reporting to a Single SDR
                                                  the exempt information may be                              § 45.8 Data Reporting for Swaps in a
                                                                                                                                                                  4 7 U.S.C. 1, et seq.
                                                                                                                                                                  5 See also CEA § 1a(40)(E).
                                                  submitted according to the established                        Swap Asset Class Not Accepted by Any              6 Regulations governing core principles and
                                                  procedures in CFTC Regulation 145.9.1                         SDR                                             registration requirements for, and the duties of,
                                                                                                             § 45.9 Required Data Standards                     SDRs are the subject of a separate notice of
                                                    1 Commission regulations referred to herein are          § 45.10 Reporting of Errors and                    proposed rulemaking under Part 49 of the
                                                  found at 17 CFR Ch. 1.                                        Omissions in Previously Reported Data           Commission’s regulations.



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                                                                           Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules                                                    76575

                                                  that shall be collected and maintained by                    must select a counterparty to report the                to trade repositories should consider the
                                                  each registered swap data repository.7                       swap.12                                                 recommendations set out in the forthcoming
                                                  These standards are to apply to both                           In addition, Section 729 provides for                 report of the FSB Data Gaps and Systemic
                                                  registered entities and counterparties                       reporting to the Commission of swaps                    Linkages Group, and consult with the
                                                  involved with swaps:                                         neither cleared nor accepted by any                     Committee on the Global Financial System
                                                    In carrying out [the duty to prescribe data                SDR. Under this provision,                              (CGFS), the Bank for International
                                                  element standards], the Commission shall                     counterparties to such swaps must                       Settlements (BIS), the ODSG and ODRF, to
                                                  prescribe consistent data element standards                  maintain books and records pertaining                   identify the data that should be reported to
                                                  applicable to registered entities and reporting                                                                      trade repositories to enable authorities to
                                                                                                               to their swaps in the manner and for the
                                                  counterparties.8                                                                                                     carry out their respective tasks . * * *
                                                                                                               time required by the Commission, and                    Further, as the data must be able to be readily
                                                    Section 727 of the Dodd-Frank Act
                                                                                                               must make these books and records                       aggregated on a global basis, by end-2011
                                                  requires that each swap, either cleared
                                                                                                               available for inspection by the                         CPSS and IOSCO, in consultation with
                                                  or uncleared, shall be reported to a
                                                                                                               Commission or other specified                           authorities, and with the ODRF, should
                                                  registered SDR. That Section also                            regulators if requested to do so.13 It also
                                                  amends Section 1(a) of the CEA to add                                                                                develop both for market participants
                                                                                                               requires counterparties to such swaps to                reporting to trade repositories and for trade
                                                  the definition of swap data repository:                      provide reports concerning such swaps                   repositories reporting to the public and to
                                                    The term ‘swap data repository’                            to the Commission upon its request, in                  regulators: (i) minimum data reporting
                                                  means any person that collects and                           the form and manner specified by the                    requirements and standardised formats, and
                                                  maintains information or records with                        Commission.14 Such reports must be as                   (ii) the methodology and mechanism for the
                                                  respect to transactions or positions in,                     comprehensive as the data required to                   aggregation of data on a global basis.19
                                                  or the terms and conditions of, swaps                        be collected by SDRs.15
                                                  entered into by third parties for the                                                                                  Standard-Setting for Repositories and
                                                  purpose of providing a centralized                           C. International Developments Affecting                 Data Reporting by CPSS and IOSCO. To
                                                  recordkeeping facility for swaps.9                           Swap Data Reporting                                     fulfill the mandate from FSB noted
                                                  Section 728 also directs the Commission                         An extensive amount of work has                      above, the Committee on Payment and
                                                  to regulate data collection and                              been done in the area of over-the-                      Settlement Systems (‘‘CPSS’’), and the
                                                  maintenance by SDRs.                                         counter (‘‘OTC’’) derivatives reporting,                International Organization of Securities
                                                                                                               both internationally and domestically.                  Commissions (‘‘IOSCO’’), which is
                                                    The Commission shall prescribe data
                                                  collection and data maintenance standards                    The Commission has reviewed and                         recognized as the international standard
                                                  for swap data repositories.10                                considered this work in preparing these                 setting body for securities markets, have
                                                  These standards are to be comparable to                      proposed regulations.                                   formed an OTC Derivatives Regulation
                                                  those for clearing organizations.                               G–20 and FSB. In November 2008, as                   Task Force (‘‘Task Force’’). One purpose
                                                    The [data] standards prescribed by the
                                                                                                               a response to the global economic crisis,               of the Task Force is ‘‘to take a leading
                                                  Commission under this subsection shall be                    the G–20 met in Washington. In                          role in coordinating securities and
                                                  comparable to the data standards imposed by                  September 2009, G–20 Leaders agreed in                  futures regulators’ efforts to work
                                                  the Commission on derivatives clearing                       Pittsburgh to critical elements relating                together in the development of
                                                  organizations in connection with their                       to the reform of OTC oversight,                         supervisory and oversight structures
                                                  clearing of swaps.11                                         including a provision that all ‘‘OTC                    related to derivatives markets,’’ and ‘‘to
                                                    Section 729 of the Dodd-Frank Act                          derivatives contracts should be reported                coordinate other international initiatives
                                                  added to the CEA new Section 4r, which                       to trade repositories.’’ 16                             relating to OTC derivatives
                                                  addresses reporting and recordkeeping                           In October 2010, the Financial                       regulation.’’ 20 Regarding data reporting,
                                                  requirements for uncleared swaps.                            Stability Board (‘‘FSB’’) published a                   the Task Force will produce a data
                                                  Pursuant to this section, each swap not                      report setting out 21 recommendations                   report, scheduled for release in July
                                                  accepted for clearing by any designated                      addressing implementation of G–20                       2011, which:
                                                  clearing organization (‘‘DCO’’) must be                      commitments concerning
                                                                                                               standardization, central clearing,                      sets out, both for market participants
                                                  reported to an SDR (or to the
                                                                                                                                                                       reporting to trade repositories and for trade
                                                  Commission if no repository will accept                      organized platform trading, and
                                                                                                                                                                       repositories reporting to the public and to
                                                  the swap).                                                   reporting to trade repositories (‘‘TRs’’).17            regulators for the purpose of macro- and
                                                    Section 729 ensures that at least one                      The report stated that regulatory                       micro-surveillance: (1) Minimum data
                                                  counterparty to a swap has an obligation                     authorities ‘‘must have full and timely                 reporting requirements and standardised
                                                  to report data concerning that swap. The                     access to the data needed to carry out                  formats; and (2) the methodology and
                                                  determination of this reporting                              their respective mandates.’’ 18 It also                 mechanism for the aggregation of data on a
                                                  counterparty depends on the status of                        provided that:                                          global basis.21
                                                  the counterparties involved. If only one                       Authorities with the legal mandate to set
                                                  counterparty is an SD, the SD is                             requirements for the reporting of transactions          The Commission serves as a Co-Chair of
                                                  required to report the swap. If one                                                                                  the Task Force, and will participate in
                                                  counterparty is an MSP, and the other                          12 See CEA § 4r(a)(3).                                drafting its data report.
                                                                                                                 13 CEA  § 4r(c)(2) requires individuals or entities
                                                  counterparty is neither an SD nor an                         that enter into a swap transaction that is neither        In May 2010, the IOSCO Technical
                                                  MSP (‘‘non-SD/MSP counterparty’’), the                       cleared nor accepted by an SDR to make required         Committee and CPSS issued a
                                                  MSP must report. Where the                                   books and records open to inspection by any             consultative report, Considerations for
                                                  counterparties have the same status—                         representative of the Commission; an appropriate
                                                                                                               prudential regulator; the Securities and Exchange
                                                                                                                                                                       Trade Repositories in OTC Derivatives
                                                  two SDs, two MSPs, or two non-SD–                            Commission; the Financial Stability Oversight           Markets (‘‘CPSS–IOSCO Considerations
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                                                  MSP counterparties—the counterparties                        Council; and the Department of Justice.                 for Trade Repositories’’), that identified
                                                                                                                 14 CEA § 4r(c).

                                                    7 CEA                                                        15 CEA § 4r(d).                                         19 Financial Stability Board, Implementing OTC
                                                            § 21(b)(1)(A).
                                                                                                                 16 G–20 Leaders’ Statement, The Pittsburg
                                                    8 CEA
                                                                                                                                                                       Derivatives Market Reforms: Report of the OTC
                                                            § 21(b)(1)(B).                                     Summit, September 24–25, 2009.                          Derivatives Working Group, October 20, 2010, at 49.
                                                    9 CEA   § 1a(48).                                            17 Financial Stability Board, Implementing OTC          20 IOSCO Technical Committee Task Force On

                                                    10 CEA                                                     Derivatives Market Reforms: Report of the OTC           OTC Derivatives Regulation, Terms of Reference, at
                                                             § 21(b)(2).
                                                                                                               Derivatives Working Group, October 20, 2010.            1–2.
                                                    11 CEA   § 21(b)(3).                                         18 Id. at 1–2.                                          21 Id.




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                                                  76576              Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules

                                                  twelve factors for consideration by trade               OTC derivatives.24 As part of its support              financial futures and options, and to
                                                  repositories and relevant authorities in                for application and implementation of                  foster open, competitive, and financially
                                                  developing more robust data                             standards, the ODRF has developed an                   sound futures and option markets. The
                                                  recordkeeping and reporting                             outline of trade repository functionality              OCC’s primary mission is to charter,
                                                  arrangements for derivatives.22                         that is desired by its members.25 The                  regulate, and supervise all national
                                                  Regarding data reporting and                            outline is designed to document trade                  banks. The OCC supervises the Federal
                                                  recordkeeping, the report emphasizes                    repository attributes that will support                branches and agencies of foreign banks.
                                                  that:                                                   the market transparency and data                       The OCC’s goal in supervising banks is
                                                     [A] trade repository should promptly                 availability objectives set out in the                 to ensure that they operate in a safe and
                                                  record the trade information it receives from           CPSS–IOSCO Considerations for Trade                    sound manner and in compliance with
                                                  its participants. To ensure the accuracy and            Repositories. The outline addresses                    laws requiring fair treatment of their
                                                  currency of data, a trade repository should             types, coverage, quality, and frequency                customers and fair access to credit and
                                                  employ timely and efficient record keeping              of TR data, as well as access to TR data               financial products. The FDIC is an
                                                  procedures to document changes to recorded              and desirable data elements. When                      independent agency created by the
                                                  trade information resulting from subsequent             discussing the frequency of data                       Congress to maintain stability and
                                                  post-trade events. Ideally, a trade repository          reporting to trade repositories, the                   public confidence in the nation’s
                                                  should record to its central registry trade             outline suggests that transaction data in
                                                  information it receives from its participants
                                                                                                                                                                 financial system by: Insuring deposits,
                                                                                                          trade repositories should be updated at                examining and supervising financial
                                                  in real-time, and at a minimum, within one
                                                  business day.23                                         least once per day, such that all                      institutions for safety and soundness
                                                     BIS. The Bank for International                      transaction records can be considered                  and consumer protection, and managing
                                                  Settlements (‘‘BIS’’) is an international               reliable as of the previous day. The OTC               receiverships. The Federal Reserve’s
                                                  organization that fosters international                 Derivatives Supervisors Group (‘‘ODSG’’)               duties fall into four general areas:
                                                  monetary and financial cooperation and                  brings together the prudential                         Conducting the nation’s monetary
                                                  serves as a bank for central banks. It is               supervisors of the major OTC                           policy by influencing the monetary and
                                                  the parent organization of CPSS, which                  derivatives dealers for coordination                   credit conditions in the economy in
                                                  is a BIS standing committee. BIS’s                      among them concerning major industry                   pursuit of maximum employment,
                                                  Coordination Group, a senior group of                   initiatives in the OTC derivatives                     stable prices, and moderate long-term
                                                  supervisory standard setters comprised                  market. The ODSG has worked                            interest rates; supervising and regulating
                                                  of the Chairmen and Secretaries of BIS,                 cooperatively with major industry                      banking institutions to ensure the safety
                                                  IOSCO, and the International                            participants concerning establishment                  and soundness of the nation’s banking
                                                  Association of Insurance Supervisors,                   of trade repositories for several OTC                  and financial system and to protect the
                                                  meets twice annually to allow                           derivatives asset classes.                             credit rights of consumers; maintaining
                                                  supervisory standard setting                            D. Regulatory Needs for Swap Data                      the stability of the financial system and
                                                  organizations to exchange views on                                                                             containing systemic risk that may arise
                                                                                                             The various parts of the U.S. financial             in financial markets; providing financial
                                                  priorities and key issues. BIS also                     sector are regulated by several agencies
                                                  publishes statistics on global banking,                                                                        services to depository institutions, the
                                                                                                          and institutions: the Commodity                        U.S. government, and foreign official
                                                  securities, foreign exchange and                        Futures Trading Commission (‘‘CFTC’’),
                                                  derivatives markets. Its Semiannual                                                                            institutions, including playing a major
                                                                                                          Office of the Comptroller of the                       role in operating the nation’s payments
                                                  Over-the-Counter (OTC) Derivatives                      Currency (‘‘OCC’’), Federal Deposit
                                                  Markets Statistics Report is designed to                                                                       system. The NCUA is the independent
                                                                                                          Insurance Corporation (‘‘FDIC’’), Federal              Federal agency that charters and
                                                  obtain comprehensive and                                Reserve Board of Governors (‘‘FRB’’),
                                                  internationally consistent information                                                                         supervises Federal credit unions. The
                                                                                                          National Credit Union Administration                   mission of the SEC is to protect
                                                  on the size and structure of major                      (‘‘NCUA’’), and Securities and Exchange
                                                  derivatives markets, including                                                                                 investors, maintain fair, orderly, and
                                                                                                          Commission (‘‘SEC’’).                                  efficient markets, and facilitate capital
                                                  information on swaps and options of                        The CFTC’s mission is to protect
                                                  foreign exchange, interest rate, equity                                                                        formation.
                                                                                                          market users and the public from fraud,
                                                  and commodity derivatives. Every three                  manipulation, and abusive practices                       According to their regulatory
                                                  years, this semiannual survey is part of                related to the sale of commodity and                   mandates, the various U.S. financial
                                                  a world-wide exercise concerning                                                                               regulators need different types of
                                                  activity on derivatives markets. For                      24 As the ODRF itself states, ‘‘the Forum is not a   financial information to fulfill their
                                                  these reasons, BIS’s expertise is relevant              legal entity in its own right with its own separate    missions. Systemic risk regulators,
                                                  to data recordkeeping and reporting for                 and independent authority, nor is it a standard        among other things, need data that will
                                                  derivatives.                                            setting body.’’ Rather, the ODRF ‘‘provides mutual     enable them to monitor gross and net
                                                                                                          assistance among the [regulatory] Authorities in
                                                     ODRF and ODSG. The OTC                               carrying out their respective responsibilities with    counterparty exposures, wherever
                                                  Derivative’s Regulators’ Forum                          respect to OTC derivatives CCPs and TRs. In doing      possible, not only on notional volumes
                                                  (‘‘ODRF’’) brings together representatives              so, the Forum acts without prejudice to each           for each contract but also market values,
                                                  from central banks, prudential                          Authority’s statutory duties, and to national and      exposures before collateral, and
                                                                                                          otherwise applicable laws.’’ While the ODRF seeks
                                                  supervisors, securities regulators and                  to promote consistent standards, ‘‘This does not       exposure values net of collateral with a
                                                  market regulators to discuss issues of                  mean that the Forum will develop its own               full counterparty breakdown. Such data
                                                  common interest, regarding central                      standards or provide guidance interpreting             would allow for the calculation of
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                                                  clearing parties (‘‘CCPs’’) and TRs for                 standards, but rather, the Forum supports the          measures that capture counterparty risk
                                                                                                          application and implementation of standards set by
                                                                                                          other bodies in the international regulatory           concentrations both for individual risk
                                                    22 Committee on Payment and Settlement                community.’’ OTC Derivatives Regulators’ Forum,        categories as well as the overall market.
                                                  Systems, and Technical Committee of the                 Scope and Relationship with International Bodies,      Market regulators need data that enables
                                                  International Organization of Securities                March 23, 2010, at 1.                                  them to promote market
                                                  Commissions, Considerations for Trade                     25 ODRF, Outline of Trade Repository
                                                  Repositories in OTC Derivatives Markets:                Functionality Being Sought by Members of the OTC
                                                                                                                                                                 competitiveness and efficiency, protect
                                                  Consultative Report, May 2010.                          Derivatives Regulators’ Forum (version 2), August      market participants against fraud,
                                                    23 Id. at 11.                                         27, 2010.                                              manipulation, and abusive trading


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                                                                     Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules                                            76577

                                                  practices, enforce aggregate speculative                a member of the U.S. Federal Reserve                  support, including account
                                                  position limits as adopted, and ensure                  System, and as a limited purpose trust                management, client sign-up and
                                                  the financial integrity of the clearing                 company by the New York State                         customer service, and other product
                                                  process.                                                Banking Department. All G–14 dealers                  management services. Derivatives
                                                    International financial regulators have               began submitting credit swap data to                  Repository Ltd., the legal company that
                                                  similarly varied data needs. As noted in                DTCC Warehouse in 2009, after they                    runs the EDRR service, is regulated by
                                                  FSB’s Report on Implementing OTC                        committed to reporting all credit swap                the United Kingdom Financial Services
                                                  Derivative Market Reforms:                              trades to a repository.                               Authority (‘‘UK FSA’’).
                                                    The breadth and depth of information                     In addition to receiving and
                                                                                                                                                                  Existing Repository Data Access.
                                                  needed by authorities varies according to               maintaining swap data, the Warehouse
                                                                                                                                                                Access to data in the existing
                                                  their respective mandates and may continue              is substantially focused on providing a
                                                                                                                                                                repositories requires a Memorandum of
                                                  to evolve over time. Such mandates and                  number of other services to swap
                                                  objectives include, (i) assessing systemic risk
                                                                                                                                                                Understanding between the primary
                                                                                                          counterparties. It calculates payments
                                                  and financial stability; (ii) conducting market                                                               regulator of a repository and any
                                                                                                          on all confirmed CDS contracts and
                                                  surveillance and enforcement; (iii)                                                                           competent financial regulatory authority
                                                                                                          creates real-time bilateral nets for each
                                                  supervising market participants; and (iv)                                                                     that requires the data for regulatory
                                                                                                          currency.29 The Warehouse supports
                                                  conducting resolution activities.26                                                                           purposes.
                                                     When expanding on the level of data                  trade processing associated with events
                                                  that must be collected to satisfy these                 of default, such as bankruptcy, failure to            F. Consultations With Other U.S.
                                                  regulatory functions, the Report                        pay and restructuring that may trigger                Financial Regulators
                                                  addresses both transaction level data                   pay-outs for the buyer of the credit
                                                                                                          protection for the underlying reference                 In developing the swap data
                                                  and portfolio level data. Regarding
                                                                                                          entity of the credit derivative. Its                  recordkeeping and reporting rule,
                                                  transaction level data, the Report says:
                                                                                                          automated event processing includes                   Commission staff has engaged in
                                                     Authorities must be able to retrieve                 coupon payment recalculations, and                    extensive consultations with U.S.
                                                  transaction event (flow) data at different              calculation of credit event recovery and              domestic financial regulators. The
                                                  levels of granularity, from aggregate statistics
                                                                                                          rebate amounts based on auction results,              agencies and institutions consulted
                                                  to transaction level information. TRs must
                                                  collect and maintain data at a high level of            automated exit of the transactions for                include the Federal Reserve Board of
                                                  details. Transaction event data must preserve           single-named trades exhausted by the                  Governors (including the Federal
                                                  information on the original terms of the                credit event, factor adjustment and re-               Reserve Bank of New York), Federal
                                                  transaction that is complete as practical and           versioning to new identification for                  Deposit Insurance Corporation, Office of
                                                  possible, and includes, for example,                    affected index transactions.                          the Comptroller of Currency, Securities
                                                  preserving the underlying reference, trading               Interest Rate Swaps Repository. In                 and Exchange Commission, and the
                                                  counterparties, price, and the time and date            January 2010, TriOptima launched the                  Department of the Treasury.
                                                  of the original transactions.27                         Global OTC Derivatives Interest Rate                  Commission staff welcomes and will
                                                    Regarding portfolio level data, the                   Trade Reporting Repository (‘‘TriOptima               continue consultations with these and
                                                  Report states that:                                     Interest Rate Repository’’ or ‘‘TriOptima             other U.S. agencies and institutions
                                                     TRs should collect data to enable                    IRTRR’’), after being selected by the                 while working on the final version of
                                                  monitoring of gross and net counterparty                Rates Steering Committee of the                       the rule.
                                                  exposures where possible, not only on                   International Swaps and Derivatives
                                                  notional volumes for each contract but also             Association (‘‘ISDA’’) to provide a trade             G. Consultations With International
                                                  market values, exposures before collateral,             repository to collect information on                  Financial Regulators
                                                  and exposure value net of collateral with a             trades in the interest rate derivatives
                                                  full counterparty breakdown. This would                                                                          In developing the swap data
                                                                                                          market. The TriOptima IRTRR is
                                                  allow for the calculation of measures that                                                                    recordkeeping and reporting rule,
                                                                                                          regulated by the Swedish Financial
                                                  capture counterparty risk concentration both                                                                  Commission staff has had extensive
                                                  for individual risk categories as well as the
                                                                                                          Supervisory Authority. TriOptima is
                                                                                                                                                                consultations with numerous
                                                  overall market.28                                       also a provider of post-trade services for
                                                                                                                                                                international financial regulators and
                                                                                                          OTC derivatives, including portfolio
                                                                                                                                                                organizations. The international
                                                  E. Existing Trade Repositories                          reconciliation and compression.
                                                                                                             Equity Swaps Repository. The newest                organizations and institutions consulted
                                                     Currently there are global trade                     existing trade repository is DTCC’s                   have included the European
                                                  repositories for credit, interest rate, and             Equity Derivatives Reporting Repository               Commission (‘‘EC’’), European Central
                                                  equity derivatives, in various stages of                (‘‘EDRR’’), launched on August 5, 2010.               Bank (‘‘ECB’’), Committee of European
                                                  maturity and development.                               EDRR is designed to hold key position                 Securities Regulators (‘‘CESR’’), FSB
                                                     Credit Swaps Repository. The oldest                  data, including product types, notional               Data Gaps and Systemic Linkages Group
                                                  and most fully developed of the three                   value, open trade positions, maturity                 (‘‘DGSLG’’), UK FSA, and financial
                                                  existing trade repositories is the current              and currency denomination for                         regulators from India, Brazil, and
                                                  repository for credit swaps, the                        transactions, and counterparty type                   Canada, as well as IOSCO and the
                                                  Depository Trust & Clearing                             indicators. Equity derivatives that EDRR              ODRF. Commission staff welcomes and
                                                  Corporation’s (‘‘DTCC’s’’) Trade                        plans to support initially include equity             will continue consultations with these
                                                  Information Warehouse (‘‘DTCC                           swaps, dividend swaps, variance swaps,                and other international agencies,
                                                  Warehouse’’ or ‘‘Warehouse’’). It is                    portfolio swaps, and swaptions, among                 institutions and organizations while
                                                  operated by a DTCC subsidiary, The                                                                            working on the final version of the rule.
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                                                                                                          other categories. DTCC’s MarkitSERV
                                                  Warehouse Trust Company, LLC, which                     subsidiary will provide operational
                                                  is registered as a bank and regulated as                                                                      H. Data Reporting Approaches

                                                    26 Financial
                                                                                                            29 For currency swaps involving foreign exchange      Two Conceptual Approaches to Swap
                                                                  Stability Board, Implementing OTC       (sometimes called FX swaps), DTCC also provides
                                                  Derivatives Market Reforms: Report of the OTC
                                                                                                                                                                Data Reporting. Conceptually, there are
                                                                                                          central, automated settlement of payments for
                                                  Derivatives Working Group, October 20, 2010, at 47.     contracts processed through the Warehouse’s
                                                                                                                                                                two distinct approaches to swap data
                                                    27 Id. at 48.
                                                                                                          Central Settlement Service, in partnership with CLS   reporting. One is commonly referred to
                                                    28 Id.                                                Bank International.                                   as a life-cycle or event flow approach,


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                                                  76578              Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules

                                                  and the other is a state or snapshot                    minimization of time and cost by                         Illustration of the State or Snapshot
                                                  approach.                                               automating payment calculations and                   Approach. The TriOptima Interest Rate
                                                     The life cycle approach is focused on                providing bilateral netting of payments               Repository, currently the only
                                                  managing the flow of an information                     for firms participating in the                        centralized, global repository for OTC
                                                  system’s data throughout the life cycle                 Warehouse; increased efficiency                       interest rate derivatives contracts, uses
                                                  of the flow from creation and initial                   through streamlining of the trade                     the state or snapshot approach to data
                                                  storage to the time when it becomes                     adherence process for life cycle events;              reporting for interest rate swaps. The
                                                  obsolete. Sometimes called an event                     and reduction of risk by handling all                 TriOptima IRTRR collects transaction
                                                  flow approach, the life cycle method                    credit events and successor events                    data on interest rate derivatives from
                                                  records the details of a swap at its                    identically for each participant, in the              market participants and provides
                                                  inception, and thereafter records                       same time frame and with the same                     regulators with monthly reports
                                                  individual events that affect the terms of              deadlines.                                            summarizing outstanding trade volumes
                                                  the swap, when they occur. Systems                         DTCC itself recognizes that the life               and gross notionals as well as currency
                                                  based on the life-cycle data reporting                  cycle approach is not the optimum                     breakdown and maturity profiles by
                                                  approach typically are based on, or                     approach for all asset classes, and that              product type. It holds information for all
                                                  interrelated with, operational                          it often involves ancillary services not              types of both cleared and non-cleared
                                                  infrastructure for other functions, such                part of the core function of a repository.            OTC derivatives interest rate
                                                  as central credit event processing, legal               In responding to the CPSS–IOSCO                       transactions.
                                                  recordkeeping, settlement services, etc.                Considerations for Trade Repositories,                   TriOptima cites a number of benefits
                                                     The state or snapshot approach is                    DTCC agreed with comments made by a                   of using the state or snapshot approach
                                                  based on a report of all of the primary                 European Commission staff working                     for interest rate swaps. One is that this
                                                  economic terms of a swap at its                         paper that highlighted the different                  approach allows the repository to have
                                                  inception, followed by a daily update of                fundamental natures of the OTC                        complete and up-to-date records at all
                                                  the current state of the swap which                     derivatives asset classes.30 Due to these             times for all live contracts to which the
                                                  incorporates all the changes that have                  fundamental asset class differences,                  counterparties are legally bound
                                                  happened to the swap since the                          DTCC said, it should be recognized that:              (whether or not full legal confirmation—
                                                  previous snapshot. This approach also                                                                         which can take weeks—has occurred).
                                                  maintains daily synchronization and                        Therefore, for other asset classes (such as
                                                                                                          interest rates, equity derivatives,                   Such swap data comprehensiveness is a
                                                  reconciliation of the data in a repository              commodities, etc.) the nature of the products         key consideration for systemic risk
                                                  with the data of the reporting swap                     will dictate the overall operational                  monitoring. Another is that the state or
                                                  counterparty. Unlike the life cycle                     infrastructure. For example, life cycle credit        snapshot approach avoids a need to
                                                  approach, the state or snapshot                         events are only relevant to CDSs.                     specify and prescribe all of the events
                                                  approach does not require specifying                       DTCC therefore agrees that repository
                                                                                                          services that fall broadly under (1) position
                                                                                                                                                                that would need to be recorded by a
                                                  and prescribing the various events that
                                                                                                          recording, (2) data cleansing, [and] (3)              repository. TriOptima notes that this
                                                  require updating of data in a repository.
                                                     While both approaches are viable                     reporting to regulators, the public and               would be extremely difficult for interest
                                                  methods of data collection, one can be                  participant firms should be provided on a             rate swaps—in contrast to credit swaps
                                                  more efficient than the other in different              global basis for each OTC asset class. The            where the list of life cycle events is
                                                  assets classes, due to differences
                                                                                                          stated goals of a repository—‘‘to foster              clearly established—due to the wide
                                                                                                          transparency, thus supporting the efficiency,         variety of different types of interest rate
                                                  between asset classes in terms of market                stability of and orderly functioning (i.e.
                                                  structure and market processes. While a                                                                       swaps, including ‘‘bespoke’’ swaps
                                                                                                          avoidance of abusive behavior) of financial           tailored to the specific needs of non-SD/
                                                  life-cycle approach is an efficient and                 markets’’—are readily achieved through these
                                                  effective method of data processing for                 services.
                                                                                                                                                                MSP counterparties (including end
                                                  credit swaps, and may also be suitable                     However, DTCC does not believe it is               users), and to ongoing interest rate swap
                                                  for equity swaps, a state or snapshot                   appropriate to extend the definition of a             product innovation. Provision of a daily
                                                  approach maybe more appropriate for                     repository to encompass the aspects of Asset          snapshot also ensures that the swap data
                                                  interest rate swaps, commodity swaps,                   Services (including legal record keeping) and         in the repository is reconciled and
                                                  and currency swaps.                                     Settlement Services that the TIW (Trade               synchronized each day with the
                                                                                                          Information Warehouse) provides to the CDS            reporting counterparty’s internal
                                                     Illustration of the Life Cycle                       market. These additional services are
                                                  Approach. The DTCC Warehouse,                                                                                 systems, which improves the quality of
                                                                                                          provided in addition to the trade repository          data in the repository through
                                                  currently the only centralized global                   and are complementary to it, as opposed to
                                                  repository for OTC credit derivatives                   being an integral part.31
                                                                                                                                                                interfacing with the reporting
                                                  contracts, follows the life cycle                                                                             counterparty’s risk management
                                                                                                             In contrast to the DTCC Warehouse,                 systems.32
                                                  approach to data reporting. The
                                                                                                          which offers a full suite of repository
                                                  Warehouse supports the trade                                                                                  II. Proposed New Regulations, Part 45
                                                                                                          and life cycle event processing services,
                                                  processing associated with events of
                                                                                                          the DTCC Equity Derivatives Reporting                 A. Recordkeeping Requirements
                                                  default, including bankruptcy, failure to
                                                                                                          Repository offers only position
                                                  pay, restructuring, and other life cycle                                                                        The Commission’s existing
                                                                                                          recording and reporting services. This
                                                  credit events which may trigger payouts                                                                       requirements for recordkeeping with
                                                                                                          aligns with the industry’s primary focus
                                                  for the buyer of credit protection for the                                                                    respect to futures and options are found
                                                                                                          in developing this repository.
                                                  underlying reference entity that is the                                                                       in Sections 5(b) and 5(d) of the CEA;
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                                                  subject of the credit swap.                                30 European Commission Staff Working Paper         §§ 1.31 and 1.35 of the Commission’s
                                                     DTCC cites several benefits of using a               Accompanying the Commission Communication             Regulations; Appendix B to Part 38 of
                                                  life cycle approach for credit swaps.                   ‘‘Ensuring Efficient, Safe and Sound Derivatives      the Commission’s Regulations, Core
                                                  These benefits include greater control                  Markets (SEC 2009) 905 final, 3 July                  Principle 17, Recordkeeping; and
                                                  over payment processing, by providing                   2009).
                                                                                                             31 Depository Trust & Clearing Corporation,        Appendix A to Part 39 of the
                                                  an automated way for participants to                    Response by The Depository Trust & Clearing
                                                  start or stop automatic calculation of                  Corporation to the CPSS–IOSCO Consultative              32 See TriOptima Letter to the Commodity

                                                  coupon payments for a specific trade;                   Report, June 22, 2010, at 8.                          Futures Trading Commission, October 26, 2010.



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                                                                     Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules                                                  76579

                                                  Commission’s Regulations, Core                          (‘‘SEFs’’), SDs, and MSPs must keep full,              approach also effectuates a policy
                                                  Principle K, Recordkeeping.                             complete, and systematic records,                      choice made by Congress in Dodd-Frank
                                                  Collectively, these provisions establish                together with all pertinent data and                   to place lesser burdens on non-SD/MSP
                                                  recordkeeping requirements for all                      memoranda, of all activities relating to               counterparties to swaps, where this can
                                                  designated contract markets (‘‘DCMs’’),                 the business of such entities or persons               be done without damage to the
                                                  DCOs, futures commission merchants                      with respect to swaps. For all such                    fundamental systemic risk mitigation,
                                                  (‘‘FCMs’’), introducing brokers (‘‘IBs’’),              entities and swap counterparties, these                transparency, standardization, and
                                                  and members of contract markets. Each                   requirements would include, without                    market integrity purposes of the
                                                  such entity or person is generally                      limitation, records of all data required to            legislation. The Commission requests
                                                  required to keep full and complete                      be reported in connection with any                     comment concerning whether it should
                                                  records, together with all pertinent data               swap.
                                                                                                             The proposed regulations would                      adopt a phase-in approach for
                                                  and memoranda, of all activities relating
                                                  to the business of the entity or person                 require that all records required to be                recordkeeping requirements by non-SD/
                                                  that is subject to the Commission’s                     kept by DCOs, DCMs, SEFs, SDs, MSPs,                   MSP counterparties.
                                                  authority. All such records must be kept                and non-SD/MSP counterparties must                        Because of the importance of swap
                                                  for a period of five years from the date                be kept throughout the existence of the                data held in SDRs to all of the various
                                                  of the record, and must be readily                      swap and for five years following final                regulatory functions of financial
                                                  accessible during the first two years of                termination of the swap.34 Records                     regulators across the U.S. financial
                                                  the five-year period. Copies of all such                required to be kept by DCOs, DCMs,                     sector and internationally, the proposed
                                                  records must be provided, at the                        SEFs, SDs, and MSPs would be required                  regulations would require that all
                                                  expense of the person required to keep                  to be readily accessible by the registered             records required to be kept by SDRs
                                                  the records, upon request by any                        entity or person in question via real                  must be kept by the SDR both: (a)
                                                  representative of the Commission or the                 time electronic access throughout the                  Throughout the existence of the swap
                                                  Department of Justice.                                  life of the swap and for two years
                                                                                                                                                                 and for five years following final
                                                     The Commission believes that the                     following the final termination of the
                                                                                                                                                                 termination or expiration of the swap,
                                                  rationale for requiring Commission                      swap, and retrievable within three
                                                  registrants to keep all records relating to             business days through the remainder of                 during which time the records must be
                                                  the business involved must also govern                  the required retention period.                         readily accessible by the SDR and
                                                  recordkeeping with respect to swaps by                     Non-SD/MSP counterparties,                          available to the Commission via real
                                                  registered entities and swap                            including counterparties who qualify as                time electronic access; and (b)
                                                  counterparties. Such records are                        end users counterparties pursuant to                   thereafter, for a period determined by
                                                  essential to carrying out the regulatory                Section 2(h)(7) of the CEA with respect                the Commission, in archival storage
                                                  functions of not only the Commission                    to particular swaps, would be required                 from which they are retrievable by the
                                                  but all other financial regulators, and for             to keep full, complete, and systematic                 SDR within three business days. The
                                                  appropriate risk management by                          records, including all pertinent data and              Commission believes that SDR records
                                                  registered entities and swap                            memoranda, with respect to each swap                   must be readily accessible via real time
                                                  counterparties themselves. The need for                 in which they are a counterparty. Each                 electronic access throughout the
                                                  such records is also recognized                         such record would be required to be                    existence of the swap and for five years
                                                  internationally. As CPSS has noted:                     retrievable by the counterparty within                 following final termination or expiration
                                                     [I]t should be clear that the data recorded          three business days during the required                of the swap in order to make effective
                                                  in a TR [trade repository] cannot be a                  retention period.                                      the statutory mandate that SDRs must
                                                  substitute for the records of transactions at              The proposed rules would place                      ‘‘provide direct electronic access to the
                                                  original counterparties. Therefore, it is               lesser recordkeeping requirements on                   Commission (or any designee of the
                                                  important that even where TRs have been                 non-SD/MSP counterparties than on SD
                                                  established and used, market participants                                                                      Commission including another
                                                                                                          or MSP counterparties or registered                    registered entity.’’ 35 Regarding the
                                                  maintain their own records of the                       entities because the Commission
                                                  transactions that they are a counterparty to                                                                   length of the additional period,
                                                  and reconcile them with their counterparties            understands that non-SD/MSP
                                                                                                                                                                 commencing five years after final
                                                  or TRs on an ongoing basis (including for               counterparties are less likely than other
                                                                                                                                                                 termination or expiration of a swap,
                                                  their own risk management purposes).33                  counterparties or registered entities to
                                                                                                          have appropriate systems in place for                  during which an SDR must keep swap
                                                     A swap can continue to exist for a                                                                          records in archival storage, the
                                                  substantial period of time prior to its                 this purpose, and that the number of
                                                                                                          swaps in which they are counterparties                 Commission notes that the ODRF has
                                                  final termination or expiration. During                                                                        called for trade repositories to ‘‘retain
                                                  this time, which in some cases can                      is likely to be smaller than the
                                                                                                          corresponding number for SDs or MSPs.                  historical data for an indefinite
                                                  extend for many years, the key                                                                                 period.’’ 36 The Commission seeks
                                                  economic terms of the swap can change.                  The Commission believes that this
                                                                                                                                                                 comment concerning whether SDRs
                                                  Thus, recordkeeping requirements with                     34 The Commission is aware that the European         should be required to keep swap data in
                                                  respect to a swap must necessarily cover                Commission’s Proposal for a REGULATION OF              archival storage in perpetuity, or
                                                  the entire period of time during which                  THE EUROPEAN PARLIAMENT AND OF THE                     whether a limited term in years should
                                                  the swap exists, as well as an                          COUNCIL on OTC derivatives, central
                                                  appropriate period following final                      counterparties, and trade repositories, SEC(2010)      be required, and, if so, what archival
                                                  termination or expiration of the swap.                  1058 and 1059, September 15, 2010, would require       storage period should be required.
                                                                                                          retention of records concerning swaps for ten years
                                                     Accordingly, the Commission’s                                                                                  The proposed regulations would also
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                                                                                                          following final termination of a swap. The
                                                  proposed regulations establishing                       Commission is proposing to require record              require that all records required to be
                                                  general swap recordkeeping                              retention for five years following final termination   kept pursuant to the regulations must be
                                                  requirements would require that all                     of a swap because it believes that a ten-year post-
                                                                                                          termination retention period may not be necessary
                                                  DCOs, DCMs, swap execution facilities                   for regulatory purposes, and could possibly impose
                                                                                                                                                                   35 Dodd-Frank  § 728, CEA § 21(c)(4)(A).
                                                                                                                                                                   36 ODRF,  Outline of Trade Repository
                                                                                                          an undue burden and costs on registered entities
                                                    33 Committee on Payment and Settlement                and swap counterparties. The Commission requests       Functionality Being Sought by Members of the OTC
                                                  Systems, Considerations for Trade Repositories in       comment concerning the appropriate length of the       Derivatives Regulators’ Forum (version 2), August
                                                  OTC Derivatives Markets, May 2010, at 1.                required post-termination retention period.            27, 2010, at 2.



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                                                  76580              Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules

                                                  open to inspection upon request by any                  Accordingly, the Commission believes                      have a single agreed-upon term for this
                                                  representative of the Commission, the                   that swap data reporting should include                   verification process, which is variously
                                                  Department of Justice, or the SEC, or by                data from each of two important stages                    called affirmation, matching, or
                                                  any representative of a prudential                      of the existence of a swap: The creation                  confirmation of primary economic
                                                  regulator as authorized by the                          of the swap, and the continuation of the                  terms. By whatever name, the proposed
                                                  Commission. The registered entity or                    swap over its existence until its final                   regulation would require that all of the
                                                  swap counterparty involved would be                     termination or expiration.38                              terms of the swap thus verified by the
                                                  required to provide copies to the                         Swap Creation Data Reporting: Two                       counterparties be reported to an SDR.
                                                  Commission, at the expense of the                       Sets of Data. With regard to the creation                   Minimum primary economic terms
                                                  registered entity or swap counterparty                  of a swap, the proposed regulation calls                  data. In order to ensure that the array
                                                  involved, either by electronic means, in                for reporting of two sets of data                         of primary economic terms reported to
                                                  hard copy, or both, as requested by the                 generated in connection with creation of                  an SDR for a swap is sufficient in each
                                                  Commission.                                             the swap: Primary economic terms data,                    case for regulatory purposes, the
                                                    As referenced in the proposed                         and confirmation data.                                    proposed regulations would require that
                                                  regulations, in addition to the general                   Primary Economic Terms Data. The                        the primary economic terms reported
                                                  recordkeeping requirements discussed                    primary economic terms of a swap                          must include, at a minimum, all of the
                                                  above, specific recordkeeping                           include all of the terms of the swap                      data elements listed by the Commission
                                                  requirements are being proposed in the                  verified or matched by the                                in the table of data elements for a swap
                                                  Commission’s other proposed                             counterparties at or shortly after the                    of the asset class involved, found in
                                                  rulemakings concerning SDRs, DCOs,                      execution of the swap. Such terms can                     Appendix 1 to Part 45.40 The tables in
                                                  DCMs, SEFs, SDs, MSPs, and non-SD/                      differ not only for swaps in different                    Appendix 1 to Part 45 are designed to
                                                  MSP counterparties.                                     swap asset classes, but also for                          include data elements that reflect
                                                    The Commission requests comment                       standardized versus non-standardized                      generic economic terms and conditions
                                                  on all aspects of the proposed                          swaps. For swaps executed on a SEF or                     common to most standardized products
                                                  recordkeeping requirements. The                         DCM, the primary economic terms will                      in the asset class in question.41 They
                                                  Commission specifically requests                        be those specified in the contract listed                 reflect the focus of required reporting of
                                                  comment on the following aspects of the                 on the platform in question. For non-                     primary economic terms data on the
                                                  requirements:                                           standardized or bespoke swaps executed                    basic nature and essential economic
                                                    • The necessity, for risk management and              bilaterally, primary economic terms are                   terms of the product involved, and are
                                                  other business purposes, of the records                 typically far less standardized.                          provided in order to ensure to the extent
                                                  required to be kept;                                    However, counterparties verify the                        possible that most such essential terms
                                                    • The length of time the records are                  primary or essential economic terms of                    are included when required primary
                                                  required to be kept by DCOs, DCMs, SEFs,                their swap with each other in some                        economic terms are reported for each
                                                  SDs, MSPs, and non-SD/MSP counterparties;               fashion following execution in the case                   swap. The proposed regulations are
                                                  the technology with which the records can be            of every swap.39 The industry does not                    designed to capture the additional,
                                                  kept, any burden created by this requirement,
                                                  and the usefulness of the records in question           be publicly disseminated in a manner that protects        is willing to enter into the deal, the trade is
                                                  over the time required;                                 anonymity. See CEA §§ 2(a)(13)(C)(iii) and                executed. Typically, the trade is then captured by
                                                    • The length of time the records are                  2(a)(13)(E)(i).                                           the SD’s deal capture system, which will validate
                                                  required to be kept by SDRs, the technology                It is also important to note that the Commission       all the necessary trade economics. An
                                                  with which the records would be kept, any               intends to establish data recordkeeping and               acknowledgement is sent to the counterparty with
                                                  burden created by this requirement, and the             reporting requirements for ‘‘transitional swaps’’ in a    the trade details, and the counterparty either agrees
                                                  usefulness of the records in question over the          separate rulemaking. ‘‘Transitional swap’’ means a        or disagrees with those details.
                                                  time required;                                          swap executed on or after the date of enactment of           40 When the final regulations are published, the
                                                                                                          the Dodd-Frank Act (i.e., July 21, 2010) and before       Commission intends to publish such tables in a
                                                    • Whether records should be required to
                                                                                                          the effective date of the final rule issued pursuant      separate Federal Register release, which will be
                                                  be kept by DCOs, DCMs, SEFs, SDs, MSPs,                 to this present rulemaking. CEA Section 2(h)(5)           referenced in the final regulations. This procedure
                                                  and non-SD/MSP counterparties for ten years             Reporting Transition Rules provides that ‘‘Swaps          is intended to allow the Commission to update the
                                                  following final termination of a swap rather            entered into on or after [the] date of enactment [of      tables from time to time, in response to swap
                                                  than five years; and                                    the Dodd-Frank Act] shall be reported to a                market developments, without a need to issue new
                                                    • The requirement that records be                     registered swap data repository or the Commission         regulations. The Commission requests comment
                                                  accessible in real time for the periods                 no later than the later of (i) 90 days after [the]        concerning this approach, including comments on
                                                  required in the proposed regulation.                    effective date [of Section 2(h)(5)] or (ii) such other    its possible utility, benefits, or drawbacks; on
                                                                                                          time after entering into the swap as the Commission       whether the data tables should instead be published
                                                    • Whether the Commission should adopt a
                                                                                                          may prescribe by rule or regulation.’’ The                as an Appendix to the final regulations; and on
                                                  phase-in approach to recordkeeping                      Commission anticipates that the rulemaking for            whether the data tables should be published in
                                                  requirements for non-SD/MSP                             transitional swaps will address the records,              some other fashion.
                                                  counterparties.                                         information and data regarding transitional swaps            41 On December 22, 2008, the FDIC published in
                                                                                                          that must be retained and the timeframe for               the Federal Register a final rule, effective January
                                                  B. Swap Data Reporting                                  reporting such information to the SDR or the              21, 2009, that established recordkeeping
                                                    Swap Data Reporting from Two Stages                   Commission.                                               requirements for ‘‘qualified financial contracts’’ held
                                                                                                             38 The proposed regulation uses the terms ‘‘swap
                                                  of a Swap’s Existence. The Commission                                                                             by insured depository institutions in a ‘‘troubled
                                                                                                          creation data’’ and ‘‘swap continuation data’’ to refer   condition.’’ Recordkeeping Requirements for
                                                  believes that it is important for                       to these two stages in the life of a swap, instead of     Qualified Financial Contracts, 12 CFR part 371, RIN
                                                  fulfillment of the purposes of Dodd-                    referring to these stages as, for example, the            3064–AD30, December 22, 2008. Both terms are
                                                  Frank to ensure that complete data                      ‘‘execution’’ and ‘‘life cycle’’ of a swap, in order to   defined in the rule. Upon written notification by
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                                                                                                          avoid the confusion that could result from the fact       FDIC, such an institution is required by the rule to
                                                  concerning swaps is maintained in                       that those and other commonly used terms do not           produce certain data required by the FDIC over a
                                                  SDRs and available to regulators.37                     have universally accepted definitions and are used        period specified by the FDIC. The Commission
                                                                                                          in different ways by different people in the              requests comment on whether it should incorporate
                                                     37 It is important to note that the reporting        derivatives marketplace.                                  the recordkeeping and data reporting requirements
                                                  requirements addressed in this proposed                    39 For example, in the case of a swap involving        in this FDIC rule in its final data reporting rules,
                                                  rulemaking are separate from the public reporting       an SD, the SD’s front office is where the trade starts.   in its internal business conduct rules, or in other
                                                  of swap transactions requirements found in CEA          The order is placed, and the SD will price the swap       rules swap-related rules promulgated by the
                                                  § 2(a)(13)(A) through (F), commonly called real time    and give the quote to the counterparty. If the            Commission, and, if so, on how such requirements
                                                  reporting. Real time reporting requires swap data to    counterparty agrees to the details of the trade and       should be incorporated.



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                                                                        Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules                                                    76581

                                                  unique features of particular swaps in                    futures and option contracts but also for              counterparties to the swap the accuracy
                                                  the asset class in question through                       economically equivalent swaps, if the                  of the data that was submitted.’’ 43 The
                                                  required reporting of confirmation data,                  Commission’s proposed rules titled                     goal of ensuring the highest possible
                                                  which will include reporting of all                       ‘‘Position Reports for Physical                        degree of swap data accuracy is shared
                                                  terms of each swap.                                       Commodity Swaps’’ become final.42 In                   internationally, as noted in the
                                                     In addition to the tables included in                  order to decrease potential burdens on                 statement included in the FSB Report
                                                  Appendix 1 to Part 45, Appendix 2 to                      persons that could be subject to the                   Implementing OTC Derivatives Market
                                                  Part 45 contains a Master Reference                       requirement to file position reports                   Reforms that ‘‘authorities should ensure
                                                  Generic Data Fields List, which includes                  under those proposed rules (should they                that market participants report and TRs
                                                  data elements that the Commission                         become final), the Commission requests                 collect and provide data of the highest
                                                  believes could be relevant for                            comment on whether certain aspects of                  reliability practicable * * *’’ 44
                                                  standardized swaps in some or all swap                    the proposed position reports should be                   Who Reports Swap Creation Data.
                                                  asset classes. The Commission requests                    a part of data reporting to SDRs.                      Under the proposed regulations,
                                                  comment on whether any of the data                           Confirmation data. The second set of                determination of who must report
                                                  fields in this Master Reference Generic                   data generated in connection with the                  required swap creation data is based on
                                                  Data Fields List should be included in                    creation of a swap and required by the                 two criteria. The first criterion is
                                                  one or more of the Tables of Required                     proposed regulations to be reported is                 whether the swap is (1) executed on a
                                                  Minimum Primary Economic Terms                            confirmation data. The proposed                        SEF or DCM and cleared on a DCO;
                                                  Data for specific swap asset classes, or                  rulemaking defines ‘‘confirmation’’ as                 (2) executed on a SEF or DCM but not
                                                  in the Minimum Valuation Data table,                      the full, signed, legal confirmation by                cleared; (3) not executed on a SEF or
                                                  that are included in Appendix 1 to                        the counterparties of all of the terms of              DCM but cleared on a DCO; or (4) not
                                                  Part 45.                                                  a swap, and defines ‘‘confirmation data’’              executed on a SEF or DCM and not
                                                     The minimum primary economic                           as all of the terms of a swap matched                  cleared. The second criterion is whether
                                                  terms data elements listed in the tables                  and agreed upon by the counterparties                  the reporting counterparty (as
                                                  in Appendix 1 to Part 45 include futures                  in confirming the swap. The proposed                   determined according to § 45.5) is an SD
                                                  contract equivalent data fields. The                      regulations would require reporting of                 or MSP, or instead is a non-SD/MSP
                                                  rationale for including those fields is the               confirmation data, in addition to the                  counterparty. Using these two criteria to
                                                  statutory mandate to the Commission to                    earlier reporting of primary economic                  determine who reports is intended to
                                                  promulgate regulations to limit the                       terms data, in order to help ensure the                streamline and simplify the data
                                                  amount of positions, other than bona                      completeness and accuracy of the data                  reporting approach, by calling for
                                                  fide hedge positions, that may be held                    maintained in an SDR with respect to a                 reporting of each set of swap creation
                                                  by any person with respect to                             swap. Reporting of the terms of the                    data by the registered entity or
                                                  commodity futures and option contracts                    confirmation, which has the assent of                  counterparty that has the easiest, fastest,
                                                  in exempt and agricultural                                both counterparties, provides a means of               and cheapest access to the set of data in
                                                  commodities. The Commission would                         fulfilling the statutory directive that an             question. The results of this approach
                                                  require position data for not only                        SDR ‘‘shall confirm with both                          are shown in the following table:

                                                                                                             REPORTING OF SWAP CREATION DATA
                                                                                         Executed on a platform          Executed on a platform            Not executed on a plat-         Not executed on a plat-
                                                     Reporting counterparty                   and cleared                   and not cleared                   form and cleared              form and not cleared

                                                  SD or MSP ........................   SEF/DCM (primary eco-            SEF (primary economic            SD/MSP (primary eco-             SD/MSP (primary eco-
                                                                                        nomic terms).                     terms).                          nomic terms).                    nomic terms).
                                                                                       DCO (confirmation) ...........   SD/MSP (confirmation) .....      DCO (confirmation) ...........   SD/MSP (confirmation).
                                                  Non-SD/MSP Counterparty              SEF/DCM (primary eco-            SEF (primary economic            Non-SD/MSP (primary              Non-SD/MSP (primary
                                                                                        nomic terms).                     terms).                          economic terms).                 economic terms).
                                                                                       DCO (confirmation) ...........   Non-SD/MSP (confirma-            DCO (confirmation) ...........   Non-SD/MSP (confirma-
                                                                                                                          tion).                                                            tion).



                                                    Who Reports Primary Economic                            DCM. The proposed regulations                          terms data for the swap to an SDR in
                                                  Terms Data. For a swap executed on a                      therefore call for the SEF or DCM to                   electronic form.
                                                  SEF or DCM, the Commission                                report the required primary economic                     Who Reports Confirmation Data. For
                                                  anticipates that the swap contract                        terms data for the swap to an SDR in                   cleared swaps, confirmation data will be
                                                  certification process conducted by the                    electronic form.45 In the case of a swap               generated by DCOs in the course of the
                                                  SEF or DCM will define all or most of                     not executed on a SEF or DCM, primary                  normal clearing process. The proposed
                                                  the primary economic terms of the                         economic terms data will be created by                 regulations thus call for DCOs to report
                                                  swap, and that all or most of the                         the counterparties’ verification of the                confirmation data for all cleared swaps
                                                  required primary economic terms data                      primary economic terms of the swap.                    to the appropriate SDR in electronic
                                                  for the swap will be created, in                          The proposed regulations therefore call                form. For non-cleared swaps,
jlentini on DSKJ8SOYB1PROD with PROPOSALS3




                                                  electronic form, on the electronic                        for the reporting counterparty (as                     confirmation will be done by the
                                                  platform by virtue of execution of the                    defined in the proposed regulations) to                counterparties, in many cases with the
                                                  swap contract offered by the SEF or                       report the required primary economic                   assistance of a third-party confirmation
                                                    42 75   FR 67258 (November 2, 2010).                      44 FSB, Implementing OTC Derivatives Market          proposed regulations also contain a ‘‘catch-all’’
                                                    43 CEA   § 21(c)(2).                                    Reforms: Report of the OTC Derivatives Working         clause requiring the reporting counterparty to report
                                                                                                            Group, October 20, 2010, at 47.                        any required primary economic terms data not
                                                                                                              45 To ensure that no required primary economic
                                                                                                                                                                   reported by the SEF or DCM.
                                                                                                            terms data goes unreported in any circumstance, the



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                                                  76582                Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules

                                                  service provider. The proposed                            Report Implementing OTC Derivatives                  of the primary economic terms of the
                                                  regulations therefore would require the                   Market Reforms states:                               swap occur electronically or manually.
                                                  reporting counterparty to report                            [A]uthorities (i) should ensure that TRs are          Based on discussions with industry
                                                  confirmation data for each uncleared                      established to collect and maintain                  participants, the Commission believes
                                                  swap.                                                     comprehensive OTC derivative transaction             that required primary economic terms
                                                     Time of Reporting for Primary                          data; and (ii) must require market                   data would be available relatively
                                                  Economic Terms Data. Dodd-Frank does                      participants to report all OTC transactions,         quickly for a swap for which execution
                                                  not specify the timeframes for reporting                  both centrally cleared and non-centrally             and verification of primary economic
                                                  of swap data to SDRs for regulatory                       cleared accurately and in a timely manner to
                                                                                                            TRs (or in exceptional circumstances, to
                                                                                                                                                                 terms occur electronically, because in
                                                  purposes (as opposed to real time                                                                              many cases all of the required data
                                                  reporting). However, to further the                       relevant authorities). Where transactions are
                                                                                                            centrally cleared or otherwise terminated            would already be in an electronic
                                                  objectives of Dodd-Frank regarding                        early, reporting to TRs also must capture and        format. The Commission understands
                                                  systemic risk mitigation, transparency of                 preserve information on the original terms of        that the majority of swaps, which are
                                                  the entire swaps market to regulators,                    the transaction.47                                   likely to have an SD or MSP as the
                                                  and enhanced market surveillance and                                                                           reporting counterparty, are likely to fall
                                                  position limit monitoring, the                               It would also be undesirable to have
                                                                                                            all reporting of required swap creation              into this category.
                                                  Commission believes it is important that                                                                          Conversely, the Commission is aware
                                                  swap data be reported to SDRs either                      data for cleared swaps done by DCOs,
                                                                                                            because such a limitation could have                 that, where execution and verification of
                                                  immediately following execution of the
                                                                                                            anti-competitive effects. Dodd-Frank                 primary economic terms do not occur
                                                  swap—the point of time at which the
                                                                                                            explicitly permits DCOs to register as               electronically—a situation which may
                                                  counterparties become irrevocably
                                                                                                            SDRs.48 However, the statute does not                occur more frequently for the relatively
                                                  bound by contract under applicable
                                                                                                            limit SDR registration to DCOs, and it               small number of swaps between non-
                                                  law—or within a short but reasonable
                                                                                                            contemplates free market competition                 SD/MSP counterparties, including end
                                                  time following execution, rather than
                                                                                                            between registered SDRs on a level                   users—additional time may be needed
                                                  waiting until the time that full, signed,
                                                                                                            playing field (as the existence of its               to put the required data into an
                                                  legal confirmation by the counterparties
                                                                                                            antitrust provisions makes clear).49 If              electronic format.
                                                  of all terms (not just the primary
                                                  economic terms) of the swap is                            Commission regulations directed that all                Accordingly, the proposed regulation
                                                  completed.46 Requiring reporting only                     reporting of swap creation data for                  would require reporting counterparty to
                                                  at or after the time when full legal                      cleared swaps was to be done by DCOs,                report required primary economic terms
                                                  confirmation is completed, rather than                    this could give DCOs a competitive                   data promptly, but in no event later
                                                  at the time (shortly after execution)                     advantage in comparison with other                   than:
                                                  when verification of the primary                          non-DCO SDRs, since non-DCO SDRs                        • 15 minutes after execution of a swap for
                                                  economic terms of the swap occurs,                        would not be able to offer data reporting            which execution and verification of primary
                                                  could encourage counterparties to delay                   to an SDR as part of a possible bundling             economic terms occur electronically;
                                                  full legal confirmation in order to delay                 of services to customers. The proposed                  • 30 minutes after execution of a swap
                                                                                                            regulations are designed to ensure fair              which is not executed electronically but for
                                                  the reporting of a swap. In addition, the                                                                      which verification of primary economic
                                                  Commission has been informed by                           competition in the provision of SDR
                                                                                                                                                                 terms occurs electronically; or
                                                  various existing trade repositories, third                services.                                               • In the case of a swap for which neither
                                                  party service providers, and swap                            Primary Economic Terms Reporting                  execution nor verification of primary
                                                  counterparties (notably including non-                    Time for Swaps Executed on a SEF or                  economic terms occurs electronically, within
                                                  SD/MSP counterparties) that full legal                    DCM. In the case of swaps executed on                a time after execution of the swap to be
                                                  confirmation of a swap currently can                      a SEF or DCM, where the platform                     determined by the Commission prior to
                                                  take weeks or even months in an                           possess the necessary primary economic               promulgation of its final data reporting
                                                                                                            terms data in electronic form at the time            regulations.50
                                                  appreciable number of cases.
                                                     Allowing the first report of swap data                 of execution, the Commission believes                  The Commission believes that
                                                  concerning a swap to come from a DCO                      that required primary execution data                 requiring reporting of required primary
                                                  following clearing, or from a                             should be reported to an SDR by the                  economic terms data by a reporting
                                                  counterparty following full legal                         SEF or DCM electronically, as soon as                counterparty within 15 minutes of a
                                                  confirmation, would result in reporting                   technologically practicable following                swap’s execution would be appropriate
                                                  delays that the Commission does not                       execution of the swap.                               for a swap for which execution and
                                                  believe are desirable. Without reporting                     Primary Economic Terms Reporting                  verification of primary economic terms
                                                  of primary economic terms data shortly                    Time for Swaps Not Executed on a SEF                 occur electronically, because data for
                                                  following execution of a swap,                            or DCM. With respect to swaps not                    such a swap could easily be put into the
                                                  regulators examining SDR data for                         executed on a SEF or DCM, where                      necessary electronic format if it is not in
                                                  regulatory purposes in many cases                         reporting of required primary economic               such a format already.
                                                  would not see the swap in question for                    terms data will be done by the reporting               The Commission also believes that,
                                                  hours or in some cases nearly an entire                   counterparty, the Commission                         for a swap which is not executed
                                                  day (if initial reporting followed                        recognizes that the amount of time                   electronically but for which verification
                                                  clearing), or even for days or weeks (if                  needed for reporting could vary                      of primary economic terms occurs
                                                  initial reporting followed full legal                     depending on, among other things, the                electronically, the reporting
                                                  confirmation). This lack of complete                      extent to which the swap is
jlentini on DSKJ8SOYB1PROD with PROPOSALS3




                                                                                                                                                                 counterparty could need additional time
                                                  swap data would frustrate fundamental                     standardized, and whether execution of               for reporting. The Commission believes
                                                  purposes of financial reform, recognized                  the swap and verification by the parties             that 30 minutes would be a sufficient
                                                  not only by Congress in passing Dodd-
                                                  Frank, but internationally. As the FSB                      47 FSB, Implementing OTC Derivatives Market          50 The Commission requests comment concerning
                                                                                                            Reforms: Report of the OTC Derivatives Working       the appropriate deadline for reporting of required
                                                    46 Proposed § 45.1(c) defines ‘‘confirmation’’ as the   Group, October 20, 2010, at 44 (emphasis added).     primary economic terms data in the case of a swap
                                                                                                              48 Dodd-Frank § 728, CEA § 21(a)(1)(B).
                                                  full, signed, legal confirmation by the                                                                        for which neither execution nor verification of
                                                  counterparties of all of the terms of a swap.               49 See CEA § 21(f)(1).                             primary economic terms occurs electronically.



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                                                                     Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules                                           76583

                                                  amount of time, because the required                       • In the case of a swap for which                  imposition of an undue burden on swap
                                                  primary economic terms data for such a                  confirmation was done manually rather                 market participants. The Commission is
                                                  swap would have been put into                           than electronically, within a time to be              also aware of the work already done by
                                                  electronic form for verification of                     determined by the Commission prior to                 the industry with respect to credit swap
                                                  primary economic terms, which would                     promulgation of its final data reporting              data reporting using the life cycle
                                                  not require a significant amount of                     regulations.51                                        approach, and of the fact that the
                                                  manual intervention.                                       Swap Continuation Data Reporting.                  existing global trade repository for
                                                     Finally, since required primary                      As noted earlier, the Commission                      credit swaps, the DTCC Warehouse,
                                                  economic terms data with respect to a                   believes that it is important to fulfilling           uses the life cycle approach. The
                                                  swap for which neither execution nor                    the purposes of Dodd-Frank to ensure                  Commission believes that the life cycle
                                                  verification of primary economic terms                  that complete data concerning swaps is                approach may be appropriate for the
                                                  occurs electronically would not likely                  maintained in SDRs and available to                   credit swap asset class, and to an extent
                                                  be already in electronic format, and                    regulators. This requires reporting of                for the equity swap asset class, due to
                                                  could require a significant amount of                   data from the continuation of a swap                  their market structure, market processes,
                                                  manual intervention, the Commission                     over its existence from the time it is                and present degree of product
                                                  believes that additional time would be                  created until its final termination or                standardization.
                                                  needed for reporting. The Commission                    expiration.                                              State or Snapshot Approach for
                                                  believes that 24 hours would be a                          Two Approaches to Swap                             Interest Rate Swap, Currency Swap, and
                                                  sufficient amount of time to enable such                Continuation Data Reporting. Swap                     Other Commodity Swap Asset Classes.
                                                  reporting while still making data for the               continuation data reporting can follow                In light of the work already done by the
                                                  swap available to regulators without                    either of the two conceptual approaches               industry with respect to data reporting
                                                  undue delay, based on conversations                     to data reporting discussed above: the                in the other swap asset classes—notably
                                                  with industry representatives.                          life cycle or event flow approach, or the             the interest rate swap asset class—using
                                                     Time of Reporting for Confirmation                   state or snapshot approach. As                        the state or snapshot approach, and in
                                                  Data. The proposed regulations follow                   previously noted, while both                          light of the fact that the existing global
                                                  similar principles for the reporting of                 approaches are viable methods of data                 trade repository for interest rate swaps,
                                                  required confirmation data. For swaps                   collection, one can be more efficient                 the TriOptima Interest Rate Repository,
                                                  cleared on a DCO, where the DCO                         than the other in different assets classes,           uses the state or snapshot approach, the
                                                  possesses the necessary confirmation                    due to differences between asset classes              proposed regulations define the swap
                                                  data in electronic form at the time the                 in terms of market structure and market               continuation data required to be
                                                  swap is cleared, the Commission                         processes. With respect to swap                       reported for interest rate swaps,
                                                  believes that required confirmation data                continuation data reporting, the life                 currency swaps, and other commodity
                                                  should be reported to an SDR by the                     cycle approach involves managing the                  swaps in terms of the state or snapshot
                                                  DCO electronically, as soon as                          flow of an information system’s data                  approach. The Commission believes that
                                                  technologically practicable following                   throughout the data’s life cycle from                 this approach may be better suited to
                                                  the clearing of the swap. With respect to               creation and initial storage to the time              these asset classes, due to their market
                                                  swaps not cleared on a DCO, where                       when it becomes obsolete, while the                   structure, market processes, and present
                                                  reporting of required confirmation data                 state or snapshot approach involves a                 degree of product standardization.
                                                  will be done by the reporting                           daily update of the current state of the                 One reason for this is that the
                                                  counterparty, the Commission                            swap which incorporates all the changes               Commission understands that the
                                                  recognizes that the amount of time                      that have happened to the swap since                  interest rate swap, currency swap, and
                                                  needed for reporting could vary,                        the previous snapshot.                                other commodity swap asset classes
                                                  depending on whether the reporting                         Life Cycle Approach for Credit Swap                involve numerous and widely varying
                                                  counterparty is an SD or MSP or                         and Equity Swap Asset Classes. The                    types of derivatives products and a
                                                  conversely is a non-SD/MSP                              proposed regulations define the swap                  considerable degree of innovation and
                                                  counterparty, and depending on                          continuation data required to be                      change with regard to instrument types.
                                                  whether confirmation is done                            reported for credit and equity swaps in               Swaps in these asset classes are often
                                                  electronically (via the automated                       terms of the life cycle approach, in part             tailored to the specific needs of
                                                  systems of a third-party confirmation                   because the Commission understands                    non-SD/MSP counterparties including
                                                  service provider or of an SD or MSP                     that the life cycle approach is likely to             end users. Thus, it would be very
                                                  counterparty), or is done manually with                 be followed in the SEC’s proposed                     difficult, if not impossible, to enumerate
                                                  a resulting need to put the confirmation                regulations concerning swap data                      all of the events that would need to be
                                                  terms into an electronic format for                     reporting for security-based swaps in                 reported during the continuation of
                                                  confirmation reporting purposes.                        these asset classes. The Commission                   such swaps. This situation contrasts, for
                                                     Accordingly, the proposed regulations                believes that, to the extent possible, a              example, with the situation prevailing
                                                  would require a DCO to report required                  unified approach to the reporting of                  in the credit swap asset class, where a
                                                  confirmation data for a cleared swap                    swap data over the existence of swaps                 greater degree of standardization exists.
                                                  electronically, as soon as                              in asset classes where the SEC and the                   Another reason why the state or
                                                  technologically practicable following                   Commission share jurisdiction may                     snapshot approach may be better suited
                                                  clearing of the swap. In the case of an                 serve the public interest, by avoiding                to the interest rate swap, currency swap,
                                                  uncleared swap, the proposed                            imposition of differing reporting                     and other commodity swap asset classes
jlentini on DSKJ8SOYB1PROD with PROPOSALS3




                                                  regulations would require the reporting                 requirements for security-based and                   is that in the life cycle or event flow
                                                  counterparty to report required                         non-security-based swaps in the same                  approach, reporting counterparties must
                                                  confirmation data electronically, making                asset class, and thus avoiding                        be able to generate messages to the SDR
                                                  such a report promptly following                                                                              not only for all relevant life cycle
                                                  confirmation, but in no event later than:                 51 The Commission requests comment concerning
                                                                                                                                                                events, but also for correction of errors
                                                     • 15 minutes after confirmation of a                 the appropriate deadline for reporting of required    and omissions in previously submitted
                                                                                                          confirmation data in the case of a swap for which
                                                  swap for which confirmation occurs                      confirmation was done manually rather than            data. Such messages must be tracked
                                                  electronically; or                                      electronically.                                       between reporting counterparties and


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                                                  76584              Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules

                                                  the SDR. This can create a need for                     swap until its final termination or                     Valuation Data Reporting for Swaps
                                                  manual intervention and produce                         expiration, of ‘‘life cycle event data’’,             in All Swap Asset Classes. Valuation
                                                  information backlog. It also creates a                  defined as all of the data elements                   data is defined in the proposed
                                                  need to reconcile data between the SDR                  necessary to fully report any life cycle              regulations to mean all of the data
                                                  and the reporting counterparty’s                        event, or any adjustment due to a life                elements necessary for a person to
                                                  internal systems to ensure that all                     cycle event, that results in a change to              determine the current market value of a
                                                  events have been captured correctly in                  data previously reported for the swap in              swap, including, without limitation,
                                                  the SDR’s data. These problems are                      question. The proposed regulations                    daily margin, daily mark-to-market, and
                                                  exacerbated in the case of asset classes                define ‘‘life cycle event’’ to mean any               other measures of valuation to be
                                                  with relatively less standardization of                 event that would result in a change in                determined by the Commission prior to
                                                  swap terms. By contrast, the state or                   the data previously reported to an SDR
                                                                                                                                                                promulgation of its final swap data
                                                  snapshot approach eliminates the need                   in connection with the swap, including,
                                                                                                                                                                reporting regulations. Swap valuation
                                                  to specify and require reporting of all of              without limitation, a counterparty
                                                  the individual life cycle events that                   change resulting from an assignment or                data is essential to a variety of the
                                                  require updating of SDR data, since the                 novation; a partial or full termination of            regulatory functions of many financial
                                                  current state of all of the primary                     the swap; a change in the cash flows                  regulators, and is crucial to fulfillment
                                                  economic terms of all existing swaps is                 originally reported; for a credit swap or             of fundamental purposes of Dodd-Frank,
                                                  submitted daily to the SDR. This daily                  equity swap that is not cleared, any                  including systemic risk reduction and
                                                  snapshot ensures that SDR data is                       change to the collateral agreement; or a              increased transparency of the
                                                  reconciled with a reporting                             corporate action affecting a security or              derivatives marketplace to regulators.
                                                  counterparty’s internal systems on a                    securities on which the swap is based                 The Commission and other regulators
                                                  daily basis, and provides automatic                     (e.g., a merger, dividend, stock split, or            would use valuation information
                                                  daily corrections of errors and                         bankruptcy).                                          regarding swaps reported to SDRs for
                                                  omissions in previously submitted data.                    Contract-Intrinsic Data Reporting for              prudential oversight, to monitor
                                                     The daily snapshot also ensures that                 Credit Swaps and Equity Swaps. For the                potential systemic risk, and to monitor
                                                  SDR data is continually refreshed by the                purpose of required continuation data                 compliance with regulatory
                                                  data contained in the risk management                   reporting for credit swaps and equity                 requirements for SDs and MSPs. The
                                                  systems of reporting counterparties,                    swaps, the proposed regulations would                 importance of reporting swap valuation
                                                  who for business reasons normally                       also require reporting, throughout the                data to SDRs is recognized
                                                  devote considerable resources to                        existence of a swap until its final                   internationally. The FSB Report
                                                  ensuring data correctness. Leveraging                   termination or expiration, of ‘‘contract-
                                                                                                                                                                Implementing OTC Derivatives Market
                                                  the data quality assurance processes of                 intrinsic event data,’’ defined as all of
                                                                                                                                                                Reforms provides that:
                                                  reporting counterparties in this way can                the data elements necessary to fully
                                                  provide significant benefits in terms of                report any contract-intrinsic event with                 TRs should collect data to enable
                                                  the accuracy of swap data resident in                   respect to the swap in question. The                  monitoring of gross and net counterparty
                                                  SDRs.                                                   proposed regulations define ‘‘contract-               exposures, wherever possible, not only on
                                                     Finally, the state or snapshot                       intrinsic event’’ to mean a scheduled,                notional volumes for each contract but also
                                                  approach eliminates the need for a                      anticipated event occurring during the                market values, exposures before collateral,
                                                  complex array of exception management                   existence of a swap that does not result              and exposure value net of collateral with a
                                                  messages, and reduces the reporting                     in any change to the contractual terms                full counterparty breakdown. This would
                                                  burden for reporting counterparties by                  of the swap, including, without                       allow for the calculation of measures that
                                                  permitting the systems of reporting                     limitation, the scheduled expiration of a             capture counterparty risk concentrations both
                                                  counterparties to submit one basic type                 swap, or a previously described and                   for individual risk categories as well as for
                                                  of message, the daily snapshot of                       anticipated interest rate adjustment.                 the overall market.52
                                                  updated primary economic terms. The                        State Data Snapshot Reporting for
                                                  greater technological simplicity thus                   Interest Rate Swaps, Currency Swaps,                    Accordingly, the proposed regulations
                                                  permitted can be a significant benefit                  and Other Commodity Swaps. For the                    would require reporting of valuation
                                                  where non-SD/MSP counterparties                         purpose of required continuation data                 data for swaps in all five asset classes.
                                                  (including end users) are concerned.                    reporting for interest rate swaps,                       Who Reports Swap Continuation
                                                     Four Sets of Swap Continuation Data.                 currency swaps, and other commodity                   Data. Under the proposed regulations,
                                                  For the above reasons, with regard to the               swaps, the proposed regulations would                 determination of who must report
                                                  continuation of a swap, the proposed                    require reporting of all ‘‘state data’’ for           required swap continuation data is
                                                  regulations would call for reporting of                 the swap, reported daily throughout the               based on two criteria. The first criterion
                                                  four sets of data generated in connection               existence of the swap until its final                 is whether or not the swap is cleared on
                                                  with the continuation of the swap: (1)                  termination or expiration. The proposed               a DCO. The second criterion is whether
                                                  Life cycle data for credit swaps and                    regulations define ‘‘state data’’ to mean
                                                                                                                                                                the reporting counterparty (as provided
                                                  equity swaps; (2) contract-intrinsic data               all of the data elements necessary to
                                                                                                                                                                in the proposed regulations) is an SD or
                                                  for credit swaps and equity swaps; (3)                  provide a snapshot view, on a daily
                                                                                                          basis, of all of the primary economic                 MSP, or instead is a non-SD/MSP
                                                  daily state data for interest rate swaps,
                                                  currency swaps, and other commodity                     terms of a swap, including any changes                counterparty. Using these two criteria to
                                                                                                                                                                determine who reports is intended to
jlentini on DSKJ8SOYB1PROD with PROPOSALS3




                                                  swaps; and (4) valuation data for swaps                 to such terms since the last snapshot.
                                                  in all five swap asset classes.                         The proposed regulations also require                 streamline and simplify the data
                                                     Life Cycle Event Data Reporting for                  that, at a minimum, this data must                    reporting approach, by calling for
                                                  Credit Swaps and Equity Swaps. For the                  include all of the economic terms                     reporting of each set of swap
                                                  purpose of required continuation data                   reflected in the appropriate table of data
                                                  reporting for credit swaps and equity                   elements for a swap of the asset class                  52 FSB, Implementing OTC Derivatives Market
                                                  swaps, the proposed regulations require                 involved. These tables can be found in                Reforms: Report of the OTC Derivatives Working
                                                  reporting, throughout the existence of a                Appendix 1 to Part 45.                                Group, October 20, 2010, at 48.



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                                                                        Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules                                                      76585

                                                  continuation data by the registered                         easiest, fastest, and cheapest access to                of this approach are shown in the
                                                  entity or counterparty that has the                         the set of data in question. The results                following table:

                                                                                                            REPORTING OF SWAP CONTINUATION DATA
                                                                                                            Credit and equity asset classes                          Interest rate, currency, and other commodity
                                                                                                                                                                                      asset classes
                                                      Reporting counterparty
                                                                                                        Cleared                            Not cleared                         Cleared                    Not cleared

                                                  SD or MSP ............................   DCO (life-cycle data) ............   SD/MSP (life-cycle data) ......    SD/MSP (state snapshot              SD/MSP (state
                                                                                                                                                                    data).                              snapshot data).
                                                                                           SD/MSP (intrinsic data) ........     SD/MSP (intrinsic data) ........   DCO and SD/MSP (valuation           SD/MSP (valu-
                                                                                                                                                                    data).                              ation data).
                                                                                           DCO and SD/MSP (valuation            SD/MSP (valuation data).
                                                                                            data).
                                                  Non-SD/MSP Counterparty ...              DCO (life-cycle data) ............   Non-SD/MSP (life-cycle data)       Non-SD/MSP (state snap-             Non-SD/MSP
                                                                                                                                                                     shot data).                         (state snapshot
                                                                                                                                                                                                         data).
                                                                                           Non-SD/MSP (intrinsic data)          Non-SD/MSP (intrinsic data).
                                                                                           DCO (valuation data) ............    Non-SD/MSP (valuation              DCO (valuation data) ............   Non-SD/MSP
                                                                                                                                  data).                                                                 (valuation
                                                                                                                                                                                                         data).



                                                     Who Reports Life Cycle Event Data                        types of valuation data.53 Therefore, for               possession on a daily basis. Where the
                                                  and Contract-Intrinsic Event Data. For a                    each cleared swap, the proposed                         reporting counterparty for such a swap
                                                  credit swap or equity swap cleared on                       regulations would call for both the DCO                 is an SD or MSP, the proposed
                                                  a DCO, the Commission understands                           and the reporting counterparty to report                regulations would require the SD or
                                                  that the DCO will possess information                       valuation data. For uncleared swaps in                  MSP to report all valuation data in its
                                                  in electronic form concerning some life                     all five swap asset classes, the only                   possession on a daily basis. The
                                                  cycle events required to be reported                        source of valuation data will be a                      Commission understands that DCOs and
                                                  over the existence of the swap, due to                      counterparty. Accordingly, for each                     SD or MSP reporting counterparties are
                                                  its status as a central counterparty,                       uncleared swap, the proposed                            likely to have the automated system
                                                  while the swap counterparty (as defined                     regulations would call for the reporting                capacity necessary for such daily
                                                  in the proposed regulations) will                           counterparty to report valuation data.                  reporting. The Commission also
                                                  possess information concerning other                           Time of Reporting for Life Cycle and
                                                                                                                                                                      understands that, as of the effective date
                                                  life cycle events. The proposed                             Contract-Intrinsic Event Data. For credit
                                                                                                              swaps and equity swaps, whether                         of the final swap data reporting
                                                  regulations therefore call for the DCO to                                                                           regulations, non-SD/MSP reporting
                                                  report required life cycle event data in                    cleared or uncleared, the proposed
                                                                                                              regulations would require that life cycle               counterparties may not have a
                                                  its possession, and for the reporting                                                                               comparable level of automated system
                                                  counterparty to report life cycle event                     event data must be reported on the same
                                                                                                              day in which any life cycle event                       capacity. Accordingly, where the
                                                  data in its possession. For a credit swap                                                                           reporting counterparty for such a swap
                                                  or equity swap that is not cleared, the                     occurs, while contract-intrinsic event
                                                                                                              data must be reported on the same day                   is a non-SD/MSP counterparty, the
                                                  proposed regulations call for the                                                                                   proposed regulations would call for the
                                                  reporting counterparty to report all                        in which any contract-intrinsic event
                                                                                                              occurs.                                                 reporting counterparty to report all
                                                  required life cycle event data and all                                                                              valuation data in its possession at times
                                                                                                                 Time of Reporting for a Daily
                                                  contract-intrinsic event data.                                                                                      to be determined by the Commission
                                                                                                              Snapshot of State Data. For interest rate
                                                     The Commission understands that                          swaps, currency swaps, and other                        prior to its adoption of final swap data
                                                  contract-intrinsic event data, which                        commodity swaps, whether cleared or                     reporting regulations. The Commission
                                                  involves anticipated events such as                         uncleared, the proposed regulations                     requests comment concerning the time
                                                  scheduled adjustments, will be available                    would require that all required state                   intervals necessary and appropriate for
                                                  to, and known in advance by, the                            data for the swap be reported daily                     reporting of valuation data by non-SD/
                                                  reporting counterparty. The proposed                        through the existence of the swap until                 MSP counterparties, and concerning
                                                  regulations thus require the reporting                      its final termination or expiration.                    whether the Commission should adopt
                                                  counterparty to report all required                            Time of Reporting for Valuation Data.                a phase-in approach to valuation data
                                                  contract-intrinsic event data for all                       For each swap (regardless of asset class)               reporting by non-SD/MSP
                                                  credit swaps or equity swaps.                               cleared on a DCO, the proposed                          counterparties.
                                                     Who Reports a Daily Snapshot of                          regulations would require the DCO to
                                                                                                              report all valuation data in its                           Swap Asset Classes and Other Swap
                                                  State Data. For an interest rate swap,                                                                              Classifications. For the purpose of the
                                                  currency swap, or other commodity                             53 As noted earlier, the proposed regulations         proposed regulations, a swap would be
                                                  swap cleared on a DCO, the proposed
jlentini on DSKJ8SOYB1PROD with PROPOSALS3




                                                                                                              define ‘‘valuation data’’ as including ‘‘other          classified as belonging to one of five
                                                  regulations require the reporting                           measures of valuation as determined by the              swap asset classes, including: (1) Credit
                                                  counterparty to report all required state                   Commission’’ in addition to specified valuation
                                                                                                                                                                      swaps; (2) currency swaps (including
                                                  data, on a daily basis.                                     measures. The Commission is requesting comment
                                                                                                              concerning what other measures of valuation of a        FX swaps and their variations); (3)
                                                     Who Reports Valuation Data. For                          swap should be required to be reported to an SDR.       equity swaps; (4) interest rate swaps;
                                                  cleared swaps in all five swap assets                       The Commission’s eventual determination as to           and (5) other commodity swaps. The
                                                                                                              what other measures of valuation should be
                                                  classes, both the DCO and the reporting                     required may affect what valuation data must be         proposed regulations would define
                                                  counterparty may possess different                          reported by a DCO or by a reporting counterparty.       these swap asset classes as follows.


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                                                  76586               Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules

                                                     ‘‘Credit swap’’ means any swap that is                asset swaps are those that do not have                MSP counterparties? Should the time
                                                  primarily based on instruments of                        one easily identifiable primary                       required differ according to these
                                                  indebtedness, including, without                         underlying notional item within the                   categories?
                                                  limitation: Any swap primarily based on                  Commission’s jurisdiction. The                           • What is the appropriate time delay
                                                  one or more broad-based indices related                  Commission requests comment                           for reporting of confirmation terms by
                                                  to instruments of indebtedness: Any                      concerning how such swaps should be                   (1) SDs, (2) MSPs, and (3) non-SD/MSP
                                                  swap that is an index credit swap or                     treated with respect to swap data                     counterparties? Should the time
                                                  total return swap on one or more indices                 reporting, and concerning the category                required differ according to these
                                                  of debt instruments.                                     or categories under which swap data for               categories?
                                                     ‘‘Currency swap’’ means any swap                      such swaps should be reported to SDRs                    • Is there sufficient industry
                                                  which is primarily based on rates of                     and maintained by SDRs.                               infrastructure in place to support the
                                                  exchange between different currencies,                      Requests for Comment. The                          life cycle data reporting approach for
                                                  changes in such rates, or other aspects                  Commission requests comment on all                    credit and equity swaps?
                                                  of such rates. This category includes                    aspects of the proposed data reporting                   • Is it appropriate to use the life cycle
                                                  foreign exchange swaps as defined in                     regulation and the definitions associated             approach to swap data reporting for
                                                  CEA Section 1a(25).54                                    with it. The Commission specifically                  credit swaps, or for equity swaps? Why
                                                     ‘‘Equity swap’’ means any swap that is                requests comment on the following                     or why not?
                                                  primarily based on equity securities,                    questions relating to this proposed                      • Is it appropriate to use the daily
                                                  including, without limitation: any swap                  regulation.                                           snapshot of state data approach to swap
                                                  primarily based on one or more broad-                       • Is the separation of reporting                   data reporting for interest rate, currency
                                                  based indices of equity securities; any                  counterparties into two categories (SD                and commodity swaps? Why or why
                                                  total return swap on one or more equity                                                                        not?
                                                                                                           or MSP, versus non-SD/MSP
                                                  indices.                                                                                                          • Is there currently infrastructure in
                                                                                                           counterparty) appropriate, and does it
                                                     ‘‘Interest rate swap’’ means any swap                                                                       place to support alternative approaches
                                                                                                           further the purposes described?                       for data reporting for credit, equity,
                                                  which is primarily based on one or more                     • Is the second criterion for swap
                                                  reference rates, such as swaps of                                                                              interest rate, currency and commodity
                                                                                                           creation data—division of swaps into                  swaps?
                                                  payments determined by fixed and                         four categories depending on whether
                                                  floating rates.                                                                                                   • Is the definition of ‘‘multi-asset
                                                                                                           they are platform executed and cleared                swap’’ appropriate? Why or why not?
                                                     ‘‘Other commodity swap’’ means any                    or not—appropriate?
                                                  swap not included in the credit swap,                                                                             • For the purposes of the data
                                                                                                              • Should the Commission take the                   recordkeeping and reporting rule,
                                                  currency swap, equity swap, or interest                  internal recordkeeping systems of SDs
                                                  rate swap categories, including, without                                                                       should a multi-asset swap be reported
                                                                                                           and MSPs into account as it does in the               within any of the following categories:
                                                  limitation, any swap for which the                       proposed regulation?
                                                  primary underlying item is a physical                                                                          credit swaps, equity swaps, currency
                                                                                                              • Is the concept of primary economic               swaps, commodity swaps, or interest
                                                  commodity or the price or any other                      terms data, as defined, inclusive enough
                                                  aspect of a physical commodity.                                                                                rate swaps? What criteria should govern
                                                                                                           to capture all of the primary economic                this determination?
                                                     ‘‘Asset class’’ means the particular
                                                  broad category of goods, services or
                                                                                                           terms of a swap upon execution?                          • Should a separate procedure be
                                                                                                              • What are the benefits or drawbacks               established for reporting of multi-asset
                                                  commodities underlying a swap. The                       of required reporting of primary
                                                  asset classes include interest rate,                                                                           swaps?
                                                                                                           economic terms data? Will such                           • Should the Commission require
                                                  currency, credit, equity, other                          reporting serve to verify the accuracy of             that, for multi-asset swaps, reporting
                                                  commodity, and such other asset classes                  swap execution data?                                  counterparties must report all required
                                                  as may be determined by the                                 • Will the required reporting of                   swap data in each asset class involved?
                                                  Commission.                                              confirmation data to an SDR, after the                   • Should a separate procedure be
                                                     In addition, the Commission                                                                                 established for reporting of mixed
                                                                                                           reporting of primary economic terms
                                                  anticipates that some swaps subject to                                                                         swaps?
                                                                                                           data to the SDR, help enable the SDR to
                                                  its jurisdiction may belong to two other                                                                          • Is the list of swap asset classes all-
                                                                                                           satisfy the statutory requirement to
                                                  swap categories: mixed swaps, and                                                                              inclusive and appropriately defined?
                                                                                                           confirm with both counterparties to the
                                                  multi-asset swaps. Generally, a mixed                                                                          Why or why not?
                                                                                                           swap the accuracy of the data and
                                                  swap is in part a security-based swap                                                                             • Should a phase-in approach be used
                                                                                                           information submitted?
                                                  subject to the jurisdiction of the SEC                                                                         for the time of reporting of confirmation
                                                                                                              • Should back-office confirmation be
                                                  and in part a swap belonging to one of                                                                         by non-SD/MSP counterparties?
                                                                                                           an acceptable means of confirming a
                                                  the swap asset classes subject to the
                                                                                                           swap?                                                    • Should a separate collateral
                                                  jurisdiction of the Commission.55 Multi-                                                                       warehouse system be established as part
                                                                                                              • What is the proper way to report
                                                                                                           bunched (block) orders that are                       of an SDR to enable systemic risk and
                                                     54 CEA § 1a(25) provides that: ‘‘The term ‘foreign
                                                                                                           allocated to ultimate owners after                    prudential regulators to monitor
                                                  exchange swap’ means a transaction that solely
                                                  involves—(A) an exchange of 2 [sic] different            execution?                                            collateral management and gross
                                                  currencies on a specific date at a fixed rate that is       • What is the appropriate time delay               exposure on a portfolio level for swap
                                                  agreed upon on the inception of the contract
                                                                                                           for reporting of primary economic terms               participants? How should this be done?
                                                  covering the exchange; and (B) a reverse exchange
                                                                                                           by (1) SDs, (2) MSPs, and (3) non-SD/                    • Should a separate master agreement
                                                  of the 2 [sic] currencies described in subparagraph                                                            library system be established as part of
jlentini on DSKJ8SOYB1PROD with PROPOSALS3




                                                  (A) at a later date and at a fixed rate that is agreed
                                                  upon on the inception of the contract covering the       of indebtedness, indices, quantitative measures,
                                                                                                                                                                 an SDR? How should this be done?
                                                  exchange.’’                                              other financial or economic interest or property of      • In what asset class should cross-
                                                     55 Dodd-Frank defines ‘‘mixed swap’’ as follows:      any kind (other than a single security or a narrow-   currency swaps be reported? Should
                                                  ‘‘The term ‘security-based swap’ includes any            based security index), or the occurrence, non-        this be done in the interest rate swap
                                                  agreement, contract, or transaction that is as           occurrence, or the extent of the occurrence of an     asset class, or in the currency swap asset
                                                  described in section 3(a)(68)(A) of the Securities       event or contingency associated with a potential
                                                  Exchange Act of 1934 (15 U.S.C. 78c(a)(68)(A)) and       financial, economic, or commercial consequence        class?
                                                  is also based on the value of 1 [sic] or more interest   (other than an event described in subparagraph           • For multi-asset class swaps, should
                                                  or other rates, currencies, commodities, instruments     (A)(iii).’’ Dodd-Frank § 721(21), CEA § 1a(47)(D).    the swap data required to be reported


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                                                                     Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules                                            76587

                                                  include all required primary economic                   unique ID that are included in the                    aggregate an entity’s position. Instead,
                                                  terms data for each asset class involved                unique ID provisions of the                           swaps having similar underlying
                                                  in any leg or part of the swap?                         Commission’s proposed regulations.                    product characteristics may be entered
                                                    • How should asset class                              The Commission understands, from                      into through a variety of dealers or
                                                  classification be done for the purpose of               discussions with staff of the Department              MSPs, on different DCMs or SEFs, or in
                                                  data reporting? What should be the                      of the Treasury, that this conceptual                 bilateral trades. In addition, because
                                                  criteria to classify a swap within a                    approach could also be followed by the                each swap contract potentially has a
                                                  certain asset class?                                    Office of Financial Research (‘‘OFR’’),               unique set of terms and conditions, as
                                                    • Should foreign exchange swaps be                    created in the Department of the                      opposed to the common set of terms and
                                                  included in the currency swap asset                     Treasury by the Dodd-Frank Act 56 in                  conditions that define an exchange-
                                                  class, or should they be treated                        part for the purposes of standardizing                traded futures contract, defining a
                                                  separately for data reporting purposes?                 the types and formats of data reported                position or transaction in a particular
                                                  A foreign exchange swap is usually                      and collected by the OFR with regard to               contract can be complicated.
                                                  defined as a financial transaction                      swaps, and of assisting agencies that are                Unique identifiers would also serve
                                                  whereby two parties exchange agreed-                    members of the Financial Stability                    the important goal of enabling the
                                                  upon amounts of two currencies as a                     Oversight Council (‘‘FSOC’’) in                       Commission to link together all of the
                                                  spot transaction, simultaneously                        determining the types and formats of                  various types of data that it collects in
                                                  agreeing to unwind the exchange at a                    data they will collect, as required by                fulfilling its regulatory missions,
                                                  future date, based on a rule that reflects              Dodd-Frank.57                                         including data concerning swaps,
                                                  both interest and principal payments.                      The Commission’s own need for                      futures, and large traders. This would
                                                  C. Unique Identifiers                                   unique identifiers for swap transactions,             enhance the effectiveness of the
                                                                                                          counterparties, and products arises from              Commission’s various market
                                                     Need for Unique Identifiers. Over the                a need to aggregate and track                         monitoring tools, and improve its ability
                                                  course of the last decade, virtually all                information on swap transactions                      to detect and respond to market risks.
                                                  stakeholders in the financial sector have               efficiently across a diverse array of                 The ability of unique identifiers to serve
                                                  come to recognize the need for                          market participants, trading venues, and              as a data linchpin will also be of great
                                                  universal, accurate, and trusted methods                product classes. Unlike centralized                   benefit to other financial regulators with
                                                  of identifying particular financial                     futures markets where standardized                    respect to the different types of data
                                                  transactions, the legal entities that are               contracts are traded among participants               they collect.
                                                  parties to financial transactions, and the              in a fairly closed system, swaps have                    Accordingly, the Commission is
                                                  product type involved in particular                     been and will continue to be offered in               proposing to require use of unique
                                                  financial transactions. Such identifiers                a variety of forms and market venues.                 identifiers designed to ensure the
                                                  will be crucial tools for financial                                                                           Commission’s ability to aggregate
                                                                                                          There is a close relationship between
                                                  regulators tasked with measuring and                                                                          transaction and position data for the
                                                                                                          the swap markets and the underlying
                                                  monitoring systemic risk, preventing                                                                          purpose of conducting market and
                                                                                                          cash and futures markets that typically
                                                  fraud and market manipulation,                                                                                financial risk surveillance, enforcing
                                                                                                          provide the basis for the price references
                                                  conducting market and trade practice                                                                          position limits, analyzing market data,
                                                                                                          and benchmark prices. In addition,
                                                  surveillance, enforcing position limits,                                                                      enforcing Commission regulations,
                                                                                                          because swaps can serve as a substitute
                                                  and exercising resolution authority.                                                                          monitoring systemic risk, and
                                                                                                          for a transaction in the underlying
                                                  Without such unique identifiers, and                                                                          improving market transparency. Such
                                                                                                          reference market, market participants
                                                  the ability to aggregate data across                                                                          unique identifiers will better enable the
                                                                                                          are often free to transact in the market
                                                  multiple markets, entities, and                                                                               Commission to ascertain the overall
                                                                                                          of their choice, meaning that an entity
                                                  transactions that they would provide,                                                                         positions and activity of traders in and
                                                                                                          may hold positions, for example, in both
                                                  the enhanced monitoring of systemic                                                                           across markets, track activity over the
                                                                                                          the futures market and in swaps that
                                                  risk and greater market transparency                                                                          life of individual transactions, and
                                                                                                          reference the futures market price.
                                                  that are fundamental goals of Dodd-                                                                           determine overall activity in particular
                                                                                                             With respect to futures markets
                                                  Frank cannot be fully achieved. Such                                                                          product classes.
                                                                                                          futures commission merchants, clearing
                                                  identifiers would also have great                                                                                Unique Swap Identifiers. The Unique
                                                                                                          members, and foreign brokers are
                                                  benefits for financial transaction                                                                            Swap Identifier (‘‘USI’’) called for by the
                                                                                                          required to file reports on the positions
                                                  processing, internal recordkeeping,                                                                           proposed rules would be created and
                                                                                                          of large traders (as defined by the
                                                  compliance, due diligence, and risk                                                                           assigned to a swap at the time it is
                                                                                                          Commission), and in doing so to
                                                  management by financial entities. The                                                                         executed, and used to identify that
                                                                                                          aggregate the positions of traders that
                                                  Commission believes, in light of recent                                                                       particular swap transaction throughout
                                                                                                          may be held in various accounts at the
                                                  economic events, that the need for                                                                            its existence. Swaps will typically have
                                                                                                          firm, and to report them under a single,
                                                  unique identifiers that are based on                                                                          a number of events associated with
                                                                                                          unique, identifying account number.
                                                  open standards and are capable of                                                                             them over their lifetime, often referred
                                                                                                          Thus, at least with respect to reporting
                                                  international adoption is now urgent,                                                                         to as life cycle events. These can
                                                                                                          by a single reporting firm, the
                                                  and that their creation has become                                                                            include economic revisions,
                                                                                                          Commission is able to see the total
                                                  essential.                                                                                                    counterparty changes, early partial or
                                                                                                          position of a trader in a particular                  full terminations, normal terminations,
                                                     The Commission understands that
                                                                                                          futures or option contract offered at an              option exercises, credit events, servicing
                                                  this conceptual approach is supported
                                                                                                          exchange. By contrast, swap
jlentini on DSKJ8SOYB1PROD with PROPOSALS3




                                                  by the SEC. Commission staff have                                                                             events and cash flow settlements.
                                                                                                          counterparties will not necessarily                   Because a swap might have a life that
                                                  consulted closely with SEC staff
                                                                                                          conduct their trading through a single                extends over many years, it is important
                                                  concerning the unique ID provisions of
                                                                                                          entity or trading venue that could easily             that the Commission be able to identify
                                                  these regulations. The Commission
                                                  anticipates that proposed regulations                     56 See Dodd-Frank Act Title 1, Subtitle B,
                                                                                                                                                                the origins of the transaction as well as
                                                  issued by SEC with respect to swap data                 Sections 151 through 156.                             events related to that swap over its
                                                  recordkeeping and reporting will follow                   57 Dodd-Frank Act, Title 1, Sections 153(2) and     lifetime. Without the ability to track
                                                  the same principles with respect to                     153(7).                                               transactions through the use of a unique


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                                                  76588              Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules

                                                  identifier, it would be difficult for the               and assigned by the SD or MSP required                entity that must be unique with respect
                                                  Commission to separate new                              to report concerning the swap, or in the              to all such codes generated and assigned
                                                  transactions from existing ones and to                  case of a swap between non-SD/MSP                     by the entity.
                                                  identify changes that have occurred to a                counterparties would be created by the                   The registered entity creating the USI
                                                  specific swap contract. Use of USIs is                  SDR to which the swap is reported.
                                                                                                            The proposed rules would ensure the                 would be required to transmit the USI
                                                  also essential to collating swap creation
                                                                                                          uniqueness of each USI by specifying                  to all other registered entities and swap
                                                  data, swap continuation data, and error
                                                  corrections reported by execution                       that the USI must include two                         counterparties involved with the swap,
                                                  platforms, clearing houses, and                         components. The first component                       as soon as technologically practicable
                                                  counterparties concerning a single swap                 would be the unique, extensible,                      after its creation and assignment.
                                                  into a single, accurate data record that                alphanumeric code assigned by the                     Thereafter, all registered entities and
                                                  tracks the swap over its duration.                      Commission to each registered entity                  swap counterparties would be required
                                                     The Commission believes that                         required by the proposed regulations to               to include the USI in all records and all
                                                  workable USIs for all swaps under its                   create USIs, at the time of its                       swap data reporting concerning that
                                                  jurisdiction can be created via a ‘‘first-              registration, for the purpose of                      swap, throughout the existence of the
                                                  touch’’ approach. For a swap executed                   identifying that entity in the context of             swap and for as long as any records are
                                                  on a trading platform, the USI would be                 USI creation. The second component                    required to be kept concerning that
                                                  created and assigned by the SEF or DCM                  would be an extensible, alphanumeric                  swap.
                                                  involved. For a swap executed                           code generated and assigned by the                    BILLING CODE 6351–01–P
                                                  bilaterally, the USI would be created                   automated systems of the registered
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                                                                     Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules                                                  76589




                                                  BILLING CODE 6351–01–C                                  identification of each counterparty to                system. As noted in February 2010 by
                                                    The required use of USIs would not                    any swap subject to the Commission’s                  Daniel K. Tarullo, member of the Board
                                                  prohibit the additional use or reporting                jurisdiction, in all recordkeeping and                of Governors of the Federal Reserve
                                                  of other identifiers internally generated               data reporting concerning swaps. The                  System, in testimony before the U.S.
                                                  by the automated systems of registered                  Commission believes that full                         Senate:
                                                  entities or counterparties.                             realization of the systemic risk                        Clearly, the [recent financial] crisis
                                                    The Commission seeks comment                          mitigation and transparency purposes of               exposed the need for a regulatory mechanism
                                                  concerning the required use of USIs; the                Dodd-Frank cannot be fully achieved                   that will provide real time analysis across
                                                  benefits or burdens that required use of                without mandatory use of UCIs. To                     multiple financial markets to identify
                                                  USIs would create; the practicability of                assess systemic risk, it is essential to              systemic risk and stresses in market
                                                  the Commission’s proposed method of                     understand how individual financial                   conditions before they occur. A unique entity
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                                                  creating USIs; other possible methods of                firms are exposed to specific risks across            identifier for data sharing and use in data
                                                  creating USIs; and possible transmission                all their activities, and the                         collections between the Federal financial
                                                  methods for USIs among registered                       interconnectedness between firms. The                 regulatory agencies is the critical missing
                                                  entities and reporting parties.                         way that financial firms are identified is            component for this analysis.58
                                                    Unique Counterparty Identifiers. The                  critical to understanding those issues.                 58 Daniel K. Tarullo, Member, Board of Governors
                                                  Unique Counterparty Identifier (‘‘UCI’’)                With such identifiers, regulators will be             of the Federal Reserve System, Equipping Financial
                                                  called for by the proposed rules would                  able to aggregate exposures consistently              Regulators With the Tools Necessary to Monitor
                                                                                                                                                                                                                     EP08DE10.008</GPH>




                                                  be used for precise, reliable, and unique               and accurately across the financial                                                            Continued




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                                                  76590                 Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules

                                                     An important purpose of the UCI                              The lack of a universal identification           legal entities, enriched with further
                                                  required by the proposed rules would be                      standard also creates problems for                  counterparty information including affiliate
                                                  to enable effective assessment of                            financial regulators. Precise                       relationships, sector and geography. Affiliate
                                                  counterparty positions and aggregation                       identification of financial firms is                relationship data should enable the analysis
                                                                                                                                                                   of aggregated transaction records in terms of
                                                  of swap data across asset classes,                           necessary to understand systemic risk,              netting, guaranty, and credit support
                                                  markets, and related legal entities, in                      which involves entities operating across            arrangements.61
                                                  order to effectuate the systemic risk                        a range of industries. The problems that
                                                  prevention and transparency purposes                         firms face in aggregating exposure are              Efforts have been made to create such a
                                                  of Dodd-Frank.                                               magnified in measuring risk across the              standard through domestic and
                                                     Policy analysis by financial regulators                   system. In addition, futures and                    international processes. Heretofore, a
                                                  employs legal entity reference data as                       securities regulators must often identify           lack of focus, funding and investment
                                                  the basic infrastructure for identifying,                    parents and affiliates of futures                   issues, and competing priorities have
                                                  describing, classifying, labeling,                           commission merchants or broker-dealers              prevented consensus and
                                                  organizing, and using other information.                     manually and by name. Multiple and                  implementation.
                                                  Such reference data allows                                   generally different identifiers for                    However, circumstances have
                                                  identification of interconnections                           participants can make it difficult to               changed. The financial crisis has
                                                  between firms.                                               create a consolidated order audit trail.            focused both industry and regulators on
                                                     In the business world, legal entity                          It is worth noting in this context that
                                                                                                                                                                   this issue. Dodd-Frank’s mandate to the
                                                  reference data can support                                   leaders in the information technology
                                                                                                                                                                   Commission and the SEC to promulgate
                                                  communication between systems,                               industry have stated that data
                                                                                                               standardization is a significant obstacle           regulations for swap data reporting has
                                                  facilitate transaction processing, and                                                                           created a window of opportunity for the
                                                  allow for accurate aggregation of                            to using technology to further the needs
                                                                                                               of private industry and regulators.                 world financial sector to come together
                                                                 `
                                                  positions vis-a-vis individual                                                                                   in creation of a universal,
                                                  counterparties or classes of                                 Complete automation of back-office
                                                                                                               activities and ‘‘straight through                   internationally accepted standard for
                                                  counterparties, something necessary for                                                                          legal entity identification. The
                                                  effective risk management and                                processing’’ remain elusive, in part
                                                                                                               because of the lack of a universal                  Commission believes that the data
                                                  calculation of margin. Sales,                                                                                    reporting regulations to be issued
                                                  compliance, and due diligence                                identifier for legal entities.
                                                                                                                  The vendor community has attempted               simultaneously by the Commission and
                                                  functions also rely on entity identifiers,                   to provide solutions for these private              the SEC pursuant to Dodd-Frank can
                                                  and would benefit from availability of                       and public challenges. However, none is             and should provide the necessary
                                                  unique entity identifiers.                                   sufficiently robust, comprehensive, and             impetus for achieving this long-sought
                                                     Today, there is no universal legal                        open to serve as an industry-wide                   goal.
                                                  entity identification system available to                    standard. Indeed, most of the solutions                The proposed regulations would
                                                  serve the financial sector and regulatory                    offered by vendors are proprietary and              mandate that each counterparty in any
                                                  community.59 In the absence of such a                        restricted in use and redistribution. In            swap subject to the Commission’s
                                                  universal system, private firms and                          addition, current identifiers are not               jurisdiction and executed after the
                                                  regulators have created a variety of                         sufficiently unique or persistent.                  effective date of the Commission’s final
                                                  identifiers. This creates inefficiencies                     Current vendor identifiers that are                 swap data reporting regulations must be
                                                  for firms, and presents obstacles to                         unique and unrestricted with respect to             identified in all recordkeeping and
                                                  regulators and policymakers.                                 use and redistribution are limited in               reporting by means of a single UCI
                                                     At private firms, because there is no                     scope; for example, limited to                      having the characteristics specified by
                                                  industry-wide legal entity identification                    institutions engaged in payment                     the Commission.
                                                  standard, tracking counterparties and                        activities.
                                                  calculating exposures across multiple                           All of these challenges are magnified               It should be noted that the UCI
                                                  data systems is complicated, expensive,                      in the international context. Many in               requirement included in the proposed
                                                  and can result in costly errors. For                         industry and the world regulatory                   regulations differs markedly from the
                                                  example, maintaining internal identifier                     community have recognized the                       concept of identifying the ultimate
                                                  databases and reconciling entity                             potential benefit of a universal standard           beneficial owners of particular futures
                                                  identification with counterparties is                        for legal entity identification for years.          and options accounts, a subject
                                                  expensive for large firms and                                For example, the ODRF has stated that:              addressed in a previous Commission
                                                  disproportionately so for small firms. In                                                                        proposed rulemaking.62 Unlike
                                                                                                                 A number of key data items related to             identification of the ownership and
                                                  the worst case scenario, identification                      registered OTC derivatives transactions span
                                                  problems can lead to transactions that                       OTC derivative asset classes—for example,
                                                                                                                                                                   control of existing accounts, use of UCIs
                                                  are broken or fail to settle.                                entity representation. * * * In order to            for swap data reporting would not
                                                                                                               ensure consistency across asset classes,            require modification of existing systems
                                                  Systemic Risk, before the Subcommittee on Security
                                                                                                               infrastructure platforms and services should        or alteration of existing data. The UCI
                                                  and International Trade and Finance, Committee on            model these items in a consistent manner,           requirement would only apply
                                                  Banking, Housing, and Urban Affairs, U.S. Senate,            preferably through the development of open          prospectively to new swap transactions
                                                  Washington, DC, February 12, 2010.                           standards in industry forums.60                     executed following the effective date of
                                                    59 Discussions of the concept of a universal legal
                                                                                                               ODRF’s Outline of Trade Repository                  the Commission’s final swap data
                                                  entity identification system for financial firms of all
                                                  types often refer to a legal entity identifier or ‘‘LEI.’’
                                                                                                               Functionality states that trade repository          reporting regulations. No substantial
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                                                  This is the same concept addressed by the proposed           data:                                               alteration of system architecture would
                                                  rule. The proposal refers to the identifier as a UCI,        should represent the counterparties of the          be required; instead, only a single data
                                                  rather than an LEI, because in the context of this
                                                  rule it would be used to identify the legal entities
                                                                                                               transaction records it maintains as precise
                                                                                                                                                                      61 ODRF Outline of Trade Repository
                                                  who are counterparties to a swap. The Commission
                                                  recognizes that identifiers provided by a universal            60 OTC  Derivatives Regulators’ Forum,            Functionality Being Sought by Members of the OTC
                                                  legal identification system through an international         Prioritization and Communication of Regulatory      Derivatives Regulators’ Forum, August 27, 2010
                                                  consensus process could appropriately be used to             Data Requests: Consolidated Report and              (revision 2), at 3.
                                                  identify legal entities in various other contexts            Recommendations, 10 November 2009, at 5                62 CFTC, Account Ownership and Control Report,

                                                  across the financial sector.                                 (emphasis added).                                   17 CFR Part 16, September 9, 2010.



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                                                                     Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules                                                  76591

                                                  field would need to be added to the                     comprehensive and accurate                             both domestic and international. These
                                                  information submitted with an order for                 information, it would therefore appear                 standards include provisions requiring
                                                  a swap transaction or with a report of                  to be optimal that there be a single                   that owners of relevant intellectual
                                                  swap data to an SDR. Where compiling                    corporate affiliations reference database,             property have agreed to make that
                                                  the information necessary to create the                 maintained by a single organization in                 intellectual property available on a non-
                                                  type of account ownership and control                   a single location. The Commission seeks                discriminatory, royalty-free or
                                                  report addressed in the Commission’s                    comment on where and by what                           reasonable royalty basis to all interested
                                                  proposed ownership and control rule                     organization the corporate affiliations                parties. ‘‘Voluntary consensus standards
                                                  would depend on collecting data points                  database would best be maintained:                     bodies’’ are domestic or international
                                                  not in the possession of any single                     whether by an international voluntary                  organizations that plan, develop,
                                                  entity, by contrast, once a legal entity                consensus standards body (discussed                    establish, or coordinate voluntary
                                                  that intends to be a swap counterparty                  below); by a self-regulatory                           consensus standards using agreed-upon
                                                  has obtained an UCI—something it                        organization; by the Commission; by the                procedures.
                                                  would only need to do once—it would                     OFR; or by some other organization.                       For the reasons set forth above, the
                                                  possess all the information required for                   The Commission understands that,                    Commission proposes to use its
                                                  its subsequent use.                                     while a single identifier satisfying the               rulemaking authority to require the use
                                                     Information concerning a                             requirements included in the proposed                  of UCIs in all swap data reporting
                                                  counterparty’s affiliations must be                     regulations is not currently published                 subject to its jurisdiction. The
                                                  available in conjunction with UCIs in                   by any standard-setting body, market                   Commission prefers to have its swap
                                                  order to enable regulators to aggregate                 participants have been working                         data reporting regulations prescribe use
                                                  data across entities and markets for the                diligently to solve practical issues that              of a universally-available UCI that is
                                                  purpose of effective monitoring of                      stand in the way of such publication.                  part of an identification system created
                                                  systemic risk. For this purpose,                           The Commission believes, and                        on an international basis through an
                                                  regulators need to be able to identify all              understands that the SEC and the OFR                   international ‘‘voluntary consensus
                                                  swap positions within the same                          also believe, that optimum effectiveness               standards body,’’ and intends to
                                                  ownership group. Accordingly, the                       of UCIs for achieving the systemic risk                promulgate final regulations to that
                                                  proposed regulations would require                      protection and transparency goals of                   effect if such an identification is
                                                  each swap counterparty to report all of                 Dodd-Frank—goals shared by financial                   available sufficiently prior to the
                                                  its corporate affiliations into a                       regulators world-wide—would come                       implementation date included in the
                                                  confidential, non-public corporate                      from creation of an identification                     Commission’s final swap data reporting
                                                  affiliations reference database,                        system, including UCIs, on an                          regulations. However, the Commission
                                                  maintained and located as determined                    international basis, through an                        will prescribe its own method for
                                                  by the Commission. Data contained in                    international ‘‘voluntary consensus                    creation of UCIs to be used in swap data
                                                  the corporate affiliations reference                    standards body’’ as defined in Office of               reporting subject to the Commission’s
                                                  database would be available only to the                 Management and Budget (‘‘OMB’’)                        regulations if no such internationally-
                                                  Commission, and to other financial                      Circular No. A–119 Revised. The                        accepted identification system
                                                  regulators via the same data access                     National Technology Transfer and                       acceptable to the Commission is
                                                  procedures applicable to data in SDRs,                  Advancement Act of 1995 codified OMB                   available prior to the implementation
                                                  for regulatory purposes. For these                      Circular No. A–119, and directs Federal                date of the final regulations.
                                                  purposes, ‘‘corporate affiliations’’ would              agencies to use voluntary consensus                       The Commission anticipates that a
                                                  mean the identity of all legal entities                 standards in lieu of government-unique                 system for publication of UCIs meeting
                                                  that own the counterparty, that are                     standards except where inconsistent                    the requirements of the proposed
                                                  under common ownership with the                         with law or otherwise impractical.63                   regulations may be developed through
                                                  counterparty, or that are owned by the                  This provision’s intent is to eliminate                an international voluntary consensus
                                                  counterparty. The corporate affiliation                 the cost to the government of                          body and be available as of the
                                                  information reported would be required                  developing its own standards, decrease                 implementation date for the UCI
                                                  to be sufficient to disclose parent-                    the burden of complying with agency                    requirement. Dodd-Frank explicitly
                                                  subsidiary and affiliate relationships,                 regulations, provide incentives and                    permits the Commission to ‘‘take into
                                                  such that each legal entity within or                   opportunities to establish standards that
                                                                                                                                                                 consideration any evolving standard of
                                                  affiliated with the corporate hierarchy                 serve national needs, encourage long-
                                                                                                                                                                 the United States or the international
                                                  or ownership group to which the                         term growth for U.S. enterprises,
                                                                                                                                                                 community.’’ 64
                                                  counterparty belongs would be                           promote efficiency and economic                           Accordingly, the proposed regulations
                                                  separately identified. Each counterparty                competition through harmonization of                   set forth principles that the Commission
                                                  would also be required to report to the                 standards, and further the policy of                   believes must govern the identification
                                                  corporate affiliations reference database               reliance upon the private sector to                    system used to establish UCIs for swap
                                                  all changes to the information                          supply government needs for goods and                  counterparties, among other purposes.
                                                  previously reported concerning the                      services. Further, to promote trade and                Under these principles, the
                                                  counterparty’s corporate affiliations, so               implement the provisions of                            identification system must:
                                                  as to ensure that the corporate affiliation             international treaty agreements, the
                                                  information recorded in the corporate                   provision requires Federal agencies to                    • Result in a unique identifier format that
                                                  affiliations reference database remains                 consider international standards in                    is capable of becoming the single
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                                                                                                                                                                 international standard for unique
                                                  current and accurate at all times.                      procurement and regulatory                             identification of legal entities in the financial
                                                     The corporate affiliations reference                 applications.                                          sector on a global basis.
                                                  database would need to be accessible to                    As defined in OMB Circular A–119,                      • Be developed via an international
                                                  both national and international financial               ‘‘voluntary consensus standards’’ are                  ‘‘voluntary consensus standards body’’ as
                                                  regulators in order to make the                         standards developed or adopted by                      defined in OMB Circular No. A–119 Revised,
                                                  identification system involving UCIs                    voluntary consensus standards bodies,                  such as the International Organization for
                                                  fully effective for regulatory purposes.
                                                  To ensure the availability of                             63 Public   Law 104–113, § 12(d).                      64 CEA   § 21(f)(4)(B).



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                                                  76592              Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules

                                                  Standardization (‘‘ISO’’), and must be                  adoption of a suitable identification                 concerning the appropriate level for UPI
                                                  maintained by such a body and an associated             system for financial sector legal entities            assignment within such taxonomies.
                                                  Registration Authority. Both the standards              that involves UCIs; and concerning what                  The Commission seeks comments
                                                  body and Registration Authority must have a             international voluntary consensus                     concerning the most effective
                                                  formally documented governance structure                                                                      classification scheme for swap products,
                                                  acceptable to the Commission.
                                                                                                          standards body can best provide the
                                                     • Be available to all interested parties on          needed identification standard                        and concerning the taxonomy level
                                                  a non-discriminatory, royalty-free or                   including UCIs, and what advantages                   within each swap asset class at which
                                                  reasonable royalty basis. While reasonable              are offered by the standards body                     UPIs should be assigned. In considering
                                                  initial and annual fees would be appropriate            recommended by the commenter.                         these issues, commenters should take
                                                  to cover the cost of issuance, maintenance,                Unique Product Identifiers. The                    into consideration what levels of
                                                  and initial and ongoing verification of unique          Unique Product Identifier (‘‘UPI’’) called            aggregation are desirable for reporting
                                                  identifiers, fees must not be charged for               for by the proposed rules would be used               swap activity. The Commission also
                                                  redistribution, publication or other use by the                                                               seeks comment concerning the benefits
                                                  counterparty identified or any other entity or
                                                                                                          for categorization of swaps with respect
                                                                                                          to the underlying products referenced in              or burdens that required use of UPIs
                                                  person, and the identification system must be                                                                 would create, and concerning the
                                                  operated on a non-profit basis. Information             them. While the UPI would be assigned
                                                  concerning the issuance process for new                 to a particular level of the taxonomy of              optimal implementation date for
                                                  identifiers and a comprehensive, current                the asset class or sub-asset class in                 effective adoption and use of UPIs.
                                                  directory of the UCIs issued by the                     question, its existence would enable the              D. Determination of Which Counterparty
                                                  identification system (but not the entity               Commission and other regulators to                    Must Report
                                                  relationship or affiliation information                 aggregate transactions at various
                                                  reported by counterparties), must be                                                                            New Section 4r(3) of the CEA
                                                                                                          taxonomy levels based on the type of
                                                  available publicly and free of charge.                                                                        specifies the counterparty obligated to
                                                     • Be supported by a trusted and auditable
                                                                                                          product underlying the swap. For
                                                                                                                                                                report a swap transaction to a swap data
                                                  method of verifying the identity of each legal          example, a UPI might identify a swap
                                                                                                                                                                repository.65 Specifically, Section 4r(3)
                                                  entity receiving a UCI, both initially and at           referencing the NYMEX futures price for
                                                                                                                                                                provides that:
                                                  appropriate intervals thereafter. The                   light, sweet crude oil as a NYMEX WTI
                                                  Registration Authority must maintain                    crude oil futures price swap. The                        With respect to a swap in which only 1
                                                  reference data sufficient to verify that a user         taxonomy associated with the UPI                      [sic] counterparty is a swap dealer or major
                                                  has been correctly identified as an entity.                                                                   swap participant, the swap dealer or major
                                                                                                          would enable regulators to identify the               swap participant shall report the swap * * *
                                                  Issuance of identifiers must be speedy and              product underlying the swap as a
                                                  unbiased.                                                                                                     With respect to a swap in which 1 [sic]
                                                                                                          commodity, an energy product, a                       counterparty is a swap dealer and the other
                                                     • Maintain robust quality assurance
                                                  practices and system safeguards acceptable to
                                                                                                          petroleum product, a crude oil product,               a major swap participant, the swap dealer
                                                                                                          or ultimately the NYMEX crude oil                     shall report the swap. * * * With respect to
                                                  the Commission.
                                                                                                          futures price, as desired.                            any other swap * * * the counterparties to
                                                     • Be sufficiently extensible to cover all
                                                                                                                                                                the swap shall select a counterparty to report
                                                  existing and potential future legal entities of            The ability to identify underlying
                                                                                                                                                                the swap * * *.
                                                  all types that are or may become swap                   products in a categorical way would
                                                  counterparties, are or may become involved              serve several regulatory purposes. First,             The effect of this provision is to
                                                  in any aspect of the financial issuance and             it would enhance transparency, by                     establish a hierarchy of counterparty
                                                  transactions process, or may be subject to              allowing the Commission or other                      types for reporting obligation purposes,
                                                  required due diligence by financial sector                                                                    in which SDs outrank MSPs, who
                                                                                                          regulators to aggregate and report swap
                                                  entities.                                                                                                     outrank non-SD/MSP counterparties.
                                                     • Assign only one unique identifier to any           activity at a variety of product type
                                                                                                          levels. Second, it would enhance                      Where both counterparties are at the
                                                  legal entity.
                                                     • Have a unique identifier format                    position limit enforcement. The Dodd-                 same hierarchical level, the statute calls
                                                  consisting of a single data field, and contain          Frank Act requires the Commission to                  for them to select the counterparty
                                                  either no embedded intelligence or as little            establish position limits for agricultural            obligated to report.
                                                  embedded intelligence as practicable.                   and exempt commodities that would                        The Commission believes that,
                                                     • Persist despite all corporate events.              span across the futures, options and                  regardless of the possible merits of swap
                                                                                                          swap markets. A UPI that provides                     data reporting by both counterparties to
                                                    In the event that an identification
                                                                                                          information indicating what swaps need                a swap, this statutory provision does not
                                                  system satisfying these principles is not
                                                                                                          to be aggregated with other contracts                 permit the Commission by regulation or
                                                  available as of the effective date of the
                                                                                                          would enhance the Commission’s                        other regulatory action to require swap
                                                  proposed regulations, the proposed
                                                                                                          ability to develop and oversee its                    data reporting by both counterparties to
                                                  regulations provide that a UCI for each
                                                                                                          position limit regulatory program.                    a swap. New CEA Section 21 does
                                                  swap counterparty must be created and
                                                                                                          Third, it would enhance analysis of                   provide, with respect to the duties of an
                                                  assigned by an SDR, using the method
                                                                                                          swap data. For example, classification of             SDR, that an SDR shall ‘‘confirm with
                                                  specified for this purpose in the
                                                                                                          swaps via UPIs would facilitate                       both counterparties to the swap the
                                                  proposed regulations.
                                                                                                          examination of the activity of market                 accuracy of the data that was
                                                    The Commission seeks comment
                                                                                                          participants at various levels of a                   submitted.’’ 66 However, the obligation
                                                  concerning the required use of UCIs;
                                                                                                          product class. The Commission is                      to report swap data to an SDR is distinct
                                                  concerning the benefits that required
                                                                                                          required by Dodd-Frank to prepare                     from the duty of the SDR to confirm the
                                                  use of UCIs would create; concerning
                                                                                                          semi-annual reports regarding swap                    accuracy of the reported data. Congress
                                                  the required reporting of affiliation
                                                                                                                                                                could have provided for reporting by
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                                                  information by swap counterparties and                  market activity, and such classification
                                                                                                          via UPIs would be necessary for                       both counterparties, but chose instead to
                                                  the scope of affiliation information
                                                                                                          meaningful evaluation of such activity.               establish which counterparty bears the
                                                  necessary to achieve regulatory
                                                                                                                                                                obligation to report.67 The proposed
                                                  purposes; concerning the principles set                    Effective use of UPIs for regulatory
                                                  forth in the proposed regulations for                   purposes would require a robust                         65 Dodd-Frank  § 729.
                                                  development of an identification system                 taxonomy for swaps in each swap asset                   66 CEA § 21(c)(2).
                                                  including UCIs; concerning possible                     class, as well as decisions concerning                  67 The Commission does not believe that Dodd-

                                                  means of achieving international                        what classification scheme to use, and                Frank precludes an SDR from accepting and



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                                                                      Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules                                         76593

                                                  regulations require reporting of                        counterparty should be selected for                   reported for the swap by any registered
                                                  confirmation data for all swaps as a                    cleared swaps; and on the mechanisms                  entity or any counterparty to the swap,
                                                  means of verification of the accuracy of                provided in the proposed regulation for               and all corrections of errors and
                                                  the data submitted in connection with                   counterparties to follow in choosing the              omissions in previously reported data,
                                                  each swap.                                              counterparty to report in situations                  must be reported to that same SDR (or
                                                     While Section 4r(a) of the CEA                       where both counterparties have the                    to its successor in the event that it
                                                  applies explicitly to swaps not accepted                same hierarchical status, and on                      ceases to operate).
                                                  for clearing by any DCO, the                            possible alternative mechanisms for this                Where the initial report of required
                                                  Commission believes, preliminarily,                     purpose.                                              primary economic terms data is made by
                                                  that for the sake of uniformity and ease                                                                      the SEF or DCM on which a swap is
                                                                                                          E. Third Party Facilitation of Swap Data              executed, or by an SD or MSP
                                                  of applicability, the duty to report
                                                                                                          Reporting                                             counterparty in the case of a swap not
                                                  should be borne by the same
                                                  counterparty regardless of whether the                     While the various reporting                        executed on a SEF or DCM, the
                                                  swap is cleared or uncleared. The                       obligations established in the proposed               proposed regulations would provide
                                                  Commission also believes it is                          regulations fall explicitly on registered             that the choice of the SDR to receive the
                                                  appropriate for SDs and MSPs to have                    entities and swap counterparties, the                 initial report shall be made in a manner
                                                  the responsibility of reporting with                    Commission recognizes that practicality,              to be determined by the Commission
                                                  respect to the majority of swaps,                       efficiencies, and decreased cost could in             prior to adoption of its final swap data
                                                  because they are more likely than other                 some circumstances be gained by                       reporting regulations. Where the initial
                                                  counterparties to have automated                        engaging third parties to facilitate the              report of required primary economic
                                                  systems in place that can facilitate                    actual reporting of information. The use              terms data is made by a non-SD/MSP
                                                  reporting.                                              of such third-party facilitators, however,            counterparty, the proposed regulations
                                                     The proposed regulations establish a                 should not allow the counterparty with                would provide that the non-SD/MSP
                                                  mechanism for counterparties to follow                  the obligation to report to avoid its                 counterparty making that report shall
                                                  in choosing the counterparty to report in               responsibility to report swap data in a               choose the SDR to which the report is
                                                  situations where both counterparties                    timely and accurate manner. Therefore,                made.
                                                  have the same hierarchical status, in                   the proposed regulations explicitly                     The Commission requests comment
                                                  order to prevent confusion or delay                     recognize that registered entities and                concerning the benefits or drawbacks of
                                                  concerning this choice. Where both                      counterparties required to report under               requiring that all swap data for a given
                                                  counterparties are SDs, or both are                     provisions in Part 45 may contract with               swap should be reported to the same
                                                  MSPs, or both are non-SD/MSP                            third-party service providers to facilitate           SDR; concerning how the choice of the
                                                  counterparties, the proposed regulations                reporting, but, nonetheless, remain fully             SDR to which swap data is to be
                                                  require the counterparties to agree as                  responsible for reporting as required by              reported for a swap should be made,
                                                  one term of their swap transaction                      the regulations.                                      and concerning what registered entity or
                                                  which counterparty will fulfill reporting                  The Commission requests comment                    swap counterparty should make this
                                                  obligations with respect to that swap.                  on the merits of allowing third party                 choice.
                                                     The proposed regulations also provide                facilitation of swap data reporting; on
                                                                                                          appropriate types of third party                      G. Data Reporting for Swaps in Asset
                                                  that, where only one counterparty to a                                                                        Classes Not Accepted by Any Swap Data
                                                  swap is a U.S. person, the U.S. person                  facilitators and functions to be used for
                                                                                                          this purpose; and on the automated                    Repository
                                                  should be the reporting counterparty.
                                                  The Commission believes this approach                   system and connectivity technology that                  Section 4r(a)(1)(B) of the CEA
                                                                                                          may be required or should be used in                  recognizes that in some circumstances
                                                  is necessary in order to ensure
                                                                                                          this connection.                                      there may be no SDR that will accept
                                                  compliance with reporting requirements
                                                                                                                                                                swap data for certain swap transactions.
                                                  in such situations.                                     F. Reporting to a Single SDR
                                                     The Commission requests comment                                                                            This category of swaps should be
                                                                                                            The Commission believes that                        limited, since proposed regulations for
                                                  concerning the possible utility of some
                                                                                                          important regulatory purposes of Dodd-                SDRs set forth in the Commission’s
                                                  type of swap data reporting by both
                                                                                                          Frank would be frustrated, and that                   separate advance notice of proposed
                                                  counterparties, and how such dual
                                                                                                          regulators’ ability to see necessary                  rulemaking regarding SDRs will require
                                                  reporting could be achieved other than
                                                                                                          information concerning swaps could be                 an SDR that accepts swap data for any
                                                  by regulations requiring such reporting
                                                                                                          impeded, if data concerning a given                   swap in an asset class to accept data for
                                                  (which regulations appear barred by
                                                                                                          swap was spread over multiple SDRs.                   all swaps in that asset class. However,
                                                  Dodd-Frank); regarding whether
                                                                                                          Accordingly, the proposed regulations                 situations could arise where a novel
                                                  reporting of confirmation data is a
                                                                                                          would require that all swap data for a                product does not fit into any existing
                                                  sufficient means of verifying with both
                                                                                                          given swap must be reported to a single               asset class, or where no SDR yet accepts
                                                  parties the accuracy of swap data
                                                                                                          SDR, which shall be the SDR to which                  swap data for any swap in an existing
                                                  reported to an SDR, and if not, what
                                                                                                          required primary economic terms data                  asset class. In such situations, the CEA
                                                  other means should be employed; on
                                                                                                          for that swap is first reported. The                  and the proposed regulations would
                                                  whether selection of the reporting
                                                                                                          proposed regulations would also                       require the reporting counterparty to
                                                  counterparty should be the same for
                                                                                                          provide that the SDR receiving this                   report to the Commission all swap data
                                                  cleared swaps as for non-cleared swaps,
                                                                                                          initial report must transmit its own                  required by Part 45 to be reported to an
                                                  and if not on how the reporting
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                                                                                                          identity, together with the USI for the               SDR where one is available. This report
                                                  maintaining swap data from both counterparties to
                                                                                                          swap (created as provided in § 45.4) to               would be required to be made at a time
                                                  a swap. For example, an SDR or its affiliate            each counterparty to the swap, to the                 and in a form and manner determined
                                                  performing the ancillary service of maintaining the     SEF or DCM, if any, on which the swap                 by the Commission.
                                                  single binding legal record of a swap, such as the      was executed, and to the DCO, if any,                    The Commission requests comment
                                                  ‘‘gold’’ record maintained by the Depository Trust &
                                                  Clearing Corporation (‘‘DTCC’’) for credit swaps,
                                                                                                          to which the swap is submitted for                    on whether SDRs that accept data for
                                                  would not be barred from receiving dual reporting       clearing. Thereafter, the proposed                    any swap in a swap asset class should
                                                  in that connection.                                     regulations would require that all data               be required to accept data for all swaps


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                                                  76594                 Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules

                                                  in that asset class; and on the time and                  become less appropriate in the future.                 regulators. To help ensure data
                                                  the form and manner of reporting that                     Dodd-Frank explicitly permits the                      accuracy, the proposed regulations
                                                  the Commission should require with                        Commission to ‘‘take into consideration                would require registered entities and
                                                  respect to data reporting for swaps that                  any evolving standard of the United                    swap counterparties that report swap
                                                  must be reported to the Commission                        States or the international                            data to an SDR or to any other registered
                                                  because no SDR presently accepts swap                     community.’’ 70                                        entity or swap counterparty to report
                                                  data for swaps in the asset class                            Finally, the Commission anticipates                 any errors or omissions in the data they
                                                  involved.                                                 that the degree of flexibility offered by              report, as soon as technologically
                                                                                                            SDRs concerning data standards for                     practicable after discovery of any error
                                                  H. Required Data Standards                                swap data reporting could become an                    or omission. Because daily snapshot
                                                     Dodd-Frank directs the Commission                      element of marketplace competition                     reports of state data by reporting
                                                  to ‘‘prescribe data collection and data                   with respect to SDRs.                                  counterparties by their nature can
                                                  maintenance standards for swap data                          Accordingly, the proposed regulations               correct errors or omissions in previous
                                                  repositories.’’ 68 It also provides that                  would require an SDR to maintain all                   snapshot reports, the proposed
                                                  SDRs shall maintain swap data reported                    swap data reported to it in a format                   regulations provide that for interest rate
                                                  to them ‘‘in such form, in such manner,                   acceptable to the Commission, and to                   swaps, commodity swaps, and currency
                                                  and for such period as may be required                    transmit all swap data requested by the                swaps, reporting counterparties fulfill
                                                  by the Commission,’’ and directs SDRs                     Commission to the Commission in an                     the requirement to report errors or
                                                  to ‘‘provide direct electronic access to                  electronic file in a format acceptable to              omissions in state data previously
                                                  the Commission.’’ 69 These requirements                   the Commission. The proposed                           reported by making corrections in their
                                                  are designed to effectuate the                            regulations would require reporting                    next daily report of state data. Because
                                                  fundamental purpose for the                               entities and counterparties to use the                 Dodd-Frank permits the Commission to
                                                  legislation’s swap data reporting                         facilities, methods, or data standards                 require reporting by only one swap
                                                  requirements: making swap data                            provided or required by an SDR to                      counterparty, and because error and
                                                  available to the Commission and other                     which they report data, but also would                 omission correction from non-reporting
                                                  financial regulators so as to enable them                 allow an SDR to permit reporting via                   counterparties is nevertheless desirable
                                                  to better fulfill their market oversight                  various facilities, methods, or data                   to better ensure data accuracy, the
                                                  and other regulatory functions, increase                  standards, provided that its                           proposed regulation (a) would require a
                                                  market transparency, and mitigate                         requirements in this regard enable it to               non-reporting swap counterparty that
                                                  systemic risk. Accordingly, the                           maintain swap data and transmit it to                  discovers any error or omission with
                                                  Commission believes that data                             the Commission as the Commission                       respect to any swap data reported to an
                                                  standards for SDRs must enable them to                    requires. The Commission believes that                 SDR for its swaps to notify the reporting
                                                  provide data to the Commission in a                       this approach can provide market                       counterparty promptly of each such
                                                  format that enables its effective and                     participants sufficient flexibility and                error or omission, and (b) would require
                                                  timely use for such purposes.                             opportunity to innovate, while also                    the reporting counterparty, upon
                                                     The Commission has considered, and                     ensuring that SDRs can meet their legal                receiving such notice, to report a
                                                  will continue to consider, whether it                     mandates to transmit swap data to the                  correction of each such error or
                                                  would be preferable to require that all                   Commission in a timely fashion.                        omission to the SDR, as soon as
                                                  swap data reporting to SDRs be done in                    Finally, the proposed regulations would                technologically practicable after
                                                  a uniform reporting format or via a                       delegate to the Director of the Division               receiving notice of it from the non-
                                                  single data standard. However, the                        of Market Oversight the ability to                     reporting counterparty.
                                                  Commission is aware that such a                           accommodate the needs of different                       To ensure consistency of data within
                                                  requirement would be likely to require                    communities of users and to provide the                an SDR with respect to error corrections,
                                                  changes to the existing automated                         flexibility to adapt to changing                       the proposed regulations would require
                                                  systems of some entities and                              circumstances and evolving data                        an entity or counterparty correcting an
                                                  counterparties that will be required to                   standards.                                             error or omission to do so in the same
                                                  report swap data pursuant to these                           The Commission requests comments                    data format it used in making the
                                                  regulations, and that in some cases such                  concerning the approach to data                        erroneous report. To similarly ensure
                                                  changes could impose a substantial                        standards taken in the proposed                        consistency of data transmitted to the
                                                  burden on such entities and                               regulation; and concerning the relative                Commission with respect to error
                                                  counterparties. The Commission has                        merits of leaving SDRs free to permit                  corrections, the proposed regulations
                                                  been advised by some existing trade                       reporting via various facilities, methods,             impose the same requirement on SDRs
                                                  repositories that they are able to accept                 or data standards, provided that its                   with respect to transmission of error
                                                  data in multiple formats or data                          requirements in this regard enable it to               corrections.
                                                  standards from different counterparties,                  maintain swap data and transmit it to                    The Commission requests comment
                                                  and to map the data they receive into a                   the Commission as the Commission                       concerning the requirement that all
                                                  common data standard within the                           requires; concerning whether the                       entities and counterparties that report
                                                  repository, without undue difficulty,                     Commission should require use of a                     swap data to an SDR or to any other
                                                  delay, or cost. The Commission                            single data standard (e.g., FpML) by all               registered entity or swap counterparty
                                                  understands that automated systems                        reporting entities and counterparties                  must report any errors or omissions in
                                                  and data standards evolve over time,                      and by all SDRs.                                       the data they report, as soon as
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                                                  and that it may be desirable for                                                                                 technologically practicable after
                                                  regulations concerning data standards to                  I. Reporting of Errors and Omissions in                discovery of any error or omission;
                                                  avoid locking reporting entities,                         Previously Reported Data                               concerning the mechanism provided in
                                                  reporting counterparties, and SDRs into                      Accurate swap data is essential to                  the proposed regulation for reporting of
                                                  particular data standards that could                      effective fulfillment of the various                   errors or omissions discovered by a non-
                                                                                                            regulatory functions of financial                      reporting swap counterparty, and
                                                    68 CEA   § 21(b)(2).                                                                                           whether any alternative methods for this
                                                    69 CEA   § 21(c)(3) and (4).                              70 CEA   § 21(f)(4)(B).                              purpose would be preferable; and


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                                                                     Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules                                                    76595

                                                  concerning the requirement for use of                   entities that engage in a de minimis                   Data Recordkeeping and Reporting
                                                  the same data format to report errors or                level of swaps.76 Similarly, with respect              Requirements,’’ OMB control number
                                                  omissions that was used to report the                   to MSPs, the Commission has also                       3038—NEW). If adopted, responses to
                                                  erroneous data in question.                             previously determined that large traders               this new collection of information
                                                                                                          are not ‘‘small entities’’ for RFA                     would be mandatory. The Commission
                                                  III. Related Matters                                    purposes.77 Like large traders, MSPs                   will protect proprietary information
                                                  A. Regulatory Flexibility Act                           will maintain substantial positions,                   according to the Freedom of Information
                                                     The RFA 71 requires that agencies                    creating substantial counterparty                      Act and 17 CFR part 145, ‘‘Commission
                                                  consider whether the rules they propose                 exposure that could have serious                       Records and Information.’’ In addition,
                                                  will have a significant economic impact                 adverse effects on the financial stability             section 8(a)(1) of the Act strictly
                                                                                                          of the United States banking system or                 prohibits the Commission, unless
                                                  on a substantial number of small entities
                                                                                                          financial markets. With respect to SEFs,               specifically authorized by the Act, from
                                                  and, if so, provide a regulatory
                                                                                                          not only will SEFs play a vital role in                making public ‘‘data and information
                                                  flexibility analysis respecting the
                                                                                                          the national economy, but they will be                 that would separately disclose the
                                                  impact.72 The rules proposed by the
                                                                                                          required to operate as self-regulatory                 business transactions or market
                                                  Commission would affect SDRs, DCOs,
                                                                                                          organizations, subject to Commission                   positions of any person and trade
                                                  SEFs, DCMs, SDs, MSPs, and
                                                                                                          oversight, with statutory duties to                    secrets or names of customers.’’ The
                                                  non-SD/MSP counterparties who are
                                                                                                          enforce the rules adopted by their own                 Commission also is required to protect
                                                  counterparties to one of more swaps and
                                                                                                          governing bodies. Most of these entities               certain information contained in a
                                                  subject to the Commission’s
                                                                                                          will not be small entities for RFA                     government system of records according
                                                  jurisdiction. The Commission has
                                                                                                          purposes.                                              to the Privacy Act of 1974, 5 U.S.C.
                                                  previously established certain                                                                                 552a.
                                                                                                             The proposed regulations would
                                                  definitions of ‘‘small entities’’ to be used                                                                     Information Provided by Reporting
                                                                                                          require reporting by a non-SD/MSP
                                                  by the Commission in evaluating the                                                                            Entities/Persons. Under proposed
                                                                                                          counterparty only with respect to swaps
                                                  impact of its regulations on small                                                                             Regulation 45.2, SDRs, SEFs, DCMs,
                                                                                                          in which neither counterparty is an SD
                                                  entities in accordance with the RFA.73                                                                         DCOs, SDs, MSPs, and non-SD/MSP
                                                                                                          or MSP. The considerable majority of
                                                  In its previous determinations, the                                                                            counterparties—which presently would
                                                                                                          swaps involve at least one SD or MSP.
                                                  Commission has concluded that DCMs                                                                             include an estimated 30,384 entities or
                                                                                                          In addition, most end users and other
                                                  and DCOs are not small entities for the                                                                        persons 80—would be required to keep
                                                                                                          non-SD/MSP counterparties who are
                                                  purpose of the RFA.74                                                                                          records of all activities relating to
                                                                                                          regulated by the Employee Retirement
                                                     As SDRs, SDs, MSPs and SEFs are                                                                             swaps. Specifically, proposed
                                                                                                          Income Security Act of 1974 (‘‘ERISA’’),
                                                  new entities to be regulated by the                                                                            Regulation 45.2 would require SDRs,
                                                                                                          such as pension funds, which are among
                                                  Commission pursuant to the Dodd-                                                                               SEFs, DCMs, DCOs, SDs, and MSPs to
                                                                                                          the most active participants in the swap
                                                  Frank Act, the Commission has not                                                                              keep complete records of all activities
                                                                                                          market, are prohibited from transacting
                                                  previously determined whether they are                                                                         relating to their business with respect to
                                                                                                          directly with other ERISA-regulated
                                                  small entities for the purpose of the                                                                          swaps. The proposed regulation would
                                                                                                          participants.78 Therefore, the
                                                  RFA. The Commission is proposing to                                                                            require non-SD/MSP counterparties to
                                                                                                          Commission does not believe that the
                                                  determine that SDRs, SDs, MSPs and                                                                             keep complete records with respect to
                                                                                                          reporting obligations under this
                                                  SEFs covered by these rules, for reasons                                                                       each swap in which they are a
                                                                                                          rulemaking will create a significant
                                                  similar to those applicable to DCMs and                                                                        counterparty. With respect to SDs and
                                                                                                          economic impact on a substantial
                                                  DCOs, are not small entities for                                                                               MSPs, the Commission has determined
                                                                                                          number of small entities.
                                                  purposes of the RFA.                                                                                           that proposed Regulation 45.2 will not
                                                                                                             Accordingly, the Chairman, on behalf
                                                     Specifically, the Commission                                                                                impose any new recordkeeping or
                                                                                                          of the Commission, hereby certifies
                                                  proposes that SDRs, SDs, MSPs and                                                                              information collection requirements, or
                                                                                                          pursuant to 5 U.S.C. 605(b) that the
                                                  SEFs should not be considered small                                                                            other collections of information that
                                                                                                          proposed rules will not have a
                                                  entities based on, among other things,                                                                         require approval of the Office of
                                                                                                          significant impact on a substantial
                                                  the central role they will play in the                                                                         Management and Budget under the
                                                                                                          number of small entities. Nonetheless,
                                                  national regulatory scheme overseeing                                                                          Paperwork Reduction Act.
                                                                                                          the Commission specifically requests
                                                  the trading of swaps. Because they will                                                                        Requirements for maintaining and
                                                                                                          comment on the impact these proposed
                                                  be required to accept swaps across asset                                                                       recording swap transaction data by SDs
                                                                                                          rules may have on small entities.
                                                  classes, SDRs will require significant                                                                         and MSPs will be addressed by related
                                                  operational resources. With respect to                  B. Paperwork Reduction Act                             rulemakings associated with business
                                                  SDs, the Commission previously has                         Introduction. Provisions of proposed                conduct standards for SDs and MSPs as
                                                  determined that FCMs should not be                      Commission Regulations 45.2, 45.3, and                 part of the Commission’s overall
                                                  considered to be small entities for                     45.4 would result in new collection of
                                                  purposes of the RFA.75 Like FCMs, SDs                   information requirements within the                      80 Because SDRs, MSPs, SDs, DCOs, and SEFs are

                                                  will be subject to minimum capital and                  meaning of the Paperwork Reduction                     new entities, estimates were made by the
                                                  margin requirements, and are expected                                                                          Commission: 15 SDRs, 50 MSPs, 250 SDs, 12 DCOs,
                                                                                                          Act (‘‘PRA’’).79 The Commission                        and 40 SEFs. The number of DCMs was estimated
                                                  to comprise the largest global financial                therefore is submitting this proposal to               to be 17 DCMs based on the current (as of October
                                                  firms. Additionally, the Commission is                  the Office of Management and Budget                    18, 2010) number of designated DCMs (http://
                                                  required to exempt from designation                     (OMB) for review in accordance with 44                 services.cftc.gov/SIRT/SIRT.aspx?Topic=Trading
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                                                                                                                                                                 Organizations&implicit=true&type=DCM&Custom
                                                                                                          U.S.C. 3507(d) and 5 CFR 1320.11. The                  ColumnDisplay=TTTTTTTT). Additionally, for
                                                    71 5U.S.C. 601 et seq.
                                                    72 5
                                                                                                          title for this collection of information is            purposes of the Paperwork Reduction Act, the
                                                        U.S.C. 601 et seq.                                                                                       Commission estimates that there would be 30,000
                                                    73 47 FR 18618 (Apr. 30, 1982).
                                                                                                          ‘‘Regulations 45.2, 45.3, and 45.4—Swap
                                                                                                                                                                 non-SD/MSP counterparties who would annually
                                                    74 47 FR 18618, 18619 (April 30, 1982) discussing
                                                                                                            76 Id.
                                                                                                                                                                 be subject to the recordkeeping requirements of
                                                  contract markets; and 66 FR 45604, 45609 (August                at 18619.                                      proposed Regulation 45.1. Because the Commission
                                                                                                            77 47 FR at 18620.
                                                  29, 2001) discussing derivatives clearing                                                                      has not regulated the swap market, it has not
                                                  organizations.                                            78 29 U.S.C. 1106
                                                                                                                                                                 collected data relevant to this estimate. Therefore,
                                                    75 47 FR 18618 (Apr. 30, 1982).                         79 44 U.S.C. 3501 et seq.                            the Commission requests comment on this estimate.



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                                                  76596               Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules

                                                  rulemaking initiative implementing the                  MSP counterparties who would be                          approximately two hours per entity,
                                                  Dodd-Frank Act.81 With respect to                       required to report—which presently                       excluding customary and usual business
                                                  SDRs, SEFs, DCMs, DCOs (an estimated                    would include an estimated 1,500                         practices. The number of reports
                                                  84 entities or persons), which will have                entities 85—are anticipated to have                      required to be made per year is
                                                  higher levels of swap recording                         lower levels of activity with respect to                 estimated to vary between zero and four,
                                                  activity 82 than non-SD/MSP                             reporting; the Commission estimates                      depending on the number of changes an
                                                  counterparties, the Commission                          that their annual burden may be                          entity has in its legal affiliations in that
                                                  estimates that there may be                             approximately 75 hours. Therefore,                       year. Thus, the estimated annual burden
                                                  approximately 40 annual burden hours                    there are 880,020 estimated aggregate                    per entity varies between zero and eight
                                                  per entity, excluding customary and                     annual burden hours.                                     burden hours. Therefore, there are
                                                  usual business practices. With respect to                  Under proposed Regulation 45.4,                       between 0 and 242,400 estimated
                                                  non-SD/MSP reporting counterparties                     SDRs, SEFs, DCMs, SDs, and MSPs                          aggregate annual burden hours.
                                                  (an estimated 30,000 entities or                        would be required to report a unique                        Information Collection Comments.
                                                  persons), who will have lower levels of                 swap identifier to other registered                      The Commission invites the public and
                                                  swap recording activity, the                            entities and swap participants. SEFs and                 other Federal agencies to comment on
                                                  Commission estimates that there may be                  DCMs are anticipated to have higher                      any aspect of the reporting and
                                                  approximately 10 annual burden hours                    levels of activity than SDRs, SDs, and                   recordkeeping burdens discussed above.
                                                  per entity, excluding customary and                     MSPs with respect to unique swap                         Pursuant to 44 U.S.C. 3506(c)(2)(B), the
                                                  usual business practices. Therefore,                    identifier reporting. The Commission                     Commission solicits comments in order
                                                  there are 303,360 estimated aggregate                   anticipates that the reporting of the                    to: (i) Evaluate whether the proposed
                                                  annual burden hours.                                    unique swap identifier will be                           collection of information is necessary
                                                    Under proposed Regulation 45.3,                       automatically completed by electronic                    for the proper performance of the
                                                  SEFs, DCMs, DCOs, MSPs, SDs, and                        computer systems. The following                          functions of the Commission, including
                                                  non-SD/MSP counterparties would be                      burden hours are based on the estimated                  whether the information will have
                                                  required to provide reports to SDRs                     burden hours necessary to oversee and                    practical utility; (ii) evaluate the
                                                  regarding swap transactions. SEFs and                   maintain the electronic functionality of                 accuracy of the Commission’s estimate
                                                  DCMs are required to report certain                     unique swap ID reporting.86 The                          of the burden of the proposed collection
                                                  information once at the time of swap                    Commission estimates that SEFs and                       of information; (iii) determine whether
                                                  execution. DCOs, SDs, MSPs, and non-                    DCMs (an estimated 57 entities or                        there are ways to enhance the quality,
                                                  SD/MSP counterparties are required to                   persons) may have approximately 22                       utility, and clarity of the information to
                                                  report certain information once, as well                annual burden hours per entity. The                      be collected; and (iv) minimize the
                                                  as other information on a daily basis.                  Commission estimates that SDRs, SDs,                     burden of the collection of information
                                                  With respect to reporting by SDs, MSPs,                 and MSPs (an estimated 315 entities or                   on those who are to respond, including
                                                  and non-SD/MSP counterparties, only                     persons) may have approximately 6                        through the use of automated collection
                                                  one counterparty to a swap is required                  annual burden hours per entity.                          techniques or other forms of information
                                                  to report, typically an SD or an MSP as                 Therefore, there are 3,144 estimated                     technology.
                                                  determined by proposed Regulation                       aggregated annual burden hours.                             Comments may be submitted directly
                                                  45.4. The Commission anticipates that                      Additionally under Proposed                           to the Office of Information and
                                                  the reporting will to a significant extent              Regulation 45.4, SDs, MSPs, and non-                     Regulatory Affairs, by fax at (202) 395–
                                                  be automatically completed by                           SD/MSP counterparties (an estimated                      6566 or by e-mail at
                                                  electronic computer systems; the                        30,300 entities and persons), would be                   OIRAsubmissions@omb.eop.gov. Please
                                                  following burden hours are calculated                   required to report into a confidential                   provide the Commission with a copy of
                                                  based on the annual burden hours                        database their ownership and                             submitted comments so that all
                                                  necessary to oversee and maintain the                   affiliations information (as well as                     comments can be summarized and
                                                  reporting functionality.83 SEFs, DCMs,                  changes to ownership and affiliations).                  addressed in the final rule preamble.
                                                  DCOs, MSPs, and SDs (an estimated 369                   The report would be made once at the                     Refer to the Addresses section of this
                                                  entities or persons) are anticipated to                 time of the first swap reported to an                    notice of proposed rulemaking for
                                                  have high levels of reporting activity;                 SDR, and would be made anytime                           comment submission instructions to the
                                                  the Commission estimates that their                     thereafter that the entity’s legal                       Commission. A copy of the supporting
                                                  average annual burden may be                            affiliations change. The estimated                       statements for the collections of
                                                  approximately 2,080 hours.84 Non-SD/                    number of burden hours per report is                     information discussed above may be
                                                                                                                                                                   obtained by visiting RegInfo.gov. OMB
                                                     81 The Commission invites public comment on          DCOs, MSP, and SDs will dedicate the equivalent          is required to make a decision
                                                                                                          of at least one full-time employee to ensuring           concerning the collection of information
                                                  the accuracy of its estimate that no additional
                                                                                                          compliance with the reporting obligations of
                                                  recordkeeping or information collection                 Regulation 45.3 (2,080 hours = 52 weeks × 5 days         between 30 and 60 days after
                                                  requirements related to SDs and MSP would result        × 8 hours). The Commission believes that this is a       publication of this release.
                                                  from the rules proposed herein.                         reasonable assumption due to the volume of swap
                                                     82 For purposes of this Paperwork Reduction Act                                                               Consequently, a comment to OMB is
                                                                                                          transactions that will be processed by these entities,
                                                  analysis, the Commission estimates that ‘‘high          the varied nature of the information required to be
                                                                                                                                                                   most assured of being fully effective if
                                                  activity’’ entities or persons are those who process    reported by Regulation 45.3, and the frequency           received by OMB (and the Commission)
                                                  or enter into hundreds or thousands of swaps per        (daily) with which some reports must be made. The        within 30 days after publication of this
                                                  week that are subject to the jurisdiction of the        Commission requests comment on its estimate.             notice of proposed rulemaking.
jlentini on DSKJ8SOYB1PROD with PROPOSALS3




                                                  Commission. Low activity users would be those              85 This is the estimated number of non-SD/MSP
                                                  who process or enter into substantially fewer than      counterparties who would be required to report in        C. Cost-Benefit Analysis
                                                  the high activity users. The Commission requests        a given year. Only one counterparty to a swap is
                                                  comment on its estimate.                                required to report, typically an SD or a MSP as             Introduction. Section 15(a) of the
                                                     83 Estimated burden hours were obtained in
                                                                                                          determined by proposed Regulation 45.4. The              Commodity Exchange Act (‘‘CEA’’)
                                                  consultation with the Commission’s information          Commission requests comment on this estimate.            requires the Commission to consider the
                                                  technology staff. The Commission requests                  86 Estimated burden hours were obtained in
                                                  comment on these estimates.                             consultation with the Commission’s information
                                                                                                                                                                   costs and benefits of its actions before
                                                     84 The Commission estimated 2,080 hours by           technology staff. The Commission requests                issuing a rulemaking under the Act. By
                                                  assuming that a significant number of SEFs, DCMs,       comment on these estimates.                              its terms, section 15(a) does not require


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                                                                     Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules                                              76597

                                                  the Commission to quantify the costs                    global marketplace because of                         appropriate for the Commission’s final
                                                  and benefits of the rulemaking or to                    reductions in available resources.                    swap data reporting regulations to
                                                  determine whether the benefits of the                      Benefits. Notwithstanding the                      establish an effective date for the
                                                  rulemaking outweigh its costs; rather, it               potential costs that could be incurred by             requirements contained in those
                                                  requires that the Commission ‘‘consider’’               SDRs, SEFs, DCMs, DCOs, SDs, MSPs,                    regulations that is later than the date of
                                                  the costs and benefits of its actions.                  and non-SD/MSP counterparties, the                    their promulgation.
                                                  Section 15(a) further specifies that the                Commission believes that the benefits of                The Commission requests comment
                                                  costs and benefits shall be evaluated in                the proposed regulations are significant              concerning the need for an
                                                  light of five broad areas of market and                 and important. Through the requirement                implementation date for its final swap
                                                  public concern: (1) Protection of market                that swap information be reported to                  data reporting regulations that is later
                                                  participants and the public; (2) the                    SDRs, the proposed regulations will                   than the date of their promulgation;
                                                  efficiency, competitiveness and                         greatly improve the efficiency and                    concerning the benefits or drawbacks of
                                                  financial integrity of markets; (3) price               transparency of the swap market.                      such an approach; concerning the length
                                                  discovery; (4) sound risk management                    Through the Commission’s access to                    of time needed for registered entities
                                                  practices; and (5) other public interest                swap data, market participants and the                and potential swap counterparties to
                                                  considerations. The Commission may in                   public will be better protected, as the               prepare for implementation in the ways
                                                  its discretion give greater weight to any               result of increased market surveillance               discussed above, or otherwise; and
                                                  one of the five enumerated areas and                    and monitoring.                                       concerning the implementation date
                                                  could in its discretion determine that,                    The Commission believes that the                   which the Commission should specify
                                                  notwithstanding its costs, a particular                 proposed regulations are essential to the             in its final regulations concerning swap
                                                  rule is necessary or appropriate to                     financial protection of swap market                   data reporting.
                                                  protect the public interest or to                       participants and the public. With their
                                                  effectuate any of the provisions to                     support for greater transparency and                  V. General Solicitation of Comments
                                                  accomplish any of the purposes of the                   more effective oversight, the proposed                  The Commission requests comments
                                                  Act.                                                    regulations will help to ensure the                   concerning all aspects of the proposed
                                                     Summary of proposed requirements.                    efficiency, competitiveness, and                      regulations, including, without
                                                  The proposed Commission regulations                     financial integrity of swap markets. By
                                                                                                                                                                limitation, all of the aspects of the
                                                  in Part 45 would provide for certain                    providing regulators data necessary for
                                                                                                                                                                proposed regulations on which
                                                  recordkeeping and data reporting                        effective prudential supervision, the
                                                                                                                                                                comments have been requested
                                                  requirements for SDRs, SEFs, DCMs,                      proposed regulations will enable
                                                                                                                                                                specifically herein.
                                                  DCOs, SDs, MSPs, and non-SD/MSP                         enhanced protection against systemic
                                                  counterparties. The proposed                            risk. The proposed regulations will also              Proposed Rules
                                                  regulations would require SDRs, SEFs,                   improve the important function of price
                                                                                                                                                                List of Subjects in 17 CFR Part 45
                                                  DCMs, DCOs, SDs, and MSPs to keep                       discovery. For all these reasons, the
                                                  records of all activities relating to their             proposed regulations would serve the                    Swaps, data recordkeeping
                                                  business with respect to swaps; non-SD/                 public interest.                                      requirements and data reporting
                                                  MSP counterparties would be required                       Public Comment. For the reasons set                requirements.
                                                  to keep records with respect to each                    forth above, the Commission believes                    For the reasons set forth in the
                                                  swap in which they are a counterparty.                  that the benefits of the proposed                     preamble, the Commodity Futures
                                                  The proposed regulations would require                  regulations outweigh their costs, and                 Trading Commission proposes to add a
                                                  SEFs, DCMs, DCOs, SDs, MSPs, and                        has decided to issue them. The                        new part 45 to read as follows:
                                                  non-SD/MSP counterparties to report to                  Commission invites public comment on
                                                  SDRs various types of swap data, as                     its cost-benefit considerations.                      PART 45—SWAP DATA
                                                  defined and required in the regulations.                Commenters are also invited to submit                 RECORDKEEPING AND REPORTING
                                                  Further, in some instances the proposed                 any data or other information that they               REQUIREMENTS
                                                  regulations would require SDRs, SEFs,                   may have quantifying or qualifying the
                                                  DCMs, SDs, and MSPs to create unique                    costs and benefits of the Proposal with               Sec.
                                                  swap identifiers and transmit them to                   their comment letters.                                45.1  Definitions.
                                                                                                                                                                45.2  Swap recordkeeping.
                                                  other registered entities and swap                      IV. Proposed Effective Date                           45.3  Swap data reporting.
                                                  participants. Additionally, the proposed                                                                      45.4  Unique identifiers.
                                                  regulations would require SDs, MSPs,                       The Commission understands that,
                                                                                                                                                                45.5  Determination of which counterparty
                                                  and non-SD/MSP counterparties to                        after the date on which the Commission                    must report.
                                                  report their ownership and affiliations                 promulgates its final swap data                       45.6 Third-party facilitation of data
                                                  information (as well as changes to                      reporting regulations, the industry will                  reporting.
                                                  ownership and affiliations), in a manner                need a reasonable period of time to                   45.7 Reporting to a single SDR.
                                                  to be determined by the Commission                      implement the requirements of those                   45.8 Data reporting for swaps in a swap
                                                  prior to its adoption of final swap data                regulations. Time may be required for                     asset class not accepted by any SDR.
                                                  reporting regulations.                                  entities to register as SEFs, DCMs,                   45.9 Required data standards.
                                                     Costs. With respect to costs, the                    DCOs, or SDRs (or to update current                   45.10 Reporting of errors and omissions in
                                                                                                          registrations as DCMs or DCOs)                            previously reported data.
                                                  Commission believes that the proposed                                                                         Appendix 1 to Part 45—Tables of minimum
                                                  reporting and recordkeeping                             pursuant to new Commission                                primary economic terms data and
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                                                  requirements could impose significant                   regulations concerning such entities.                     minimum valuation data
                                                  compliance costs on some SDRs, SEFs,                    Time may also be needed for registered                Appendix 2 to Part 45—Master reference
                                                  DCMs, DCOs, SDs, MSPs, and non-SD/                      entities and potential swap                               generic data fields list
                                                  MSP counterparties. The proposed                        counterparties to adapt or create                        Authority: 7 U.S.C. §§ 2(a)(13)(G), 4r, 6s,
                                                  regulations could require capital                       automated systems capable of fulfilling               7, 7a–1, 7b–3, 12a and 21(b), as amended by
                                                  expenditures for some such entities that                the requirements of Commission                        Title VII of the Wall Street Reform and
                                                  could affect the ability of some                        regulations concerning swap data                      Consumer Protection Act of 2010, Public Law
                                                  regulated entities to compete in the                    reporting. Accordingly, it may be                     111–203, 124 Stat. 1376 (2010).



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                                                  76598              Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules

                                                  § 45.1   Definitions.                                      (j) ‘‘Equity swap’’ means any swap that               (6) An indication of whether or not
                                                     As used in this part 45, the following               is primarily based on equity securities,              both counterparties are SDs;
                                                  terms shall have the definitions set forth              including, without limitation: Any swap                  (7) An indication of whether or not
                                                  below.                                                  primarily based on one or more broad-                 both counterparties are MSPs;
                                                     (a) ‘‘Asset class’’ means the particular             based indices of equity securities; and                  (8) An indication of whether or not
                                                  broad category of goods, services or                    any total return swap on one or more                  both counterparties are non-SD/MSP
                                                  commodities underlying a swap. The                      equity indices.                                       counterparties;
                                                  asset classes include interest rate,                       (k) ‘‘Interest rate swap’’ means any                  (9) The date and time of execution,
                                                  currency, credit, equity, other                         swap which is primarily based on one                  expressed using Coordinated Universal
                                                  commodity, and such other asset classes                 or more interest rates, such as swaps of              time (‘‘UTC’’);
                                                  as may be determined by the                             payments determined by fixed and                         (10) The venue where the swap was
                                                  Commission.                                             floating interest rates.                              executed;
                                                     (b) ‘‘Confirmation’’ (‘‘confirming’’)                   (l) ‘‘Life cycle event’’ means, with                  (11) The effective date;
                                                  means the consummation (electronically                  respect to a credit swap or equity swap,                 (12) The scheduled termination date;
                                                  or otherwise) of legally binding                        any event that would result in a change                  (13) The price;
                                                                                                          in the data previously reported to an                    (14) The notional amount, the
                                                  documentation (electronic or otherwise)
                                                                                                          SDR in connection with the swap,                      currency in which the notional amount
                                                  that memorializes the agreement of the
                                                                                                          including, without limitation, a                      is expressed, and the equivalent
                                                  parties to all terms of a swap. A
                                                                                                          counterparty change resulting from an                 notional amount in U.S. dollars;
                                                  confirmation must be in writing
                                                                                                          assignment or novation; a partial or full                (15) The amount and currency or
                                                  (whether electronic or otherwise) and
                                                                                                          termination of the swap; a change in the              currencies of any up-front payment;
                                                  must legally supersede any previous                                                                              (16) A description of the payment
                                                  agreement (electronically or otherwise).                cash flows originally reported; for a
                                                                                                                                                                streams of each counterparty;
                                                     (c) ‘‘Confirmation data’’ means all of               credit swap or equity swap that is not
                                                                                                                                                                   (17) The title of any master agreement
                                                  the terms of a swap matched and agreed                  cleared, any change to the collateral
                                                                                                                                                                incorporated by reference and the date
                                                  upon by the counterparties in                           agreement; or a corporate action
                                                                                                                                                                of any such agreement;
                                                  confirming the swap.                                    affecting a security or securities on
                                                                                                                                                                   (18) If the transaction involved an
                                                     (d) ‘‘Contract-intrinsic event’’ means a             which the swap is based (e.g., a merger,
                                                                                                                                                                existing swap, an indication that the
                                                  scheduled, anticipated event occurring                  dividend, stock split, or bankruptcy).
                                                                                                                                                                transaction did not involve an
                                                  during the existence of a swap that does                   (m) ‘‘Life cycle event data’’ means,               opportunity to negotiate a material term
                                                  not result in any change to the                         with respect to a credit swap or equity               of the contract, other than the
                                                  contractual terms of the swap,                          swap, all of the data elements necessary              counterparty;
                                                  including, without limitation, the                      to fully report any life cycle event, or                 (19) The data elements necessary for
                                                  scheduled expiration of a swap, or a                    any adjustment due to a life cycle event,             a person to determine the market value
                                                  previously described and anticipated                    that results in a change to data                      of the transaction;
                                                  interest rate adjustment (e.g., a quarterly             previously reported with respect to that                 (20) Whether or not the swap will be
                                                  interest rate adjustment).                              swap.                                                 cleared by a designated clearing
                                                     (e) ‘‘Contract-intrinsic event data’’                   (n) ‘‘Major Swap Participant’’ or ‘‘MSP’’          organization;
                                                  means, with respect to a credit swap or                 has the meaning set forth in CEA                         (21) The name of the designated
                                                  equity swap, all of the data elements                   Section 1a(33), and any Commission                    clearing organization that will clear the
                                                  necessary to fully report any contract-                 regulation implementing that Section.                 swap, if any;
                                                  intrinsic event with respect to that                       (o) ‘‘Non-SD/MSP counterparty’’                       (22) If the swap is not cleared,
                                                  swap.                                                   means a swap counterparty that is                     whether the exception in § 2(h)(7) (‘‘End
                                                     (f) ‘‘Credit swap’’ means any swap that              neither a Swap Dealer nor a Major Swap                User exception’’) was invoked;
                                                  is primarily based on instruments of                    Participant.                                             (23) If the swap is not cleared, all of
                                                  indebtedness, including, without                           (p) ‘‘Other commodity swap’’ means                 the settlement terms, including, without
                                                  limitation: Any swap primarily based on                 any swap not included in the credit                   limitation, whether the swap is cash-
                                                  one or more broad-based indices related                 swap, currency swap, equity swap, or                  settled or physically settled, and the
                                                  to instruments of indebtedness; and any                 interest rate swap categories, including,             method for determining the settlement
                                                  swap that is an index credit swap or                    without limitation, any swap for which                value; and
                                                  total return swap on one or more indices                the primary underlying item is a                         (24) Any other primary economic
                                                  of debt instruments.                                    physical commodity or the price or any                term(s) of the swap matched by the
                                                     (g) ‘‘Currency swap’’ means any swap                 other aspect of a physical commodity.                 counterparties in verifying the swap.
                                                  which is primarily based on rates of                       (q) ‘‘Primary economic terms’’ for a                  (r) ‘‘Primary economic terms’’ means,
                                                  exchange between difference currencies,                 credit swap or equity swap means:                     for an interest rate swap, other
                                                  changes in such rates, or other aspects                    (1) The Unique Swap Identifier for the             commodity swap, or currency swap, all
                                                  of such rates. This category includes                   swap, pursuant to § 45.4(a);                          of the terms of a swap matched by the
                                                  foreign exchange swaps as defined in                       (2) The Unique Counterparty                        counterparties in verifying the swap,
                                                  CEA Section 1a(25).                                     Identifier of each counterparty to the                including at a minimum each of the
                                                     (h) ‘‘Derivatives Clearing                           swap, pursuant to § 45.4(b);                          terms included in the most recent
                                                  Organization’’ or ‘‘DCO’’ has the meaning                  (3) The Unique Product Identifier                  Federal Register release by the
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                                                  set forth in CEA Section 1a(9), and any                 assigned to the swap, pursuant to                     Commission listing minimum primary
                                                  Commission regulation implementing                      § 45.4(c);                                            economic terms for interest rate swaps,
                                                  that Section, including, without                           (4) An indication of the counterparty              other commodity swaps, or currency
                                                  limitation, § 39.5 of this chapter.                     purchasing protection and of the                      swaps. The Commission’s current lists
                                                     (i) ‘‘Designated Contract Market’’ or                counterparty selling protection;                      of minimum primary economic terms
                                                  ‘‘DCM’’ has the meaning set forth in CEA                   (5) Information identifying the                    for interest rate, commodity, and
                                                  Section 5, and any Commission                           reference entity for the swap, in a format            currency swaps are found in Appendix
                                                  regulation implementing that Section.                   determined by the Commission;                         1 to part 45.


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                                                                     Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules                                            76599

                                                     (s) ‘‘Primary economic terms data’’                  Section 1a(48), and any Commission                       (d) Records required to be kept by
                                                  means all of the data elements necessary                regulation implementing that Section.                 DCOs, DCMs, SEFs, SDs, MSPs, or non-
                                                  to fully report all of the primary                         (aa) ‘‘Swap Dealer’’ or ‘‘SD’’ has the             SD/MSP counterparties pursuant to this
                                                  economic terms of a swap in the swap                    meaning set forth in CEA Section 1a(49),              Section shall be retrievable as follows:
                                                  asset class of the swap in question.                    and any Commission regulation                            (1) Each record required by this
                                                     (t) ‘‘Reporting counterparty’’ means                 implementing that Section.                            Section or any other Section of the Act
                                                  the counterparty required to report swap                   (bb) ‘‘Swap Execution Facility’’ or                to be kept by an SDR shall be readily
                                                  data pursuant to § 45.5.                                ‘‘SEF’’ has the meaning set forth in CEA              accessible via real time electronic access
                                                     (u) ‘‘Required swap creation data’’ for              Section 1a(50), and any Commission                    by the SDR indefinitely.
                                                  a credit swap or equity swap means:                     regulation implementing that Section.                    (2) Each record required by this
                                                     (1) All primary economic terms data                     (cc) ‘‘Valuation data’’ means all of the           Section or any other Section of the Act
                                                  for a credit swap or equity swap; and                   data elements necessary for a person to               to be kept by a DCO, DCM, SEF, SD, or
                                                     (2) All confirmation data for the swap.              determine the current market value of                 MSP shall be readily accessible via real
                                                     (v) ‘‘Required swap creation data’’ for              the swap, including, without limitation,              time electronic access by the registrant
                                                  an interest rate swap, commodity swap,                  daily margin, daily mark-to-market, and               throughout the life of the swap and for
                                                  or currency swap means:                                 other measures of valuation as                        two years following the final
                                                     (1) All primary economic terms data                  determined by the Commission.                         termination of the swap, and shall be
                                                  for an interest rate swap, commodity                       (dd) ‘‘Verification’’ (‘‘verify’’ or               retrievable by the registrant or its
                                                  swap, or currency swap, as appropriate;                 ‘‘verifying’’) means the matching by the              affiliates within three business days
                                                  and                                                     counterparties to a swap of each of the               through the remainder of the period
                                                     (2) All confirmation data for the swap.              primary economic terms of a swap, at or               following final termination of the swap
                                                     (w) ‘‘Required swap continuation                     shortly after the time the swap is                    during which it is required to be kept.
                                                  data’’ for a credit swap or equity swap                 executed.                                                (3) Each record required by this
                                                  means:                                                                                                        Section or any other Section of the Act
                                                     (1) All life cycle event data for the                § 45.2   Swap recordkeeping.                          to be kept by a non-SD/MSP
                                                  swap;                                                     (a) All DCOs, DCMs, SEFs, SDs, and                  counterparty shall be retrievable by that
                                                     (2) All contract-intrinsic event data                MSPs who are subject to the jurisdiction              counterparty within three business days
                                                  for the swap; and                                       of the Commission shall keep full,                    throughout the period during which it is
                                                     (3) All valuation data for the swap,                 complete, and systematic records,                     required to be kept.
                                                  and all changes to valuation data                       together with all pertinent data and                     (e) All SDRs registered with the
                                                  previously reported concerning the                      memoranda, of all activities relating to              Commission shall keep full, complete,
                                                  swap, reported at intervals to be                       the business of such entities or persons              and systematic records, together with all
                                                  determined by the Commission prior to                   with respect to swaps, as prescribed by               pertinent data and memoranda, of all
                                                  its adoption of final swap data reporting               the Commission. Such records shall                    activities relating to the business of the
                                                  regulations.                                            include, without limitation, the                      SDR and all swap data reported to the
                                                     (x) ‘‘Required swap continuation data’’              following:                                            SDR, as prescribed by the Commission.
                                                  for an interest rate swap, other                          (1) For DCOs, all records required by               Such records shall include, without
                                                  commodity swap, or currency swap                        part 39 of this chapter.                              limitation, all records required by
                                                  means:                                                    (2) For SEFs, all records required by               § 45.10 of the Commission’s proposed
                                                     (1) All state data for the swap,                     part 37 of this chapter.                              swap data repositories regulations.
                                                  reported daily throughout the existence                   (3) For DCMs, all records required by                  (f) All records required to be kept by
                                                  of the swap until its final termination;                part 38 of this chapter.                              an SDR pursuant to this § 45.2 must be
                                                  and                                                       (4) For SDs and MSPs, all records                   kept by the SDR both:
                                                     (2) A report at intervals specified by               required by part 23 of this chapter.                     (1) Throughout the existence of the
                                                  the Commission, throughout the                            (b) All non-SD/MSP counterparties                   swap and for five following final
                                                  existence of the swap until its final                   subject to the jurisdiction of the                    termination of the swap, during which
                                                  termination, of all valuation data and all              Commission shall keep full, complete,                 time the records must be readily
                                                  changes to valuation data concerning                    and systematic records, together with all             accessible by the SDR and available to
                                                  the swap.                                               pertinent data and memoranda, with                    the Commission via real time electronic
                                                     (y) ‘‘State data’’ means all of the data             respect to each swap in which they are                access; and
                                                  elements necessary to provide a                         a counterparty, including all required                   (2) Thereafter, for a period to be
                                                  snapshot view, on a daily basis, of all                 swap creation data and all required                   determined by the Commission prior to
                                                  of the primary economic terms of a                      swap continuation data that they are                  promulgation of its final swap data
                                                  swap in the swap asset class of the swap                required to report pursuant to this part              recordkeeping and reporting
                                                  in question, including any changes to                   45, and including all records                         regulations, in archival storage from
                                                  such terms since the last snapshot. At a                demonstrating that they are entitled,                 which they are retrievable by the SDR
                                                  minimum, state data must include all of                 with respect to any swap, to the end                  within three business days.
                                                  the economic terms listed in the most                   user exception pursuant to Section                       (g) All records required to be kept
                                                  recent Federal Register release by the                  2(h)(7).                                              pursuant to this Section by any
                                                  Commission concerning minimum                             (c) All records required to be kept by              registrant or its affiliates or by any non-
                                                  primary state data elements for interest                DCOs, DCMs, SEFs, SDs, MSPs, and                      SD/MSP counterparty shall be open to
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                                                  rate, commodity, or currency swaps.                     non-SD/MSP counterparties pursuant to                 inspection upon request by any
                                                  The Commission’s current lists of                       this Section shall be kept with respect               representative of the Commission, the
                                                  minimum primary economic terms for                      to each swap from the date of the                     United States Department of Justice, or
                                                  interest rate, commodity, and currency                  creation of the swap through the life of              the Securities and Exchange
                                                  swaps are found in Appendix 1 to Part                   the swap and for a period of at least five            Commission, or by any representative of
                                                  45.                                                     years from the final termination of the               a prudential regulator as authorized by
                                                     (z) ‘‘Swap Data Repository’’ or ‘‘SDR’’              swap, in a form and manner acceptable                 the Commission. Copies of all such
                                                  has the meaning set forth in CEA                        to the Commission.                                    records shall be provided, at the


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                                                  76600              Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules

                                                  expense of the entity or person required                occurs electronically; or 24 hours after              primary economic terms data for the
                                                  to keep the record, to any representative               execution of the swap if neither                      swap, and must report electronically all
                                                  of the Commission upon request, either                  execution nor verification of primary                 confirmation data for the swap. The
                                                  by electronic means, in hard copy, or                   economic terms occurs electronically.                 report of primary economic terms data
                                                  both, as requested by the Commission.                      (ii) Swaps Executed on a SEF but Not               must be made promptly following
                                                                                                          Cleared on a DCO. (A) The SEF on                      verification of the primary economic
                                                  § 45.3   Swap data Reporting.                           which the swap is executed must report                terms by the counterparties with each
                                                     This Section establishes the general                 all primary economic terms data for the               other at or immediately following
                                                  swap data reporting obligations of SDs,                 swap asset class of the swap that is in               execution of the swap, but in no event
                                                  MSPs, non-SD/MSP counterparties,                        its possession, as soon as                            later than: 30 minutes after execution of
                                                  SEFs, DCMs, and DCOs to report swap                     technologically practicable following                 the swap if verification of primary
                                                  data to an SDR. In addition to the                      execution of the swap.                                economic terms occurs electronically; or
                                                  reporting obligations set forth in this                    (B) The reporting counterparty, as                 24 hours after execution of a swap if
                                                  Section, SDs, MSPs, and non-SD/MSP                      determined pursuant to § 45.5, must                   verification of primary economic terms
                                                  counterparties are also subject to the                  report any primary economic terms data                does not occur electronically. The report
                                                  reporting obligations with respect to                   for the swap that is not reported by the              of confirmation data must be made
                                                  corporate affiliations reporting set forth              SEF. This report must be made                         promptly following confirmation of the
                                                  in § 45.4(b)(2); DCMs, SEFs, SDs, MSPs,                 promptly following verification of the                swap, but in no event later than: 15
                                                  and non-SD/MSP counterparties are                       primary economic terms by the                         minutes after confirmation of the swap
                                                  subject to the reporting obligations with               counterparties with each other at the                 if confirmation occurs electronically, or
                                                  respect to real time reporting of swap                  time of, or immediately following,                    24 hours after confirmation of the swap
                                                  data set forth in part 43; and, where                   execution of the swap, but in no event                if confirmation was done manually
                                                  applicable, SDs, MSPs, and non-SD/                      later than: 15 minutes after execution of             rather than electronically.
                                                  MSP counterparties are subject to the                   the swap if both execution and                           (2) Swaps for which the reporting
                                                  reporting obligations with respect to                   verification of primary economic terms                counterparty is a non-SD/MSP
                                                  large traders set forth in parts 17 and 18              occur electronically; 30 minutes after                counterparty. For all swaps in which the
                                                  of this chapter.                                        execution of the swap if execution does               reporting counterparty is a non-SD/MSP
                                                     (a) Reporting of required swap                       not occur electronically but verification             counterparty, required swap creation
                                                  creation data. Registered entities and                  of primary economic terms occurs                      data must be reported as set forth in this
                                                  swap counterparties must report                         electronically; or 24 hours after                     Section.
                                                  required swap creation data                             execution of the swap if neither                         (i) Swaps executed on a SEF or DCM
                                                  electronically to an SDR as set forth in                execution nor verification of primary                 and cleared on a DCO. (A) The SEF or
                                                  this Section.                                           economic terms occurs electronically.                 DCM on which the swap is executed
                                                     (1) Swaps for which the reporting                       (C) The reporting counterparty must                must report all primary economic terms
                                                  counterparty is an SD or MSP. For all                   report all confirmation data for the                  data for the swap asset class of the swap
                                                  swaps in which the reporting                            swap. This report must be made                        that is in its possession, as soon as
                                                  counterparty is an SD or MSP, required                  promptly following confirmation of the                technologically practicable following
                                                  swap creation data must be reported as                  swap, but in no event later than: 15                  execution of the swap.
                                                  follows:                                                minutes after confirmation of the swap                   (B) The DCO on which the swap is
                                                     (i) Swaps executed on a SEF or DCM                   if confirmation occurs electronically, or             cleared must report all confirmation
                                                  and cleared on a DCO. (A) The SEF or                    24 hours after confirmation of the swap               data, as soon as technologically
                                                  DCM on which the swap is executed                       if confirmation was done manually                     practicable following clearing of the
                                                  must report all primary economic terms                  rather than electronically.                           swap.
                                                  data for the swap asset class of the swap                  (iii) Swaps Not Executed on a SEF or                  (C) The reporting counterparty, as
                                                  that is in its possession, as soon as                   DCM but Cleared on a DCO. (A) The                     determined pursuant to § 45.5, must
                                                  technologically practicable following                   reporting counterparty, as determined                 report any primary economic terms data
                                                  execution of the swap.                                  pursuant to § 45.5, must report all                   for the swap asset class of the swap that
                                                     (B) The DCO on which the swap is                     primary economic terms data for the                   is not reported by the SEF or DCM. This
                                                  cleared must report all confirmation                    swap asset class of the swap. This report             report must be made promptly following
                                                  data, as soon as technologically                        must be made promptly following                       verification of the primary economic
                                                  practicable following clearing of the                   verification of the primary economic                  terms by the counterparties with each
                                                  swap.                                                   terms by the counterparties with each                 other at the time of, or immediately
                                                     (C) The reporting counterparty, as                   other at or immediately following                     following, execution of the swap, but in
                                                  determined pursuant to § 45.5, must                     execution of the swap, but in no event                no event later than: 15 minutes after
                                                  report any primary economic terms data                  later than: 30 minutes after execution of             execution of the swap if both execution
                                                  for the swap asset class of the swap that               the swap if verification of primary                   and verification of primary economic
                                                  is not reported by the SEF or DCM. This                 economic terms occurs electronically; or              terms occur electronically; 30 minutes
                                                  report must be made promptly following                  24 hours after execution of a swap if                 after execution of the swap if execution
                                                  verification of the primary economic                    verification of primary economic terms                does not occur electronically but
                                                  terms by the counterparties with each                   does not occur electronically.                        verification of primary economic terms
                                                  other at the time of, or immediately                       (B) The DCO on which the swap is                   occurs electronically; or 24 hours after
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                                                  following, execution of the swap, but in                cleared must report all confirmation                  execution of the swap if neither
                                                  no event later than: 15 minutes after                   data, as soon as technologically                      execution nor verification of primary
                                                  execution of the swap if both execution                 practicable following clearing of the                 economic terms occurs electronically.
                                                  and verification of primary economic                    swap.                                                    (ii) Swaps Executed on a SEF but Not
                                                  terms occur electronically; 30 minutes                     (iv) Swaps Not Executed on a SEF or                Cleared on a DCO. (A) The SEF on
                                                  after execution of the swap if execution                DCM and Not Cleared on a DCO. The                     which the swap is executed must report
                                                  does not occur electronically but                       reporting counterparty, as determined                 all primary economic terms data for the
                                                  verification of primary economic terms                  pursuant to § 45.5, must report all                   swap asset class of the swap that is in


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                                                                     Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules                                             76601

                                                  its possession, as soon as                              verification of primary economic terms                life cycle event data, on the same day
                                                  technologically practicable following                   does not occur electronically.                        in which any life cycle event occurs; all
                                                  execution of the swap.                                     (B) The reporting counterparty must                valuation data, at intervals to be
                                                     (B) The reporting counterparty, as                   report all confirmation data for the                  determined by the Commission prior to
                                                  determined pursuant to § 45.5, must                     swap. This report must be made within                 its adoption of final swap data reporting
                                                  report any primary economic terms data                  a time to be determined by the                        regulations; and all contract-intrinsic
                                                  for the swap that is not reported by the                Commission prior to its adoption of                   event data, on the same day in which
                                                  SEF. This report must be made                           final swap data reporting regulations.                any contract-intrinsic event occurs.
                                                  promptly following verification of the                     (b) Reporting of required swap                        (2) Interest rate swaps, commodity
                                                  primary economic terms by the                           continuation data. Registered entities                swaps, and currency swaps. For all
                                                  counterparties with each other at the                   and swap counterparties must report                   interest rate swaps, commodity swaps,
                                                  time of, or immediately following,                      required swap continuation data to an                 and currency swaps, registered entities
                                                  execution of the swap, but in no event                  SDR as set forth in this Section.                     and counterparties must report as
                                                  later than: 15 minutes after execution of                  (1) Credit swaps and equity swaps.                 follows:
                                                  the swap if both execution and                          For all credit swaps and equity swaps,                   (i) Swaps for which the reporting
                                                  verification of primary economic terms                  registered entities and counterparties                counterparty is an SD or MSP. For all
                                                  occur electronically; 30 minutes after                  must report as set forth below.                       interest rate swaps, commodity swaps,
                                                  execution of the swap if execution does                    (i) Swaps for which the reporting                  and currency swaps in which the
                                                  not occur electronically but verification               counterparty is an SD or MSP. For all                 reporting counterparty is an SD or MSP,
                                                  of primary economic terms occurs                        credit swaps and equity swaps in which                required swap continuation data must
                                                  electronically; or 24 hours after                       the reporting counterparty is an SD or                be reported as follows:
                                                  execution of the swap if neither                        MSP, required swap continuation data                     (A) Swaps cleared on a DCO. (1) The
                                                  execution nor verification of primary                   must be reported as follows:                          reporting counterparty must report all
                                                  economic terms occurs electronically.                      (A) Swaps cleared on a DCO. (1) The                required state data, on a daily basis.
                                                     (C) The reporting counterparty must                  DCO on which the swap is cleared must                    (2) The DCO must report all required
                                                  report all confirmation data for the                    report all life cycle event data, on the              valuation data in its possession, on a
                                                  swap. This report must be made within                   same day in which any life cycle event                daily basis.
                                                  a time to be determined by the                          occurs; and must report all valuation                    (3) The reporting counterparty must
                                                  Commission prior to its adoption of                     data in its possession, on a daily basis.             report all required valuation data in its
                                                  final swap data reporting regulations.                     (2) The reporting counterparty must                possession, on a daily basis.
                                                     (iii) Swaps Not Executed on a SEF or                 report all valuation data in its                         (B) Swaps Not Cleared on a DCO. The
                                                  DCM but Cleared on a DCO. (A) The                       possession, on a daily basis; and must                reporting counterparty must report:
                                                  reporting counterparty, as determined                   report all contract-intrinsic event data,                (1) All required state data, on a daily
                                                  pursuant to § 45.5, must report all                     on the same day in which any contract-                basis; and
                                                  primary economic terms data for the                     intrinsic event occurs.                                  (2) All required valuation data, on a
                                                  swap. This report must be made                             (B) Swaps Not Cleared on a DCO. The                daily basis.
                                                  promptly following verification of the                  reporting counterparty must report:                      (ii) Swaps for which the reporting
                                                  primary economic terms by the                              (1) All life cycle event data, on the              counterparty is a non-SD/MSP
                                                  counterparties with each other at the                   same day in which any life cycle event                counterparty. For all interest rate swaps,
                                                  time of, or immediately following,                      occurs;                                               commodity swaps, or currency swaps in
                                                  execution of the swap, but in no event                     (2) All valuation data, on a daily                 which the reporting counterparty is a
                                                  later than: 30 minutes after execution of               basis; and                                            non-SD/MSP counterparty, required
                                                  the swap if verification of primary                        (3) All contract-intrinsic event data,             swap continuation data must be
                                                  economic terms occurs electronically; or                on the same day in which any contract-                reported as follows:
                                                  24 hours after execution of the swap if                 intrinsic event occurs.                                  (A) Swaps cleared on a DCO. (1) The
                                                  verification of primary economic terms                     (ii) Swaps for which the reporting                 reporting counterparty must report all
                                                  does not occur electronically.                          counterparty is a non-SD/MSP                          state data, on a daily basis.
                                                     (B) The DCO on which the swap is                     counterparty. For all credit swaps in                    (2) The DCO must report all valuation
                                                  cleared must report all confirmation                    which the reporting counterparty is                   data in its possession, on a daily basis.
                                                  data, as soon as technologically                        neither an SD nor MSP, required swap                     (3) The reporting counterparty must
                                                  practicable following clearing of the                   continuation data must be reported as                 report all valuation data in its
                                                  swap.                                                   follows:                                              possession, at intervals to be determined
                                                     (iv) Swaps Not Executed on a SEF or                     (A) Swaps cleared on a DCO.                        by the Commission prior to its adoption
                                                  DCM and Not Cleared on a DCO. (A)                          (1) The DCO on which the swap is                   of final swap data reporting regulations.
                                                  The reporting counterparty, as                          cleared must report all life cycle event                 (B) Swaps Not Cleared on a DCO. The
                                                  determined pursuant to § 45.5, must                     data, on the same day in which any life               reporting counterparty must report:
                                                  report all primary economic terms data                  cycle event occurs; and must report all                  (1) All state data, on a daily basis; and
                                                  for the swap asset class of the swap, and               valuation data in its possession, on a                   (2) All valuation data, at intervals to
                                                  must report all confirmation data. The                  daily basis.                                          be determined by the Commission prior
                                                  report of primary economic terms data                      (2) The reporting counterparty must                to its adoption of final swap data
                                                  must be made promptly following                         report all valuation data in its                      reporting regulations.
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                                                  verification of the primary economic                    possession, at times to be determined by
                                                  terms by the counterparties with each                   the Commission prior to its adoption of               § 45.4   Unique identifiers.
                                                  other at or immediately following                       final swap data reporting regulations;                   Each swap subject to the jurisdiction
                                                  execution of the swap, but in no event                  and must report all contract-intrinsic                of the Commission shall be identified in
                                                  later than: 30 minutes after execution of               event data, on the same day in which                  all recordkeeping and all swap data
                                                  the swap if verification of primary                     any contract-intrinsic event occurs.                  reporting concerning that swap by the
                                                  economic terms occurs electronically; or                   (B) Swaps Not Cleared on a DCO. The                use of three unique identifiers: A
                                                  24 hours after execution of a swap if                   reporting counterparty must report all                Unique Swap Identifier (‘‘USI’’), a


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                                                  76602              Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules

                                                  Unique Counterparty Identifier (‘‘UCI’’),               the automated systems of the SD or                    the time it receives the identifier
                                                  and a Unique Product Identifier (‘‘UPI’’).              MSP, which shall be unique with                       throughout the existence of the swap
                                                     (a) Unique Swap Identifiers. (1)                     respect to all such codes generated and               and for as long as any records are
                                                  Creation and Transmission for Swaps                     assigned by that SD or MSP for USI                    required by the rules of the Commission
                                                  Executed on a SEF or DCM. For each                      purposes.                                             to be kept concerning the swap,
                                                  swap executed on a SEF or DCM, a                           (ii) Transmission Where the Reporting              regardless of any changes that may
                                                  Unique Swap Identifier shall be created                 Counterparty Is an SD or MSP. The SD                  occur from time to time with respect to
                                                  and transmitted as follows.                             or MSP creating the Unique Swap                       the state of the swap or with respect to
                                                     (i) Creation. The SEF or DCM shall                   Identifier for the swap shall transmit the            the counterparties to or the ownership
                                                  generate and assign a Unique Swap                       identifier electronically as follows:                 of the swap. This requirement shall not
                                                  Identifier at the time of execution of the                 (A) To the other counterparty to the               prohibit the use by a registered entity or
                                                  swap, in the form specified by the                      swap, as soon as technologically                      swap counterparty in its own records of
                                                  Commission. The Unique Swap                             practicable after execution of the swap;              any additional identifier or identifiers
                                                  Identifier shall consist of a single data                  (B) to the DCO, if any, to which the               internally generated by the automated
                                                  field that contains two components:                     swap is submitted for clearing,                       systems of the registered entity or swap
                                                     (A) The unique, extensible,                          simultaneously with the transmission of               counterparty, or the reporting to an SDR
                                                  alphanumeric code assigned to the SEF                   required swap creation data to the DCO                or to a regulator of such internally
                                                  or DCM by the Commission at the time                    for clearing purposes; and                            generated identifiers in addition to the
                                                  of its registration, for the purpose of                    (C) to the SDR to which the SD or                  reporting of the Unique Swap Identifier.
                                                  identifying the SEF or DCM; and                         MSP reports required swap creation                       (b) Unique Counterparty Identifiers.
                                                     (B) an extensible, alphanumeric code                 data for the swap, as part of the report              (1) Each counterparty to any swap
                                                  generated and assigned to that swap by                  of that data.                                         subject to the jurisdiction of the
                                                  the automated systems of the SEF or                        (iii) Creation Where the Reporting                 Commission shall be identified in all
                                                  DCM, which shall be unique with                         Counterparty Is a non-SD–MSP                          recordkeeping with respect to swaps
                                                  respect to all such codes generated and                 Counterparty. If the reporting                        and in all swap data reporting by means
                                                  assigned by that SEF or DCM.                            counterparty determined in accordance                 of a single, unique counterparty
                                                     (ii) Transmission. The SEF or DCM                    with § 45.5 is a non-SD/MSP                           identifier having the characteristics
                                                  creating the Unique Swap Identifier for                 counterparty, the SDR to which the                    specified by the Commission.
                                                  the swap shall transmit the identifier                  reporting counterparty reports required                  (2) Each counterparty to any swap
                                                  electronically as follows:                              swap creation data shall generate and                 subject to the jurisdiction of the
                                                     (A) To each counterparty to the swap,                assign a Unique Swap Identifier as soon               Commission shall report all of its
                                                  as soon as technologically practicable                  as technologically practicable following              corporate affiliations into a confidential,
                                                  after execution of the swap;                            receipt of the first report of required               non-public corporate affiliations
                                                     (B) to the DCO, if any, to which the                 swap creation data concerning the swap,               reference database maintained and
                                                  swap is submitted for clearing,                         in the form specified by the                          located as determined by the
                                                  simultaneously with the transmission of                 Commission. The Unique Swap                           Commission. Data contained in the
                                                  required swap creation data to the DCO                  Identifier shall consist of a single data             corporate affiliations reference database
                                                  for clearing purposes; and                              field that contains two components:                   shall be available only to the
                                                     (C) to the SDR to which the SEF or                      (A) The unique, extensible,                        Commission, and to other financial
                                                  DCM reports required swap creation                      alphanumeric code assigned to the SDR                 regulators via the same data access
                                                  data for the swap, simultaneously with                  by the Commission at the time of its                  procedures applicable to data in SDRs
                                                  the transmission by the SEF or DCM to                   registration as such, for the purpose of              as provided in part 49, for regulatory
                                                  the SDR of required swap creation.                      identifying the SDR with respect to USI               purposes. For purposes of this rule,
                                                     (2) Creation and Transmission for                    creation; and                                         ‘‘corporate affiliations’’ means the
                                                  Swaps Not Executed on a SEF or DCM.                        (B) An extensible, alphanumeric code               identity of all legal entities that own the
                                                  For each swap not executed on a SEF or                  generated and assigned to that swap by                counterparty, that are under common
                                                  DCM but rather bilaterally by the                       the automated systems of the SDR,                     ownership with the counterparty, or
                                                  counterparties, a Unique Swap                           which shall be unique with respect to                 that are owned by the counterparty.
                                                  Identifier shall be created and                         all such codes generated and assigned                 This corporate affiliation information
                                                  transmitted as follows.                                 by that SDR for USI purposes.                         must be sufficient to disclose parent-
                                                     (i) Creation Where the Reporting                        (iv) Transmission Where the                        subsidiary and affiliate relationships,
                                                  Counterparty Is an SD or MSP. If the                    Reporting Counterparty Is a Non-SD/                   such that each legal entity within or
                                                  reporting counterparty determined in                    MSP counterparty. The SDR creating the                affiliated with the corporate hierarchy
                                                  accordance with § 45.5 is an SD or MSP,                 Unique Swap Identifier for the swap                   or ownership group to which the
                                                  that counterparty shall generate and                    shall transmit the identifier                         counterparty belongs is separately
                                                  assign a Unique Swap Identifier at the                  electronically as follows:                            identified. Each counterparty shall also
                                                  time of execution of the swap, in the                      (A) To the counterparties to the swap,             report to the corporate affiliations
                                                  form specified by the Commission. The                   as soon as technologically practicable                reference database all changes to the
                                                  Unique Swap Identifier shall consist of                 following creation of the USI; and                    information previously reported
                                                  a single data field that contains two                      (B) To the DCO, if any, to which the               concerning the counterparty’s corporate
                                                  components:                                             swap is submitted for clearing, as soon               affiliations, so as to ensure that the
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                                                     (A) The unique, extensible,                          as technologically practicable following              corporate affiliation information
                                                  alphanumeric code assigned to the SD                    creation of the USI.                                  recorded in the corporate affiliations
                                                  or MSP by the Commission at the time                       (3) Use. Each registered entity or swap            reference database is current and
                                                  of its registration as such, for the                    counterparty subject to the rules of the              accurate at all times.
                                                  purpose of identifying the SD or MSP                    Commission shall include the Unique                      (3) The identification system
                                                  with respect to USI creation; and                       Swap Identifier for a swap in all of its              characteristics required for the
                                                     (B) an extensible, alphanumeric code                 records and all of its swap data                      Commission to approve an
                                                  generated and assigned to that swap by                  reporting concerning that swap, from                  internationally-developed UCI as the


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                                                                     Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules                                          76603

                                                  means by which registered entities and                     (A) The Registration Authority must                identification system that satisfies the
                                                  swap counterparties must fulfill their                  maintain reference data sufficient to                 requirements set forth in § 45.4(b)(3) is
                                                  obligations under § 45.4(b)(1) shall be as              verify that a user has been correctly                 available and can provide UCIs for all
                                                  follows:                                                identified as an entity. At a minimum,                registered entities and swap
                                                     (i) The identification system must                   the reference data (though not the                    counterparties required by § 45.4 to use
                                                  result in a unique identifier format that               identifier itself) should include the                 UCIs. If the Commission determines that
                                                  is capable of becoming the single                       entity’s name and location.                           such an identification system is
                                                  international standard for unique                          (B) Issuance of identifiers must be                available, then:
                                                  identification of legal entities in the                 speedy and unbiased. It must not                         (i) The Commission shall publish in
                                                  financial sector on a global basis, if it is            materially hinder the normal course of                the Federal Register and on the Web
                                                  adopted world-wide.                                     a firm’s business. Any updates to the                 site of the Commission, no later than 90
                                                     (ii) The identification system must be               reference data must be done with a                    days prior to the implementation date
                                                  developed via an international                          minimal lag.                                          for the Commission’s final swap data
                                                  ‘‘voluntary consensus standards body’’                     (v) The Registration Authority must                reporting, the name of the identification
                                                  as defined in Office of Management and                  establish quality assurance practices.                system approved by the Commission,
                                                  Budget (‘‘OMB’’) Circular No. A–119                     The necessary quality assurance                       the name and contact information of the
                                                  Revised, such as the International                      processes must ensure that duplicate                  Registration Authority through which
                                                  Organization for Standardization, and                   identifiers are not erroneously assigned,             registered entities and swap
                                                  must be maintained by such a body and                   and that reference data for legal entities            counterparties can obtain UCIs provided
                                                  an associated Registration Authority.                   is accurate. For this purpose, the                    through the approved identification
                                                  The standards body and Registration                     Registration Authority should accept                  system, and information concerning the
                                                  Authority must have a formally                          request for updates or amendments from                procedure and requirements for
                                                  documented governance structure                         any identification system participant or              obtaining such a UCI; and
                                                  acceptable to the Commission, and must                  financial regulator.                                     (ii) All registered entities and swap
                                                  have proven expertise in designing and                     (vi) The Registration Authority must               counterparties subject to these
                                                  implementing standards for the                          maintain system safeguards comparable                 regulations shall comply with
                                                  financial sector. The standards body and                to those required for SDRs pursuant to                § 45.4(b)(1) by using a UCI provided by
                                                  Registration Authority must coordinate                  part 49 of this chapter.                              the identification system approved by
                                                                                                             (vii) The identification system must
                                                  with the Commission, the Securities and                                                                       the Commission for that purpose.
                                                                                                          be sufficiently extensible to cover all
                                                  Exchange Commission, the Office of                                                                               (5) The Commission may, in its
                                                                                                          existing and potential future legal
                                                  Financial Research, and other financial                                                                       discretion, delegate to the Director of
                                                                                                          entities of all types that are or may
                                                  regulators.                                                                                                   the Division of Market Oversight
                                                                                                          become swap counterparties or that are
                                                     (iii) As provided in OMB Circular No.                                                                      (‘‘Director’’), until the Commission
                                                                                                          or may become involved in any aspect
                                                  A–119 Revised, the identification                                                                             orders otherwise, the authority to make
                                                                                                          of the financial issuance and
                                                  system must be available to all                                                                               the determination called for by
                                                                                                          transactions process, and to cover
                                                  interested parties on a non-                                                                                  § 45.4(b)(4), to be exercised by the
                                                                                                          entities of all types with respect to
                                                  discriminatory, royalty-free or                                                                               Director or by such other employee or
                                                                                                          which financial sector entities are
                                                  reasonable royalty basis.                                                                                     employees of the Commission as may be
                                                                                                          required by any financial regulator
                                                     (A) Information concerning the                                                                             designated from time to time by the
                                                                                                          world-wide to perform due diligence for
                                                  issuance process for new identifiers                                                                          Director. The Director may submit to the
                                                                                                          reporting or risk management purposes.
                                                  must be available publicly and free of                     (viii) The identification system must              Commission for its consideration any
                                                  charge.                                                 assign only one unique identifier to any              matter which has been delegated in this
                                                     (B) While reasonable initial                         legal entity.                                         paragraph. Nothing in this paragraph
                                                  registration fees and reasonable annual                    (ix) The unique identifier format must             prohibits the Commission, at its
                                                  fees would be appropriate for issuance,                 consist of a single data field, and must              election, from exercising the authority
                                                  maintenance, and initial and ongoing                    contain either no embedded intelligence               delegated in this paragraph.
                                                  verification of a unique identifier, fees               or as little embedded intelligence as                    (6) If the Commission, or the Director
                                                  must not be charged for use of unique                   practicable.                                          as provided in § 45.4(b)(5), determines
                                                  identifiers provided via the                               (x) The unique identifier assigned                 pursuant to § 45.4(b)(4) that an
                                                  identification system, and the                          must persist despite all corporate                    identification system that satisfies the
                                                  identification system must be operated                  events. When a corporate event (e.g., a               requirements set forth in § 45.4(b)(3) is
                                                  on a non-profit basis.                                  merger or spin-off) results in a new                  not then available, then until such time
                                                     (C) A comprehensive and reasonably                   entity, the new entity must receive a                 as the Commission determines that such
                                                  current directory of the Unique                         new identifier, while the previous                    an identification system has become
                                                  Counterparty Identifiers issued by the                  identifier continues to identify the                  available, registered entities and swap
                                                  identification system (but not the entity               predecessor entity.                                   counterparties shall comply with
                                                  relationship information reported by the                   (xi) The identification system must                § 45.4(b)(1) by using a UCI created and
                                                  counterparties to the Office of Financial               use data standards and formats that will              assigned by an SDR as follows:
                                                  Research or to an SDR as provided                       enable consistency of standards and                      (i) When a swap involving one or
                                                  above) must be made available free of                   formats across platforms, data                        more counterparties for which no
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                                                  charge over the Internet or by similarly                repositories, and asset classes, in order             unique counterparty identifier has yet
                                                  convenient means.                                       to ensure data comparability and enable               been created and assigned is reported to
                                                     (iv) The identification system must be               data aggregation and cross-sectional                  an SDR, the repository shall create and
                                                  supported by a trusted and auditable                    analysis.                                             assign a unique counterparty identifier
                                                  method of verifying the identity of each                   (4) The Commission shall determine,                for each such counterparty, in a format
                                                  legal entity to whom a unique identifier                at least 100 days prior to the                        determined by the Commission, as soon
                                                  is assigned, both initially and at                      implementation date for its final data                as technologically practicable after that
                                                  appropriate intervals thereafter.                       reporting regulations, whether an                     swap is first reported to the repository.


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                                                  76604              Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules

                                                    (ii) Each such repository-created                     identifiers shall be as determined by the             § 45.7   Reporting to a single SDR.
                                                  unique identifier shall consist of a                    Commission.                                              (a) A SEF, DCM, SD or MSP that
                                                  single data field that contains two                                                                           creates the USI for a swap as provided
                                                                                                          § 45.5 Determination of which
                                                  components, including:                                                                                        in § 45.5 shall report all primary
                                                                                                          counterparty must report.
                                                    (A) The unique, extensible,                                                                                 economic terms data required to be
                                                                                                             (a) If only one counterparty is an SD,
                                                  alphanumeric code assigned to the SDR                                                                         reported for that swap to a single SDR.
                                                                                                          the SD shall fulfill all counterparty
                                                  by the Commission at the time of its                                                                          The choice of the SDR to receive this
                                                                                                          reporting obligations.
                                                  registration, for the purpose of                           (b) If neither party is an SD, and only            report shall be made in a manner to be
                                                  identifying the SDR; and                                one counterparty is an MSP, the MSP                   determined by the Commission.
                                                    (B) An extensible, alphanumeric code                                                                           (b) Where a non-SD/MSP
                                                                                                          shall fulfill all counterparty reporting
                                                  generated and assigned to that                                                                                counterparty is the reporting
                                                                                                          obligations.
                                                  counterparty by the automated systems                      (c) If both counterparties are SDs, or             counterparty pursuant to Section 45.5,
                                                  of the SDR, which shall be unique with                  both counterparties are MSPs, or both                 that reporting counterparty shall report
                                                  respect to all such unique counterparty                 counterparties are non-SD/MSP                         all primary economic terms data
                                                  identifier codes generated and assigned                 counterparties, the counterparties shall              required to be reported for that swap to
                                                  by that SDR.                                            agree as one term of their swap                       a single SDR of its choosing, which SDR
                                                    (iii) The SDR shall transmit each                     transaction which counterparty shall                  shall create the USI for that swap as
                                                  unique counterparty identifier thus                     fulfill reporting obligations with respect            provided in § 45.5.
                                                  created to each counterparty to the                     to that swap; and the counterparty so                    (c) When the SDR chosen as provided
                                                  swap, to each other registered entity                   selected shall fulfill all counterparty               in § 45.8(a) and (b) receives the initial
                                                  associated with the swap, to each                       reporting obligations.                                report of primary economic terms data
                                                  registered entity or swap counterparty                     (d) Notwithstanding the provisions of              for a swap, the SDR shall transmit its
                                                  who has made any report of any swap                     § 45.5(a) through (c), if only one                    own identity, together with the USI for
                                                  data to the SDR, and to each SDR                        counterparty to a swap is a U.S. person,              the swap, to each counterparty to the
                                                  registered with the Commission, as soon                 that counterparty shall be the reporting              swap, to the SEF or DCM, if any, on
                                                  as technologically practicable after                    counterparty and shall fulfill all                    which the swap was executed, and to
                                                  creation and assignment of the                          counterparty reporting obligations.                   the DCO, if any, to which the swap is
                                                  identifier.                                                (e) Notwithstanding the provisions of              submitted for clearing, as soon as
                                                    (iv) Once any SDR has created and                     § 45.5(a) through (c), if neither                     technologically practicable following
                                                  assigned such a UCI to a swap                           counterparty to a swap is a U.S. person,              the SDR’s receipt of the initial report of
                                                  counterparty and has transmitted it as                  but the swap is executed on a SEF or                  primary economic terms data for the
                                                  required by § 45.4(b)(6)(iii), all                      DCM or otherwise executed in the                      swap.
                                                  registered entities and swap                            United States, or is cleared by a DCO,                   (d) Thereafter, all data reported for the
                                                  counterparties shall use that UCI to                    then:                                                 swap, and all corrections of errors and
                                                  identify that counterparty in all swap                     (1) The counterparties to the swap                 omissions in previously reported data
                                                  data recordkeeping and reporting, until                 shall select one counterparty to be the               for the swap, by any registered entity or
                                                  such time as the Commission                             reporting counterparty, making such                   counterparty, shall be reported to that
                                                  determines that an identification system                selection as one term of the swap; and                same SDR (or to its successor in the
                                                  complying with § 45.4(b)(3) has become                     (2) The counterparty so selected shall             event that it ceases to operate, as
                                                  available, and by regulation requires the               be the reporting counterparty and shall               provided in part 49 of this chapter).
                                                  use of a different UCI provided by that                 fulfill all counterparty reporting
                                                                                                          obligations.                                          § 45.8 Data reporting for swaps in a swap
                                                  identification system.                                                                                        asset class not accepted by any SDR.
                                                    (c) Unique Product ID. (1) Each swap                     (f) If a reporting counterparty selected
                                                                                                          pursuant to § 45.5(a) through (f) ceases                Should there be a swap asset class for
                                                  subject to the jurisdiction of the                                                                            which no SDR currently accepts swap
                                                                                                          to be a counterparty to a swap due to an
                                                  Commission shall be identified in all                                                                         data, each registered entity or
                                                                                                          assignment or novation, and the new
                                                  recordkeeping with respect to swaps                                                                           counterparty required by § 45.3 to report
                                                                                                          counterparty is a U.S. person, the new
                                                  and in all swap data reporting by means                                                                       any required swap creation data or
                                                                                                          counterparty shall be the reporting
                                                  of a unique product identifier, having                                                                        required swap continuation data with
                                                                                                          counterparty and fulfill all reporting
                                                  the characteristics specified by the                                                                          respect to a swap in that asset class
                                                                                                          counterparty obligations following such
                                                  Commission.                                                                                                   must report that same data at a time and
                                                                                                          assignment or novation. If a new
                                                    (2) The unique product identifier                     counterparty to a swap due to an                      in a form and manner determined by the
                                                  shall identify the swap asset class to                  assignment or novation is not a U.S.                  Commission.
                                                  which the swap belongs and the sub-                     person, the counterparty that is a U.S.
                                                  type within that swap asset class to                    person shall be the reporting
                                                                                                                                                                § 45.9   Required data standards.
                                                  which the swap belongs, with sufficient                 counterparty and fulfill all reporting                   (a) Data Maintained and Furnished to
                                                  distinctiveness and specificity to enable               counterparty obligations following such               the Commission by SDRs. An SDR shall
                                                  the Commission and other financial                      assignment or novation.                               maintain all swap data reported to it in
                                                  regulators to fulfill their regulatory                                                                        a format acceptable to the Commission,
                                                  responsibilities and to enable real time                § 45.6 Third-party facilitation of data               and shall transmit all swap data
                                                  reporting of swaps as provided in the                   reporting.                                            requested by the Commission to the
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                                                  Act and the Commission’s regulations.                     Registered entities and counterparties              Commission in an electronic file in a
                                                  The level of distinctiveness and                        required by this part 45 to report                    format acceptable to the Commission.
                                                  specificity which the unique product                    required swap creation data or required                  (b) Data Reported To SDRs. In
                                                  identifier will provide shall be                        swap continuation data, while                         reporting swap data to an SDR as
                                                  determined separately for each swap                     remaining fully responsible for                       required by this Part 45, each reporting
                                                  asset class.                                            reporting as required by this part 45,                entity or counterparty shall use the
                                                    (3) The system of swap product                        may contract with third-party service                 facilities, methods, or data standards
                                                  classification used by unique product                   providers to facilitate reporting.                    provided or required by the SDR to


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                                                                             Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules                                                                76605

                                                  which the entity or counterparty reports                                     (2) The authority to determine                                 daily report of state data as required by
                                                  the data. SDRs may permit reporting                                       whether the Commission may permit or                              § 45.3(b)(2).
                                                  entities and counterparties to use                                        require use by reporting entities or                                 (c) Each counterparty to a swap that
                                                  various facilities, methods, or data                                      counterparties, or by SDRs, of one or                             is not the reporting counterparty as
                                                  standards, provided that its                                              more particular data standards (such as                           determined pursuant to § 45.5, and that
                                                  requirements in this regard enable it to                                  FIX, FpML, ISO 20022, or some other                               discovers any error or omission with
                                                  meet the requirements of § 45.9(a) with                                   standard), in order to accommodate the                            respect to any swap data reported to an
                                                  respect to maintenance and                                                needs of different communities of users,                          SDR for that swap, shall promptly notify
                                                  transmission of swap data.                                                or to enable SDRs to comply with                                  the reporting counterparty of each such
                                                     (c) Delegation of Authority to the                                     § 45.9(a).                                                        error or omission. Upon receiving such
                                                  Director of the Division of Market                                           (d) The Director shall publish from                            notice, the reporting counterparty shall
                                                  Oversight. The Commission hereby                                          time to time in the Federal Register and                          report a correction of each such error or
                                                  delegates to the Director of the Division                                 on the Web site of the Commission the                             omission to the SDR, as provided in
                                                  of Market Oversight (‘‘Director’’), until                                 format, data schema, and electronic data                          § 45.10(a) and (b).
                                                  the Commission orders otherwise, the                                      transmission methods and procedures                                  (d) Unless otherwise approved by the
                                                  authority set forth in this § 45.9(c), to be                              acceptable to the Commission.                                     Commission, or by the Director of
                                                  exercised by the Director or by such                                                                                                        Market Oversight pursuant to § 45.9(c),
                                                  other employee or employees of the                                        § 45.10 Reporting of errors and omissions
                                                                                                                            in previously reported data.                                      each registered entity or swap
                                                  Commission as may be designated from                                                                                                        counterparty reporting corrections to
                                                  time to time by the Director. The                                           (a) Each registered entity and swap
                                                                                                                                                                                              errors or omissions in data previously
                                                  Director may submit to the Commission                                     counterparty required by this Part 45 to
                                                                                                                                                                                              reported as required by this Section
                                                  for its consideration any matter which                                    report swap data to an SDR or to any
                                                                                                                                                                                              shall report such corrections in the same
                                                  has been delegated in this paragraph.                                     other registered entity or swap
                                                                                                                                                                                              format as it reported the erroneous or
                                                  Nothing in this paragraph prohibits the                                   counterparty shall report any errors and
                                                                                                                                                                                              omitted data. Unless otherwise
                                                  Commission, at its election, from                                         omissions in the data so reported.
                                                                                                                                                                                              approved by the Commission, or by the
                                                  exercising the authority delegated in                                     Corrections of errors or omissions shall
                                                                                                                                                                                              Director of Market Oversight pursuant to
                                                  this paragraph. The authority delegated                                   be reported as soon as technologically
                                                                                                                                                                                              § 45.9, an SDR shall transmit corrections
                                                  to the Director by this § 45.9(c) shall                                   practicable after discovery of any such
                                                                                                                                                                                              to errors or omission in data previously
                                                  include:                                                                  error or omission.
                                                                                                                                                                                              transmitted to the Commission in the
                                                     (1) The authority to determine the                                       (b) For interest rate swaps, commodity
                                                                                                                                                                                              same format as it transmitted the
                                                  manner, format, coding structure, and                                     swaps, and currency swaps, reporting
                                                                                                                                                                                              erroneous or omitted data.
                                                  electronic data transmission standards                                    counterparties fulfill the requirement to
                                                  and procedures acceptable to the                                          report errors or omissions in state data                          Appendix 1 to Part 45—Tables of
                                                  Commission for the purposes of                                            previously reported by making                                     Minimum Primary Economic Terms
                                                  § 45.9(a).                                                                appropriate corrections in their next                             Data and Minimum Valuation Data

                                                                                      MINIMUM PRIMARY ECONOMIC TERMS DATA—CREDIT SWAPS AND EQUITY SWAPS
                                                                                           Sample category                                                                                           Comment

                                                  The Unique Swap Identifier for the swap .................................................                       As defined in § 45.4.
                                                  The Unique Counterparty Identifier of the reporting counterparty ...........                                    As defined in § 45.4.
                                                  The Unique Counterparty Identifier of the non-reporting party ................                                  As defined in § 45.4.
                                                  The Unique Product Identifier assigned to the swap ...............................                              As defined in § 45.4.
                                                  An indication of the counterparty purchasing protection and of the                                              E.g. option buyer and option seller; buyer and seller.
                                                     counterparty selling protection.
                                                  Information identifying the reference entity ..............................................                     The entity that is the subject of the protection being purchased and
                                                                                                                                                                    sold in the swap.
                                                  An indication of whether or not both counterparties are SDs.
                                                  An indication of whether or not both counterparties are MSPs.
                                                  An indication of whether or not either counterparty is an SD or an
                                                     MSP.
                                                  The date and time of trade, expressed using Coordinated Universal
                                                     time (‘‘UTC’’).
                                                  The venue where the swap was executed.
                                                  The effective date.
                                                  The expiration data.
                                                  The price ...................................................................................................   E.g. strike, initial price, spread, etc.
                                                  The notional amount, the currency in which the notional amount is ex-
                                                     pressed, and the equivalent notional amount in U.S. dollars.
                                                  The amount and currency or currencies of any up-front payment ..........
                                                  A description of the payment streams of each counterparty ...................                                   E.g. coupon.
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                                                  The title of any master agreement incorporated by reference and the                                             E.g. annex, credit agreement.
                                                     date of any such agreement.
                                                  If the transaction involved an existing swap, an indication that the                                            E.g. assignment.
                                                     transaction did not involve an opportunity to negotiate a material
                                                     term of the contract, other than the counterparty.
                                                  The data elements necessary for a person to determine the market
                                                     value of the transaction.
                                                  Whether or not the swap will be cleared by a designated clearing orga-
                                                     nization.



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                                                  76606                     Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules

                                                                          MINIMUM PRIMARY ECONOMIC TERMS DATA—CREDIT SWAPS AND EQUITY SWAPS—Continued
                                                                                           Sample category                                                                                        Comment

                                                  The name of the designated clearing organization that will clear the
                                                     swap, if any.
                                                  If the swap is not cleared, whether the ‘‘End User exception’’ was in-
                                                     voked.
                                                  If the swap is not cleared, all of the settlement terms, including, without
                                                     limitation, whether the swap is cash-settled or physically settled, and
                                                     the method for determining the settlement value.
                                                  Any other primary economic term(s) of the swap matched by the
                                                     counterparties in verifying the swap.


                                                                                                     MINIMUM PRIMARY ECONOMIC TERMS DATA—CURRENCY SWAPS
                                                                                         Sample data fields                                                                                       Comments

                                                  The Unique Swap Identifier for the swap .................................................                     As defined in § 45.4.
                                                  The Unique Counterparty Identifier of the reporting counterparty ...........                                  As defined in § 45.4.
                                                  The Unique Counterparty Identifier of the non-reporting party ................                                As defined in § 45.4.
                                                  The Unique Product Identifier assigned to the swap ...............................                            As defined in § 45.4.
                                                  Contract type ............................................................................................    E.g. swap, swaption, forwards, options, basis swap, index swap, bas-
                                                                                                                                                                   ket swap, other.
                                                  Execution timestamp ................................................................................          Time and date of execution.
                                                  Currency 1 ................................................................................................   ISO Code.
                                                  Currency 2 ................................................................................................   ISO Code.
                                                  Notional amount 1 ....................................................................................        For currency one.
                                                  Notional amount 2 ....................................................................................        For currency two.
                                                  Settlement agent of the reporting counterparty .......................................                        ID of the settlement agent.
                                                  Settlement agent of the non-reporting counterparty ................................                           ID of the settlement agent.
                                                  Settlement currency ..................................................................................        If applicable.
                                                  Exchange rate 1 .......................................................................................       At the moment of trade/agreement.
                                                  Exchange rate 2 .......................................................................................       At the moment of trade/agreement, if applicable.
                                                  Swap delivery type ...................................................................................        Cash or physical.
                                                  Expiration date ..........................................................................................    Expiration date of the contract.
                                                  Timestamp for submission to SDR ..........................................................                    Time and date of submission to the SDR.
                                                  Futures contract equivalent ......................................................................            As defined in part 150.
                                                  Futures contract equivalent unit of measure ............................................                      As defined in part 150.
                                                  Any other primary economic term(s) of the swap matched by the
                                                    counterparties in verifying the swap.


                                                                                                 MINIMUM PRIMARY ECONOMIC TERMS DATA—INTEREST RATE SWAPS
                                                                          Sample data field                                                                                          Comment

                                                  The Unique Swap Identifier for the swap ...............                        As defined in § 45.4.
                                                  The Unique Counterparty Identifier of the report-                              As defined in § 45.4.
                                                    ing counterparty.
                                                  The Unique Counterparty Identifier of the non-re-                              As defined in § 45.4.
                                                    porting party.
                                                  The Unique Product Identifier assigned to the                                  As defined in § 45.4.
                                                    swap.
                                                  Contract type ..........................................................       E.g. swap, swaption, option, basis swap, index swap, etc.
                                                  Trade timestamp .....................................................          Time and date of execution.
                                                  Swap effective date ................................................           Effective date of the contract.
                                                  Swap end-date .......................................................          Expiration date of the contract.
                                                  Notional amount one ..............................................             The current active notional in local currency.
                                                  Notional currency one ............................................             ISO code of the notional currency.
                                                  Notional amount two ...............................................            The second notional amount (e.g. receiver leg).
                                                  Notional currency two .............................................            ISO code of the notional currency.
                                                  Timestamp for submission to SDR ........................                       Time and date of submission to the SDR.
                                                  Payer (fixed rate) ....................................................        Is the reporting party a fixed rate payer?
                                                                                                                                 Yes/No/Not applicable.
                                                  Fixed leg payment frequency .................................                  How often will the payments on fixed leg be made.
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                                                  Direction ..................................................................   For swaps—if the principal is paying or receiving the fixed rate. For float-to-float and fixed-
                                                                                                                                    to-fixed swaps, it is unspecified. For non-swap instruments and swaptions, the instrument
                                                                                                                                    that was bought or sold.
                                                  Option type .............................................................      E.g. put, call, straddle.
                                                  Fixed rate.
                                                  Fixed rate day count fraction.
                                                  Floating rate payment frequency.
                                                  Floating rate reset frequency.
                                                  Floating rate index name/rate period.



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                                                                             Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules                                                                     76607

                                                                                       MINIMUM PRIMARY ECONOMIC TERMS DATA—INTEREST RATE SWAPS—Continued
                                                                           Sample data field                                                                                              Comment

                                                  Leg 1 .......................................................................     If two floating legs, report what is paid.
                                                  Leg 2 .......................................................................     If two floating legs, repot what is received.
                                                  Futures contract equivalent ....................................                  As defined in part 150.
                                                  Futures contract equivalent unit of measure ..........                            As defined in part 150.
                                                  Any other primary economic term(s) of the swap
                                                    matched by the counterparties in verifying the
                                                    swap.


                                                                                               MINIMUM PRIMARY ECONOMIC TERMS DATA—OTHER COMMODITY SWAPS
                                                                                            Sample data field                                                                                          Comment

                                                  The Unique Swap Identifier for the swap .................................................                          As defined in § 45.4.
                                                  The Unique Counterparty Identifier of the reporting counterparty ...........                                       As defined in § 45.4.
                                                  The Unique Counterparty Identifier of the non-reporting party ................                                     As defined in § 45.4.
                                                  The Unique Product Identifier assigned to the swap ...............................                                 As defined in § 45.4.
                                                  Contract type ............................................................................................         E.g. swap, swaption, option, etc.
                                                  Execution timestamp ................................................................................               Time and date of execution.
                                                  Quantity ....................................................................................................      The Unit of measure applicable for the quantity on the swap.
                                                  Total quantity ............................................................................................        The amount of the commodity for the entire term of the swap.
                                                  Settlement method ...................................................................................              Cash or physical.
                                                  Delivery type .............................................................................................        For physical delivery.
                                                  Start date ..................................................................................................      Predetermined start date from which payments will be exchanged.
                                                  End-date ...................................................................................................       Predetermined end date from which payments will be exchanged.
                                                  Submission to SDR timestamp ................................................................                       Time and date of submission to the SDR.
                                                  Averaging method ....................................................................................              The type of calendar days used to calculate price on a transaction.
                                                  Payment calendar.
                                                  Buyer pay index ........................................................................................           The published price as paid by the buyer.
                                                  Seller pay index ........................................................................................          The published price as paid by the seller.
                                                  Buyer ........................................................................................................     Party purchasing product, e.g. payer of the fixed price (for swaps), or
                                                                                                                                                                       payer of the floating price (for put swaption), or payer of the fixed
                                                                                                                                                                       price (for call swaption).
                                                  Seller .........................................................................................................   Party offering product, e.g. payer of the floating price (for swaps),
                                                                                                                                                                       payer of the fixed price (for put swaption), or payer of the floating
                                                                                                                                                                       price (for call swaption).
                                                  Price ..........................................................................................................   E.g. fixed price, the heat rate value, etc.
                                                  Price unit ...................................................................................................     The unit of measure applicable for the price on the transaction.
                                                  Price currency ...........................................................................................         E.g. ISO code.
                                                  Grade ........................................................................................................     E.g. the grade of oil or refined product being delivered.
                                                  Futures contract equivalent ......................................................................                 As defined in part 150.
                                                  Futures contract equivalent unit of measure ............................................                           As defined in part 150.
                                                  Any other primary economic term(s) of the swap matched by the
                                                    counterparties in verifying the swap.


                                                             MINIMUM VALUATION DATA                                                     MINIMUM VALUATION DATA—                               believes could be relevant for standardized
                                                                                                                                               Continued                                      swaps in some or all swap asset classes. The
                                                                       Sample data fields                                                                                                     Commission requests comment on whether
                                                                                                                                                     Sample data fields                       any of the data fields in this Master Reference
                                                  Independent amount.                                                                                                                         Generic Data Fields List should be included
                                                  Independent amount currency.                                                 Non-cash collateral.                                           in one or more of the Tables of Required
                                                  Independent amount payer.                                                    Non-cash collateral valuation.                                 Minimum Primary Economic Terms Data for
                                                  Independent amount receiver.                                                                                                                specific swap asset classes, or in the
                                                  Initial margin.                                                              Appendix 2 to Part 45—Master                                   Minimum Valuation Data table, that are
                                                  Variation margin.                                                            Reference Generic Data Fields List                             included in Appendix 1 to Part 45.
                                                  Mark-to-market.                                                                This table includes Master Reference
                                                                                                                               Generic Data Fields that the Commission

                                                                                                 Data fields                                                                                           Description

                                                                                                                                                  Potential Initial Data
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                                                  Client Name ..............................................................................................         Name of the customer (client).
                                                  Counterparty Origin ..................................................................................             Indicator of whether a swap was done on behalf of a customer or
                                                                                                                                                                       house account.
                                                  Delivery Type ............................................................................................         Deliverable or Non-deliverable.
                                                  Effective Date or Start Date .....................................................................                 The date a swap becomes effective or starts.
                                                  Entity Reporting to SDR ...........................................................................                The entity making a data report.
                                                  Execution Timestamp ...............................................................................                The time and date a swap was executed on a platform.



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                                                  76608                      Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules

                                                                                                Data fields                                                                                         Description

                                                  Industrial Sector ........................................................................................      Industrial sector.
                                                  Intermediary ..............................................................................................     The entity that brings two parties together for the swap transaction.
                                                  Master Agreement Type ...........................................................................               The type of master agreement that was executed.
                                                  Maturity, Termination, or End Date ..........................................................                   The day a swap expires.
                                                  Non-Financial Entity .................................................................................          Y/N. Are one or more counterparties to the swap transaction not a fi-
                                                                                                                                                                    nancial entity?
                                                  Order Entry Timestamp ............................................................................              The time and date when the order was entered.
                                                  Parent Counterparty .................................................................................           The parent company of the counterparty.
                                                  Parent Originator ......................................................................................        The parent company of the originator.
                                                  Platform/Deal Source ...............................................................................            Name of the platform or system on which the swap was executed.
                                                  Registration with the SEC ........................................................................              Y/N. This field indicates whether the exempted counterparties are reg-
                                                                                                                                                                    istered with the SEC.
                                                  SDR submission date ...............................................................................             The time and date the swap transaction was submitted to the SDR.
                                                  Settlement Method ...................................................................................           The agreed upon way the swap will settle.
                                                  Submission of order entry timestamp ......................................................                      The time and date when the order was sent to the platform to be exe-
                                                                                                                                                                    cuted.

                                                                                                                                 Potential Confirmation/Clearance Data

                                                  Board of Directors approval .....................................................................               Y/N. If the exempted counterparties are registered with the SEC did
                                                                                                                                                                     their Board of Directors (or alternative governance body for non-cor-
                                                                                                                                                                     porate end users) approve the exemption from clearing?
                                                  Call, put or cancellation date ....................................................................             Information needed to determine when a call, put, or cancellation may
                                                                                                                                                                     occur with respect to a transaction.
                                                  Cleared .....................................................................................................   An indicator of whether a swap has been cleared.
                                                  Clearing Entity ..........................................................................................      Name of the Clearing Organization where a swap was cleared.
                                                  Clearing Exemption ..................................................................................           Y/N. Are one or more counterparties to the swap transaction exempted
                                                                                                                                                                     from clearing?
                                                  Clearing Timestamp .................................................................................            The time and date a swap was cleared.
                                                  Confirmed .................................................................................................     An indicator of whether a swap has been confirmed by both parties.
                                                  Master Agreement Date ...........................................................................               Date of the Master Agreement.
                                                  Submission Timestamp for clearing .........................................................                     The time and date when a swap was submitted to a clearing organiza-
                                                                                                                                                                     tion.

                                                                                                                                             Potential Position Data

                                                  Exchange Rate/Price Unit ........................................................................               Spot rate or price unit used.
                                                  Futures Contract Equivalent .....................................................................               Swap amount divided by the commodity quantity per futures contract to
                                                                                                                                                                    give you the total number of futures contracts.
                                                  Futures Contract Equivalent unit of measure ..........................................                          The unit of measure that was used in the future contract equivalent
                                                                                                                                                                    computation.
                                                  Notional (U.S.$ Equiv.) .............................................................................           U.S.$ equivalent of the ‘‘Notional Amount or Total Quantity.’’
                                                  Notional Amount/Total Notional Quantity .................................................                       Total currency amount or total quantity in the unit of measure of an un-
                                                                                                                                                                    derlying commodity.
                                                  Notional Currency/Price Currency ............................................................                   Notional Currency.

                                                                                                                            Potential Option Instrument Applicable Data

                                                  Lockout Period ..........................................................................................       Date of first allowable exercise.
                                                  Option Expiration Date .............................................................................            Expiration date of the option.
                                                  Option Premium ........................................................................................         Fixed premium paid by the buyer to the seller.
                                                  Option Premium currency .........................................................................               The currency used to compute the premium.
                                                  Option Style ..............................................................................................     American, European, Bermudan, Asian.
                                                  Option Type ..............................................................................................      Call, Put, Straddle, Strangle, Collar, Butterfly, etc.
                                                  Strike Price (Cap/Floor rate) ....................................................................              The strike price of the option.
                                                  Value for Options ......................................................................................        This value of the option at the end of every business day.

                                                                                                                                      Potential Margin/Collateral Data

                                                  Collateral on Deposit ................................................................................          The amount of collateral that has been agreed upon by the parties to
                                                                                                                                                                    the swap.
                                                  Collateral Type .........................................................................................       The type of collateral that has been agreed upon.
                                                  Credit Support Indicator ...........................................................................            Y/N. Have the exempt counterparties given notice to the CFTC regard-
                                                                                                                                                                    ing the exemption and executed a CSA or other form of credit sup-
                                                                                                                                                                    port?
                                                  Independent Amount ................................................................................             Independent amount.
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                                                  Independent Amount Currency ................................................................                    Currency of the independent amount.
                                                  Independent Amount Payer ......................................................................                 The counterparty that will pay the independent amount.
                                                  Independent Amount Receiver .................................................................                   The counterparty that will receive the independent amount.
                                                  Initial Margin Requirement .......................................................................              The initial margin requirement that has been required by the parties to
                                                                                                                                                                    the swap.
                                                  Linked Independent Amount ....................................................................                  Linked independent amount.
                                                  Linked Independent Amount Currency .....................................................                        Currency of the linked independent amount.
                                                  Long Option Value ....................................................................................          The long option value contained in the maintenance margin require-
                                                                                                                                                                    ment.



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                                                                           Federal Register / Vol. 75, No. 235 / Wednesday, December 8, 2010 / Proposed Rules                                                                 76609

                                                                                              Data fields                                                                                      Description

                                                  Maintenance Margin Requirement ...........................................................                 The maintenance margin requirement that has been required by the
                                                                                                                                                               parties to the swap.
                                                  Non-Cash Collateral .................................................................................      Non-Cash collateral that is allowed for certain end users.
                                                  Short Option Value ...................................................................................     The short option value contained in the maintenance margin require-
                                                                                                                                                               ment.
                                                  Types of Collateral on Deposit .................................................................           List of collateral by asset type for the collateral on deposit amount.
                                                  Variation Margin .......................................................................................   U.S. $ amount that is paid daily in order to mark to market the swap
                                                                                                                                                               transaction.



                                                    Issued in Washington, DC, on November                                and counterparties involved in swaps. The                    proposal includes requirement for the
                                                  19, 2010, by the Commission.                                           proposed rule is intended to ensure that                     reporting of data upon the transaction and to
                                                                                                                         complete, timely and accurate data                           continue over the lifecycle of the swap.
                                                  David A. Stawick,
                                                                                                                         concerning all swaps is available to the                     Another important component of the
                                                  Secretary of the Commission.                                           Commission and other regulators. The                         proposed rulemaking is that there will be
                                                                                                                         proposed rule requires that data be                          required unique identifiers for swaps,
                                                  Statement of Chairman Gary Gensler                                     consistently maintained and reported to                      counterparties and products. This will
                                                  Swap Data Recordkeeping and Reporting                                  swap data repositories by swap dealers,                      enhance operational efficiency for market
                                                  Requirements                                                           major swap participants, designated contract                 participants and improve market surveillance
                                                                                                                         markets, swap execution facilities,                          for regulators.
                                                    I support the proposed rulemaking to                                 derivatives clearing organizations and futures
                                                  establish swap data recordkeeping and                                  commission merchants. As swaps exist over                    [FR Doc. 2010–30476 Filed 12–7–10; 8:45 am]
                                                  reporting requirements for registered entities                         a period of days to sometimes years, the                     BILLING CODE 6351–01–P
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