Nearly ten years ago, the U.S.’s Commodity Futures Trading Commission (CFTC) led the global regulatory community as the first jurisdiction to implement requirements for the reporting of over-the-counter (OTC) derivatives to a registered trade repository under the Dodd-Frank Act. As we near the 10th anniversary of trade reporting, it is fitting that the CFTC is set to lead the charge once again, this time with the upcoming launch of their rules rewrite as the global regulatory community works to revamp reporting requirements with a renewed focus on data harmonization.
Related: Tackling CFTC reporting data quality challenges
Up until now the derivatives industry has seen the roll-out of diverging requirements as each global regulatory regime set out their own take on derivatives reporting rules. For the past several years, DTCC, as the provider of multiple registered trade repositories providing reporting services across 12 jurisdictions through our Global Trade Repository service (GTR), has been urging the global regulatory community, in partnership with key industry associations and standards setting bodies, for more harmonized data requirements. Standardization of regulatory data is the foundation necessary to increase transparency and mitigate systemic risk inherent in the global derivatives markets – a mandate that was set forth by the G20 in their historic Pittsburgh summit after the 2008 financial crisis. Now, as we reach a decade of trade reporting, a wave of regulatory rule rewrites and refits is set to address the lack of harmonization in reporting requirements across jurisdictions and put us back on the path towards global data harmonization.
Bracing for Impact
The CFTC will go-live with the first phase of its rewrite on December 5, 2022, with a focus on new and updated data fields, driving the submission of more standardized trade data. The CFTC’s updated requirements adopt 71% (78 out of 110) of the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions (CPMI-IOSCO) Critical Data Elements (CDE) and introduces the reporting of Collateral Valuations and a Unique Transaction Identifier (UTI).
Other important changes include new and updated validation rules as well as revised reconciliation requirements – including the need for reporting parties to correct their reports within seven business days should any errors or omissions be identified, and if they are unable to do so, to notify the CFTC’s Division of Market Oversight and include a remediation plan.
All of these changes are significant, and the impact will be felt across the derivatives ecosystem. Adjustments will need to be made across the board – from reporting parties and swap data repositories (SDRs), such as DTCC Data Repository (U.S.) LLC (DDR), to other parties that touch a trade, including swap execution facilities and clearing houses. Given DTCC’s unique role in the capital markets, we understand the complexity of data quality and the importance of reporting this data correctly, and have spent hundreds of hours meeting with regulators, industry associations, standards bodies, clients and other market participants in preparation for the CFTC rewrite.
At DTCC we believe that collaboration benefits the industry. Through working groups with other SDRs and industry associations, including International Swaps and Derivatives Association (ISDA), we have analyzed each of CFTC’s proposed requirements, providing feedback and requesting revisions and then relaying that information to industry partners and our own working groups.
As an SDR, we have spent nearly two years supporting DDR’s clients as they prepare for the changes to CFTC reporting. Given the nature of reporting in North America, we will implement all applicable changes for Canada (all 13 regulators) and U.S. Securities and Exchange Commission (SEC) reporting simultaneously. We believe this approach will best serve our clients by consolidating the changes they need to make to their trade reporting infrastructures. Canada has proposed changes to its regulations which will be finalized later, however, they are supportive of the consolidated changes for North American reporting which are being done in line with their current rules.
Ongoing dialogue with our DDR clients has been critical in boosting their readiness for the CFTC’s rule changes. Our GTR leadership team hosts weekly working group calls for all clients with reporting obligations in North America, as well as information sharing sessions specific to swap execution facilities and Canadian clients. We have also hosted a number of webinars and other live forums to educate our clients and the industry ahead of December’s compliance date.
We also recognize the value of early user-acceptance testing (UAT), so in late May of this year DDR made our UAT Simulator available to all clients, supporting the testing of system changes associated with the upcoming rule revisions. This environment can be utilized to verify submissions and test validations, helping to ensure that reported trades will be accepted on go-live. Full UAT for Trade State, Valuation and Collateral reporting will become available in August 2022, and UAT for Public Price Dissemination (PPD) will open in September 2022.
Simplify Complexities with DTCC
With the implementation of the first phase of the CFTC drawing near, we recommend that firms review their trade reporting infrastructure, controls and processes and consider finding a service that delivers the greatest value and readies them for the regulatory changes taking effect globally in 2022 and beyond. DTCC’s Report Hub® offers a highly efficient pre and post trade reporting solution, helping firms manage the complexities of multiple regulatory mandates across many jurisdictions.
Firms can tap into the breadth and depth of our experience with DTCC Consulting Services to transform their post trade business operations, increase efficiencies, reduce risks and drive down costs. For those nearing the finish line of their preparations, the DTCC Consulting Services also offer a CFTC Test Pack to empower firms with the tools they need to verify their system’s readiness for the new rules.
Following phase one of the CFTC rewrite, there is still plenty of work to be done, not only in North America but across the globe. DTCC is waiting for more information from the CFTC regarding the expected date of the phase two draft rules regarding implementing the ISO 20022 XML schema and the Unique Product Identifier (UPI). We are reviewing the recently published draft of Canada’s rule proposals which we expect to be in line with CFTC. And we will begin working with the SEC on their rules as their no-action relief will expire after four years.
The collaboration and resulting gains in alignment being achieved among all 15 North American regulators demonstrates that harmonization is possible and could lead to effective data amalgamation. As global regulators look to implement their own revised trade reporting rules, DTCC will continue to support our clients by engaging with the industry, including global regulators, market participants and industry standards setting bodies, to ensure continued consistency toward the goal of data harmonization.