CFTC DMO Swaps Reporting Review and Roadmap
Summary
SIFMA Asset Management Group (SIFMA AMG) letter to the U.S. Commodity Futures Trading Commission (CFTC) Division of Market Oversight (DMO) regarding DMO’s review of swaps reporting requirements and DMO’s Roadmap to Achieve High Quality Swaps Data.
SIFMA AMG supports DMO’s interrelated goals of improving the accuracy of swaps data and streamlining reporting requirements. SIFMA AMG provides its initial thoughts on issues to be considered as DMO studies how to make reporting more efficient, effective and accurate while protecting market liquidity, pricing and counterparty confidentiality.
Excerpt
August 18, 2017
Mr. Amir Zaidi, Director
U.S. Commodity Futures Trading Commission
Division of Market Oversight
Three Lafayette Centre
1155 21st Street, NW
Washington, DC 20581
Re: Swaps Reporting Review by the Commodity Futures Trading Commission’s (the “Commission”) Division of Market Oversight (“DMO”)
Dear Mr. Zaidi:
The Asset Management Group of the Securities Industry and Financial Markets Association (“SIFMA AMG” or “AMG”)1 appreciates DMO’s review of swaps reporting requirements and relatedly DMO’s Roadmap to Achieve High Quality Swaps Data (“Roadmap”).2
AMG fully supports DMO’s interrelated goals of improving the accuracy of swaps data and streamlining reporting requirements. AMG provides its initial thoughts below on issues to be considered as DMO studies how to make reporting more efficient, effective and accurate while protecting market liquidity, pricing and counterparty confidentiality. We look forward to providing additional, more granular recommendations prior to any rule being published and, as needed, at any point throughout this process.
I. DMO’s Tranche 1 Review Should Advance Accuracy through Single-Sided Reconciliation and Streamlining of Reporting Workflows
As DMO “[c]onsiders which counterparty(ies) must perform reconciliations,”3 we believe that the Commission should continue to have reconciliation requirements apply only on one side of the transaction. Commission Regulation 45.8 establishes the logic for determining which counterparty is the reporting counterparty for the transaction and related workflows, including reconciliation. This process works well, not only by avoiding duplication, but also by bypassing disincentives and ambiguities that could be caused by shared responsibility. One side to the transaction should have the necessary information for reconciliation provided that swaps reporting is tied to capturing the key terms of the trade; all necessary information is agreed between the parties as part of the trade confirmation and can be reconciled by the reporting counterparty.
AMG further believes that a careful review and refresh of reporting processes in light of the evolving swaps market could yield benefits for data integrity. For example, cleared swaps currently must be reported by the reporting party, only to have that report cancelled and reported again by the central counterparty (“CCP”). This cumbersome workflow leads to errors in reported data, as the initial report of the “alpha trade” does not always get removed. While these requirements were put in place when reporting requirements and clearing mandates were nascent, now that the market has largely moved to straight-through processing,4 inaccurate “noise” could easily be reduced by removing the initial report now that the time from execution to clearing has been reduced. Also, we suggest that the DMO assess whether a separate data repository is necessary for cleared trades given that the repository duplicates the CCP’s efforts to track positions it clears. Asset managers and their clients are being asked to pay for data repository services over which they have no control in selecting. We question whether the duplication is a necessary expense.
1 SIFMA AMG brings the asset management community together to provide views on policy matters and to create industry best practices. SIFMA AMG’s members represent U.S. and multinational asset management firms whose combined global assets under management exceed $39 trillion. The clients of SIFMA AMG member firms include, among others, tens of millions of individual investors, registered investment companies, endowments, public and private pension funds, UCITS and private funds such as hedge funds and private equity funds.
2 See CFTC Letter 17-33 (Jul. 10, 2017), available at: http://www.cftc.gov/idc/groups/public/@lrlettergeneral/documents/letter/17-33.pdf.
3 Roadmap at 6.
4 See Staff Guidance on Straight-Through Processing (Sept. 26, 2013), available at: http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/stpguidance.pdf.