The long-awaited rewrite to the CFTC trade reporting rules was approved on 17 September and, as of 25 November, published in the Federal Register.

The 18-month clock now starts ticking, with an implementation date set for 25 May 2022.

The rewrite is critically important as it delivers the most comprehensive change to reporting rules in the United States since OTC derivatives reporting was introduced by the CFTC under Dodd-Frank in 2012.

The commission has been working on this rewrite for several years and has reviewed hundreds of comments from the industry on draft amended rules published in 2019.

The resulting final rules contain no big surprises; Key highlights of the changes include:

1. Submission data requirements (new fields, validations, enumerations, etc.)-The final Part 45 rule substantially reduces the number of data fields to be reported to Swap Data Repositories (SDRs) to 128.
2. Part 45 reportingtiming -The new rule requires Swap Dealer, Major Swap Participant and Designated Clearing Organization (SD/MSP/DCO) reporting counterparties to report swap data by T+1 following the execution date, while non-SD/MSP/DCO reporting counterparties must report swap data by T+2 following the execution date.
3. Collateral, valuation and margin reporting - SD reporting counterparties will be required to report daily margin and collateral data for uncleared swaps. Non-SD/MSP participant reporting counterparties will have no requirement to report valuation, margin or collateral information. This reduces the burden as non-SDs currently report valuations quarterly.
4. Data verification requirements - SDRs will be required to provide reporting counterparties access to their open swap data in order to correct errors or omissions. All SD/MSP/DCO reporting counterparties are required to perform verification, or can delegated to a third party, of open swap data every 30 calendar days, while non-SD/MSP/DCO reporting counterparties must perform verification once every calendar quarter.

The capital markets, similar to other industries, likes and needs certainty in regulations. Budgeting, planning, resource allocation, analysis and implementation all require certainty on timing and scope. These new obligations will impose a significant burden on the compliance, legal, and technology departments across the industry to address reporting obligations and impacts to their respective systems.

To compound the complexity of the planning, firms that have reporting obligations in the United States. and Canada have also completed a significant North American re-architecture initiative by the DTCC. They will, most likely need to keep their project teams intact to start reviewing the final rules, tackle business and technical analysis and undertake the same processes they just finished.

In addition to the CFTC rewrite, reporting counterparties will also need to track, plan for and solve reporting changes coming down the pike over the next 12-18 months across the Securities and Exchange Commission (SEC), Japan Financial Services Agency (JFSA) and the Monetary Authority of Singapore (MAS).

With many major regulatory reporting changes, there is an opportunity for reevaluation on how to best design, implement and operationalize a reporting solution within an organization.

Firms must stop and consider whether the current model is optimal or are there better solutions available in the marketplace.

Many of the largest swap dealers initially built extensive internal reporting solutions and still maintain significant operational and technical teams to handle their own obligations and those of their clients. The industry never anticipated the complexity and cost of maintaining internal reporting solutions and have started to question the rationale of keeping them in-house.

The focus has been to keep up with every changing regulation, but the cost of managing solutions internally is often significantly higher than using outsourced providers. These costs include the effort required with manual processing, infrastructure, technology and the opportunity cost of dealing with operational errors and constant change. Many outsourced solutions use best-in-class technologies and processes that enable firms to benefit from economies of scale and a wider pool of ideas that continually drive and improve functionality and compliance.

Before business analysis starts on how to comply with and implement the new CFTC rules, the next six months provide a unique opportunity to have a comprehensive and strategic review of how to implement a cost effective, future-proofed and compliant regulatory trade reporting solution for your organization. The time is now.

Posted 10 December 2020 by Igor Kaplun, Executive Director, Head of Business Development, S&P Global Market Intelligence Cappitech

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.