CFTC Rewrite: Weathering the Storm Successfully
As the December 5th, 2022 deadline draws closer, the industry is working on implementing changes for the CFTC rewrite and moving into testing phase. Changes in the first phase includes but not limited to data elements, action and event type, continuation data, Unique Transaction Identifier (UTI) and counterparty identifier. Firms of all sizes must examine their current reporting mechanisms to ensure compliance with the updated rules. Several challenges continue to be discussed within the industry group to identify options and approaches that will allow the rewrite implementation to be aligned in some ways, as much as possible, to other jurisdictions’ rules as their rewrite are still under review.
CFTC technical specifications (Appendix 1 to CFTC Part 45) prescribe new reporting data points, of which many aligns to CPMI IOSCO Critical Data Elements (CDE), field definitions and data type and validation. Additional elements include package related fields, notional schedule related fields which will require reporting clients to re-analyze their upstream systems to understand how trades are being executed, booked, and transmitted downstream to ensure these additional data elements are being picked up and reported.
Action and Event Type
Action and Lifecycle Events are introduced with large similarity to ESMA requirements. Notably, the technical specification explicitly details the manner to submit an updated report to add missing information (to a previous submission) will be different from that to correct a misreported information. Reporting entities must review and ensure their source systems are able to inform the downstream reporting platform of the lifecycle events that has caused the action / event to be reported.
Continuation Data Reporting
The definition of continuation data now includes margin and collateral. This will only be applicable for Swap dealers, who will need to report collateral, in addition to valuation reporting, daily. Firms with ESMA obligation are likely familiar with collateral reporting but CFTC has included more data elements such as identifying portfolio at initial margin and variation margin level and margin posted or collected pre & post haircut. For valuation, the list of data elements required has been expanded to include Delta, initial/variation margin portfolio code, margin collected and posted between counterparties and floating reference reset amount / date.
Unique Transaction Identifier
UTI will replace USI post rewrite. Firms must review their systems and trade confirmation process to ensure that they are consuming, generating and/or transmitting UTI consistently. DTCC SDR has published that it will update trade uniqueness logic on their platform to be UTI/USI + Trade Party 1 (TP1). Reporting firms will need to perform a clean-up ahead of the rewrite release where same USI/UTI + TP1 are used for different counterparties. This is a critical action point to ensure that DTCC will initialize the correct population of open positions. After that, firms will need to update the existing positions to conform with the rewrite requirements.
The final rules will mandate swap dealer, major swap participant, swap execution facility, designated contract market, derivatives clearing organization, and swap data repository to maintain and renew LEI as well as for each financial entity reporting counterparty to use best effort to cause a LEI to be assigned to its trading counterparties.
We are expecting more regulatory changes, including but not limited to adopting Unique Product Identifier (UPI), ISO 20022 XML as the message format for reporting, rewrites from other regulators including ASIC, MAS, JFSA and ESMA (EMIR REFIT is coming). Global Regulatory Reporting Solutions (GRRS) has been providing best-of breed, award-winning reporting solution for our clients for the past decade and we are here to help you. Our expert team will work with you to navigate through complex implementations across multiple jurisdictions to implement a cost effective and compliant trade reporting solution.
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