Complying with CFTC Verification Requirements: A Guide for Swap Dealers
CFTC Verification Requirements
As regulators continue to increase their focus on data quality, reporting firms must ensure they have the necessary tools and processes to verify on a regular basis. Despite the CFTC Rewrite going live on December 5th, 2022, Swap Dealers in particular are still grappling with how to best comply with the verification requirements, which remains a pressing issue.
As a recap of the requirement.
Under Part 45.14, reporting counterparties are required to compare data for each swap where it is the reporting counterparty (RCP), which has been submitted to the SDR against the swap data in the reporting counterparty’s internal books and records. For Swap Dealers, major swap participants and derivatives clearing organizations, this verification has to happen at least every 30 days.
For everyone else, it’s at least once a quarter.
Additionally, a reporting party must keep a log of each verification that it performs. For each verification, the log should include all errors discovered during the verification process, and the corrections performed.
Any errors discovered through this verification process need to be resolved within 7 business days. If the exception can’t be rectified in 7 days, then the reporting party has to notify the Commission of the error and state their plan for the remediation.
So how are reporting parties meeting these requirements? Is there a standard way the industry is doing this across the SDRs?
Cappitech is working with multiple firms to assist them meet their verification requirements through the following methods:
- Cappitech reconciles every data field available in the SDR Trade State report against the clients’ books and records.
- All trades coming from the system of record are ingested by Cappitech. Eligibility, Determination and Validation rules are run against those trades to determine what should have been reported to the SDR.
- Once the universe of eligible trades is established, Cappitech builds an end of day position file by aggregating all of the eligible trades into positions. Incidentally, some clients prefer to send us their EOD position files which negates the requirement to aggregate on our end. Those positions in Cappitech are then compared, field by field against the TSR and the result of the reconciliation is categorized into 4 areas:
- Fully Matched -Positions are found on both files and all data fields match
- Missing From Source – Position is not found on the Cappitech file, but is available in the TSR
- Missing From End Point- Position is not found on the TSR, but is available in the Cappitech file
- Discrepancy – Position is found on both files, but there is a mismatch on certain data fields
This reconciliation is performed every day as soon as the TSR files are available, and results of the reconciliation are available in the Cappitech Dashboard and can be sent in a CSV directly to the client sFTP folder.
For more information on how Cappitech can help you meet your regulatory verification requirements, please contact us at firstname.lastname@example.org