Two CFTC No-Action Letters (13-55 and 13-56) on Swap Data Reporting

The CFTC Division of Market Oversight issued two time-limited no-action letters (Letters 13-55 and 13-56) to provide relief for temporarily registered swap execution facilities (“SEFs”) and Reporting Counterparties from compliance with certain swap data reporting requirements under CFTC Rules Part 43 (“Real-Time Public Data Reporting”) and Part 45 (“Swap Data Recordkeeping and Reporting Requirements”). 

CFTC No-Action Letter 13-55 postpones the date by which a SEF must be in compliance with certain CFTC Rules Part 43 and 45 swap data reporting obligations under CFTC Rules Part 43 and 45.  Under these CFTC Rules, which are otherwise scheduled to go into effect on October 2, 2013, a SEF is required to report swap transaction data and swap creation data to a registered swap data repository (“SDR”).  Multiple SEFs informed the CFTC that, even with the assistance of third-party reporting services, the SEFs cannot report certain Parts 43 and 45 creation data by this time, and that the data may be reported by multiple parties, leading to duplicative reporting to either the same SDR or multiple SDRs.  Based on the SEF’s representations, the CFTC believes that providing SEFs with a transitional period to more fully build their reporting capabilities for certain transactions within the foreign exchange and other commodity, and equity asset classes, will help to ensure the smooth commencement of reporting by SEFs under swap data reporting rules.  Accordingly, the CFTC will not take action against the SEFs until (i) October 30, 2013, for swaps executed in the FX asset class, and (ii) December 2, 2013, for swaps executed in the equities and other commodity classes.  The relief is conditional, and limited to the relevant asset classes, as defined by the no-action letter. 

CFTC No-Action Letter 13-56 provides for time-limited no-action relief to Reporting Counterparties from failure to report required swap continuation data or for errors and omissions in swap continuation data reported to an SDR, pursuant to CFTC Rule 45.4 (“Swap Data Reporting: Continuation Data”) for uncleared swaps in the equity, FX, and other commodity asset classes.  The relief is available only where the inability to report the continuation data is due to either:  (i) a SEF’s failure to transmit required creation data to the Reporting Counterparty; or (ii) a SEF’s failure to report, or to cause to be reported, required creation data to an SDR.  The relief is available until the earlier of (i) when a Reporting Counterparty can fulfill its continuation data reporting obligations; or (ii) October 29, 2013, for affected FX asset class swaps and December 1, 2013, for equity and other commodity asset class swaps.

Lofchie Comment:  As is the unfortunate case with so many CFTC no-action letters, these letters are subject to burdensome and expensive conditions that seem almost designed to harass anyone relying on the letter. For example, in the case of CFTC Letter 13-55, one of the conditions is that the SEF must submit:

     (i)  a detailed description of system architecture and software issues that preclude the SEF from reporting swaps in the category; and

     (ii) a detailed technical description of the necessary system architecture and/or programming changes, testing, and other operational workflows necessary to report the swaps in the category to a registered SDR.

     To requirements such as these, the appropriate response would seem to be, “Really?”  What possible use could the CFTC make of such detailed descriptions from fifteen different SEFs?  The Chairman of the CFTC has already said that the CFTC has conducted only a “cursory” review of SEF applications, so it is simply hard to understand why the CFTC would think of reviewing the details of system architecture submitted in response to a one-month grant of reporting requirements.  (One of the many problems with the CFTC’s rulemaking by no-action letter is that it thereby avoids having to cost-benefit justify the conditions of its no-action letters.  It would be surprising indeed if the CFTC were to obtain any benefit from these “detailed descriptions” or if the descriptions were to receive more than a cursory review.)

      Letter 13-56 likewise is subject to unworkable conditions.  For example, market participants only benefit from the exemption to the extent that an SEF has failed to report the relevant trade.  This assumes that SEFs and market participants are able to coordinate their activities perfectly, so that as soon as an SEF corrects its reporting problems, a market participant can respond immediately.  A more sensible approach would be to give the SEFs time to correct their reporting issues and, following such corrections, give market participants time to deal with their trade-reporting issues.

See: CFTC No-Action Letter 13-55; CFTC No-Action Letter 13-56.