[Federal Register Volume 75, Number 234 (Tuesday, December 7, 2010)]
[Proposed Rules]
[Pages 76140-76183]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-29994]
[[Page 76139]]
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Part III
Commodity Futures Trading Commission
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17 CFR Part 43
Real-Time Public Reporting of Swap Transaction Data; Proposed Rule
Federal Register / Vol. 75 , No. 234 / Tuesday, December 7, 2010 /
Proposed Rules
[[Page 76140]]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 43
RIN 3038-AD08
Real-Time Public Reporting of Swap Transaction Data
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Commodity Futures Trading Commission (``Commission'') is
proposing rules to implement new statutory provisions enacted by Title
VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act
(the ``Dodd-Frank Act''). Specifically, in accordance with Section 727
of the Dodd-Frank Act, the Commission is proposing rules to implement a
new framework for the real-time public reporting of swap transaction
and pricing data for all swap transactions. Additionally, the
Commission is proposing rules to address the appropriate minimum size
and time delay relating to block trades on swaps and large notional
swap transactions.
DATES: Comments must be received by February 7, 2011.
ADDRESSES: You may submit comments, identified by RIN number 3038-AD08,
by any of the following methods:
Federal eRulemaking Portal at http://www.regulations.gov.
Follow the instructions for submitting comments.
Agency Internet Web site, via Its Comments Online Process:
http://comments.cftc.gov. Follow the instructions for submitting
comments through the Internet Web site.
Mail: David A. Stawick, Secretary of the Commission,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581.
Hand Delivery/Courier: Same as mail above.
All comments must be submitted in English, or if not, accompanied
by an English translation. Comments will be posted as received on
http://www.cftc.gov. You should submit only information that you wish
to make publicly available. If you wish the Commission to consider
information that is exempt from disclosure under the Freedom of
Information Act, a petition for confidential treatment of the exempt
information may be submitted according to the established procedures in
Commission Regulation Sec. 145.9.\1\
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\1\ 17 CFR 145.9.
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The Commission reserves the right, but shall not have the
obligation, to review, pre-screen, filter, redact, refuse, or remove
any or all of your submission from www.cftc.gov that it may deem to be
inappropriate for publication, such as obscene language. All
submissions that have been redacted or removed from the Commission's
Internet Web site, but that contain comments on the merits of the
rulemaking, will be retained in the public comment file and will be
considered as required under the Administrative Procedure Act, 5 U.S.C.
551 et seq., and other applicable laws, and may be accessible under the
Freedom of Information Act, 5 U.S.C. 552.
FOR FURTHER INFORMATION CONTACT: Thomas Leahy, Associate Director,
Division of Market Oversight, 202-418-5278, [email protected]; or Jeffrey
L. Steiner, Special Counsel, Division of Market Oversight, 202-418-
5482, [email protected]; Commodity Futures Trading Commission, Three
Lafayette Center, 1155 21st Street, NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
II. Explanation of the Proposed Rules
A. Overview
1. Introduction
2. Parties Responsible for Reporting Swap Transaction and
Pricing Data to a Registered Entity
3. Parties Responsible for Publicly Disseminating Swap
Transaction and Pricing Data in Real-Time
4. Proposed Effective Date and Implementation Schedule
B. Section-by-Section Analysis
1. Proposed Section 43.1--Purpose, Scope and Rules of
Construction
2. Proposed Section 43.2--Definitions
3. Proposed Section 43.3--Method and Timing for Real-Time Public
Reporting
i. Responsibilities of the Reporting Party To Report Data
ii. Responsibilities of Swap Markets To Publicly Disseminate Swap
Transaction and Pricing Data in Real-Time
iii. Requirements for Registered SDRs
iv. Requirements for Third-Party Service Providers
v. Availability of Real-Time Swap Transaction and Pricing Data
vi. Errors or Omissions
vii. Hours of Operation
viii. Recordkeeping Requirements
ix. Fees Charged by Registered SDRs
x. Consolidated Public Dissemination of Swap Data
4. Proposed Section 43.4 and Appendix A to Proposed Part 43--
Swap Transaction and Pricing Data to be Publicly Disseminated in
Real-Time
i. Ensuring the Anonymity of the Parties to a Swap
ii. Unique Product Identifiers
iii. Price-Forming Continuation Data
iv. Reporting and Public Dissemination of Notional or Principal
Amount
v. Appendix A to Proposed Part 43
vi. Examples to Illustrate the Public Reporting of Real-Time Swap
Transaction and Pricing Data
5. Proposed Section 43.5--Block Trades and Large Notional Swaps
i. Parties to a Block Trade or Large Notional Swap
ii. Block Trades on Swaps
iii. Large Notional Swaps
iv. Time-Stamp and Reporting Requirements for Block Trades and Large
Notional Swaps
v. Responsibilities of Registered SDRs in Determining the
Appropriate Minimum Block Size
vi. Formula to Calculate the Appropriate Minimum Block Size
vii. Distribution Test
viii. Multiple Test
ix. Responsibilities of Swap Markets in Determining Minimum Block
Trade Sizes
x. Responsibilities of the Parties to a Swap in Determining the
Appropriate Minimum Large Notional Swap Size
xi. Time Delay in the Real-Time Public Reporting of Block Trades and
Large Notional Swaps
xii. Prohibition of Aggregation of Trades
III. Related Matters
A. Cost-Benefit Analysis
1. Introduction
2. Summary of Proposed Requirements
3. Costs
4. Benefits
B. Paperwork Reduction Act
1. Introduction
2. Information Provided by Reporting Entities/Persons
i. Reporting Requirement
ii. Public Dissemination Requirement
iii. Recordkeeping Requirement
iv. Determination of Appropriate Minimum Block Size
3. Information Collection Comments
C. Regulatory Flex Act
I. Background
On July 21, 2010, President Obama signed the Dodd-Frank Wall Street
Reform and Consumer Protection Act (``Dodd-Frank Act'').\2\ Title VII
of the Dodd-Frank Act \3\ amended the Commodity Exchange Act (``CEA'')
\4\ to establish a comprehensive, new regulatory framework for swaps
and security-based swaps.\5\ The legislation was enacted to reduce
risk, increase transparency and promote market integrity within the
financial system by, among other things: (1) Providing for the
[[Page 76141]]
registration and comprehensive regulation of swap dealers and major
swap participants (``MSPs''); (2) imposing mandatory clearing and trade
execution requirements on standardized derivative products; (3)
creating robust recordkeeping and real-time reporting regimes; and (4)
enhancing the Commodity Futures Trading Commission's (``Commission'' or
``CFTC'') rulemaking and enforcement authorities with respect to, among
others, all registered entities and intermediaries subject to the
Commission's oversight.
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\2\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the
Dodd-Frank Act may be accessed at http://www.cftc.gov./
LawRegulation/OTCDERIVATIVES/index.htm.
\3\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may
be cited as the ``Wall Street Transparency and Accountability Act of
2010.''
\4\ 7 U.S.C. 1 et seq.
\5\ Rules governing the reporting and dissemination of security-
based swaps are the subject of a separate and forthcoming rulemaking
by the Securities and Exchange Commission (``SEC'').
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Accordingly, in order to ensure the proper implementation of the
new regulatory framework, Section 727 of the Dodd-Frank Act created
Section 2(a)(13) of the CEA, which requires the Commission to
promulgate rules that provide for the public availability of swap
transaction and pricing data in real-time in such form and at such
times as the Commission determines appropriate to enhance price
discovery.\6\ Under new Section 2(a)(13)(A) of the CEA, the definition
of ``real-time public reporting'' means reporting ``data relating to a
swap transaction, including price and volume, as soon as
technologically practicable after the time at which the swap
transaction has been executed.''
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\6\ Section 2(a)(13)(B) of the CEA states that ``[t]he purpose
of this section is to authorize the Commission to make swap
transaction and pricing data available to the public in such form
and at such times as the Commission determines appropriate to
enhance price discovery.''
It is notable that the CEA is silent as to the appropriate
method through which real-time public reporting must occur.
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Sections 2(a)(13)(C)(i) through (iv) of the CEA set out the four
types of swaps for which transaction and pricing data must be reported
to the public in real-time: (i) Swaps that are subject to the mandatory
clearing requirement \7\ (including those swaps that may qualify for a
non-financial end-user exception from the mandatory clearing
requirement); \8\ (ii) swaps that are not subject to the mandatory
clearing requirement but are cleared at a registered derivatives
clearing organization (``DCO''); (iii) swaps that are not cleared at a
registered DCO and which are reported to a registered swap data
repository (``SDR'') or to the Commission pursuant to Section 2(h)(6)
of the CEA; and (iv) swaps that are ``determined to be required to be
cleared'' under Section 2(h)(2) of the CEA but are not cleared. The
four categories described in Section 2(a)(13)(C) of the CEA cover all
swaps and, therefore, the real-time reporting requirements apply to all
swaps, including those swaps executed on a registered swap execution
facility (``SEF'') or a registered designated contract market (``DCM,''
together with a SEF, a ``swap market'') and those swaps executed
bilaterally between counterparties and not pursuant to the rules of a
SEF or DCM (``off-facility swaps'').\9\
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\7\ The mandatory clearing requirement is found in Section
2(h)(1) of the CEA, as added by Section 723(a)(3) of the Dodd-Frank
Act.
\8\ Section 2(h)(7) of the CEA provides the non-financial end-
user exception from the mandatory clearing requirement.
\9\ The legislative history of the Dodd-Frank Act also suggests
that the real-time reporting requirements of Section 2(a)(13) apply
to all swaps. Senate Agriculture Committee Chairwoman Blanche
Lincoln stated during Senate deliberations that ``[t]he major
components of the derivatives title include: 100 percent reporting
of swaps and security-based swaps, mandatory trading and clearing of
standardized swaps and security-based swaps and real-time price
reporting for all swap transactions--those subject to mandatory
trading and clearing as well as those subject to the end-user
clearing exemption and customized swaps.'' 156 Cong. Rec. S5,920
(daily ed. July 15, 2010) (statement of Sen. Blanche Lincoln).
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With regard to swaps described in Sections 2(a)(13)(C)(i) and (ii)
of the CEA, Section 2(a)(13)(E) of the CEA provides that the Commission
shall prescribe rules that: (i) Ensure such information does not
identify the participants; (ii) specify the criteria for determining
what constitutes a large notional swap transaction (block trade) for
particular markets and contracts; (iii) specify the appropriate time
delay for reporting large notional swap transactions (block trades) to
the public; and (iv) take into account whether public disclosure will
materially reduce market liquidity. CEA Section 2(a)(13)(E) does not
state explicitly that the proposed rules must contain similar
provisions for those swaps described in Sections 2(a)(13)(C)(iii) and
(iv). However, in applying its authority under Section 2(a)(13)(B) to
``make swap transaction and pricing data available to the public in
such form and at such times as the Commission determines appropriate to
enhance price discovery,'' the Commission is authorized to prescribe
similar rules to those provisions in Section 2(a)(13)(E) for off-
facility swap transactions described in Sections 2(a)(13)(C)(iii) and
(iv).\10\
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\10\ In addition, the Commission is required by Section
2(a)(13)(C)(iii) of the CEA to prescribe real-time public reporting
requirements for off-facility swaps ``in a manner that does not
disclose the business transactions and market positions of any
person.''
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II. Explanation of the Proposed Rules
A. Overview
1. Introduction
The Commission proposes to create a new part 43 of its regulations,
implementing the provisions of Section 2(a)(13) of the CEA. The
proposed rules in part 43 set out: (1) The entities or persons that
shall be responsible for reporting swap transaction and pricing data;
(2) the entities or persons that shall be responsible for publicly
disseminating such data; (3) the data fields and guidance on the
appropriate order and format for data to be reported to the public in
real-time; (4) the appropriate minimum size and time delay for block
trades and large notional swaps; and (5) the proposed effective date
and implementation schedule for the proposed rules.
The proposed rules reflect consultation with staff of the
Securities and Exchange Commission (the ``SEC'') \11\ and staff of the
Board of Governors of the Federal Reserve.\12\ Staff from each of these
agencies has provided verbal and/or written comments and the proposed
rules incorporate elements of the comments provided. The proposed rules
have been further informed by (i) the joint roundtable conducted by
CFTC staff and staff of the SEC on September 14, 2010 (the
``Roundtable''); \13\ (ii) public comments posted on the Commission's
Internet Web site; \14\ and (iii) CFTC staff meetings with market
participants.\15\
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\11\ Section 763 of the Dodd-Frank Act authorizes the SEC to
promulgate rules ``to provide for the public availability of
security-based swap transaction, volume, and pricing data * * *.''
\12\ See Section 712(a)(1) of the Dodd-Frank Act requires staff
to consult with the SEC and other prudential regulators.
\13\ The transcript from the Roundtable (the ``Roundtable Tr.)
is available at: http://www.cftc.gov/ucm/groups/public/@swaps/documents/file/derivative18sub091410.pdf.
\14\ Such comments are available at: http://www.cftc.gov/LawRegulation/DoddFrankAct/OTC_18_RealTimeReporting.html.
\15\ A list and description of such meetings is available at:
http://www.cftc.gov/LawRegulation/DoddFrankAct/ExternalMeetings/index.htm.
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The SEC is adopting rules related to the real-time reporting of
security based swaps as required under Section 763 of the Dodd-Frank
Act. Understanding that the Commission and the SEC regulate different
products and markets and, as such may be proposing alternative
regulatory requirements, the Commission requests comments on the impact
of any differences between the Commission's and the SEC's approach to
the regulation and reporting of swaps and security-based swaps and the
public dissemination of swap transaction and
[[Page 76142]]
pricing data in real-time. In addition, the Commission requests
specific comment on the following issues:
Would the regulatory approach of the Commission in this
proposed rulemaking, pursuant to Section 727 of the Dodd-Frank Act, and
the SEC's proposed rulemaking, pursuant to Section 763 and 766 of the
Dodd-Frank Act, result in duplicative or inconsistent requirements on
the part of market participants to both regulatory regimes or result in
gaps between those regimes? If so, in what way should these
duplications, inconsistencies or gaps be minimized?
Do commenters believe that the proposed approaches by the
Commission and the SEC for the real-time reporting and public
dissemination of swap transaction and pricing data are comparable? If
not, why? Are there approaches that could make the real-time reporting
and public dissemination of swap transaction and pricing data more
comparable? If so, what?
Do commenters believe that it would be appropriate for the
Commission to adopt an approach proposed by the SEC that differs from
the Commission's proposal? If so, which one(s)? The Commission requests
that commenters provide data, to the extent possible, to support any
suggested approaches.
2. Parties Responsible for Reporting Swap Transaction and Pricing Data
to a Registered Entity
Section 2(a)(13)(F) of the CEA provides that the parties to a swap
(including agents of the parties to a swap) shall be responsible for
reporting swap transaction information to the appropriate registered
entity \16\ in a timely manner as may be prescribed by the
Commission.\17\ For off-facility swaps, the Commission's proposal
places the requirement to report the swap transaction and pricing data
in real-time to a registered entity (i.e., a registered SDR that
accepts and publicly disseminates real-time swap transaction and
pricing data in real-time) in a manner similar to that in which all
swap transaction information for uncleared swaps would be reported to a
registered SDR pursuant to Section 4r(a)(3) of the CEA.\18\ With
respect to swaps that are executed on a swap market, the Commission's
proposal provides that if the parties to a swap execute a transaction
on a swap market, then the transacting parties' reporting requirements
under Section 2(a)(13)(F) of the CEA are satisfied. The Commission
views the real-time swap transaction and pricing data that is sent to a
real-time disseminator and the swap information that is sent to a
registered SDR as two separate and distinct data streams.\19\
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\16\ Section 1a(40) of the CEA, as amended by Section 721(a) of
the Dodd-Frank Act, defines ``registered entity'' to include SEFs,
DCMs and SDRs, but does not include swap dealers and MSPs. Section
1a(40) also defines registered entity to include DCOs. The
Commission has determined not to apply this requirement to DCOs
because it believes that the value of timely public dissemination
outweighs the benefit of waiting until a swap is presented to a
clearing organization.
\17\ Sections 4s(f)(1)(A) and 4s(f)(2) of the CEA, provide the
Commission with broad authority to adopt rules governing the
reporting of all swap transaction information for swap dealers and
MSPs. Specifically, Section 4s(f)(1)(A) of the CEA provides that
``[e]ach registered swap dealer and major swap participant shall
make such reports as are required by the Commission by rule or
regulation regarding the transactions and positions and financial
condition of the registered swap dealer or major swap participant *
* *'' Section 4s(f)(2) of the CEA provides that ``[t]he Commission
shall adopt rules governing reporting and recordkeeping for swap
dealers and major swap participants.'' Additionally, Sections
4s(h)(1)(D) and 4s(h)(3)(D) of the CEA provide the Commission with
rulemaking authority to establish business conduct standards and
requirements relating to the real-time reporting requirements on
swap dealers and major swap participants.
\18\ Section 4r(a)(3) of the CEA provides that for swaps in
which only one counterparty is a swap dealer or MSP, the swap dealer
or MSP is required to report the swap to a registered SDR. For swaps
in which only one counterparty is a swap dealer and the other is an
MSP, the swap dealer is required to report to a registered SDR. For
all other swaps, Section 4r(a)(3) provides that the counterparties
to the swap shall select a counterparty to report to a registered
SDR.
\19\ The real-time reporting requirements pursuant to Section
2(a)(13) of the CEA are separate and apart from the requirements to
report swap transaction information to a registered SDR. The
reporting requirements for all swap transaction information to an
SDR are found in Sections 2(a)(13)(G) and 4r(a)(1) of the CEA.
Specifically, Section 2(a)(13)(G) of the CEA provides that [e]ach
swap, (whether cleared or uncleared) shall be reported to a
registered swap data repository.'' In addition, Section 4r(a)(1)
provides that ``[e]ach swap that is not accepted for clearing by any
[DCO] shall be reported to [an SDR] described in section 21 [of the
CEA];'' or if no SDR exists, to the Commission.
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3. Parties Responsible for Publicly Disseminating Swap Transaction and
Pricing Data in Real-Time
Section 2(a)(13)(D) of the CEA authorizes the Commission to require
registered entities ``to publicly disseminate the swap transaction and
pricing data.'' With respect to all off-facility swaps, the
Commission's proposal requires that reporting parties send swap
transaction and pricing data to registered SDRs to publicly disseminate
such data in real-time. With respect to swaps that are executed on a
swap market, the Commission's proposal requires that swap markets
publicly disseminate swap transaction and pricing data either through a
registered SDR or a third-party service provider. Under the proposal,
if a swap market sends the swap transaction and pricing data to a
registered SDR, the swap market is responsible for ensuring that such
data is sent in a timely manner for public dissemination.
Alternatively, if a swap market sends the swap transaction and pricing
data to a third-party service provider for the public dissemination of
such data, the swap market does not absolve itself from or satisfy the
requirement to publicly disseminate swap transaction and pricing data
until such time as the third-party service provider actually
disseminates such data. Indeed, under the alternative, a swap market
must ensure that the third-party service provider publicly disseminates
the data in the manner set forth in the proposal.\20\
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\20\ In considering different schemes of real-time public
reporting requirements, the Commission also considered a ``first
touch'' method of reporting whereby the swap dealer, MSP or swap
market where a swap transaction occurred would have been required to
real-time report the transaction by posting the transaction on its
Internet Web site or through other electronic means. The Commission
chose not to pursue a ``first touch'' method because it would likely
lead to greater fragmentation of market data, increased search costs
for market participants and potential concerns with the quality of
the data that would be publicly disseminated.
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The Commission requests comment on all aspects of the proposed
rules, as well as comment on the specific provisions, issues and
questions highlighted in the discussion in Section B below.
4. Proposed Effective Date and Implementation Schedule
The Dodd-Frank Act requires the Commission to promulgate rules to
implement these provisions by July 15, 2011.\21\ Proposed part 43 is
designed to provide clarity as to the real-time reporting and public
dissemination requirements with respect to all swap transaction and
pricing data. The Commission acknowledges that the systems for
reporting and public dissemination described in proposed part 43 may
take a significant amount of time and resources to implement
effectively. While the Commission is fully committed to implementing
Congress' directive to require real-time public reporting of all swaps
and will adopt final rules by July 15, 2011, participants will need a
reasonable amount of time in which to acquire or configure the
necessary systems, engage
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and train the necessary staff and develop and implement the necessary
policies and procedures to implement the proposed rules. The
Commission's proposed rules provide that appropriate minimum block
sizes will be published by registered SDRs beginning in January
2012.\22\ Accordingly, it is anticipated that registered entities and
registrants will have begun their compliance by that time.
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\21\ See Section 754 of the Dodd-Frank Act which states:
``Unless otherwise provided in this title, the provisions of this
subtitle shall take effect on the later of 360 days after the date
of enactment of this subtitle or, to the extent a provision of this
subtitle requires a rulemaking, not less than 60 days after
publication of the final rule or regulation implementing such
provision of this subtitle.''
\22\ See discussion relating to proposed Sec. 43.5(g)(4) below.
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The Commission requests comment on what would be an appropriate
implementation schedule (i.e., effective date) for the final rules. In
addition, the Commission requests specific comment on the following
issues:
How do commenters believe that an appropriate
implementation schedule should be structured? Should there be a phased-
in approach? Please provide specific examples.
Do commenters believe that different types of reporting
parties (e.g., swap dealers, MSPs and end-users) should have different
implementation timeframes? If so, why and what timeframes? If not, why
and what timeframe?
Do commenters believe that different types of execution
(e.g., SEF, DCM and off-facility) should have different implementation
timeframes? If so, why and what timeframes? If not, why and what
timeframe?
How long would swap dealers, MSPs and end-users need to
establish the appropriate connections to report off-facility swaps to
registered SDRs? Please explain.
How long after registration would registered SDRs need to
accept and publicly disseminate swap transaction and pricing data in
real-time? Please explain.
Should there be different implementation timeframes for
particular asset classes, markets or contracts? If so, what criteria
should be used to select those asset classes, markets or contracts?
Should the implementation timeframes for real-time
reporting and public dissemination requirements for swaps and security-
based swaps be coordinated?
Should there be different implementation timeframes for
the block trade and large notional swap rules explained in the
discussion relating to proposed Sec. 43.5 below?
B. Section-by-Section Analysis
1. Proposed Section 43.1--Purpose, Scope and Rules of Construction
The proposed rules apply to all swaps as defined in Section 1a(47)
of the CEA and as may be further defined by Commission regulations. The
categories of swaps described in Section 2(a)(13)(C) of the CEA account
for all swaps, whether cleared or uncleared, and regardless of whether
a swap is executed on a SEF, DCM or off-facility. The proposed rules
apply real-time reporting requirements to SEFs, DCMs, SDRs and the
parties of a swap, including registered or exempt swap dealers,
registered or exempt MSPs and U.S.-based end-users.
The Commission requests comment generally on the scope of
transactions covered by this part. In addition, the Commission requests
specific comment on which parties to a swap should be covered by the
reporting requirements in this part in order to enhance price
discovery?
2. Proposed Section 43.2--Definitions
Proposed Sec. 43.2 contains definitions for, inter alia, the
following terms: ``Affirmation''; ``As Soon As Technologically
Practicable''; ``Asset Class''; ``Confirmation''; ``Execution'';
``Public Dissemination'' or ``Publicly Disseminate''; ``Real-Time
Disseminator''; ``Reportable Swap Transaction''; ``Swap Instrument'';
and ``Third-Party Service Provider''.
Affirmation
Proposed Sec. 43.2(b) defines ``affirmation'' as the process
(electronically, orally, in writing or otherwise) in which the parties
to a swap verify that they agree on the primary economic terms of a
swap, but not necessarily all terms of the swap. The affirmation of the
swap is only the agreement to the primary economic terms of the swap,
as distinguished from the confirmation of a swap in which all of the
terms of the swap are agreed to in writing to memorialize the agreement
of all parties to the swap. Such confirmation legally supersedes any
previous agreement of the parties.
Affirmation and execution can, but do not necessarily, occur at the
same time. In either case, affirmation and execution always occur prior
to the confirmation of a swap. One further distinction is that
``affirmation'', as defined in the proposed rules, differs from
``confirmation by affirmation''. Some confirmation service vendors
(e.g., Deriv/SERV, MarkitSERV) have used the term ``affirmation'' to
describe the process by which one party to a swap (usually an end-user)
electronically acknowledges its assent to complete swap terms submitted
to the vendor by its counterparty (usually a dealer). This process
allows for electronic confirmation even when one party to the swap does
not have the systems necessary to submit swap terms to the vendor
electronically. Upon such assent to complete swap terms, a swap is
legally confirmed (i.e., ``confirmation by affirmation''). Parties that
use a confirmation by affirmation process previously will have affirmed
the primary economic terms of the trade and therefore executed the
trade pursuant to the definitions in the proposed rules.
As Soon as Technologically Practicable
Section 2(a)(13)(A) of the CEA defines ``real-time public
reporting'' to mean ``to report data relating to a swap transaction,
including price and volume, as soon as technologically practicable
after the time at which the swap transaction has been executed.'' ``As
soon as technologically practicable'' and ``executed'' are not defined
in the Dodd-Frank Act.\23\
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\23\ The terms ``execution'' and ``executed'' are discussed
below.
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The proposed rules provide definitions for ``as soon as
technologically practicable'' and ``executed''. Proposed Sec. 43.2(d)
defines the term ``as soon as technologically practicable'' to mean as
soon as possible, taking into consideration the prevalence of
technology, implementation and use of technology by comparable market
participants. In defining ``as soon as technologically practicable'',
the Commission has considered that this term may have different
interpretations for different parties to a swap (i.e., swap dealers,
MSPs and end-users), for different types of swaps (e.g., energy swaps,
credit default swaps, interest rate swaps, etc.) and for different
methods of execution (i.e., SEFs, DCMs and off-facility). Staff
considered real-time reporting regimes that are currently in place,
comments by market participants at external meetings, the discussions
at the Roundtable and the potential costs to market participants, among
other things. Cost, access to the latest technology and other factors
may prevent some of the fastest, most efficient technology from being
available to all market participants. Because of these factors, the
Commission recognizes that what is ``technologically practicable'' for
one party to a swap may not be the same as what is ``technologically
practicable'' for another party to a swap.
[[Page 76144]]
The Commission requests comment on whether the term should account
for other considerations not presently identified in the definition.
Asset Class
Proposed Sec. 43.2(e) defines the term ``asset class'' to mean the
broad category of goods, services or commodities underlying a swap. The
asset classes include, but are not limited to, the following five major
categories: interest rate, currency, credit, equity and other
commodity.\24\ In proposing these five major categories, the Commission
considered market statistics that distinguish between those general
types of underlying instruments, as well as market infrastructures that
have been established for these five types of instruments. The interest
rate asset class would encompass the underlying of any swap which is
primarily based on one or more reference rates, such as swaps of
payments determined by fixed and floating rates. The currency asset
class would encompass the underlying of any swap that is primarily
based on rates of exchange between different currencies, changes in
such rates or other aspects of such rates including any swap that is a
foreign exchange option. This category includes foreign exchange swaps
defined in Section 1a(25) of the CEA. The credit asset class would
encompass the underlying of any swap that is primarily based on one
instruments of indebtedness, including without limitation any swap
primarily based on one or more broad-based indices related to
instruments of indebtedness and any swap that is an index credit
default swap or a total return swap on one or more indices of debt
instruments. The equity asset class would encompass the underlying of
any swap that is primarily based on equity securities, including,
without limitation, any swap primarily based on one or more broad-based
indices of equity securities and any total return swap on one or more
equity indices. The other commodity asset class would encompass the
underlying of any swap not included in the credit, currency, equity or
interest rate asset class categories, including, without limitation,
any swap for which the primary underlying notional item is a physical
commodity or the price or any other aspect of a physical commodity.\25\
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\24\ Proposed Sec. 43.2(e) also provides that the Commission
may determine other asset classes.
\25\ Proposed Sec. 43.2(q) defines ``other commodity'' to mean
any commodity that cannot be grouped in one of the other four asset
classes (i.e., interest rate, currency, credit, equity). Other
commodities may include physical commodities (e.g., natural gas,
oil) but may also include non-physical commodities (e.g., weather
and property).
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The Commission requests comment on the following issues related to
the definition of asset class:
Do commenters agree with the proposed asset class
categories? If not, why? Should there be any additional categories of
asset classes? Should any categories of asset classes in the proposed
definition be changed or removed?
Do commenters agree on the proposed method of allocating
swaps among asset class categories? If not, why?
Should the Commission classify cross-currency rate swaps
as belonging to the interest rate asset class or to the currency asset
class? Please explain.
Should the asset class for other commodity be divided
further (e.g., agricultural commodity, energy commodity, etc.)? If so,
how should it be divided?
Confirmation
Proposed Sec. 43.2(g) defines the term ``confirmation'' to mean
the consummation (electronically or otherwise) of legally binding
documentation (electronic or otherwise) that memorializes the agreement
of the parties to all terms of a swap. A confirmation must be in
writing (whether electronic or otherwise) and must legally supersede
any previous agreement (electronic or otherwise). A confirmation
between parties to a swap may occur in various ways including via
facsimile, via ``confirmation by affirmation'' and via electronic
matching. A confirmation will contain all of the terms to a swap that
have been agreed to between two parties, whereas an affirmation
contains a subset of the terms of the confirmation.
Execution
As noted above, swap counterparties and reporting entities must
report ``as soon as technologically practicable after the time at which
the swap transaction has been executed.'' \26\ Proposed Sec. 43.2(k)
defines ``execution'' as the agreement between parties to the terms of
a swap that legally binds the parties to such terms under applicable
law. An agreement may be in electronic form (e.g., on a swap market or
via instant message), oral (e.g., over the phone), in writing (e.g., a
bespoke, structured transaction where documents are exchanged) or in
some other format not contemplated at this time. Execution immediately
follows or is simultaneous with the pre-execution affirmation of the
swap. The Commission notes that the proposed definition of execution
does not attempt to define what constitutes a legally enforceable
contract, only that execution occurs if and when the parties have
formed a legally enforceable contract (which is a matter to be decided
by applicable law).\27\ If pre-execution affirmation of the primary
economic terms creates a legally enforceable contract under applicable
law, then it would also constitute execution. If pre-execution
affirmation does not create a legally enforceable contract, then
execution would not have occurred at that stage.
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\26\ Section 2(a)(13)(A) of the CEA.
\27\ Because contract law varies by jurisdiction, the time at
which a legally enforceable contract is formed may differ based on
the applicable state or local law.
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Public Dissemination and Publicly Disseminate
Proposed Sec. 43.2(r) defines ``public dissemination'' and
``publicly disseminate'' to mean publishing and making available swap
transaction and pricing data in a non-discriminatory manner, through
the Internet or other electronic data feed that is widely published and
in a machine-readable format. The definition encompasses the non-
delayed provision of such data to the public, including market
participants, end-users, data vendors and news media.
Real-Time Disseminator
Proposed Sec. 43.2(s) defines ``real-time disseminator'' to mean
any registered SDR or third-party service provider that is responsible
for accepting and publicly disseminating swap transaction and pricing
data in real-time from multiple sources, in accordance with proposed
part 43.
Reportable Swap Transaction
Proposed Sec. 43.2(v) defines ``reportable swap transaction'' to
mean any executed swap, novation, swap unwind, partial novation,
partial swap unwind or such post-execution event that affects the price
of a swap. A reportable swap transaction includes not only the
execution of a swap contract, but also certain price-affecting events
that occur over the ``life'' of a swap. The Commission believes
novations and swap unwinds are events that clearly affect the price of
the swap and, therefore, should be publicly disseminated in real-time.
In addition to novations and swap unwinds, other price-affecting events
over the life of a swap may be considered reportable swap transactions.
For example, certain amendments that change the price terms of a swap
may be subject to the real-time public reporting requirements. Further,
the Commission recognizes that certain
[[Page 76145]]
market participants may enter into a swap and then immediately enter
into an amendment to the swap that alters the price terms, thus
reducing transparency and price discovery. The Commission believes that
including such post-execution price-affecting events to be reportable
for the purposes of real-time public reporting will enhance the
transparency and price discovery attributes of swaps trading.
The Commission requests comments on other post-execution events
that could affect price and that should be considered reportable swap
transactions.
Swap Instrument
Proposed Sec. 43.2(y) defines ``swap instrument'' to mean each
swap in the same asset class with the same or similar characteristics.
Under proposed Sec. 43.5, discussed below, registered SDRs would
determine the appropriate minimum block size based on the type of swap
instrument. After a registered SDR sets the appropriate minimum block
size for a swap instrument and groups a specific swap contract that is
listed on a swap market into a category of swap instrument, a swap
market that lists such swap contract would then reference such
appropriate minimum block size when adopting the minimum block trade
size for such swap. The Commission believes that it is appropriate to
group particular swap contracts into various broad categories of swap
instruments in determining the appropriate minimum block size.
The Commission is requesting general and specific comments on swap
instruments, as described in the discussion of appendix A to proposed
part 43 below.
Third-Party Service Provider
Proposed Sec. 43.2(bb) defines ``third-party service provider'' to
mean an entity, other than a registered SDR, that publicly disseminates
swap transaction and pricing data in real-time on behalf of a swap
market or, in the case of an off-facility swap where there is no
registered SDR available to publicly disseminate the data in real-time,
on behalf of a reporting party.
3. Proposed Section 43.3--Method and Timing for Real-Time Public
Reporting
Section 2(a)(13) of the CEA does not provide an explicit method or
timeframe in which swap transaction and pricing data must be reported
to the public in real-time. Instead, Section 2(a)(13) of the CEA
provides the Commission with authority to prescribe rules requiring:
(1) The parties to a swap transaction (including agents of the parties)
to report swap transaction and pricing data to the appropriate
registered entity in a timely manner; \28\ and (2) registered entities
to publicly disseminate swap transaction and pricing data.\29\ In
addition, Section 2(a)(13)(B) of the CEA provides that the Commission
is authorized to make swap transaction and pricing data available to
the public in such form and at such times as the Commission determines
appropriate to enhance price discovery. Accordingly, the Commission's
proposal in Sec. 43.3 sets out both the manner in which parties to a
swap must report the swap transaction and pricing data to the
appropriate registered entity, as well as the manner in which
registered entities must publicly disseminate such data. In addition,
proposed Sec. 43.3 sets out requirements for: (1) The acceptable forms
of media through which swap transaction and pricing data must be made
available to the public; (2) the appropriate methods to cancel or
correct erroneous or omitted data that has been publicly disseminated;
(3) the hours of operation that swap markets and registered SDRs must
maintain for the public dissemination of swap transaction and pricing
data; and (4) the recordkeeping of data by swap markets and registered
SDRs.
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\28\ See Section 2(a)(13)(F) of the CEA.
\29\ See Section 2(a)(13)(D) of the CEA. As discussed below, the
Commission's proposal requires registered entities to publicly
disseminate swap transaction and pricing data ``as soon as
technologically practicable''. See Section 2(a)(13)(A).
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i. Responsibilities of the Reporting Party To Report Data
As discussed above, Section 2(a)(13)(F) of the CEA provides that
the parties to a swap (including agents of the parties to a swap) shall
be responsible for reporting swap transaction information to the
appropriate registered entity. In general, proposed Sec. 43.3(a)
provides that the ``reporting party'' to each swap transaction shall be
responsible for reporting any reportable swap transaction to a
registered entity as soon as technologically practicable.\30\ Proposed
Sec. 43.2(w) defines ``reporting party'' to mean a party to a swap
with the duty to report a reportable swap transaction to a registered
entity. Under this proposal, the determination of who has this duty
depends on whether the reportable swap transaction is executed on a
swap market. For reportable swap transactions that are executed on a
swap market, proposed Sec. 43.3(a)(2)(i) provides that the requirement
for parties to report the swap transaction and pricing data is itself
satisfied by the act of execution on the swap market. The Commission
believes that this approach should result in the timeliest and most
efficient method of reporting swap transaction and pricing data, since
swap markets by definition would have immediate access to the most
accurate execution information related to each swap transaction (e.g.,
information on the counterparties to the swap, date and time of
execution, bid-offer information, final pricing information, whether
the swap should be deemed a block trade, etc.). Proposed Sec.
43.3(a)(2)(ii) recognizes that block trades may not be executed on a
swap market, but would be effective pursuant to the rules of the swap
market. For that reason, this section would require the reporting party
to the block trade to report such trades to the swap market in
accordance with the rules of the swap market and proposed Sec. 43.5.
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\30\ The Commission proposes to define ``timely manner'' to mean
``as soon as technologically practicable''.
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For off-facility swaps, proposed Sec. 43.3(a)(3) provides that,
except otherwise provided in proposed Sec. 43.5, the reporting party
must report (i.e., transmit or otherwise electronically transfer) swap
transaction and pricing data to a registered SDR as soon as
technologically practicable. Once a reporting party has reported its
swap transaction and pricing data to a registered SDR, the reporting
party has satisfied its requirement to report pursuant to Section
2(a)(13)(F) of the CEA and this proposed part 43.
The Commission believes that advanced technologies presently exist
through which a reporting party to an off-facility swap can send swap
transaction and pricing data to a registered SDR as soon as
technologically practicable. Through discussions with market
participants, the Commission understands that many swaps are executed
over the telephone and then inputted manually into electronic recording
systems. The Commission believes that reporting parties should remain
current with changes in technology and regularly update their
technology infrastructure to decrease the time of transmission of swap
transaction and pricing data to real-time disseminators.\31\
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\31\ Two examples of how reporting technology can improve over
time are seen in the evolution of (1) the Financial Industry
Regulatory Authority's (``FINRA'') Trade Reporting and Compliance
Engine (``TRACE''), and (2) the reporting of over-the-counter
(``OTC'') equity securities. Under the reporting rules for TRACE,
the current maximum reporting time requirement for publicly
reporting transaction and pricing data for corporate bonds is 15
minutes. FINRA staff has noted in meetings with Commission staff
that over 90% of its trades are reported within five minutes. See
FINRA Rule 6730 (``Transaction Reporting''). Available at: http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=4402.
With respect to the OTC securities market, FINRA has recently
reduced the reporting requirements for these securities to within 30
seconds of execution. See Securities Exchange Act Release No. 61819
(March 31, 2010), 75 FR 17806 (April 7, 2010 (Notice of Filing of
Amendment No. 2 and Order Granting Accelerated Approval of File No.
SR-FINRA-2009-061)); See also, FINRA Rules 6282(a); 6380A(a) and
(g); 6380B(a) and (f); 6622(a) and (f); 7130(b); 7230A(b); 7230B(b);
and 7330(b).
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[[Page 76146]]
The determination of which party to a swap will be deemed the
reporting party for the purposes of proposed Sec. 43.3(a) chiefly
depends on the types of entities that are parties to the swap.
Specifically, proposed Sec. 43.3(a)(3) provides that for off-
facility swaps:
If only one party is a swap dealer or MSP, the swap dealer
or MSP shall be the reporting party.
If one party is a swap dealer and the other party is an
MSP, the swap dealer shall be the reporting party.
If both parties are swap dealers, the swap dealers shall
designate which party shall be the reporting party.
If both parties are MSPs, the MSPs shall designate which
party shall be the reporting party.
If neither party is a swap dealer or an MSP, the parties
shall designate which party (or its agent) shall be the reporting
party.
Through discussions with market participants at the Roundtable and
external meetings, the Commission believes that swap dealers and MSPs
are more likely to have the infrastructure and resources available to
report their swap transaction information to a registered SDR in a
quicker period of time than parties to an end-user-to-end-user, off-
facility swap. Indeed, the Commission recognizes that non-financial
end-users do not frequently enter into swap transactions and may not
have the technology readily available to report swap transaction and
pricing data for the purposes of the real-time reporting requirements
under Section 2(a)(13)(F) of the CEA, and therefore, may lead to longer
reporting time periods from execution for such reporting parties.
The Commission understands that the requirement to report swap
transaction and pricing data as soon as technologically practicable may
increase costs for reporting parties as a result of such parties having
to upgrade their technology infrastructures. Based on discussions with
market participants, however, the Commission believes that technology
solutions may develop, such as web portals and other Internet-based
interfaces, which will aide reporting parties in complying with the
requirements proposed in Sec. 43.3(a) and reduce the cost burden
associated with their compliance. In addition, the Commission believes
that the total number of end-user to end-user swaps will be small and
thus the costs imposed on end-users will likely be lower relative to
the total number of swaps.\32\
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\32\ In addition, the Commission believes that increased
transparency may lead to more robust price competition, thus
decreasing bid-offer spreads in certain swap contracts and
benefiting end-users.
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The Commission's proposal with respect to off-facility swaps is
consistent with the reporting requirements for the reporting of
uncleared swaps to a registered SDR under Section 4r(a) of the CEA.\33\
After consulting with market participants at the Roundtable and in
meetings with market participants, the Commission believes that this
consistency may reduce technology infrastructure costs for swap dealers
and MSPs, particularly since swap dealers and MSPs will likely
establish direct connectivity to registered SDRs to satisfy the
reporting requirements for the reporting of uncleared swaps under
Section 4r(a) of the CEA.
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\33\ The requirements of Section 4r(a)(3) of the CEA are
discussed in footnote 18 above.
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In the event that no registered SDR exists or is available to
accept and publicly disseminate swap transaction and pricing data,
proposed Sec. 43.3(a)(4) establishes a special rule for the real-time
reporting of these swaps. Specifically, proposed Sec. 43.3(a)(4)
provides that the reporting party may report such data to a third-party
service provider, which provides public dissemination services. Similar
to the requirements placed on swap markets when such markets choose to
publicly disseminate through a third-party service provider, the
reporting party will be required to ensure that the swap transaction
and pricing data is publicly disseminated in real-time.
The Commission requests comment related to the responsibilities of
the parties to a swap to report swap transaction and pricing data. In
addition, the Commission requests specific comment on the following
issues:
Should the Commission establish maximum timeframes in
which reporting parties must report to a registered SDR that accepts
and publicly disseminates swap transaction and pricing data in real-
time (e.g., as soon as technologically practicable but no later than
five minutes)? If so, what should the maximum timeframes be and how
should they be determined?
Do commenters believe that the rules should require that
any additional parties to a swap be the reporting party for a swap? If
so, which parties and in which circumstances?
Should the Commission's final rules address the reporting
and public dissemination of swap transaction and pricing data for
swaps, which are transacted between two non-U.S. persons? If so, how
should the Commission's final rules address these situations?
In off-facility swap transactions where a non-U.S. swap
dealer or non-U.S. MSP transacts with a U.S.-based end-user, which
party to the swap should have the obligation to report to a real-time
disseminator? Are there other situations involving non-U.S. parties
where this issue may arise? How should the Commission address these
situations in its final rules?
Should there be an alternative method of reporting and
subsequently disseminating swap transaction and pricing data in real-
time when no registered SDR is available to accept and publicly
disseminate such data? If there is no registered SDR available and
there is no third-party service provider available to accept and
publicly disseminate data for a swap transaction, what should the real-
time reporting requirement be for such transaction?
Is there a better or more efficient alternative to have
swap transaction and pricing data reported by a reporting party to a
registered SDR for public dissemination in real-time? If so, what would
that be?
ii. Responsibilities of Swap Markets To Publicly Disseminate Swap
Transaction and Pricing Data in Real-Time
Section 2(a)(13)(D) of the CEA gives the Commission the authority
to require registered entities to publicly disseminate swap transaction
and pricing data.\34\ Proposed Sec. 43.3(b) provides the method and
timeliness of public dissemination of swap transaction and pricing
data. Proposed Sec. 43.3(b) distinguishes the public dissemination
requirement for swaps that are executed on a swap market versus those
swaps that are executed off-facility.\35\ Irrespective of the mode of
[[Page 76147]]
execution, the Commission sought to provide market participants with
reasonable guidelines to report and publicly disseminate swap
transaction and pricing data in real-time.
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\34\ As noted above, Section 1a(40) of the CEA, as amended by
Section 721(a) of the Dodd-Frank Act, defines ``registered entity''
to include SEFs, DCOs, DCMs and SDRs. The Commission has determined,
however, not to apply the Section 2(a)(13)(D) requirement to DCOs
because it believes that the value of timely public dissemination
outweighs the benefit of waiting until a swap is presented to a
clearing organization.
\35\ Block trades that are transmitted pursuant to a swap
market's rules are addressed in proposed Sec. 43.5.
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With respect to reportable swap transactions that are executed on a
swap market, proposed Sec. 43.3(b)(1)(i) provides that a swap market
shall satisfy its requirement to publicly disseminate swap transaction
and pricing data by: (1) Sending, or otherwise electronically
transmitting, swap transaction and pricing data to a registered SDR
that accepts swaps for the particular asset class of reportable swap
transactions; or (2) disseminating such data to the public through a
third-party service provider operating on behalf of the swap
market.\36\ The Commission notes that a swap market that relies on a
third-party service provider to disseminate swap transaction and
pricing data, for example through a contractual agreement, remains
responsible for compliance with the rules of proposed part 43.
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\36\ As discussed immediately below, proposedSec. 43.3(b)(2)
prohibits a swap market or reporting parties from disclosing swap
transaction and pricing data prior to sending such data to a real-
time disseminator.
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If a swap market sends swap transaction and pricing data to a
registered SDR, proposed Sec. 43.3(b)(1)(i) provides that such data
must be sent as soon as technologically practicable after the swap has
been executed. As a result of industry comments made during staff
meetings and at the Roundtable, the Commission believes that
technologies presently exist through which a swap market can send swap
transaction and pricing data to a registered SDR almost instantaneously
after execution of a reportable swap transaction.\37\ Under the
proposal, once the swap market has sent the swap transaction and
pricing data to a registered SDR, the swap market will have satisfied
its dissemination requirement.
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\37\ See, e.g., Comments by Steve Joachim, Executive Vice
President, Transparency Services, FINRA (``[T]he technology for
collecting, aggregating, and disseminating [swap] data, assuming
[the] use [of] current infrastructures * * * can allow [real-time
public reporting] to work pretty efficiently.'') Roundtable Tr. at
277-78.
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In contrast, proposed Sec. 43.3(b)(1)(ii) provides that if a swap
market sends swap transaction and pricing data to a third-party service
provider, the swap market does not satisfy its requirement to publicly
disseminate swap transaction and pricing data until such data is
actually disseminated to the public. The Commission's proposal
distinguishes between a registered SDR and a third-party service
provider because the Commission would have oversight authority over a
registered SDR, but not over a third-party service provider. This
distinction would be especially important if, for example, a third-
party service provider failed to publish swap transaction and pricing
data in real-time. Under those circumstances, the Commission may have
no authority over the third-party service provider to remedy the
failure. Since the swap market is still obligated to publicly
disseminate, the Commission may require the swap market to resolve the
failure and publicly disseminate the swap transaction and pricing data
through another third-party service provider or a registered SDR.
Accordingly, the Commission would expect that a swap market that uses a
third-party service provider to meet its public dissemination
obligation should be vigilant in monitoring the timeliness and accuracy
of the provider's publication of the swap market's swap transaction and
pricing data.
Proposed Sec. 43.3(b)(2)(i) prohibits swap markets or any
reporting party to a swap from disclosing the swap transaction and
pricing data before the real-time disseminator has publicly
disseminated such data. The Commission believes that this prohibition
will ensure that swap transaction and pricing data is disseminated
uniformly and is not published in a manner that creates unfair
advantages for any segment of market participants.
The proposed rules do allow for swap markets and swap dealers to
provide their market participants and customers, respectively, with
swap transaction and pricing data for swaps that they execute. In
particular, proposed Sec. 43.3(b)(2)(ii) provides that notwithstanding
the non-disclosure provision in proposed Sec. 43.3(b)(2)(i), a swap
market may make swap transaction and pricing data available to
participants on its market prior to the public dissemination of such
data; however, the swap market must send such swap transaction and
pricing data to a real-time disseminator at the same time as or earlier
than it makes such data available to its market participants.
Similarly, proposed Sec. 43.3(b)(2)(iii) provides that notwithstanding
the non-disclosure provision in proposed Sec. 43.3(b)(2)(i), a swap
dealer may make swap transaction and pricing data for off-facility
swaps available to its customer base prior to the public dissemination
of such data; however, such swap dealer must send such swap transaction
and pricing data to a registered SDR at the same time as or earlier
than it makes such data available to its customer base. In both cases,
the data may only be made available to the particular market (e.g.,
data for a swap executed on a particular SEF or DCM may only be shared
with market participants on that SEF or DCM). The Commission believes
that granting swap markets and swap dealers the flexibility to provide
swap transaction and pricing data to its market participants or
customer base, respectively, concurrent with reporting to the real-time
disseminator may incentivize a rapid transmittal of data to the real-
time disseminator.
The Commission requests comment generally on the responsibilities
of swap markets to publicly disseminate real-time swap transaction and
pricing data. In addition, the Commission requests comment on the
following issues:
Should the Commission establish a maximum timeframe in
which swap markets must report swap transaction and pricing data to a
real-time disseminator? If so, what is an appropriate maximum timeframe
and why?
Do commenters agree with the Commission's proposal that
swap markets satisfy their public dissemination requirement by either
sending to a registered SDR that accepts and disseminates swap
transaction and pricing data or by publicly disseminating through a
third-party service provider? If not, why? Should there be any other
means by which a swap market can satisfy its public dissemination
requirement? If yes, by what other means?
iii. Requirements for Registered SDRs
Sections 2(a)(13)(D) and 21(c)(4)(B) of the CEA provide the
Commission with the authority to require registered SDRs to publicly
disseminate swap transaction and pricing data in real-time. In
particular, Section 2(a)(13)(D) provides that the Commission may
require registered entities to publicly disseminate swap transaction
and pricing data. Registered SDRs are registered entities as defined in
Section 1(a)(40)(E) of the CEA. Section 21(c)(4)(B) of the CEA provides
that an SDR must provide swap transaction information in such form and
at such frequency as the Commission may require to comply with the
real-time reporting requirements under Section 2(a)(13).
Pursuant to these authorities, the Commission is proposing Sec.
43.3(c)(1) to require that registered SDRs that accept and publicly
disseminate such data in real-time to comply with proposed part
[[Page 76148]]
49 of the Commission's regulations.\38\ Under proposed part 49, a
registered SDR may choose, but would not be required, to publicly
disseminate swap transaction and pricing data in real-time for an asset
class of swaps. Further, a registered SDR that accepts swap transaction
and pricing data for public dissemination must publicly disseminate
such data as soon as technologically practicable upon receipt of such
data. Proposed Sec. 43.3(c)(2) provides that if a registered SDR
chooses to publicly disseminate swap transaction and pricing data in
real-time for its specified asset class,\39\ the registered SDR must
accept and publicly disseminate swap transaction and pricing data for
all swaps within such asset class. This requirement is intended to
minimize the number of swaps that are not accepted by a registered SDR
for public dissemination by enabling market participants to easily
identify the SDR that accepts particular asset classes. In addition,
proposed Sec. 43.3(c)(3) provides that any registered SDR that accepts
and publicly disseminates swap transaction and pricing data in real-
time shall perform, on an annual basis, an independent review of its
security and other system controls, in accordance with established
audit procedures and standards, for the purposes of ensuring that the
requirements of proposed part 43 are met.
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\38\ In a forthcoming release, the Commission will propose part
49 of the Commission's regulations, which will set out the
requirements that a registered SDR must satisfy in connection with
its receipt and public dissemination of swap transaction and pricing
data in real-time. Proposed part 49 of the Commission's regulations
also will identify the necessary systems that registered SDRs must
develop and maintain in order to receive and publicly disseminate
such data.
\39\ In the forthcoming proposed part 49 of the Commission's
regulations, registered swap data repositories will select the asset
class(es) for which they accept swaps.
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The Commission requests comment generally on the requirements for
registered SDRs under proposed part 43. In addition, the Commission
requests comment on whether it should require registered SDRs to
publicly disseminate all real-time swap transaction and pricing data.
iv. Requirements for Third-Party Service Providers
If a swap market chooses to publicly disseminate swap transaction
and pricing data through a third-party service provider, proposed Sec.
43.3(d) provides that the swap market must ensure that the provider
maintains standards that are, at a minimum, equal to those standards
for registered SDRs described in proposed part 43 and the relevant
provisions relating to real-time public reporting that will be proposed
in part 49 of the Commission's regulations. In addition, this section
provides that the swap market must ensure that the Commission has
access to any swap transaction and pricing data, either through the
swap market or directly through the third-party service provider.
v. Availability of Real-Time Swap Transaction and Pricing Data
Under proposed Sec. 43.3(e), registered SDRs that report swap
transaction and pricing data to the public in real-time, must make the
data available and accessible in an electronic format that is capable
of being downloaded, saved and/or analyzed. The Commission is proposing
this provision to address the concern that a registered SDR may flash
real-time swap transaction and pricing data to selected market
participants with the technology to view such data without making such
information available to the public and all market participants.
Requiring registered SDRs to allow market participants and the public
to download, save and/or analyze the real-time swap transaction and
pricing data upon public dissemination, ensures equal access to real-
time swap transaction and pricing data.
vi. Errors or Omissions
Proposed Sec. 43.3(f)(1) sets out the process through which any
errors or omissions in swap transaction and pricing data that were
publicly disseminated in real-time shall be corrected or cancelled.
Section 43.3(f)(1) sets out different processes depending on whether
the data error or omission was discovered by the reporting party to the
swap or the non-reporting party. Proposed paragraph (f)(1)(i) provides
that if the non-reporting party becomes aware of an error or omission
in the data reported for its swap, it shall promptly notify the
reporting party of the correction. Proposed paragraph (f)(1)(ii)
provides that if the reporting party becomes aware of an error or
omission in the reported data, it is required to promptly submit the
corrected data to the swap market or real-time disseminator. Proposed
paragraph (f)(1)(iii) provides that if the swap market becomes aware of
an error or omission in the swap transaction and pricing data reported
for a swap, whether or not it received notification from the reporting
party, the swap market shall promptly submit corrected data to the
real-time disseminator. Proposed paragraph (f)(1)(iv) provides that a
registered SDR that accepts and publicly disseminates swap transaction
and pricing data in real-time must publicly disseminate any
cancellations or corrections to such data as soon as technologically
practicable after receipt or discovery of such cancellation or
correction.
The proposal also seeks to prevent fraudulent dissemination for the
purpose of distorting market pricing. Specifically, proposed paragraph
(f)(2) of this section provides that reporting parties, swap markets
and registered SDRs that accept and publicly disseminate swap
transaction and pricing data in real-time are prohibited from
submitting or agreeing to submit a cancellation or correction for the
purpose of re-reporting swap transaction and pricing data in order to
gain or extend a delay in publication or to otherwise evade the
reporting requirements of proposed part 43.
Proposed paragraph (f)(3) of this section sets forth the
appropriate method of canceling incorrectly published swap transaction
and pricing data. Specifically, this paragraph provides that a real-
time disseminator must cancel incorrect data that has been disseminated
to the public by publishing a cancellation of the incorrect data in the
format and manner described in appendix A to proposed part 43.
Proposed paragraph (f)(4) of this section sets forth the
appropriate method of correcting erroneous or omitted swap transaction
and pricing data. Specifically, this paragraph provides that a real-
time disseminator must correct any erroneous or omitted data that has
been disseminated to the public by first publicly disseminating a
cancellation of the incorrect data and then publicly disseminating the
correct data pursuant to the format described in appendix A to proposed
part 43.
Depending on the situation, a cancellation may or not be followed
by a correction. For example, a cancellation may occur in a situation
where a clearinghouse does not accept a particular swap for clearing
and, therefore, the swap may be busted and not require a correction. In
another situation, one or more terms to a swap may be incorrectly
reported by the party responsible for reporting the swap, and upon
confirmation of the swap the error in the terms would be realized.
Under the proposed rules, such a situation would require a cancellation
of the original incorrectly reported data, followed by a correction
with the correct swap transaction and pricing data. Whenever reporting
a cancellation or correction, the real-time disseminator must report
the data in the same form
[[Page 76149]]
and manner in which it was originally reported and include a date stamp
reflecting the time of the original transaction, so that market
participants and the public are aware of exactly which swap has been
canceled or corrected.
vii. Hours of Operation
Since Section 2(a)(13) of the CEA requires that swap transaction
and pricing data be reported and subsequently disseminated to the
public in real-time, the Commission proposes that registered SDRs
maintain certain hours of operation in order to comply with this
legislative requirement. Proposed Sec. 43.3(g)(1) requires registered
SDRs that accept and publicly disseminate swap transaction and pricing
data in real-time to be able to receive and publicly disseminate such
data at all times, twenty-four hours a day.
Because the Commission recognizes that a registered SDR
periodically may need to conduct maintenance on its electronic systems,
proposed Sec. 43.3(g)(2) would permit a registered SDR to declare
special closing hours to perform such maintenance on an ad hoc basis.
In addition, this section would require a registered SDR to provide
advance notice of its special closing hours to market participants and
the public. Further, proposed Sec. 43.3(g)(3) provides that registered
SDRs should avoid scheduling special closing hours during those periods
when the U.S. markets and major foreign swap markets are most active.
Proposed Sec. 43.3(h) provides that during special closing hours, a
registered SDR that accepts and publicly disseminates swap transaction
and pricing data in real-time shall have the capability to receive and
hold in queue information regarding reportable swap transactions
pursuant to proposed part 43.
The Commission requests comment on the following questions
regarding hours of operation:
Should swap markets have requirements regarding hours of
operation for the purposes of the real-time reporting requirements?
Do the proposed requirements regarding hours of operation
provide registered SDRs with sufficient flexibility to conduct the
necessary maintenance on their electronic systems?
Do commenters agree that registered SDRs that accept and
publicly disseminate swap transaction and pricing data should have the
capability to receive and hold such data in queue during special
closing hours? If not, why and are there any alternatives?
viii. Recordkeeping Requirements
Proposed Sec. 43.3(i) requires reporting parties, swap markets and
registered SDRs to retain all data related to a reportable swap
transaction (including large notional swaps and block trades) for a
period of not less than five years following the time at which such
reportable swap transaction is publicly disseminated. The Commission
believes that it is necessary to retain such records in order to
recreate transaction profiles for the purposes of trade practice
surveillance and compliance. This requirement is separate and distinct
from any other recordkeeping requirements under the Commission's
regulations, including Sec. 1.31.\40\
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\40\ Section 1.31 of the Commission's regulations generally
provides, inter alia, all books and records required to be kept by
the CEA or the Commission's regulations shall be kept for a period
of five years from the date such records come into existence. In
addition, Sec. 1.31 provides that the records shall be readily
accessible during the first two years of the five year period.
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The Commission requests comment on the following questions
regarding recordkeeping requirements:
Do commenters believe that the proposed retention period
for data related to reportable swap transactions is an appropriate
period of time?
Should the recordkeeping requirement be the same as Sec.
1.31 of the Commission's regulations?
What are the anticipated costs associated with storing
such real-time swap transaction and pricing data for a longer period of
time?
ix. Fees Charged by Registered SDRs
The Commission believes that the intent and purpose of Sections
2(a)(13) and 21 of the CEA is for registered SDRs to provide open and
equal access to their data collection services for the purposes of
real-time public reporting.\41\ Consistent with open and equal access
to registered SDR services, the Commission further believes that fees
or charges adopted by a registered SDR for its data collection services
for the purposes of real-time public reporting must be equitable and
non-discriminatory. Proposed Sec. 43.3(j) ensures that any fees or
charges assessed on a reporting party or a swap market are consistent
with the intent and purpose of Sections 2(a)(13) and 21. Proposed Sec.
43.3(j) also prohibits a registered SDR from offering a discount based
on the volume of swap transaction and pricing data reported to the
registered SDR for public dissemination, unless such discount is
offered to all reporting parties and swap markets.
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\41\ Section 21 of the CEA sets forth the rules with respect to
the business conduct standards and regulation of SDRs.
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x. Consolidated Public Dissemination of Swap Data
The Commission recognizes the benefits of consolidating the public
dissemination of swap transaction and pricing data in real-time.\42\
During the Roundtable and in Commission external meetings, several
market participants commented on their desire for the Commission to
establish a consolidator in order to avoid fragmentation of the
publication of swap transaction and pricing data. The Commission
believes that a real-time reporting consolidator of swap transaction
and pricing data could provide a comprehensive record of all swaps
executed in chronological order. Additionally, a real-time reporting
consolidator would create greater anonymity for the parties to
transactions, particularly for swap dealers and MSPs.
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\42\ The Commission considered the experience of the European
Union under the Markets in Financial Instruments Directive
(``MiFID'') and its Financial Services Action Plan, which went into
effect on November 1, 2007 for OTC equity securities. Under this
plan, the European Union broadened post-trade transparency
requirements in European OTC equity securities markets. While MiFID
required transparency, many market participants expressed concerns
about the fragmentation of post-trade transparency under the MiFID
regime, especially in OTC trading. The quality, disparate timing of
publication and other barriers to consolidation of post-trade data
were all highlighted as problems by the Committee of European
Securities Regulators (``CESR'') in its Technical Advice report. See
``CESR Technical Advice to the European Commission in the Context of
the MiFID Review and Responses to the European Commission Request
for Additional Information'' (CESR/10-802, CESR/10-799, CESR/10-808,
CESR/10-859), July 29, 2010. Available at: http://www.cesr-eu.org/popup2.php?id=7003.
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Unlike the federal securities laws,\43\ however, neither the CEA
nor the Dodd-Frank Act grants the Commission explicit statutory
authority to establish a real-time reporting consolidator.\44\ The
Commission requests comment on methods to encourage the consolidation
of publicly disseminated swap transaction and pricing data.
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\43\ See, e.g., 15 U.S.C. 78k-1.
\44\ As mentioned above, FINRA oversees TRACE, which is a
mechanism through which post-trade data regarding OTC secondary
market securities in fixed income is reported. FINRA requires its
broker-dealer member firms to report transactions to TRACE under an
SEC-approved set of rules. Beginning in 2002, TRACE published
transaction data on a consolidated tape. TRACE first published data
on very liquid transactions and later phased-in additional products.
More information on TRACE can be accessed at: http://www.finra.org/Industry/Compliance/MarketTransparency/TRACE/index.htm.
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[[Page 76150]]
4. Proposed Section 43.4 and Appendix A to Proposed Part 43--Swap
Transaction and Pricing Data To Be Publicly Disseminated in Real-Time
As noted above, Section 2(a)(13)(B) authorizes the Commission to
prescribe regulations to make swap transaction and pricing data
available in real-time in such form as the Commission determines
appropriate to enhance price discovery. Proposed Sec. 43.4 establishes
the format in which such data will be publicly disseminated.
Proposed Sec. 43.4(a) provides that swap transaction information
shall be reported to a real-time disseminator so that the real-time
disseminator can publicly disseminate swap transaction and pricing data
in real-time in accordance with proposed part 43, including the manner
and format described in appendix A to proposed part 43.\45\ Appendix A
to proposed part 43 provides a list of data fields for which a
registered SDR must publicly disseminate swap transaction and pricing
data. The descriptions and examples in appendix A to proposed part 43
are intended to provide guidance on an acceptable public reporting
format and order for the data fields that are listed.
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\45\ Proposed Sec. 43.4 would not require that a reporting
party or swap market provide swap transaction and pricing data in a
particular format or that such data be anonymized prior to being
sent to a real-time disseminator. Reporting parties and swap markets
must, however, provide real-time disseminators with the information
required to publicly disseminate the required data fields.
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Proposed Sec. 43.4(b) provides that any registered SDR that
accepts and publicly disseminates swap transaction and pricing data in
real-time shall publicly disseminate the information in the data fields
described in appendix A to proposed part 43.
Proposed Sec. 43.4(c) provides that a registered SDR that accepts
and publicly disseminates swap transaction and pricing data in real-
time may, as necessary, require reporting parties and swap markets to
report such information in addition to the data described in appendix A
to proposed part 43, in order to match the swap transaction and pricing
data that was publicly disseminated in real-time to the data reported
to a registered SDR or confirm that parties to a swap have reported in
a timely manner pursuant to Sec. 43.3. Such additional information
shall not be publicly disseminated, on either a transactional or
aggregate basis, by the registered SDR that accepts and publicly
disseminates swap transaction and pricing data in real-time.
Proposed Sec. 43.4(d) provides that the Commission may determine
from time to time to amend the data fields described in appendix A.
This section gives the Commission flexibility to add, modify or delete
data fields as the Commission may deem appropriate and necessary to
enhance price discovery and prevent the disclosure of the identities of
the parties to any swap.
The Commission requests comment generally on the real-time
reporting and public dissemination of the data described in appendix A
to proposed part 43. In addition, the Commission requests comment on
the following issues:
Should the Commission specify the format and/or manner in
which swap transaction and pricing data must be reported to a real-time
disseminator?
Should the Commission require that registered SDRs follow
a specified order and format for the public dissemination of swap
transaction and pricing data instead of providing examples and
guidance?
i. Ensuring the Anonymity of the Parties to a Swap
Sections 2(a)(13)(C)(iii) and 2(a)(13)(E)(i) of the CEA emphasize
the importance of maintaining the anonymity of the parties to a
swap.\46\ Proposed Sec. 43.4(e)(1) prohibits the disclosure of swap
transaction and pricing data that is publicly disseminated in real-
time, which identifies or otherwise facilitates the identification of a
party to a swap. This section further provides that a registered SDR
may not report such data in a manner that discloses or otherwise
facilitates the identification of a party to a swap.
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\46\ The legislative history of the Dodd-Frank Act states that
``regulators are to ensure that the public reporting of swap
transactions and pricing data does not disclose the names or
identities of the parties to the transactions.'' 156 Cong. Rec.
S5,921 (daily ed. July 15, 2010) (statement of Sen. Blanche
Lincoln).
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The Commission understands that this latter prohibition may lead to
a loss of clarity with respect to the precise characteristics of swaps
in certain circumstances.\47\ Proposed Sec. 43.4(e)(2) provides that a
reporting party or a swap market must provide a real-time disseminator
with a specific description of the underlying asset and tenor of a
swap. The description must be general enough to provide anonymity, but
specific enough to provide for a meaningful understanding of the swap.
The Commission recognizes that it is conceivable that in situations
where few parties trade a particular type of underlying asset, the
description of that asset may inadvertently reveal the identity of one
or more party(ies) to the swap.
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\47\ See, e.g., comments from Steve Joachim, Executive Vice
President, Transparency Services, FINRA (``I think we have to
recognize that when we're talking about transparen[cy] in
marketplaces that if we want to pursue the goal of transparency,
that trading in transparent markets is different than trading in
opaque markets and that you lose some anonymity no matter what
happens. There will not be total confidentiality.''), Roundtable Tr.
at 258.
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For off-facility swaps, particularly other commodity swaps with
very specific underlying assets, market participants may be able to
infer the identity of a party or parties to a swap based on the
description of the underlying asset.\48\ For example, if the underlying
asset to an off-facility swap is an energy commodity contract that has
a specific delivery point at Lake Charles, Louisiana and such contract
is only traded by two companies, then disclosing the underlying asset
to the public would effectively disclose that one of those companies
was entering into the trade. Proposed Sec. 43.4(e)(2) allows reporting
parties of off-facility swaps to publicly disseminate a description an
underlying asset or tenor that by virtue of its real-time reporting
would enable market participants to infer the identity of a party to
the swap, in a way that does not disclose a party to a swap, but
provides a meaningful understanding of the swap for the purpose of
price discovery.\49\ In the example, instead of saying a specific
delivery point of Lake Charles, Louisiana, the reporting party may use
a broader geographic region (e.g., Louisiana, Gulf coast, etc.) under
the Commission's proposal. The Commission believes that the issue of
the description being too specific as to divulge the identity of a
party to a swap
[[Page 76151]]
is more likely to arise when the underlying asset is a commodity. The
Commission, however, believes that other asset classes and markets may
have similar issues. In contrast, for those swaps that are executed on
a swap market, the Commission believes that, since such contracts will
be listed on a particular trading platform or facility, it will be
unlikely that a party to a swap could be inferred based on the
reporting of the underlying asset and therefore parties to swaps
executed on swap markets must report the specific underlying assets and
tenor of the swap.
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\48\ See, e.g., comments from Peter Axilrod, Managing Director,
New Business Development, The Depository Trust & Clearing
Corporation (``I guess I'd like to make a plea for people to be
careful with commodities. It's a little bit of a different market
than what most people have been talking about. There are delivery
points all over the country, there are load-serving entities, many
of them all over the country, there are producers all over the
country, and if you force people to specify a particular delivery
point all the time, people are pretty much going to know who's
making those trades. So, whatever you do in terms of what
commodities data is reported publicly, you have to leave room for
some flexibility in terms of anonymization [sic]. So, if the
delivery points are too specific, you may never get much anonymizing
[sic] of trades, but if you allow the geographic area to be expanded
or to have some anonymity criteria and perhaps pick the set of the
delivery points that meets the anonymity criteria, something like
that needs to be done.''), Roundtable Tr. at 252-253.
\49\ It is important to note that the reporting requirement in
this section is separate from the requirement to report swap
transaction information to a registered SDR pursuant to Section
2(a)(13)(G) of the CEA. The CEA does not require swap transaction
information be reported in a manner that protects anonymity since
such information will not be publicly disseminated.
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The Commission recognizes that swap markets may differ and that new
types of swaps may emerge; therefore, the Commission is not proposing
specific guidelines at this time for how an underlying asset should be
described for the purposes of proposed Sec. 43.4(e)(2). The
specificity of the description will vary based on particular markets
and contracts, but the proposed rules provide reporting parties with
discretion on how to report swap transaction and pricing data. Proposed
Sec. 43.3(e)(2) and proposed part 23 of the Commission's regulations
require that swap dealers and MSPs who do not disclose a specific
description of an underlying asset and/or tenor because such disclosure
would facilitate the identity of a party to a swap, must document why
the specific information regarding the underlying asset and/or tenor
was not publicly disseminated.\50\ Further, swap dealers and MSPs must
retain and provide such written justifications to the Commission
pursuant to proposed part 23 of the Commission's regulations.\51\
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\50\ In a forthcoming release, the Commission will propose part
23 of the Commission's regulations, which will set out the internal
business conduct standards for swap dealers and MSPs, including
recordkeeping requirements in connection with real-time public
reporting.
\51\ See id.
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The Commission notes that the language found in Section
2(a)(13)(C)(iii) of the CEA, requiring that real-time public reporting
be done ``in a manner that does not disclose the business transactions
and market positions of any person'' is similar to the language found
in Section 8(a) of the CEA. Section 8(a)(1) of the CEA provides, in
relevant part, that ``the Commission may not publish data and
information that would separately disclose the business transactions or
market positions of any person and trade secrets of or names of
customers * * *.'' \52\ For the purposes of protecting the
confidentiality of participants' business transactions or market
positions as required under Section 8(a)(1) of the CEA, the Commission
has historically created guidelines for various market information
reports (e.g., Bank Participation Reports (``BPRs'') and Commitments of
Traders (``COT'') reports) that prevent market participants and the
public from reverse-engineering aggregate data to determine the
participants that submitted the data.\53\ The Commission believes that
the approach in the proposed rules regarding protecting the identities
of parties to a swap under Sections 2(a)(13)(C)(iii) and 2(a)(13)(E)(i)
of the CEA is consistent with the approach to confidentiality under
Section 8(a)(1).
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\52\ 7 U.S.C. 12(a)(1).
\53\ The BPRs, which provide large-trader positions of banks
participating in various financial and non-financial commodity
futures, collect data for every market where five or more banks hold
reportable positions. The BPRs break the banks' positions into two
categories--U.S. Banks and Non-U.S. Banks--and show their aggregate
gross long and short market positions for each type. However, in
those markets where the number of banks in either category (U.S.
Banks or Non-U.S. Banks) is less than five, the number of banks in
each of the two categories is omitted and only the total number of
banks is shown for that market. Available at:http://www.cftc.gov/MarketReports/BankParticipationReports/ExplanatoryNotes/index.htm.
Similarly, the COT reports provide a breakdown of each Tuesday's
open interest for markets in which 20 or more traders hold positions
equal to or above the reporting levels established by the
Commission. Available at:http://www.cftc.gov/MarketReports/CommitmentsofTraders/AbouttheCOTReports/index.htm.
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The Commission requests comment generally on the protection of
identities of the parties to the swap relating to real-time public
reporting. In addition, the Commission requests comment on the
following issues:
Do commenters agree with the proposed method for real-time
reporting of less specific information with regard to the underlying
asset and tenor data fields in order to protect the anonymity of
parties to a swap? If not, why?
Should any additional data fields be allowed to have less
specificity to ensure the anonymity of the parties to a swap? Should
this proposed provision apply to all asset classes? If so, why?
In what situations, if any, would it be appropriate for a
reporting party to report, for the purposes of public dissemination,
less specificity in the underlying asset(s) of a swap and how should
such underlying asset(s) be reported? Please provide specific examples.
Do commenters believe that it is appropriate to allow for
less specificity than the month and year (as described in appendix A to
proposed part 43) for the tenor of the swap? If not, why? If so, in
what situations would it be appropriate for a reporting party to
report, for the purposes of public dissemination, less specificity in
the tenor of a swap and how should the tenor be reported? Please
provide specific examples.
What specific parameters for reporting less specificity in
the underlying asset(s) and tenor of a swap should be applied to swaps
in order to protect the identities of the counterparties?
Should there be an indication to the public that a
description of the underlying asset or tenor lacks specificity in order
to protect the identities of the parties to the swap?
ii. Unique Product Identifiers
The Commission anticipates that unique product identifiers may
develop for various swap products in various markets. Proposed Sec.
43.4(f) provides that if a unique product identifier is developed and
it sufficiently describes the information in one or more of the data
fields for public dissemination in real-time, as described in appendix
A, then such unique product identifier may be used in lieu of such data
fields. If a swap does not have a unique product identifier, the swap
transaction and pricing data must contain all of the appropriate
product identification fields in appendix A to proposed part 43.\54\
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\54\ The Commission is considering the issue of unique product
identifiers in two forthcoming rulemakings under proposed parts 45
and 49.
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iii. Price-Forming Continuation Data
Proposed Sec. 43.4(g) requires any swap-specific event (including,
but not limited to, novations, swap unwinds, partial novations and
partial swap unwinds) that occurs during the life of a swap and affects
the price of such swap to be publicly disseminated (a ``price forming
continuation event''). The Commission does not believe that a price-
forming continuation event includes the scheduled expiration of a swap,
any anticipated interest rate adjustments, or any other event that does
not result in a change to the price that would otherwise not have been
known at the point of execution.
v. Reporting and Public Dissemination of Notional or Principal Amount
Proposed Sec. 43.4(h) and (i) provide rules for the public
reporting of the notional or principal amount for all swaps. Proposed
Sec. 43.4(h)(1) would require the reporting party to report the actual
notional size of any swap, including large notional swaps, to the
registered SDR that accepts and publicly disseminates such data.
Proposed Sec. 43.4(h)(2) would require a reporting party to transmit
the actual notional size
[[Page 76152]]
of any block trade to a swap market. Further, a swap market must
transmit the actual notional size for all swaps executed on or pursuant
to its rules to a real-time disseminator. The Commission believes that
the application of the rounding convention for notional or principal
size, described in proposed Sec. 43.4(i) should be done at the point
of public dissemination (as opposed to the point at which it is
reported to real-time disseminator) since this timing would provide for
a more efficient audit trail of the swap.
Proposed Sec. 43.4(i) provides that for all swaps the notional or
principal amount that must be reported pursuant to proposed Sec. 43.4
and appendix A to proposed part 43 should be rounded pursuant a
specific rounding convention. Specifically, proposed Sec. 43.4(i)
provides that if the notional or principal amount of a swap is:
Less than one million, round to the nearest 100 thousand;
Less than 50 million, but greater than one million, round
to the nearest million;
Less than 100 million, but greater than 50 million, round
to the nearest 5 million;
Less than 250 million, but greater than 100 million, round
to the nearest 10 million; and
Greater than 250 million, use ``250+''.
For example, if the notional size of a swap is $575 million, the
notional size that would be reported by a reporting party to a swap
market (assuming such swap is a block trade) would be $575 million. The
swap market would then report the notional amount of $575 million to a
real-time disseminator and the real-time disseminator would publicly
disseminate the notional amount for such block trade as ``$250+''. By
reporting the notional or principal transaction amount pursuant to the
rounding convention set forth in proposed Sec. 43.4(i), parties to
swaps, particularly those swaps that are of a large notional size,
would be given a greater amount of anonymity.
The Commission requests comment generally on all aspects of the
proposed rules relating to the reporting and public dissemination of
notional or principal amount. In addition, the Commission requests
specific comment on the following issues:
Do commenters agree with the proposed rounding convention
for public dissemination of large notional or principal amount provided
in proposed Sec. 43.4(i)? If not, why and provide alternatives?
Would this rounding convention be appropriate for all
swaps? For example, would this apply to swaps with an underlying asset
that is a physical commodity with a specific delivery point? If not,
why and what additional rounding convention may be needed?
Does the rounding convention for reporting notional and
principal transaction amounts in proposed Sec. 43.4(i) help to protect
the anonymity of the parties to a swap?
Should the actual notional or principal amount be publicly
disseminated at a later time?
Should registered SDRs publish the aggregate volume for
each category of swap instrument on a daily basis? If so, why? If not,
why not?
Would the daily publication of aggregate volume of swap
instruments be useful to market participants and the public?
v. Appendix A to Proposed Part 43
The Commission anticipates that real-time swap transaction and
pricing data may be publicly disseminated by multiple real-time
disseminators in the same asset class. In order to reduce the effects
of fragmentation and increase consistency both within an asset class
and between asset classes, the Commission is proposing that the
information in the data fields in appendix A to proposed part 43 be
publicly disseminated. In addition, the Commission is providing
proposed guidance on the order and format of reporting swap transaction
and pricing data.\55\ Additionally, the Commission believes that the
public dissemination of standardized data should reduce the search
costs to the public and market participants, increase consolidation of
real-time swap transaction and pricing data and promote post-trade
transparency and price discovery.\56\ While appendix A to proposed part
43 attempts to provide consistency in describing which real-time data
fields must be publicly disseminated, the Commission anticipates that
certain fields will be easier to standardize than other fields. For
example, it should be easy to standardize the format for an execution
time-stamp across all swap transactions; whereas it may be more
difficult to achieve standardization when describing an underlying
asset. The Commission anticipates that, as markets develop over time,
real-time disseminators and market participants may develop a form of
standardization for certain data fields in certain asset classes.
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\55\ In developing the Commission's proposal, Commission staff
considered technical advice reports from CESR in the context of
MiFID. In those reports, CESR concluded that market participants in
the equities markets are not delivering consolidated data to the
market in a standard format as a result of the ``inadequate quality
and consistency of the raw data itself, the inconsistencies in the
way in which firms report it for publication, and the lack of any
formal requirements to publish data through bodies with
responsibilities for monitoring the publication process.'' Committee
for European Securities Regulators, ``CESR Technical Advice to the
European Commission in the Context of the MiFID Review--Equity
Markets,'' CESR/10-802, July 29, 2010. Available at: http://www.cesr-eu.org/popup2.php?id=7004. See also, ``CESR Technical
Advice to the European Commission in the Context of the MiFID Review
and Responses to the European Commission Request for Additional
Information'' (CESR/10-802, CESR/10-799, CESR/10-808, CESR/10-859),
July 29, 2010. Available at: http://www.cesr-eu.org/popup2.php?id=7003.
\56\ See id.
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While real-time disseminators must disseminate swap transaction and
pricing data to the public, the reporting parties and swap markets must
provide the real-time disseminators with, at a minimum, the relevant
information needed to report the data fields described in appendix A to
proposed part 43. As discussed above, a real-time disseminator that is
a registered SDR may require a reporting party or a swap market to
report additional information to the information necessary for public
dissemination. Since all swap data must be sent to a registered SDR
pursuant to Section 2(a)(13)(G) of the CEA and forthcoming Commission
proposals, and an SDR may be a real-time disseminator, as previously
discussed, the proposed rules provide that a registered SDR that is a
real-time disseminator may require additional information to match the
real-time swap transaction and pricing data to data reported to the
registered SDR or confirm that parties to a swap have reported in a
timely manner pursuant to Section 2(a)(13)(F) of the CEA. Such
additional information requested by a registered SDR may include a
transaction identification code, the names of the parties to the swap,
or such other information as may be necessary.
As mentioned above, proposed Sec. 43.4(b) would require that the
information in any data field listed in appendix A to proposed part 43
to be publicly disseminated by a registered SDR or swap market through
a third-party service provider to the extent that such data field
captures a term of the reportable swap transaction. In many cases,
several data fields listed in appendix A to proposed part 43 will not
be applicable to a particular reportable swap transaction. To the
extent that a data field is not a term of the swap, such field need not
be reported and should be left blank. Appendix A to proposed part 43
also provides specific examples of how the reporting of a particular
field should look (both in form and in order) when disseminated to the
public.
[[Page 76153]]
Table A1 of appendix A to proposed part 43 provides that the
following data fields be reported to the public in real-time.
1. Cancellation. This data field reports the swap transaction and
pricing data that was incorrectly or erroneously reported and is
therefore being canceled. Any cancellations must also contain a date
stamp of the original swap, even if such date stamp was not originally
reported, followed by the full swap transaction and pricing data that
is being canceled (including the original time-stamp of execution). It
must be made clear to the public exactly which transaction is being
reported so that the public can easily disregard such swap transaction
and pricing data. A cancellation does not have to be corrected;
however, any corrections must first be canceled. Any such cancellation
must be done in accordance with proposed Sec. 43.3(f).
2. Correction. This data field reports the swap transaction and
pricing data that is being reported is a correction to real-time swap
transaction and pricing data that has been incorrectly publicly
disseminated. Any corrections must also contain a date stamp to
indicate the date of the initial swap that is being corrected, even if
such date stamp was not originally reported, and the time-stamp must
indicate the time of execution of the swap, not the time of the
correction. Providing the date and original time-stamp of the swap will
allow the public to easily replace the incorrect data. Any reportable
swap transaction for which there are corrections to real-time swap
transaction and pricing data must first be canceled prior to the
correction, so that the public is aware of which data is being
corrected. Any such correction must be done in accordance with proposed
Sec. 43.3(f).
3. Date stamp. This data field reports the date of execution of the
swap (if not the same day or a correction). This data field need only
be publicly disseminated if the swap that is being reported was
executed on a day other than the current day or if the swap transaction
or pricing data is a cancellation or correction to previously real-time
reported swap transaction and pricing data.
4. Execution time-stamp. This data field reports the time of
execution of the swap. The reporting party provides the execution time-
stamp of the swap. The execution time-stamp is the only time-stamp that
will be publicly disseminated.
5. Cleared or uncleared. This data field reports whether a swap is
cleared through a DCO, which may affect the price of the swap. For
cleared swaps, the specific DCO that clears the swap will not be
listed. In consideration of protecting the identities of the parties to
the swap, the Commission does not believe that the specific DCO through
which a swap is cleared must be reported to the public.
6. Indication of other price-affecting term (non-standardized
swaps). This data field reports whether there are other non-standard
terms to the swap that materially affect the price of the swap. This
indicator signals to market participants that there may be unreported
terms of the contract that affect the price. Any reporting of bespoke
swap transactions must include this indicator, since in these
transactions there are other terms or factors that materially affect
the price of the swap and are otherwise not included in the required
fields for real-time public reporting found elsewhere in appendix A to
proposed part 43.
7. Block trades and large notional swaps. This data field reports
whether the swap is a block trade or large notional swap. This data
field does not, however, make a distinction between block trades and
large notional swaps, since the execution venue data field will reveal
that information.
8. Execution venue. This data field reports where the swap was
executed. The reporting party must indicate whether the swap was
executed on a swap market or whether such swap is an off-facility swap.
This data field assists the public in understanding the other data
fields that are being reported. In consideration of protecting the
identities of the parties, the Commission does not believe that the
specific swap market on which the swap was executed need be publicly
disseminated. Similarly, the Commission does not believe that a
distinction need be made between those swaps executed on a SEF and
those executed on a DCM.
9. Swap instrument. This data field must be reported only if a
trade is a block trade or a large notional swap. Large notional swaps
must refer to an existing swap instrument that is posted by a
registered SDR and has an appropriate minimum block size associated
with such instrument. The parties to a swap must use the appropriate
minimum block size of the swap instrument when determining if a swap
constitutes a large notional swap. Swap markets, in setting the minimum
block trade size for a particular listed swap, must reference the
appropriate minimum block size for the category of swap instrument
within which the particular listed swap is included. A swap market will
set a minimum block trade size for a listed swap based on the
appropriate minimum block size for the relevant category of swap
instrument as calculated by the SDR. Proposed Sec. 43.5 provides rules
on block trades and large notional swaps, including the determination
of minimum block trade sizes. The reporting of the swap instrument data
field provides market participants and the public with an understanding
of the type of swap instrument for which a block trade is occurring.
The Commission believes that within each asset class there should
be certain criteria that are used to determine a category of swap
instrument. For example, swaps in the interest rate asset class may be
considered the same swap instrument if they are denominated in the same
major currency (or denominated in any non-major currency considered in
the aggregate) and if they have the same general tenor.\57\ With regard
to tenor, the Commission believes that tenors may be grouped into
ranges based on maturity date (e.g., short, intermediate and long). For
example, a single category of swap instrument may be ``U.S. dollar
interest rate swaps in a short maturity bucket, including swaps,
swaptions, inflation-linked swaps, etc. and all underlying reference
rates.'' Similarly, swaps in the ``other commodity'' asset class may be
considered the same swap instrument if they have the same underlying
asset, which generally would include all swaps whose economic terms
relate to the same underlying product (e.g., oil, natural gas, heating
oil, gold, etc.). In contrast, the Commission believes that for swaps
under the Commission's jurisdiction in the credit or equity asset
classes all swaps within each asset class can be considered to be the
same swap instrument. The swaps in the credit and equity asset class
will be broad-based or on indexes and such swaps can likely be grouped
together for purposes of determining the appropriate minimum block
size. In the currency asset class, swap instruments may be defined by
major currency pair, not by whether a major currency is one of the
currencies involved in the swap.
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\57\ Major currencies are those of the United States, Japan, the
United Kingdom, Canada, Australia, Switzerland, Sweden and the
European Monetary Union. See Sec. 15.03 of the Commissions
regulations.
---------------------------------------------------------------------------
The Commission requests comment generally about swap instruments.
In addition the Commission requests comment on the following specific
issues:
What criteria for each asset class should a registered SDR
consider in determining if a swap falls within a
[[Page 76154]]
particular grouping of swap instrument? Specifically, what criteria
should be used to classify a swap instrument and how do those criteria
differ by asset class? What particular considerations should apply to
swaps in interest rate, equity, credit, currency and other commodity
classes? Who should determine the categories of swap instrument?
How broad or narrow should the categories of swap
instruments be for each asset class? Do commenters believe that the
appropriate minimum block size should be determined based on particular
types of swap contracts and not on categories of swap instruments? If
so, why?
Should certain asset classes have additional or fewer
criteria in determining a swap instrument? If so, what asset classes
and what criteria?
Should a registered SDR apply any other criteria to the
other commodity asset class to decide whether a swap falls within a
particular type of swap instrument? How should the underlying asset be
grouped for the other commodity asset class?
Is it an appropriate approach to group tenors for swaps in
the interest rate asset class into ranges (e.g., short-term,
intermediate-term and long-term)? What should be the appropriate ranges
of tenor or maturity date for each of these ranges? Should there be
tenor ranges for other asset classes?
Are there any other currencies other than those described
in Sec. 15.03 of the Commissions regulations that the Commission
should consider as a major currency? If so, which currencies and why?
10. Start date. This data field reports the day on which the
contractual provisions of a swap commence or become effective. The
Commission recognizes that the start date may be different than the
execution date. The Commission also recognizes that the markets may
develop such that swaps traded on swap markets become standardized to
the point where the start date is embedded or understood by a unique
product identifier. For example, the start date for a particular swap
may always be the day following execution (i.e., T+1), and such
information could be captured by simply identifying the product through
a unique product identifier. If the markets evolve in such a manner,
then this data field may not be necessary to report for these swaps.
Nonetheless, the start date must always be provided in a manner that is
apparent to the public.
11. Asset class. This data field provides a general description of
the asset class for a swap, as defined in proposed Sec. 43.2(e). This
data field will allow the public to easily compare swaps within an
asset class and to easily identify the type of swap that is being
reported. Swaps within an asset class would have broadly similar
characteristics.
12. Sub-asset class for other commodity. This data field provides
greater detail as to the type of other commodity that is being
reported. The Commission realizes that there may be vast differences in
the types of products that fall under a particular asset class. For
this reason, a sub-asset class should be reported for other commodities
so that the public can easily understand similar types of swaps. Such
sub-asset classes may include, but are not limited to, specific energy,
weather, precious metals, other metals, agricultural commodities, etc.
13. Contract type. This data field reports the specific type of
swap that has been executed. This data field provides greater
transparency and price discovery to market participants and the public,
as knowledge of the contract type will allow the public to understand
the swap transaction and pricing data that is being reported. The
Commission has identified four broad categories of contracts that may
be entered into: swaps, swaptions, forwards and stand-alone options.
These categories may be further defined by the contract sub-type data
field discussed immediately below.
14. Contract sub-type. This data field provides more detail on the
type of contract specified in the contract type data field. The
Commission envisions that there will be many contract sub-types. Such
contract sub-types may include, for example, basis swaps, index swaps,
broad-based security swaps and basket swaps. Specific option types and
other information about options are covered by the options fields found
in Table A2 to appendix A to proposed part 43.
15. Price-forming continuation data. This data field describes
whether the information that is being reported is a price-affecting
event to an existing swap. Such events may include novations, partial
novations, swap unwinds and partial swap unwinds as well as other
price-forming events that may occur following the execution of the
swap. Such other events may also include amendments to the swap that
have a specific affect on the price of the swap.
16. Underlying asset 1 and underlying asset 2. These data fields
describe the specifics of the swap and help the public evaluate the
price of the swap transaction. It is likely that each leg of a swap
(i.e., the fixed and the variable) will have an underlying asset that
should be reported as a separate field. If there are more than two
underlying assets, all underlying assets should be real-time reported
and publicly disseminated. The Commission is not providing a specific
format for all underlying asset fields, but the description of each
underlying asset should be in a format that is commonly used by market
participants. The Commission encourages reporting parties and real-time
reporting disseminators to consult with one another to determine
consistent ways of reporting similar underlying assets. If a
standardized industry abbreviation exists for a particular underlying
asset, such abbreviation should be used to describe the underlying
asset. Whenever possible, alphabetical abbreviations should be used,
including roman numerals; provided, however the underlying asset must
be reasonably apparent to the public (e.g., six-month LIBOR could be
represented as VIL, 10-year Treasury could be represented as TX, etc.).
Further, if a unique product identifier adequately captures the
underlying asset, the underlying asset field may not need to be
reported.
17. Price notation and additional price notation. These data fields
report the price of the swap. These fields should include the total or
net of any premium that is associated with a party's requirements under
the swap. For example, if Party A's contractual requirements are linked
to a 10-year Treasury note and Party B's requirements are linked to
three-month LIBOR, the price notation should be the rate of 10-year
Treasury note compared to three-month LIBOR (e.g., 2.5).
The Commission recognizes that a number of different pricing
conventions currently exist across swap transactions and even among
market participants for similar swap transactions. Nevertheless, the
Commission believes that standardizing of pricing conventions will
result in greater price transparency. In order to promote such
standardization, it becomes important to define what ``pricing'' means
for swaps. Notional or principal amount is the amount on which payment
rates are calculated and is not the actual amount or units exchanged in
most cases. Payments under the swap are based on what the market refers
to as ``legs'' and what the Commission refers to as ``underlying
assets'' in this proposed rulemaking. The additional price notation
would be necessary in such instances where there are multiple premiums
yields, spreads or rates are characteristics of the swap. It is for
this reason that the proposed rules require
[[Page 76155]]
the additional price notation to include, inter alia, front-end
payments, back-end payments, mid-cycle flat payments, collateral and
margin. All of the elements to additional price notation must be
represented in this field as a single number, relative to the
difference in payments between the underlying assets of the swap.
In the example above, if Party A's requirement is tied to the 10-
year Treasury note yield and Party B's requirement is linked to three-
month LIBOR and Party B is also required to post a back-end payment of
$100,000, then the price notation would be the rate of 10-year Treasury
note compared to three-month LIBOR (e.g., 2.5). The additional price
notation might be calculated to be +0.05, because in this example, the
net present value of the back-end payment of $100,000, as applied to
the exchange of payments within the swap, would be equal to +0.05.
These two data fields provide the public and market participants with
an easily accessible and uniform means of understanding the price at
which the parties to a swap have reached an agreement regarding the
swap's payment streams.
18. Unique product identifier. This data field, if available,
describes a standardized swap. If a unique product identifier is
available for a particular product, it may be reported in lieu of
reporting other identifying fields including, but not limited to, the
underlying asset, asset class, contract type, contract sub-type and
start date, so long as such fields are adequately described and
apparent to the public. The Commission believes that the markets will
evolve to a point where the use of such unique product identifiers will
increase transparency and promote price discovery across real-time
disseminators. The Commission envisions unique product identifiers will
be uniform across different swap markets.
19. Notional currency 1 and notional currency 2. This data field is
needed if the notional or principal amounts are referenced in terms of
a currency. The currency field may be reported in a commonly-accepted
code. For example, U.S. dollars may be reported with the ISO 4217
currency code ``USD''.\58\ The notional currency 1 field should refer
to the notional or principal amount 1 field, while the notional
currency 2 field, if applicable, should refer to the notional or
principal amount 2 field. If there are more than two notional or
principal amounts that require a notional currency field, then these
fields should be reported in a similar manner.
---------------------------------------------------------------------------
\58\ The International Organization for Standardization
(``ISO'') provides a list of currency and funds names that are
represented by both a three-letter alphabetical and a three-number
numerical code (the ``ISO 4217'' code list), which is available at:
http://www.iso.org/iso/support/currency_codes_list-1.htm.
---------------------------------------------------------------------------
20. Notional or principal amount 1 and notional or principal amount
2. This data field is needed to identify the size or amount of the swap
transaction. The notional amount may be reported in a currency and if
so, the currency must be disclosed and made easily identifiable to the
public. Such disclosure can be done by reporting the notional currency
field with respect to the notional amount that requires such
information. If a principal amount is in units, then a currency
description does not need to be reported. Appendix A to proposed part
43 contemplates the potential for two or more notional or principal
amounts. When a swap has more than two notional or principal amounts,
then all such amounts must be reported and made easily identifiable by
reporting parties and real-time reporting disseminators. The notional
or principal amount for swaps should be reported pursuant to proposed
Sec. 43.4(h) and (i). Each notional or principal amount (if there is
more than one) should be labeled with a number (e.g., 1, 2, 3, etc.),
such that the number corresponds to the underlying asset for which the
notional or principal amount is applicable.
21. Payment frequency 1 and payment frequency 2. This data field is
needed to assist in understanding the price of a swap. It represents
the frequency at which payments will be made for a party's contractual
requirements under a swap. It is possible that the payment frequency
may be the same for both parties to a swap; however, the payment
frequency also may be different. If there is a difference, the payment
frequencies must be reported for each requirement under the swap. The
format for payment frequency should be consistent and may be reported
as a numerical character followed by a letter.\59\ For example, if
payments are to be made every two weeks, then ``2W'' may be reported in
this field; if payments are to be made every year, then ``1Y'' may be
reported, etc. Each payment frequency (if there is more than one)
should be labeled with a number (e.g., 1, 2, 3, etc.), such that the
number corresponds to the underlying asset for which the payment
frequency is applicable.
---------------------------------------------------------------------------
\59\ Such period descriptions may be described as follows: daily
(D), weekly (W), monthly (M) and yearly (Y).
---------------------------------------------------------------------------
22. Reset frequency 1 and reset frequency 2. This data field is
needed to assist in understanding the price of a swap. It represents
the frequency that a price for an underlying asset may be adjusted. It
is possible that there is no reset frequency, that the reset frequency
is the same for both underlying assets or that the reset is different
for both underlying assets. If different, the reset frequencies must be
reported for each underlying asset. The format for reset frequency must
be consistent and may be a numerical character followed by a
letter.\60\ For example, if adjustments are to be made every two weeks,
then ``2W'' may be reported in this field, if adjustments are to be
made every year, then ``1Y'' may be reported, etc. Each reset frequency
(if there is more than one) should be labeled with a number (e.g., 1,
2, 3, etc.), such that the number corresponds to the underlying asset
for which the reset frequency is applicable.
---------------------------------------------------------------------------
\60\ See id.
---------------------------------------------------------------------------
23. Tenor. This data field is needed to describe the duration of a
swap and when a swap will terminate, mature or end. To protect the
anonymity of the parties to a swap, the tenor field should only be
reported as the month and year that the swap terminates, matures or
ends. Such description may use the three character alpha-numerical
format that is used in describing futures contracts.\61\ For example,
if a swap ends on March 15, 2020, the tenor may be reported as ``H20''.
---------------------------------------------------------------------------
\61\ Futures month symbols are as follows: January (F), February
(G), March (H), April (J), May (K), June (M), July (N), August (Q),
September (U), October (V), November (X) and December (Z).
---------------------------------------------------------------------------
Table A2 of appendix A to proposed part 43 provides the following
data fields to be publicly disseminated in real-time for options,
swaptions and swaps with embedded options, if applicable to a swap. If
a swap has more than one embedded option or swaption provision, then
all such embedded options or swaptions should be real-time reported to
the public in the same manner.
1. Embedded option on swap. This data field is needed to describe
whether the data listed in the option fields is an option that is
embedded in the price of the swap. Proposed Sec. 43.2(i) defines
``embedded option'' as any right, but not an obligation, provided to
one party of a swap by the other party to the same swap that provides
the party in possession of the option with the ability to change any
one or more of the economic terms of the swap as they were previously
established at confirmation (or were in effect on the start date). By
requiring a separate field for embedded options on swaps, market
participants and the public will be able to compare prices across the
same or
[[Page 76156]]
similar swaps. The Commission believes that requiring this field will
increase transparency and price discovery across the swap markets, as
it will allow for the easy comparison of price by market participants
and the public. Further, the Commission does not wish to see market
participants wasting resources to try to avoid transparency by adding
embedded options to otherwise standardized swap contracts. If the
Commission did not require separate reporting of the embedded option
field, it would be possible for market participants to attach worthless
options to a swap in order to avoid real-time public reporting the swap
in the same format as a standardized swap that does not have an
embedded option.
2. Option strike price. This data field reports the level or price
at which a party to a swap may exercise an option. The Commission
recognizes that for some option types, such as collars, strangles and
condors, it will be necessary to report two or more prices in this
field. This data field is the first field that would be reported for
options and real-time disseminators may choose to place an ``O'' prior
to the strike price. After the ``O'', the level or price should follow
immediately thereafter. For example, an option or swaption with a
strike price of $25 should be real-time publicly reported as ``O25''.
3. Option type. This data field reports the type of option. The
option type is important because it clarifies how the buying or selling
of the asset is to be transacted between two parties. To promote
standardization, this data field should be reported from the
perspective of the party to the swap associated with underlying asset
1. The Commission recognizes that there are several different types of
options, and has tried to identify some of the more common option types
and their suggested two-character alphabetical descriptors in Table A2
of appendix A to proposed part 43. The Commission intends for the list
of options in Table A2 to promote consistency and transparency across
reporting parties and real-time disseminators. Some examples of option
types include caps, collars, floors, puts, calls, pay fixed versus
floating, receive fixed versus floating, straddles, strangles and
knock-outs.
4. Option family. This data field reports the family associated
with the option. The option family is important because it identifies
the period of time over which an option may be executed. The Commission
recognizes that there are several different types of option families,
and has tried to identify some of the more common option families and
provided suggested two-character alphabetical descriptors in Table A2
of appendix A to proposed part 43. The Commission intends for the list
in Table A2 to promote consistency and transparency across reporting
parties and real-time disseminators. Some examples of option families
include American, Bermudan, European and Asian.
5. Option currency. This data field is needed to explain the
currency for the option that is being reported. If applicable, the
option currency field shall refer to both the option premium field and
the option strike price.
6. Option premium. This data field reports the purchase price for
the option at the time of execution of the swap. This number represents
the total additional cost of the option as a numerical value and is
broken out separately from the price notation and additional price
notation fields to allow for an easier comparison of a swap with an
option to similar swaps that do not include an option.
7. Option lockout period. This data field reports the time at which
an option first can be exercised and thus, assist them in evaluating
the price of an option. The option lockout date should be reported in
the year and month format used in futures markets.\62\ This field most
often will be needed for European style options and other options where
the start date for the requirements to a swap with an embedded option
may be different than the date that an embedded option is available for
execution. The option lockout period should be reported in the year and
month format used in futures.
---------------------------------------------------------------------------
\62\ See id.
---------------------------------------------------------------------------
8. Option expiration. This data field reports when an option can no
longer be exercised. This data field will assist the public and market
participants in evaluating the price of an option. In most cases, this
data field can be omitted, as a standard option would expire at the
same time as the swap contract to which it is linked. The option
expiration should be reported in the year and month format used in
futures markets.
v. Examples To Illustrate the Public Reporting of Real-Time Swap
Transaction and Pricing Data
The Commission envisions that the reporting of the data fields in
appendix A to proposed part 43 may eventually be reported in the form
of a consolidated ticker, particularly for the more standardized swaps
that are traded on swap markets. Additionally, the Commission believes
that when unique product identifiers emerge they will be publicly
disseminated, increase uniformity and transparency across real-time
disseminators and ultimately lead to greater transparency and price
discovery. Below, the Commission has set out two examples of how real-
time public reporting of swap transaction and pricing data may evolve
as consolidation and standardization develops in particular asset
classes and markets.
Example 1
On Friday, February 4, 2011, Bank X enters into a new plain vanilla
10-year fixed versus floating interest rate swap with Bank Y, for a
notional amount of $10 million U.S. dollars. The swap is scheduled to
start on Tuesday, February 8, 2011 (note: start dates are usually 2
business days later for interest rate swaps). Bank X is the payer of
the fixed leg of the swap and is obligated to pay a fixed rate of 2.53%
on the notional amount for the ten-year tenor of the swap. Bank Y is
the payer of the floating leg of the swap and is obligated to pay the
prevailing three-month LIBOR on the $10 million notional amount. The
first LIBOR payment will be based upon the three-month LIBOR rate for
February 4, 2011 with the rate reset on a quarterly basis going
forward. This interest rate swap is plain vanilla with both banks using
the same day count convention, payment currency and notional value for
both of the underlying assets to the swap.
Bank X and Bank Y have no additional premiums or payments under the
terms of the swap. In this example, the reset and payment frequency for
the fixed-rate are semi-annual. The reset and payment frequency for the
floating rate (i.e., three-month LIBOR) are quarterly. The parties'
requirements under the swap for both the fixed leg and floating leg are
scheduled to mature on Monday, February 8, 2021. Bank X and Bank Y are
both members in good standing with a SEF named ``Xeqution Co.'' and use
a DCO named ``ClearitAll''.
------------------------------------------------------------------------
Field Description
------------------------------------------------------------------------
Execution time-stamp...................... 16:20:47
Cleared or uncleared...................... C (note: the name of DCO is
not reported)
Execution Venue........................... SWM (note: the name of SEF
is not reported)
Start date................................ 08-02-11
Asset class............................... IR
Contract type............................. S-
[[Page 76157]]
Underlying asset 1........................ TX (note: TX represents the
reference rate of Treasury
10 year, which is the fixed
rate)
Underlying asset 2........................ IIIL (note: IIIL represents
3 month LIBOR, which is the
floating rate)
Notional currency 1....................... USD
Notional or principal amount 1............ 10M (note: this may be
reported as ``10,000,000'')
Pricing Notation.......................... 2.53
Payment frequency 1....................... 6M
Payment frequency 2....................... 3M
Reset frequency 1......................... 6M
Reset frequency 2......................... 3M
Tenor..................................... G21 (note: actual day is not
reported)
------------------------------------------------------------------------
The Commission believes that as swaps become more standardized,
market participants and real-time disseminators may develop a
nomenclature that combines data fields in an easy-to-follow manner,
ensuring that all the relevant information in appendix A to this
proposed part 43 is publicly disseminated. For example, the swap in the
above example may be displayed as follows:
16:20:47 IRS 10 TXIIIL 2.53 @0 G21.
In the illustration above, the symbol ``C'' is not included,
because as the markets develop, the majority of standardized swaps will
be cleared through DCOs and an indication of ``U'' would only be
necessary for the reporting of uncleared swaps. The term ``SWM'' is
also omitted since it could be assumed by market participants and the
public that the swap has taken place on a swap market. Such an
indication would only be needed if the swap was done off-facility
pursuant to the non-financial end-user exception from the mandatory
clearing requirement under Section 2(h)(7) of the CEA. The start date
is not reported because in this illustration it is assumed for a swap
of ``TXIIIL'' the start date is always two business days after the date
of execution (i.e., T+2). The term ``IRS'' would replace the separate
data fields for asset class ``IR'' and contract type ``S-'' as the
standard format once market participants have become accustomed to
reading data on a consolidated tape for swaps. The terms ``USD'' and
``M'' in 10,000,000 are also dropped because in this illustration the
market would have developed in such a manner as to understand that the
standard trade is done in U.S. dollars and in round lots of one million
or in this case ``10''. Payment frequency and reset frequency would
also be excluded for both of the underlying assets because the symbol
``TXIIIL'' now represents a plain vanilla interest rate swap where
payment frequency and reset frequency are standardized terms of the
swap transaction. The number ``2.53'' for price notation remains but in
some cases, such as a basis swap, this field may be omitted as the
market develops. The symbol ``@0'' is used because in some cases front-
end, back-end, margin, collateral or other payments that are not
included in the terms of the swap must be reported as an additional
price notation characteristic. In this example, there is no additional
price notation that must be reported. The symbol ``G21'' is still
reported to indicate that the swap matures (i.e., terminates) in
February 2016.
Example 2:
On Friday, February 4, 2011, Bank X, once again enters into a plain
vanilla 10-year fixed versus floating interest rate swap with Bank Y
for a notional amount of $10 million U.S. dollars. The swap is
scheduled to start on Tuesday, February 8, 2011 (Note: start dates are
usually 2 business days later). Bank X is payer of the fixed leg of the
swap and is obligated to pay a fixed rate of 2.53% on the notional
amount for the ten-year tenor of the swap. Bank Y is the payer of the
floating leg of the swap and is obligated to pay the prevailing three-
month LIBOR on the $10 million notional amount. To illustrate an
exception from the plain vanilla swap, the first LIBOR payment in this
example is based on the three-month LIBOR rate for February 4, 2011
with a weekly rate reset, instead of the normal quarterly rate reset.
Both parties have agreed to use the same day count convention, payment
currency and notional amount for both of the underlying assets to the
swap.
Bank X and Bank Y have additional payments to be made between the
two parties under the terms of the swap. Bank X is required to deliver
a front-end payment of $500,000 U.S. dollars to Bank Y, which is
represented by an increase to the fixed-rate payer's requirement of
``+0.07'' and reported in the additional price notation data field. For
the sake of clarity, this additional price notation data field should
be in the same format as the price notation field and be displayed as
an addition or subtraction to the fixed-rate payer's rate under the
swap.
In order for the parties to protect themselves from a possible
increase in interest rates, Bank Y purchases a one-year pay fixed
versus floating swaption with a strike rate of 2.53% to pay fixed for
9-years to Bank X (i.e., through the maturity of the swap). This
swaption effectively will terminate the original swap with Bank X, and
in this example, we can assume that the cost of the swaption is
$100,000. This swaption might also be listed as an adjustment to the
fixed rate that Bank Y would receive from Bank X in the initial swap if
the payments were not made outright, but were blended into the initial
fixed rate. In this example, this might be represented by subtracting
four basis points or ``-0.04''.
The reset and payment frequency for the fixed rate is semi-annual
(every six months), while the reset and payment frequency for the
three-month LIBOR is weekly, upon the request of the variable rate
payer. The parties' requirements under the swap are scheduled to mature
on Monday, February 8, 2021. Bank X and Bank Y are both members in good
standing with a SEF named ``Xeqution Co.'' and use a DCO named
``ClearitAll''.
------------------------------------------------------------------------
Field Description
------------------------------------------------------------------------
Execution time-stamp...................... 16:20:47
Cleared or uncleared...................... C (note: the name of DCO is
not reported)
Execution Venue........................... SWM (note: the name of SEF
is not reported)
Start date................................ 08-02-11
Asset class............................... IR
Contract type............................. S-
Underlying asset 1........................ TX (note: TX represents
Treasury 10 year)
Underlying asset 2........................ IIIL (note: IIIL represents
3 month LIBOR)
Price Notation............................ 2.53
Additional price notation................. +0.07
Notional currency 1....................... USD
Notional or principal amount 1............ 10M (note: this may be
reported as ``10,000,000'')
Payment frequency 1....................... 6M
Payment frequency 2....................... 1W
Reset frequency 1......................... 6M
Reset frequency 2......................... 1W
Tenor..................................... G21 (note: actual day is not
reported)
Embedded option on swap................... EMBED1
Option Strike Price....................... O2.53
Option Type............................... PF (note: this is always
reported from the point of
view of the variable leg)
Option Family............................. EU (note: this is a European
style option)
Option currency........................... USD
Option premium............................ -.04 (note: this may be
reported as ``$100,000''
depending on market
conventions)
[[Page 76158]]
Option lockout period..................... G12 (note: actual day is not
reported)
Option expiration......................... G21 (note: actual day is not
reported)
------------------------------------------------------------------------
The Commission believes that as swaps become more standardized,
market participants or real-time disseminators may develop a
nomenclature that combines data fields in an easy-to-follow manner,
while ensuring that all the relevant information in appendix A to this
proposed part 43 is publicly disseminated. Even swaps with one or more
non-standard terms may still be reported in a consolidated format. For
example, the swap in the example above may be displayed as follows:
16:20:47 IRS 10 TXIIIL S/1W 2.53 @0.07 G21 EMBED1 EU [email protected] LOG12
In the illustration above, the symbol ``C'' is not included because
as the markets develop the majority of standardized swaps will be
cleared through DCOs, and an indication (e.g., the symbol ``U'') would
only be necessary for the reporting of uncleared swaps. The term
``SWM'' is also omitted since, it could be assumed by market
participants and the public that the swap has taken place on a swap
market. Such indication would only be necessary if the swap was done
off-facility, pursuant to the non-financial end-user exception from the
mandatory clearing requirement under Section 2(h)(7) of the CEA. The
start date not reported for this swap because in this illustration, it
is assumed that for a swap of ``TXIIIL'' the start date is always two
business days after the date of execution (i.e., T+2). The term ``IRS''
would replace the separate data fields for asset class ``IR'' and
contract type ``S-'' as the standard format once market participants
have come accustomed reading data on a consolidated tape for swaps. The
terms ``USD'' and ``M'' in 10,000,000 are also dropped because in this
illustration the market has developed in such manner as to understand
that the standard trade is done in U.S. dollars and in round lots of
one million or in this case ``10''.
The Commission anticipates that in order for the price notation and
additional price notation data fields to be of the greatest value to
market participants and the public, some form of standardization likely
will develop for the purposes of real-time public reporting and market
participants consistently use these data fields.\63\ An example of the
evolution of standardization is shown in the illustration above where
price notation is displayed as the number ``2.53'', which is equal to
the rates associated with payments on each leg at execution. Each leg
of the swap's present value of future payments would be equal to zero
(i.e., a par swap's value). The symbol ``@0.07'' is listed in the
illustration above because the present value of the front-end payment
is the equivalent of a higher interest payment of 0.07 over the life of
the swap for the party that is paying the fixed rate at execution.
Payment frequency and reset frequency have been represented with an
``S/1W'' for the underlying assets because the symbol ``TXIIIL''
represents a plain vanilla interest rate swap where payment frequency
and reset frequency are standardized terms of the swap transaction. In
the illustration above, however, only the Treasury leg is standard,
while the floating LIBOR leg is set to weekly versus its standard
quarterly format. The symbol ``G21'' is reported to indicate that the
requirements under the swap terminate in February 2021. In this
illustration, ``TXIIIL'' is still used as a symbol that lets
participants know several of the previously required data fields are
standardized and combined and therefore do not need to be displayed
separately for real-time public reporting, while those fields that are
non-standard are simply broken out and reported separately in a more
traditional long format.
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\63\ It is important to note that such standards are not
intended to change the form in which market participants use to
quote or construct swaps.
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The interest rate swap in this illustration contains an embedded
option that is broken out so that data fields can be easily comparable
across a wider variety of similar, but not identical swaps, thus
promoting post-trade price transparency. The term ``EMBED1'' indicates
that this interest rate swap has an embedded option and the pricing
information for such embedded option follows on the real-time public
reporting consolidated tape. The symbol ``2.53PF'' replaces the
separate data fields for option strike price ``O2.53'' and option type
``PF''. Option family ``EU'' is included in the consolidated tape to
indicate the family of the embedded option. The option currency ``USD''
is left off of this transaction because it is assumed for a ``TXIIIL''
swap, the option currency for any embedded options would be ``USD'',
unless broken out and reported individually. The symbol ``LOG12'' is
used instead of ``G12'' to indicate the lock out period to provide
clarity. The option expiration of ``G21'' is omitted because the
embedded option is assumed to be in a standard form and as such would
be set to expire at the same time as the swap itself. If such embedded
option was not in standard form, then the option expiration field would
have been reported as an additional data field.
The Commission requests comment on all aspects of the data fields
in appendix A to proposed part 43 that would be required to be reported
in real-time under this proposal. In addition, the Commission requests
specific comment on the following issues:
Do commenters agree with the proposed data fields that
would be required to be reported in real-time? If not, what additional
data fields should be reported and why? How would public dissemination
of these data fields enhance transparency and price discovery?
Which data fields, if any, should not be required to be
publicly disseminated in real-time and why?
Would public dissemination of certain data fields reduce
market liquidity? \64\ If so, why?
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\64\ Section 2(a)(13)(E)(iv) requires that the Commission ``take
into account whether the public disclosure will materially reduce
market liquidity.''
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Should the portion of the amount reported in the
additional price notation data field that relates to the
creditworthiness of a counterparty be extracted and reported as a
separate data field? If so, why? Should the creditworthiness of a
counterparty be reported in some other way?
Do commenters agree that tenure should only be reported
with month and year? Is this a useful method for protecting the
anonymity of the counterparties? Does this provide an adequate level of
transparency?
Do commenters agree with the proposed method for real-time
reporting and public dissemination of non-standardized swaps? Should
the ``indication of other price affecting term'' data field contain
more specificity as to what type of term is affecting the price? If so,
what additional information should be included and how should it be
reported?
Would public dissemination of information concerning non-
standardized swaps materially reduce market liquidity? If so, why? \65\
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\65\ See Section 2(a)(13)(E)(iv).
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Under the proposal, the swap instrument data field would
only be required for block trades and large notional swaps, should this
data field be reported for all swaps? If so, why?
[[Page 76159]]
Would information concerning the type of counterparties
that enter into a swap enhance transparency and price discovery (e.g.,
whether the counterparty is a swap dealer, MSP, or not)? If so, why?
Would separately reporting embedded option information
enhance price discovery and transparency? If not, why?
Do proposed Sec. 43.4 and appendix A to proposed part 43
provide adequate guidance with respect to the information that must be
reported? If not, what additional guidance do commenters believe is
necessary?
Do commenters agree with the reporting of price-affecting
continuation events? Should data relating to these events be publicly
disseminated in real-time in the same way as new swap transactions?
What additional types of transactions, if any, would be price-affecting
continuation events that should be reported and publicly disseminated
in real-time?
What would be the costs of reporting and publicly
disseminating the proposed data fields? What would be the benefits?
Please provide examples, if possible.
5. Proposed Section 43.5--Block Trades and Large Notional Swaps
Sections 2(a)(13)(E)(ii) and (iii) of the CEA authorize the
Commission to prescribe rules ``to specify the criteria for determining
what constitutes a large notional swap transaction (block trade) for
particular markets and contracts'' and ``to specify the appropriate
time delay for reporting large notional swap transactions (block
trades) to the public.'' As discussed in the Background Section above,
while Section 2(a)(13)(E) of the CEA specifically refers to the swaps
described only in Sections 2(a)(13)(C)(i) and 2(a)(13)(C)(ii) of the
CEA (i.e., clearable swaps, including swaps that are exempt from
clearing), the Commission believes that it is appropriate to consider
the four criteria in Section 2(a)(13)(E) of the CEA for all four
categories of swaps described in Section 2(a)(13)(C) of the CEA.\66\
Therefore, proposed Sec. 43.5 establishes: (1) the procedures for
determining the appropriate minimum sizes for block trades and large
notional swaps; and (2) the appropriate time delays for the reporting
of block trades and large notional swaps.
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\66\ Pursuant to the Commission's authority under Sections
2(a)(13)(B) and 2(a)(13)(E)(iii) of the CEA.
---------------------------------------------------------------------------
In developing the proposed rules with respect to block trades and
large notional swaps, the Commission considered its guidance with
respect to block trades in the futures markets. Additionally, the
Commission considered the treatment of block trades in other markets
(both foreign and domestic), such as those for equities, options and
corporate bonds. Further, the Commission considered the treatment and
effects of swaps with large notional or principal amounts in the
current OTC swap markets. The Commission is not aware of any academic
literature that offers empirical evidence to support the claim of
impaired liquidity given greater transparency or how block trades on
swaps or large notional swaps are affected by a post-trade transparency
regime.\67\
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\67\ The Commission will continue to analyze and study the
effects of increased transparency on post-trade liquidity,
particularly in the context of block trades on swaps and large
notional swaps. The Commission expects that, as post-trade
transparency is implemented in the context of the Dodd-Frank Act,
new data will come to light that will inform the discussion and
could cause subsequent revision of the proposed rules.
---------------------------------------------------------------------------
The Commission recognizes that the term ``block trade'' has
different meanings in different markets. For example, in the futures
markets, a block trade is a permissible, privately negotiated
transaction that equals or exceeds a DCM's specified minimum quantity
of futures or options contracts and is executed away from the DCM's
centralized market but pursuant to its rules.\68\ Block trades are
large-sized transactions that would cause a significant price impact if
required to be executed on the DCM's centralized market. In contrast,
the Commission understands, through discussions with market
participants, that in the swaps markets, asset managers that execute
OTC swaps and then later distribute or allocate the swap to various
clients or funds may refer to such bunched transactions as block
trades. To clarify the Commission's view of block trades on swaps, the
proposed rules include definitions for both ``block trade'' and ``large
notional swap''.\69\
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\68\ See, e.g., CME Rulebook, Rule 526 (``Block Trades'').
Available at: http://www.cmegroup.com/rulebook/CME/index.html; ICE
Futures U.S. Rulebook, Rule 4.31 (``Block Trading''). Available at:
https://www.theice.com/Rulebook.shtml?futuresUSRulebook=.
\69\ The legislative history to the Dodd-Frank Act provides the
following statement by Senate Agriculture Committee Chairwoman
Blanche Lincoln regarding block trades and large notional swaps: ``I
would like to specifically note the treatment of `block trades' or
`large notional' swap transactions. Block trades, which are
transactions involving a very large number of shares or dollar
amount of a particular security or commodity and which transactions
could move the market price for the security or contract, are very
common in the securities and futures markets. Block trades, which
are normally arranged privately, off exchange, are subject to
certain minimum size requirements and time delayed reporting * *
*.'' 156 Cong. Rec. S5921 (daily ed. July 15, 2010) (statement of
Sen. Blanche Lincoln).
---------------------------------------------------------------------------
i. Parties to a Block Trade or Large Notional Swap
Proposed Sec. 43.5(b)(1) provides that any party to a block trade
or large notional swap is required to be an eligible contract
participant (``ECP'') as that term is defined in Section 1(a)(18) of
the CEA. The ECP requirement relies on Section 2(e) of the CEA, which
provides that ``[i]t shall be unlawful for any person, other than an
eligible contract participant, to enter into a swap unless the swap is
entered into on, or subject to the rules of, a board of trade
designated as a contract market under section 5.'' The parties to any
block trade, pursuant to a swap market's rules, and any large notional
swap executed off-facility, must be ECPs. However, the proposed rule
makes clear that a registered DCM may allow commodity trading advisors
acting in an asset managerial capacity and investment advisors that
have over $25 million in assets under management, including foreign
persons performing equivalent roles, to carry out block trades on a
registered DCM for non-ECP customers. Any such person may not conduct a
trade on behalf of a customer unless the person receives instruction or
prior consent to do so.
Proposed Sec. 43.5(b)(2) requires that parties to a swap that is
equal to or greater than the minimum block trade size must elect to be
treated as a block trade and that the swap market must provide the
real-time disseminator with such election. The block trade election
allows parties to a swap to calculate the impact of executing the
transaction bilaterally and delaying public dissemination versus
executing the transaction on a swap market's trading system or platform
where there would be no delay in the dissemination of the swap's
transaction and pricing data. Proposed Sec. 45.5(b)(2) also requires
that the parties to a swap that qualifies as a large notional swap must
elect to be treated as a large notional swap and the reporting party
must provide the real-time disseminator with such election.\70\
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\70\ By way of comparison, a party to a futures contract may
elect not to treat the transaction as a block trade. By not electing
to treat the transaction as a block trade, the party is choosing to
place its order on the DCM's centralized market. The party who makes
such an election may believe that it will receive a better price in
settling its trade immediately, on the DCM's centralized market,
rather than bilaterally negotiating the transaction and delaying the
reporting of the trade.
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ii. Block Trades on Swaps
Proposed Sec. 43.2(f) and (l) define ``block trade'' and ``large
notional swap''
[[Page 76160]]
as separate concepts to distinguish the difference between large
notional or principal sized trades executed pursuant to a swap market's
rules (block trades) and off-facility swaps that are not subject to a
swap market's rules but have very large notional or principal sizes
(large notional swaps). Proposed Sec. 43.2(f) defines a block trade as
a swap transaction that: (1) Involves a swap that is made available for
trading or execution on a swap market; (2) occurs off the swap market's
trading system or platform pursuant to the swap market's rules and
procedures; (3) is consistent with the minimum block trade size
requirements set forth in proposed Sec. 43.5; and (4) is reported in
accordance with the swap market's rules and procedures and subject to
the appropriate time delay set forth in proposed Sec. 43.5.\71\
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\71\ Both block trades and large notional swaps would only apply
to new events (i.e., not price affecting continuation events).
---------------------------------------------------------------------------
Proposed Sec. 43.5(c)(2) provides that a reporting party for any
block trade must report the block trade transaction and pricing data
pursuant to the rules of the swap market that makes that swap available
for trading. Such reporting must occur as soon as technologically
practicable after execution of the block trade and pursuant to the
rules of the swap market.
Proposed Sec. 43.5(c)(3) would require the swap market that
accepts the block trade to immediately send the block trade transaction
and pricing data to a real-time disseminator, which shall not publicly
disseminate the swap transaction and pricing data before the expiration
of the appropriate time delay described in proposed Sec. 43.5(k)
discussed below.
The Commission requests comment generally on all aspects of the
proposed rules regarding block trades. In addition, the Commission
requests specific comment on the following issues:
Do commenters agree with the proposed definition of
``block trade''? If not, why?
Do commenters believe that the Commission should set a
maximum time frame in which a reporting party must report a block trade
to a swap market, or should such time period be defined pursuant to the
rules of the respective swap markets?
iii. Large Notional Swaps
Proposed Sec. 43.2(l) defines a large notional swap as a swap that
(1) is not available for trading or execution on a swap market; (2) is
consistent with the appropriate size requirements for large notional
swaps set forth in proposed Sec. 43.5; and (3) is reported in
accordance with the appropriate time delay requirements set forth in
proposed Sec. 43.5. Similar to the proposed reporting requirements for
block trades, the reporting party to a large notional swap must report
to a real-time disseminator as soon as technologically practicable.
Such large notional swaps may include: (1) Swaps that would have been
subject to mandatory clearing, and for which an end-user relies on the
exception from the mandatory clearing requirement in Section 2(h)(7) of
the CEA; \72\ or (2) other off-facility swaps that are not subject to
mandatory clearing but have large notional amounts (which would include
non-standardized swaps). The proposed rules provide that if a swap is
sufficiently large in notional or principal amount, such swap could be
considered a large notional swap and therefore may be eligible for the
same time delay in real-time public reporting as block trades.
---------------------------------------------------------------------------
\72\ As described below, swaps that rely on the exception in
Section 2(h)(7) of the CEA, although large notional swaps, are
subject to the same time delay as block trades.
---------------------------------------------------------------------------
Proposed Sec. 43.5(d) requires the registered SDR that has
received the swap transaction and pricing data for a large notional
swap not to publicly disseminate such data before the expiration of the
appropriate time delay described in proposed Sec. 43.5(k).
Proposed Sec. 43.5(e) provides that an off-facility swap where
neither counterparty is a swap dealer or an MSP (e.g., a swap between
two end-users) may be eligible to be a large notional swap. Although
the parties to these swaps will not be registrants with the Commission,
this provision specifies that such swaps (i.e., end-user to end-user
transactions) will be treated the same as swaps in which a swap dealer
or MSP is a party.
The Commission requests comment generally on all aspects of the
proposed rules regarding large notional swaps. In addition, the
Commission requests specific comment on the following issues:
Do commenters agree with the proposed definition of
``large notional swap''? If not, why?
Do commenters agree that off-facility swaps in which
neither party is a swap dealer or an MSP be eligible to be treated as
large notional swaps? If not, why?
iv. Time-Stamp and Reporting Requirements for Block Trades and Large
Notional Swaps
In addition to the execution time-stamp requirement under proposed
Sec. 43.4 and appendix A to proposed part 43, proposed Sec. 43.5(f)
would require a swap market and registered SDR that accepts and
publicly disseminates swap transaction and pricing data in real-time to
have additional time-stamp requirements with respect to block trades
and large notional swaps. Proposed Sec. 43.5(f)(1) would require swap
markets to time-stamp swap transaction and pricing data with the date
and time to the nearest second (1) when such swap market receives the
data from a reporting party and (2) when a swap market transmits such
data to a real-time disseminator. Proposed Sec. 45.5(f)(2) would
require registered SDRs that accept and publicly disseminate swap
transaction and pricing data in real-time to time-stamp such data with
the date and time to the nearest second when (1) such registered SDR
receives such swap transaction and pricing data from a swap market or
reporting party and (2) when such data is publicly disseminated.\73\
Proposed Sec. 43.5(f)(3) would require that records of these
additional time-stamps be maintained for a period of at least five
years from the execution of the block trade or large notional swap. The
Commission believes that requiring a swap market and a registered SDR
to time-stamp these actions for block trades and/or large notional
swaps is essential in providing an audit trail for block trade and
large notional swap transactions from execution through public
dissemination. Additionally, such time-stamps would provide the
Commission ability to monitor whether reporting parties, swap markets
and registered SDRs are reporting the block trades and large notional
swaps in the manner described in proposed part 43.
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\73\ Proposed Sec. 43.5(f) would require five distinct time-
stamps for block trades and three distinct time-stamps for large
notional swaps. Block trades would receive a time-stamp by: (1) The
parties at execution; (2) the swap market upon receipt of the data;
(3) the swap market when it sends the data to a real-time
disseminator; (4) the real-time disseminator upon receipt of the
data; and (5) the real-time disseminator upon public dissemination
of the data. A large notional swap would receive a time-stamp: (1)
The parties at execution; (2) the real-time disseminator (a
registered SDR, if available) upon receipt of the data; and (3) the
real-time disseminator (a registered SDR, if available) upon public
dissemination of the data.
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v. Responsibilities of Registered SDRs in Determining the Appropriate
Minimum Block Size
Proposed Sec. 43.5(g) would require registered SDRs to calculate
the appropriate minimum block size \74\ for
[[Page 76161]]
swaps for which such registered SDR receives data in accordance with
Section 2(a)(13)(G) of the CEA. Such appropriate minimum block size for
a swap instrument \75\ shall be the greater of the resulting number
derived from the ``distribution test'' and the ``multiple test'' (each
described below).\76\ If there is only one registered SDR for a
particular asset class, the registered SDR would have to calculate the
appropriate minimum block size. Since registered SDRs will be receiving
data from all swaps within an asset class, they should have a more
complete set of swap data and therefore the calculations will be based
off of a more complete set of swap data. In the event that there are
multiple registered SDRs for an asset class, and therefore, multiple
registered SDRs would accept swaps for a particular category of swap
instrument, the Commission will prescribe how the appropriate minimum
block size should be calculated, in a way that accounts for all the
relevant data.\77\
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\74\ Proposed Sec. 43.2(c) defines ``appropriate minimum block
size'' to mean the minimum notional or principal size of a swap
instrument that qualifies swaps within such category of swap
instrument as a block trade.
\75\ As discussed below, proposed Sec. 43.2(y) defines ``swap
instrument'' to mean a grouping of swaps in the same asset class
with the same or similar characteristics. Swaps in a category of
swap instruments may be traded on SEFs, DCMs or off-facility. The
Commission is requesting general and specific comment about the
determination of swap instrument, as explained in the discussion of
appendix A to part 43 above.
\76\ The Commission has the authority to require registered SDRs
to provide the appropriate block trade minimum size to the public
under Sections 21(c)(4)(B) and 21(c)(5) of the CEA. Section
21(c)(4)(B) of the CEA states that an SDR shall provide data ``in
such form and at such frequency as the Commission may require to
comply with the public reporting requirements contained in section
2(a)(13).'' Section 21(c)(5) of the CEA states that an SDR shall
``at the direction of the Commission, establish automated systems
for monitoring, screening, and analyzing swap data, including
compliance and frequency of end-user clearing exemption claims by
individual and affiliate entities.''
\77\ The Commission is considering alternative methods on how to
determine the appropriate minimum block size when there is more than
one registered SDR that accepts data for a particular asset class,
including requiring a registered SDR to follow the requirements in
Sec. 40.6(a) of the CEA to self-certify the appropriate minimum
block size and having the Commission make a determination of the
appropriate minimum block size for a swap instrument.
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The Commission requests comment on the appropriate methods to
calculate the appropriate minimum block size when more than one
registered SDR accepts swap data for a particular asset class or swap
instrument. In addition, the Commission requests specific comment on
the following issues:
Who should determine the appropriate minimum block size
when there is more than one registered SDR that accepts swap data for a
particular asset class or instrument?
Should the Commission require registered SDRs to self-
certify determinations of the appropriate minimum block size for swap
instruments?
vi. Formula To Calculate the Appropriate Minimum Block Size
Section 2(a)(13)(E)(ii) of the CEA directs the Commission to
determine the appropriate minimum size for large notional swaps and
block trades.\78\ Proposed Sec. 43.5(g)(1) describes the procedure and
calculations that a registered SDR must follow in determining the
appropriate minimum block size. In determining the appropriate
calculations, the Commission considered: (1) Currently existing size
standards for block trades in other markets; (2) the potential impact
of block trades on liquidity; and (3) the frequency of block trades in
other markets, including equities, bonds and futures markets. The
Commission also considered the standards used by TRACE in setting its
minimum threshold for block trades.\79\ In that regard, for trades with
a par value exceeding $5 million for investment-grade bonds or $1
million for non-investment grade bonds (e.g., high-yield and unrated
debt), TRACE publicly disseminates the quantity as ``5MM+'' and
``1MM+'', respectively.\80\ In developing the appropriate minimum block
size formula, the Commission considered the many differences within the
swaps markets, including differences in liquidity between particular
markets and contracts and differences in product types between asset
classes and within the same asset class.
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\78\ The legislative history to the Dodd-Frank Act provides the
following statement by Senate Agriculture Committee Chairwoman
Blanche Lincoln regarding the calculation of the minimum size for
block trades and large notional swaps: ``The committee expects that
regulators to distinguish between different types of swaps based on
the commodity involved, size of the market, term of the contract and
liquidity in that contract and related contracts, i.e.; for instance
the size/dollar amount of what constitutes a block trade in 10-year
interest rate swap, 2-year dollar/euro swap, 5-year CDS, 3-year gold
swap, or a 1-year unleaded gasoline swap. While we expect the
regulators to distinguish between particular contracts and markets,
the guiding principal in setting appropriate block trade levels
should be that the vast majority of swap transactions should be
exposed to the public through exchange trading.'' 156 Cong. Rec.
S5,921-22 (daily ed. July 15, 2010) (statement of Sen. Blanche
Lincoln).
\79\ TRACE does not use the term ``block trades.'' Rather, the
TRACE system uses the term ``disseminated volume caps.'' In
discussions between TRACE representatives and staff, TRACE informed
staff that disseminated volume caps are, for all intents and
purposes, substantially similar to the minimum size requirements for
block trades.
\80\ See TRACE, Trade Reporting and Compliance Engine, User
Guide, Version 2.4--March 31, 2010, p. 50, http://www.finra.org/web/groups/industry/@ip/@comp/@mt/documents/appsupportdocs/p116039.pdf.
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Proposed Sec. 43.5(g)(1) would also require a registered SDR to
set the appropriate minimum block size at the greater resulting number
of each of the ``distribution test'' and ``multiple test.''
vii. Distribution Test
Proposed Sec. 43.5(g)(1)(i) describes the distribution test as
applying the ``minimum threshold'' to the ``distribution of the
notional or principal transaction amounts.'' The proposed distribution
test would require a registered SDR to create a distribution curve to
see where the most and least liquidity exists based on the notional or
principal transaction amounts for all swaps within a category of swap
instrument.\81\ The application of the distribution test requires a
registered SDR to determine first the distribution of the rounded
notional or principal transaction amounts of swaps (rounded pursuant to
the proposed rules in Sec. 43.4(i)) within a category of swap
instrument and then calculate a notional or principal size for such
swap instrument that is greater than the minimum threshold.
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\81\ For the purposes of determining the appropriate minimum
block size, swaps may be grouped by asset class into a category of
swap instruments. As discussed above, proposed Sec. 43.2(y) defines
swap instrument as a grouping of swaps in the same asset class with
the same or similar characteristics. A registered SDR would
determine a swap instrument based on different criteria per asset
class. The Commission is requesting comment on the appropriate
criteria to determine the categories of swap instruments for a
particular asset class.
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Proposed Sec. 43.5(g)(1)(i)(A) would require a registered SDR to
pool and perform an empirical distributional analysis on the
transactional data for the swaps included in each category of swap
instrument by pooling the data from such swaps for which it has data
that are executed on a swap market and that are executed off-facility.
Proposed Sec. 43.5(g)(1)(i)(A) also provides that a registered SDR may
consider other economic information in determining the appropriate
minimum block size, in consultation with the Commission.\82\ The
registered SDR should: (1) identify all of the rounded notional or
principal amounts traded; (2) group the transactions of a particular
swap instrument based on the rounded notional or principal amounts;
\83\ and (3)
[[Page 76162]]
calculate the empirical distribution of all trades for the swap
instrument.
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\82\ The Commission anticipates that as swap markets develop,
certain adjustments for seasonality, etc., may become relevant
depending on the particular type of swap contract.
\83\ Rounding would occur pursuant to the rounding rules for the
real-time public reporting of notional or principal amounts which
are illustrated in proposed Sec. 43.4(i).
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Once the distribution of notional or principal transaction amounts
is completed for a swap instrument, a registered SDR must then apply
the minimum threshold to such distribution. Proposed Sec.
43.5(g)(1)(i)(B) describes the ``minimum threshold'' as a notional or
principal amount that is greater than 95% of transaction sizes in a
category of swap instrument during the period of time represented by
the distribution of the notional or principal transaction amounts.
Setting the threshold level at 95% ensures that the resulting number
from the distribution test will be large relative to the notional value
of other swaps of the same type.
In determining the appropriate percentage at which to set the
``minimum threshold,'' the Commission considered the impact of block
trades in selected futures markets.\84\ In the studies conducted by the
Commission, the Commission found that block trades made up a small
percentage of the overall markets, accounting for less than 0.075% of
total trades in the three observed markets (i.e., ED, CL and RB futures
contracts). Recognizing that the market for swaps is not as liquid as
that of futures, and recognizing market participants' needs to lay-off
risk associated with block trades, the Commission is proposing a
minimum threshold of greater than 95%.
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\84\ The Commission examined trading data for the Eurodollar
(``ED''), crude oil (``CL'') and reformulated gasoline blendstock
for oxygenate blending (``RB'') futures contracts, among other
contracts. In the ED, CL and RB studies, the relevant time period
was February 2009 to September 2010 (``relevant time period''). The
Commission evaluated the frequency of use and impact of block trades
in these three futures markets, which represent both liquid (e.g.,
ED) and less liquid (e.g., RB) markets. In the ED futures market,
the Commission looked at a total of 56,643,563 trades of which 502
trades were block trades under CME's rules, representing 0.00089% of
all trades in the ED futures market during the relevant time period.
The average size of an ED futures block trade during the relevant
time period consisted of 2,835 contracts, and the largest ED futures
block trade consisted of 21,800 contracts. In the RB futures market,
the Commission looked at 10,230,939 trades of which 7,551 trades met
the minimum qualifications of a block trade, representing 0.0739% of
all trades in the RB futures market during the relevant time period.
The average size of a RB futures block trade was 106.47 contracts
and the largest RB futures block trade was 1,050 contracts. Lastly,
in the CL futures market, the Commission looked at 53,796,956 trades
of which 9,346 trades were block trades, representing 0.0173% of all
trades during the relevant time period. The average size of a block
trade in CL futures was 294.2 contracts and the largest individual
trade was 5,200 contracts.
At the time of the study, the block trade minimum was 4,000 ED
futures contracts (or 1,000 ED futures contracts, provided that a
minimum of 1,000 contracts are transacted in years 6-10), the block
trade minimum size for RB futures was 100 contracts and the block
trade minimum size for RB futures was 100 contracts. See CME & CBOT
Market Regulation Advisory Notice RA1006-3, October 19, 2010.
Available at: http://www.cmegroup.com/rulebook/files/CME_CBOT_RA1006-3.pdf. See also, CME Rule 526 (``Block Trades''). Available
at: http://www.cmegroup.com/rulebook/CME/I/5/26.html.
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viii. Multiple Test
Proposed Sec. 43.5(g)(1)(ii) provides that to apply the multiple
test to a swap instrument, a registered SDR shall multiply the ``block
multiple'' by the ``social size''.\85\ The multiple test is necessary
since the market for a swap instrument may be illiquid and there may be
very few transactions over a particular period to provide a meaningful
distribution of transaction amounts.
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\85\ Proposed Sec. 43.2(x) defines the ``social size'' as the
greatest of the mode, median and mean transaction sizes of a
particular type of swap.
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Proposed Sec. 43.5(g)(1)(ii)(A) provides that the social size
shall be determined by: (1) Calculating the mode, median and mean
transaction sizes for all swaps within a category swap instrument; and
(2) choosing the greatest of the mode, median and mean transaction
sizes.\86\ Commission staff's research and external meetings with
market participants indicated that a swap's ``social size'' is an
important criterion in quantifying an appropriate minimum block
size.\87\ The social size, or customary transaction size, for a swap
varies by asset class, tenor and delivery points.
---------------------------------------------------------------------------
\86\ The Commission also considered using one of the mode,
median, or mean of a swap instrument category as the sole
measurement of social size without first comparing the three to
determine which is largest. However, the Commission determined such
a methodology would render an incomplete understanding of a
particular swap category. By itself, the mean would not represent
the social size of a particular type of swap because, as the sum of
the values divided by the total number of transactions, it would
fail to accurately account for the influence of outliers at the
extreme large end of the data set. The median, although it would
take into account swap transaction outliers, would fail to
accurately reflect which trade size is transacted most often.
Finally, the mode, which would represent the trade size that occurs
most frequently in a particular type of swap, would fail to take
into account a market where trade sizes were thinly spread and where
there were large gaps in data points or in swap markets without a
normal distribution.
\87\ See, e.g., Comments from Robert Cook, Director of the
Division of Trading and Markets, SEC, Yunho Song, Managing Director/
Senior Trader, Bank of America Merrill Lynch and Conrad Volstad,
Chief Executive Officer, ELX Futures, L.P.:
Mr. Cook: Let me ask in terms of methodology, it's been argued
by some to us that there are certain markets where there's a social
size of trade or fairly standardized level of trading that could be
used as a part of a building block or measuring--measurement of a
block trade and others where there aren't. I would just ask if, in
your experience, there are generalizations that can be drawn and, if
so, what product categories do you think would lend themselves most
to that type of approach to the issue?
Mr. Song: Well, I'll have a go at this. It's relatively the
easiest for the most liquid products say like interest rate swaps
because you can get data from banks and brokers as to--like data
mining. How many trades have you done? What is the maturity profile?
What is the median ticket size? What ticket size will put you in the
top tenth percentile? Those, I think, you would have the relatively
the least amount of hurdles to derive those number scientifically.
Where it gets difficult is with the products that might trade, like,
once a month, because then you've got the issue with these lumpy
trades, right. It could be very illiquid. Well, you may not trade
for a few months. You do this gigantic trade and then you do very
little trades again and then another gigantic trade. But for--again
for the bulk of the OTC derivative market, for interest rate swaps
and plain vanilla options, I believe that that data is relatively
readily available.
Mr. Voldstad: I would think the same is true for (inaudible)
credit default swaps as it is for various indices. Roundtable Tr. at
376-377.
---------------------------------------------------------------------------
Once the social size is determined, the registered SDR must then
apply the block multiplier. Proposed Sec. 43.5(g)(1)(ii)(B) provides
that the block multiple shall be set at five, so therefore the
registered SDR should multiply the social size by five. The resulting
product will be the number that the registered SDR compares to the
resulting number from the distribution test, the greater of which will
be the appropriate minimum block size for such swap instrument. In
determining the block multiplier, the Commission selected a number that
it believed would help to ensure that the block trade size was
sufficiently large relative to the trading in a particular market and
would take into account those markets that have very little trading.
The Commission believes this proposed two-part test is necessary to
ensure that qualifying block trades are, in fact, large trades relative
to the notional or principal amounts for a swap instrument.\88\ For
example, suppose there is a swap instrument that has 500 trades over a
one month period and all of the specific swap instruments had notional
values between $50 and $60 million. Using the distribution test, the
appropriate minimum block size would be somewhere close to $60 million.
Using the multiple test, the appropriate minimum block size would be
$275 million.\89\ The $60 million
[[Page 76163]]
notional size determined by the distribution test would not move the
market (since the market can clearly handle that size) and would
therefore not be a large notional amount relative to the other notional
amounts that traded over the one month period. Therefore, in this
example, the distribution test alone would not provide a good measure
for the appropriate minimum block size. The proposed rules would
require the registered SDR to compare the resulting number from the
distribution test to resulting number from the multiple test. The
greater of the two numbers would be the appropriate minimum block size
for a swap instrument, which the registered SDR would post on its
Internet Web site. In the example above, the result of the multiple
test ($275 million) is greater than the distribution test and therefore
would be the appropriate minimum block size that is posted by the
registered SDR for the swap instrument.
---------------------------------------------------------------------------
\88\ The legislative history to the Dodd-Frank Act provides the
following statement by Senate Agriculture Committee Chairwoman
Blanche Lincoln regarding the calculation of the minimum size for
block trades and large notional swaps: ``Block trades, which are
transactions involving a very large number of shares or dollar
amount of a particular security or commodity and which transactions
could move the market price for the security or contract, are very
common in the securities and futures markets. '' 156 Cong. Rec.
S5,921 (daily ed. July 15, 2010) (statement of Sen. Blanche
Lincoln).
\89\ Assuming that the median ($55 million) is the largest of
the mode, median and mean, the median would be multiplied by the
block multiplier (five (5)) to equal $275 million.
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With respect to newly-listed swaps, a registered SDR would be
required to evaluate the distribution of notional or principal
transaction amounts and calculate the mode, median and mean, over the
one month period following the registered SDR's acceptance of the swap
data pursuant to Section 2(a)(13)(G) of the CEA. Proposed Sec.
43.5(g)(2) provides that after such one month period, the registered
SDR would assign the newly-listed swap to the appropriate category of
swap instrument or determine that a new category of swap instrument was
necessary and would set an appropriate minimum block size. Proposed
Sec. 43.5(g)(2) also provides that registered SDRs should make an
initial determination of the appropriate minimum block size \90\ for a
newly-listed swap one month after such newly-listed swap is first
executed and reported to the registered SDR pursuant to Section
2(a)(13)(G) of the CEA. The Commission believes that one month of
trading data provides a registered SDR with sufficient data to
determine an appropriate minimum block size for a swap instrument.
---------------------------------------------------------------------------
\90\ As discussed, such initial determination may be done by
either grouping such newly-listed swap into an existing swap
instrument category or by creating a new category of swap instrument
and determining the appropriate minimum block size based on the
criteria set forth in proposed Sec. 43.5.
---------------------------------------------------------------------------
Proposed Sec. 43.5(g)(3) provides that registered SDRs must
publish the list of the appropriate minimum block sizes in swap
instruments on its Internet Web site, for which the registered SDR has
received data pursuant to Section 2(a)(13)(G) of the CEA. Such
appropriate minimum block size information must be available to the
public in an open and non-discriminatory manner.
Proposed Sec. 43.5(g)(4) would require that a registered SDR
evaluate the distribution of notional or principal transaction amounts
and calculate the mode, median and mean, on a yearly basis, initially
beginning in accordance with the implementation timeframe for which the
Commission is requesting public comment. The Commission recognizes that
the appropriate minimum block size for a swap instrument may change due
to market conditions. Such annual adjustments are in addition to the
requirement to provide an appropriate minimum block size for newly-
listed swaps one month after the registered SDR first receives data for
such swap. Publishing the information on the same date each year (10th
business day) will allow swap markets, market participants and the
public certainty as to when they should check the appropriate minimum
block sizes and, in the case of swap markets, adjust the minimum block
trade sizes. In making its calculations, the registered SDR should look
back to the data over the previous year for a category of swap
instrument. If a particular swap instrument does not have a an entire
year's worth of data, the proposed rules provide that the registered
SDR should use the data that it has to make its determination of the
appropriate minimum block size for a particular swap instrument.
Proposed Sec. 43.5(g)(4) also provides that registered SDRs shall
begin to publish appropriate minimum block sizes for swap instruments
in January 2012. The Commission believes that such timeframe allows the
registered SDRs enough time to receive data to determine appropriate
minimum block sizes for swap instruments.
The Commission considered the burden on registered SDRs and the
benefit to market participants, swap markets and the public in
proposing an annual update of the appropriate minimum block size.
Allowing for a longer period between reviews would, presumably, bring
more certainty to traders who engage in long-term investment
strategies. However, such longer periods would fail to take into
account the dynamic nature of swaps markets, as significant changes in
swaps markets may occur in a relatively short amount of time.
Therefore, previously established appropriate minimum block sizes may
fail to accurately reflect the market. Conversely, shorter timeframes
(e.g., weekly, monthly, quarterly, etc.) were considered by the
Commission, but such updates may be burdensome on registered SDRs and
may create instability for market participants who engage in long-term
investment strategies. The Commission believes that an annual review of
the appropriate minimum block sizes is appropriate to balance these
competing interests.\91\
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\91\ Registered SDRs will have the relevant swap data readily
available since it will be sent to them pursuant to Section
2(a)(13)(G) of the CEA, and the Commission does not anticipate that
the annual review calculations required by this proposed rule will
be burdensome on a registered SDR. Additionally, market participants
and the public will receive the benefit of having up-to-date,
appropriate minimum block sizes that accurately reflect the current
market for a swap instrument.
---------------------------------------------------------------------------
ix. Responsibilities of Swap Markets in Determining Minimum Block Trade
Sizes
Proposed Sec. 43.5(h) provides that after an ``appropriate minimum
block size'' is established by either a registered SDR or by a
Commission prescribed method, a swap market shall set the ``minimum
block trade size'' \92\ for those swaps that it lists and wishes to
allow block trading, by referring to the appropriate minimum block size
that is posted on a registered SDR's Internet Web site for the swap
instrument category for such swap. A swap market must set the minimum
block trade size for a swap at an amount that is equal to or greater
than the appropriate minimum block size listed by the appropriate
registered SDR. A swap market would be responsible for ensuring that
the minimum block trade sizes for swaps that it lists are consistent
with the annual updates to the appropriate minimum block size for swap
instruments. Additionally, a swap market would have to immediately
apply any change to the minimum block size of a particular swap,
following the posting of an appropriate minimum block size by a
registered SDR. The swap market should follow the requirements set
forth in Sec. 40.6(a) of the Commission's regulations.\93\
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\92\ Proposed Sec. 43.2(m) defines ``minimum block trade size''
as the minimum notional or principal amount, as determined by each
swap market, for a block trade in a particular type of swap that is
listed or executed on such swap market.
\93\ The Commission recently proposed amendments to Sec.
40.6(a) of the CEA. See 75 FR 67282 (November 2, 2010).
---------------------------------------------------------------------------
Proposed Sec. 43.5(h) provides that if a swap market wishes to set
a minimum block trade size for a swap that does not have an appropriate
minimum block size listed by a registered SDR, the swap market must
follow the rules in proposed Sec. 43.5(i) which discusses the
procedure for setting the minimum block trade size for newly-listed
swaps.
Proposed Sec. 43.5(i) would require a swap market to set a minimum
block trade size for newly-listed swap. Proposed Sec. 43.2(n) defines
a ``newly-
[[Page 76164]]
listed swap'' as a swap that is listed on any swap market where an
appropriate minimum block size has not been published by a registered
SDR.\94\ The minimum block trade size for a newly-listed swap that is
set by a swap market would govern the trading of the newly-listed swaps
on such swap market until such time as a registered SDR establishes an
appropriate minimum block size for the newly-listed swap.
---------------------------------------------------------------------------
\94\ A swap market may, however choose not to allow block
trading for such swaps and would therefore not be required to make
such determination.
---------------------------------------------------------------------------
ProposedSec. 43.5(i)(1) provides that if a newly-listed swap is
within the parameters of an existing category of swap instrument for
which a registered SDR has posted an appropriate minimum block size,
the swap market shall set the minimum block trade size for such newly-
listed swap at a level equal to or greater than such appropriate
minimum block size. The requirement would enable a swap market to
reference a currently existing appropriate minimum block size as a
point of reference during the one-month interim period until the
registered SDR actually puts the swap in a particular category of swap
instrument and establishes an appropriate minimum block size. Proposed
Sec. 43.5(i)(2) provides that in setting the minimum block trade size
for a newly-listed swap that is not within an existing category of swap
instrument, the swap market should consider: (i) The anticipated
distribution of notional or principal transaction amounts; (ii) the
social size for swaps in other markets that are in substance the same
as the newly-listed swap; and (iii) the minimum block trade sizes of
similar swaps in the same asset class.. After taking into account these
considerations, proposed Sec. 43.5(i)(3) provides that the swap market
must ensure that the notional or principal amount selected represents a
reasonable estimate of the greater of (i) a notional or principal
amount that is greater than all but 95% of the total anticipated
distribution of notional or principal transaction amounts over the one-
month period immediately following the first execution of the swap; or
(ii) five times the anticipated social size over the one-month period
immediately following the first execution of the swap.
In the event that a registered SDR does not set an appropriate
minimum block size for a newly-listed swap after one month, as
described in proposed Sec. 43.5(g)(2), the Commission believes that in
order to comply with the proposed requirements of Sec. 43.5(i), a swap
market should continue to revise the minimum block trade size for such
newly-listed swap as trading increases in order to ensure that the
estimated minimum block trade size is reasonable relative to increased
trading activity for such newly-listed swap. Such process should
continue until an appropriate minimum block size is published for the
type of swap by a registered SDR.\95\
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\95\ If the initial minimum block trade size established by a
swap market is greater than or equal to the appropriate minimum
block size posted on a registered SDR's Internet Web site, a swap
market may not have to adjust its minimum block trade size. In such
a situation, a swap market may reduce its minimum block trade size
to the appropriate minimum block size.
---------------------------------------------------------------------------
If the same type of swap begins trading on more than one swap
market during the one-month period before a registered SDR sets the
appropriate minimum block size, proposed Sec. 43.5(i) would apply to
each swap market where such swap is traded. Each such swap market
should set the minimum block trade size the swap listed on its facility
until an appropriate minimum block size is published by a registered
SDR.\96\
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\96\ For example, if on March 1, a newly-listed swap is executed
on swap market 1 and a registered SDR is available to accept the
swap transaction and pricing data for the swap. If on March 15, a
swap is traded on swap market 2 with the same terms as the swap
traded on swap market 1. The minimum block trade size established by
swap market 1 will prevail until the appropriate minimum block size
is calculated and posted on the registered SDR's Internet Web site
on April 1, at which time swap market 1 must ensure its minimum
block trade size is greater than or equal to the appropriate minimum
block size. The minimum block trade size established by swap market
2 will only be its prevailing block trade size until April 1st, when
it must conform to the appropriate minimum block size as calculated
by the registered SDR.
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x. Responsibilities of the Parties to a Swap in Determining the
Appropriate Minimum Large Notional Swap Size
Section 43.5(j)(1) provides the procedure for parties to a swap to
determine the appropriate minimum large notional swap size.\97\ Because
the appropriate minimum block size for swap instruments will be
available on a registered SDR's Internet Web site with respect to swaps
that have been trading for one month or longer, the proposed rules
provide that parties who engage in an off-facility swap, and seek to
qualify their swap as a large notional swap, must refer to the
appropriate minimum block sizes for swap instruments. Parties to such
off-facility swap must then identify the category of swap instrument in
which the swap that they wish to be considered a large notional swap
would likely fall. The parties to the off-facility swap should refer to
the appropriate minimum block size that is associated with the selected
swap instrument, and the notional or principal amount of such swap must
be equal to or greater than the appropriate minimum block size. If
there is not an existing category of swap instrument with an
appropriate minimum block size available to reference, then such swap
between the parties shall not qualify as a large notional swap and
would not be afforded any time delay in public reporting. In
determining the appropriate category of existing swap instrument, the
parties to a swap should consider and must document: (1) The
similarities of the terms of the swap between the parties compared to
the terms of swaps that are grouped within the existing category of
swap instrument (e.g., similarities of the fields listed in appendix A
to proposed part 43); and (2) other swaps listed on swap markets that
were considered in evaluating the swaps that are grouped within the
existing swap instrument.
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\97\ As noted, proposed Sec. 45.3(b)(2) requires the reporting
party of a large notional swap to elect to treat such swap as a
large notional swap.
---------------------------------------------------------------------------
The Commission considered several factors in determining this
proposed method for calculating the appropriate minimum size for large
notional swaps. First, the appropriate minimum block sizes that are
posted by a registered SDR should be accurate, up to date and
accessible to market participants. Additionally, to the extent that the
reporting party to a large notional swap is a swap dealer or MSP, such
reporting parties would be subject to the Commission's proposed rules
for internal business conduct standards in proposed part 23 of the
Commission's regulations. Further, the swap instrument categories
should be broadly defined to allow parties to a large notional swap to
easily place their swap into one of the categories of swap instrument.
The parties to an off-facility swap should therefore be able to
accurately choose a swap instrument based on the criteria set forth in
this proposed rule.
Proposed Sec. 43.5(j)(2) provides that, to the extent that the
parties to a large notional swap transaction are swap dealers and/or
MSPs, such parties must maintain records that illustrate the basis for
the selection of the swap instrument for the large notional swap in
accordance with proposed part 23 of the Commission's regulations. This
section also requires that such records be made available to the
Commission upon request. This proposed recordkeeping requirement should
ensure that parties to an off-facility swap do not attempt to
manipulate these proposed rules.
Proposed Sec. 43.5(j)(3) provides that if the parties to a swap
are unable to determine, identify or agree on the appropriate swap
instrument to
[[Page 76165]]
reference for the purposes of treating such swap as a large notional
swap, such swap cannot qualify as a large notional swap and therefore
will not be eligible for a time delay thereby requiring that such swap
transaction and pricing data be publicly disseminated in real-time.
The Commission requests comment generally on all aspects of
determining the appropriate minimum size for block trades and large
notional swaps. In addition, the Commission requests comment on the
following issues:
Do commenters agree with the approach of having a
registered SDR calculate and publicize appropriate minimum block size,
but allowing swap markets to individually set their own minimum block
sizes for particular contracts at a higher level based on the
appropriate minimum block size? Why or why not? If not, please provide
an alternative approach.
Is the distribution test an acceptable method of
determining an appropriate minimum block size? If so, is 95% the
appropriate minimum threshold?
Is the multiple test an acceptable method of determining
an appropriate minimum block size? If so, is five the appropriate block
multiple?
Do the distribution test and the multiple test, taken
together, account for a situation where there is a swap instrument with
an extremely small sample (e.g., less than 40 transactions for a
category of swap instrument)? If not, what alternative method of
calculation can be added for swap instruments with a small number of
transactions?
Do commenters agree with the proposal to use the greater
of the distribution test or the multiple test)? If not, what
alternative approach should be used and why?
The Commission recognizes that the two-pronged formula for
determining the appropriate minimum block size may lead to a relatively
small appropriate minimum block size and the possibility that a
significant percentage of the overall notional or principal amount of
swaps transacted in a particular category of swap instrument could be
executed pursuant to block trade rules or as large notional swaps,
which are subject to a delay in real-time public dissemination.
Therefore, should the Commission adopt an additional standard which
would limit the aggregate notional or principal amount of block trades
and large notional swap transactions to a percentage of the overall
notional or principal volume over the prior year? If not, why not? If
so, why and what should that percentage be? Should some other test be
used to address this situation?
Do commenters agree that the appropriate minimum block
sizes for swap instruments, as determined by a registered SDR, should
apply to all swap markets and off-facility swaps, regardless of
differences in liquidity in swap markets or off-facility? \98\
---------------------------------------------------------------------------
\98\ See Section 2(a)(13)(E)(iv).
---------------------------------------------------------------------------
Should there be one block trade formula for all swaps?
Should there be one block trade formula for all swaps in an asset
class? Should different swap instruments have different block trade
formulas? If commenters believe there should be various block trade
formulas for different markets, for which markets and how should those
standards be defined?
Do commenters agree with the proposed method for
determining the minimum block size for large notional swaps? If not,
why (please provide alternative methods)? Do commenters believe that
there should be other criteria that should be considered in determining
if a swap is a large notional swap? If so, what other criteria?
If there is more than one registered SDR per asset class,
how could the Commission ensure that all registered SDRs implement the
same appropriate minimum block size formula for the entire market for a
category of swap instrument? How should the Commission approach this
issue?
Do commenters believe that the concept of block trades
should exist for newly-listed swaps? If not, why? Do commenters agree
with the proposed method for determining the minimum block trade size
for newly-listed swaps? If not, why?
Do commenters believe that the registered SDRs should
initially calculate the appropriate minimum block size for a swap one
month after a swap has been executed on a swap market? If so, why? If
not, why?
If there is no registered SDR to accept swaps for an asset
class, do commenters agree with the Commission's proposal that swap
markets will determine the minimum block sizes in the manner described
in proposed Sec. 43.5(h) and (i)?
Do commenters believe that having registered SDRs perform
an annual review of all appropriate minimum block sizes is the
appropriate frequency? If so, why? If not, why?
How much data would be necessary for the initial
determination by registered SDRs of appropriate minimum block trade
sizes? When should such initial determination of appropriate minimum
block trade sizes begin? Should there be different initial
determinations times based on asset class? If so, why?
Should registered SDRs consider data for pre-existing
swaps (i.e., swaps entered into prior to the effective date of the
Dodd-Frank Act) in making their determinations of the appropriate
minimum block sizes for swap instruments? If so, why? If not, why?
Should registered SDRs have a requirement to consult with
swap markets in calculating the appropriate minimum block size of a
swap instrument? If not, should swap markets have an ability to dispute
and/or appeal the calculation of the appropriate minimum block size for
a swap instrument that is determined by a registered SDR?
Should registered SDRs submit to the Commission their
formulas/calculations for the appropriate minimum block sizes of swap
instruments in order to ensure market transparency?
xi. Time Delay in the Real-Time Public Reporting of Block Trades and
Large Notional Swaps
Section 2(a)(13)(A) of the CEA requires that all parties to swap
transactions, including parties to block trades and large notional swap
transactions, to report data relating to swap transactions ``as soon as
technologically practicable after the time at which the swap
transaction has been executed.'' \99\ However, the Dodd-Frank Act also
requires the Commission to promulgate rules ``to specify the
appropriate time delay for reporting large notional swap transactions
(block trades) to the public.'' \100\ Additionally, the Dodd-Frank Act
requires that the Commission, in writing these proposed rules, ``take
into account whether public disclosure will materially reduce market
liquidity.'' \101\
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\99\ Section 2(a)(13)(A) of the CEA; see also, Statement of
Senate Agriculture Committee Chairwoman Blanche Lincoln's statement:
``With respect to delays in public reporting of block trades, we
expect the regulators to keep the reporting delays as short as
possible.'' 156 Cong. Rec. S5,922 (daily ed. July 15, 2010)
(statement of Sen. Blanche Lincoln).
\100\ Section 2(a)(13)(E)(iii) of the CEA.
\101\ Section 2(a)(13)(E)(iv) of the CEA.
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The Commission recognizes the potential market impact that the
reporting of a block trade or large notional swap may have on the
market. Such potential market impact is critical to the determination
of an appropriate time delay before public dissemination of block trade
or large notional swap transaction and pricing data. The ability for
market participants to trade in large
[[Page 76166]]
notional or principal amounts without market prices moving
significantly against them is a vital component of any vibrant and
liquid marketplace.
In external meetings with market participants, CFTC staff was often
told that increased pre-trade and post-trade transparency would enable
front-running and may have an adverse impact on market liquidity.
Specifically, market participants expressed concern that if they were
required to publicly disseminate swap transaction and pricing data
immediately after the execution of a block trade or large notional
swap, other market participants would be able to profit on this
information by anticipating the trading activity of the block trade or
large notional swap participants who are attempting to hedge their swap
portfolios. As other market participants anticipate the block trade or
large notional swap parties' hedges, prices may rise adverse to the
market participant who is attempting to hedge and, as a result, certain
market participants may be forced to take on increased costs and market
exposure in offsetting their risk. Although CFTC staff was often told
of the adverse impact of post-trade transparency on market liquidity,
staff is not aware of any empirical evidence to support this
position.\102\
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\102\ See, e.g., the exchange at the Roundtable between Chester
Spatt, Pamela R. and Kenneth B. Dunn Professor of Finance, Tepper
School of Business, Director, Center for Financial Markets Carnegie
Mellon University and Yunho Song, Managing Director/Senior Trader,
Bank of America Merrill Lynch:
MR. SPATT: So just to follow up on that as well, in the three
years that I was at the SEC, was basically coincided with the three
years after much of the implementation of TRACE. And while folks
from industry repeatedly came in and pressed the point that spreads
were wider, they never presented to us in any format a convincing
empirical study and nor am I aware of any empirical study in the
academic community to show those effects. So I do think it's
incumbent upon critics of post-trade disclosure to point to and
identify convincing empirical evidence of these effects. And I think
that's extremely important to the regulators as they go forward, but
I must say, I'm not aware of that evidence right now.
MR. SONG: If I may comment on that--I think one of the
distinctions we have is a market that may be [smaller] in retail
based versus a market that is with [a] far small number of
participant[s] and that's institutional based. So, you may not be
able to, for example, find who was doing a specific trade looking at
a TRACE report so it has a marginal impact on the marketplace * * *.
Roundtable Tr. at 332-333.
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Proposed Sec. 43.5(k)(1) provides the appropriate time delays for
public dissemination of block trades and large notional swaps. The time
delay for public dissemination begins at execution of the swap (i.e.,
upon or immediately following or simultaneous with affirmation of the
parties to the swap). Therefore, in the case of a block trade, the time
delay would begin prior to the time that that a swap market receives
the swap transaction and pricing data from a reporting party. The
registered SDR that publicly disseminates such data would be
responsible for ensuring that such data is disseminated in accordance
with proposed Sec. 43.5(k).
Proposed Sec. 43.5(k)(2) requires that the time delay for block
trades be no later than 15 minutes after the time of execution. After
the 15 minute time delay has expired, the registered SDR or the swap
market (through a third-party service provider) must immediately
disseminate the swap transaction and pricing data to the public.\103\
As discussed above, such delay does not apply to the reporting party's
requirement to report to a swap market or to a swap party's requirement
to report to a real-time disseminator. It is the responsibility of the
registered SDR or the swap market (through a third-party service
provider) to hold the swap data for a period of 15 minutes after the
execution of the trade prior to dissemination. The 15 minute time delay
would apply to all swaps in Sections 2(a)(13)(C)(i) and (iv) of the
CEA, meaning that even though some swaps may be large notional swaps
(e.g., those subject to the non-financial end-user exception from
mandatory clearing) they would be subject to the same time delay as
block trades executed pursuant to the rules of a swap market. The
Commission believes that since swaps in Sections 2(a)(13)(i) and (iv)
of the CEA will be standardized, they should be subject to the same
time delay as other standardized swaps.
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\103\ In calculating the 15 minute time delay, the clock begins
immediately upon execution of the swap transaction. Under proposed
Sec. 43.5(k), no pause in the running of the clock is permitted
during the time it takes the reporting party or swap market to
report the swap data to a real-time disseminator.
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In determining this proposed time delay for standardized block
trades and large notional swaps, the Commission considered time delays
for reporting block trades or large notional transactions in other
markets. FINRA's TRACE system for corporate and agency debt securities
requires that ``transactions in TRACE-eligible securities executed on a
business day at or after 8:00 a.m. Eastern Time through 6:29:59 p.m.
Eastern Time must be reported within 15 minutes of the time of
execution.'' \104\ Given the 15 minute reporting delay, TRACE does not
provide any additional time delay for those trades that are subject to
disseminated volume caps.\105\ On the other hand, in the equity
securities markets the New York Stock Exchange (``NYSE'') requires all
trades to be reported within 30 seconds; no additional time delay is
provided for block trades.\106\ The London Stock Exchange (``LSE'')
allows the publication of the trade to be delayed, if requested, for a
specified period of time which is dependent on the volume of the trade
compared to the average daily turnover, as published by LSE, for that
particular security.\107\ In the futures markets, CME Group's rules
require the seller in a block trade transaction to report to the
exchange within five minutes of execution if the trade is executed
during regular trading hours (as compared to the immediate reporting
exchange executed transactions). After the reporting of the block trade
data, the exchange ``promptly publishes such information separately
from the reports of transactions in the regular markets.'' \108\ NYSE
Liffe U.S., on the other hand, allows a 15 minute delay after the trade
is executed to publicly report the block trade information.\109\
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\104\ FINRA Rule 6730 (``Transaction Reporting''). Available at:
http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=4402.
\105\ See TRACE, Trade Reporting and Compliance Engine, User
Guide, Version 2.4--March 31, 2010, p. 50. Available at: http://www.finra.org/web/groups/industry/@ip/@comp/@mt/documents/appsupportdocs/p116039.pdf.
\106\ The NYSE has a definition of ``block trade'' but such
designation does not affect how such transactions are reported. See
NYSE Rule 127.
\107\ LSE rules require member firms to submit trade reports to
LSE as ``close to instantaneously as technically possible and that
the authorized limit of three minutes should only be used in
exceptional circumstances,''; however, publication of such data may
be deferred. See, LSE Rules 3020 and 3030, effective August 2, 2010.
Available at: http://www.londonstockexchange.com/traders-and-brokers/rules-regulations/rules-lse-2010.pdf.
\108\ See, CME Rule 526(F), (``The seller must ensure that each
block trade is reported to the Exchange within five minutes of the
time of execution; except that block trades in interest rate futures
and options executed outside of Regular Trading Hours (7 a.m.-4 p.m.
Central Time, Monday-Friday on regular business days) and Housing
and Weather futures and options must be reported within fifteen
minutes of the time of execution.''). Available at: http://www.cmegroup.com/rulebook/CME/I/5/26.html.
\109\ See NYSE Liffe U.S. Rule 423(d), (``Block Trades must be
reported to the Exchange in a manner prescribed from time to time by
the Exchange. Block Trades must be reported to the Exchange within
15 minutes after the completion of negotiations, but may not be
submitted any later than 15 minutes prior to the Contract's Trading
Session close time.''). Available at: http://www.nyse.com/pdfs/rulebook.pdf.
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Proposed Sec. 43.5(k)(3) provides that large notional swap
transaction and pricing data must be reported to the public by the
registered SDR that accepts and publicly disseminates such data subject
to a time delay as may be
[[Page 76167]]
prescribed by the Commission. The Commission believes that such time
delay for large notional swaps may vary based on whether a swap's
underlying asset is a financial or a physical commodity, asset class,
and/or other factors. This provision covers all swaps under Sections
2(a)(13)(C)(ii) and (iii) of the CEA, which covers those swaps that are
not subject to the mandatory clearing requirement. The swaps that fall
under Sections 2(a)(13)(C)(ii) and (iii) of the CEA generally will be
more customized and may, in some instances require, in the case of
large notional swaps, different time delays than the time delays for
block trades.
Proposed Sec. 43.5(l) provides that all information in the data
fields described in appendix A to this part and proposed Sec. 43.4
shall be disseminated to the public for block trades and large notional
swaps.
The Commission requests comment generally on all aspects of the
proposed time delay in reporting block trade and large notional swap
transaction and pricing data to the public. In addition, the Commission
requests specific comment on the following issues:
Do commenters believe that any time delay is appropriate
for block trades and/or large notional swaps? If not, why? If so, why?
Is a 15 minute time delay for publicly reporting the block
trade transaction and pricing data described in the proposed rules an
appropriate amount of time? If not, why? If so, why?
Should the Commission consider different time delays for
block trades that are significantly larger than the appropriate minimum
block trade size? If so, why? How much larger than the appropriate
minimum block trade size should the notional or principal amount be to
warrant an additional time delay?
Should the Commission consider different time delays for
block trades and large notional swaps based on asset classes, swap
instruments or particular contracts? If so, what factors or specific
examples would warrant such longer time delays?
How should the Commission determine an appropriate time
delay for large notional swaps? The Commission believes that swaps will
fall under the Commission's jurisdiction in the equity, credit,
currency and interest rate asset classes (i.e., financial swaps) can be
distinguished from those swaps that fall in the other commodity asset
class (e.g., physical commodities). The Commission's presumption is
that swaps in the equity, credit, currency and interest rate asset
classes be subject to the same time delay as block trades (i.e., 15
minutes). Do commenters agree that 15 minutes is an appropriate delay
for these trades? If not, why and what would be an appropriate time
delay? With regard to the time delay for large notional swaps in the
other commodity asset class, the Commission recognizes a longer time
delay may be necessary due to the hedging strategies that are
associated with such swaps. What time delay would be appropriate for
swaps in the other commodity asset class and why?
What are the factors that should be considered in
determining how long a time delay for a large notional swap should be?
Which characteristics of a swap should be taken into consideration in
determining the time delay for publicly disseminating swap transaction
and pricing data relating to a large notional swap?
If commenters believe that there would be an adverse price
impact for traders if all information on block trades were made
available in real-time, do commenters have any studies or empirical
evidence to support that assertion? What would be the long-term effects
on the market if all market participants knew the swap transaction and
pricing details of all swaps in real-time? Would this impact liquidity?
If so, how?
Would the differences between the Commission's and the
SEC's proposals for treatment of block trades, particularly regarding
the time delay for public dissemination of block trade information
provide for unfair treatment for any market participants? If so, how?
Could the differences in the proposals regarding the time delay lead to
any disruption in trading in any swaps markets? If so, how?
xii. Prohibition of Aggregation of Trades
Proposed Sec. 43.5(m) prohibits the aggregation of orders for
different trading accounts in order to satisfy the minimum block size
requirement, except if done on a DCM by a commodity trading advisor
acting in an asset manager capacity or an investment advisor who has
$25 million in total assets under management.
III. Related Matters
A. Cost-Benefit Analysis
1. Introduction
Section 15(a) of the CEA requires the Commission to consider the
costs and benefits of its actions before issuing a rulemaking under the
CEA.\110\ By its terms, Section 15(a) of the CEA does not require the
Commission to quantify the costs and benefits of the rulemaking or to
determine whether the benefits of the rulemaking outweigh its costs;
rather, it requires that the Commission ``consider'' the costs and
benefits of its actions. Section 15(a) of the CEA further specifies
that the costs and benefits shall be evaluated in light of five broad
areas of market and public concern: (1) Protection of market
participants and the public; (2) efficiency, competitiveness and
financial integrity of markets; (3) price discovery; (4) sound risk
management practices; and (5) other public interest considerations. The
Commission may in its discretion give greater weight to any one of the
five enumerated areas and could in its discretion determine that,
notwithstanding its costs, a particular rule is necessary or
appropriate to protect the public interest or to effectuate any of the
provisions or accomplish any of the purposes of the CEA.
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\110\ See 7 U.S.C. 19(a).
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2. Summary of Proposed Requirements
The proposal provides rules for the real-time public reporting of
all swap transaction data, including volume and pricing data. The
proposed rules mandate that reporting parties (which include swap
dealers, MSPs and end-users) and swap markets (which include SEFs and
DCMs), be responsible for the reporting of the swap transaction and
pricing data in real-time by sending the data to an appropriate real-
time disseminator. For swaps traded on a swap market, the swap market
must send the data to a registered SDR or third-party service provider
and such entity will publicly disseminate the swap transaction and
pricing data in real-time. For off-facility swaps, the reporting party
(either an MSP, swap dealer, or end-user) must send the data to a
registered SDR, or if no registered SDR is available, to a third-party
service provider, who will publicly disseminate the swap transaction
and pricing data. The proposed rules also specify rules for how swap
transaction and pricing data for trades deemed as either a block trade
or large notional swap should be publicly disseminated.
3. Costs
With respect to costs, the Commission believes that the proposed
reporting and recordkeeping requirements would impose significant
compliance costs on registered SDRs, SEFs, DCMs, swap dealers, MSPs,
end-users and third-party service providers. The proposed rules may
reduce liquidity in the market by discouraging dealers from holding
inventory as part of a market participant's risk management practice.
Disclosing the terms of a trade
[[Page 76168]]
immediately after execution exposes the price paid for a large position
by a particular dealer to the rest of the market. Market participants
may attempt to anticipate trading activity that the dealer will engage
in to rebalance its portfolio, which may induce adverse price movements
against such dealer. Additionally, real-time public reporting may
obstruct some trading in illiquid instruments. Swap dealers may be less
likely to commit capital in less liquid products because the terms of
the trade are disclosed as soon as the trade is executed and the dealer
fears his ability to lay off the risk in the market. If a trade is
considered a block trade or large notional swap, the proposed rules may
lead to increased costs associated with added liquidity risks, which
may be passed on to end-users.
4. Benefits
With respect to benefits, the Commission believes that the proposed
rules promote transparency in swaps trading which, in turn, creates
greater efficiency in the swap markets.\111\ Additionally, real-time
reporting may expand trading opportunities as market participants have
more data to analyze and research when producing investment strategies.
The Commission believes that transparency in the form of real-time
public dissemination of swap transaction and pricing data leads to the
fairness and efficiency of markets and improves price discovery. The
facilitation of price discovery decreases risk to market participants
by promoting responsible and informed risk taking and, to the extent
that swaps play a central role in the national economy, decreases the
risk of another financial disaster by enabling market participants to
measure systematic risk. The Commission believes that the federal
government will be better positioned to protect the public as a result
of increased surveillance and monitoring of the swap markets and its
market participants. The Commission requests public comment on its
cost-benefit considerations. Specifically, the Commission requests
comment on whether there are alternative ways we can meet these
statutory requirements under Section 727 of the Dodd-Frank Act in a
less costly manner. Commenters are also invited to submit any data or
other information that they may have quantifying or qualifying the
costs and benefits of the proposal with their comment letters.
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\111\ Under Section 727 of the Dodd-Frank Act, Congress has
mandated that swap transaction and pricing data be real-time
reported and publicly disseminated. The Commission has requested
comments on ways we can meet these statutory requirements in a less
costly manner.
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B. Paperwork Reduction Act
1. Introduction
The purposes of the Paperwork Reduction Act (``PRA'') are, among
other things, to minimize the paperwork burden to the private sector,
ensure that any collection of information by a government agency is put
to the greatest possible uses, and minimize duplicative information
collections across government.\112\ The PRA applies with extraordinary
breadth to all information, ``regardless of form or format,'' a
government agency is ``obtaining, causing to be obtained [or]
soliciting'' and includes requiring ``disclosure to third parties or
the public, of facts or opinion,'' when the information collection
calls for ``answers to identical questions posed to, or identical
reporting or recordkeeping requirements imposed on, ten or more
people.'' \113\ This provision has been determined to include not only
mandatory but also voluntary information collections, and include both
written and oral communications.\114\
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\112\ See 44 U.S.C. 3501.
\113\ 44 U.S.C. 3502.
\114\ See 5 CFR 1320.3(c)(1).
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To effect the purposes of the PRA, Congress requires all agencies
to quantify and justify the burden of any information collection it
imposes.\115\ This includes submitting each collection, whether or not
it is contained in a rulemaking, to the Office of Management and Budget
(``OMB'') for review.\116\ The OMB submission process includes
completing a form 83-I and a supporting statement with the agency's
burden estimate and justification for the collection. When the
information collection is established within a rulemaking, the agency's
burden estimate and justification should be provided in the proposed
rulemaking, subjecting it to the rulemaking's public comment process.
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\115\ See 44 U.S.C. 3506.
\116\ See 44 U.S.C. 3507.
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Provisions of proposed part 43 of the Commission's regulations
would result in new collection of information requirements within the
meaning of the PRA. The Commission therefore is submitting this
proposal to the Office of Management and Budget (``OMB'') for review in
accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The title for this
collection of information is ``Regulation 43--Real-Time Public
Reporting,'' OMB control number 3038-NEW. If adopted, responses to this
new collection of information would be mandatory.
The Commission will protect proprietary information according to
the Freedom of Information Act and 17 CFR part 145, ``Commission
Records and Information.'' In addition, section 8(a)(1) of the CEA
strictly prohibits the Commission, unless specifically authorized by
the CEA, from making public ``data and information that would
separately disclose the business transactions or market positions of
any person and trade secrets or names of customers.'' The Commission
also is required to protect certain information contained in a
government system of records according to the Privacy Act of 1974, 5
U.S.C. 552a.
2. Information Provided by Reporting Entities/Persons
As mentioned above, proposed part 43 of the Commission's
regulations would result in three new collections of information
requirements within the meaning of the PRA. First, proposed part 43
would create a new reporting requirement either on a ``swap market''
when a swap is executed on a facility, or on the parties to each swap
transaction when a swap is not executed on such a facility. Second,
proposed part 43 would create a public dissemination requirement on a
``real-time disseminator''. Third, proposed part 43 creates a
recordkeeping requirement for swap markets, real-time disseminators,
any reporting party.
i. Reporting Requirement
Under proposed Sec. 43.3(a), reporting parties \117\ would be
required to electronically report any reportable swap transactions
\118\ to a real-time disseminator, except as otherwise provided in such
section. Proposed Sec. 43.3 places the duty to report on several
entities or persons depending on: (1) The manner in which the
transaction is executed; and (2) the parties to the swap transaction.
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\117\ Proposed Sec. 43.2(w) defines ``reporting party'' to
include the party to a swap with the duty to report a reportable
swap transaction.
\118\ Proposed Sec. 43.2(v) defines ``reportable swap
transaction'' to mean any executed swap, notation, swap unwind,
partial novation, partial swap unwind or any other post-execution
event that affects the pricing of a swap.
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For those swap transactions that are executed on a swap market
(i.e., a DCM or SEF), proposed Sec. 43.3 requires the swap market to
publicly disseminate such swap transaction and pricing data by either
sending swap transaction information to a registered SDR that accepts
and publicly disseminates swap transaction and pricing data or by
[[Page 76169]]
sending swap transaction information through a third-party service
provider for public dissemination. The Commission estimates that DCMs
and SEFs (an estimated 57 entities or persons) will have approximately
2,080 burdens hours per swap market.\119\
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\119\ Because the Commission has not regulated the swap market,
it has not collected data relevant to this estimate. Therefore, the
Commission requests comment on this estimate.
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For those swap transactions that are executed ``off-facility'',
proposed Sec. 43.3 requires reporting parties (i.e., swap dealers,
MSPs and swap end-users) to report their swap transaction and pricing
data to a registered SDR or, if no registered SDR will accept such
data, to a third-party service provider. With respect to swap dealers
and MSPs (an estimated 300 entities or persons), proposed Sec. 43.3
requires only one party to such transaction report to a real-time
disseminator. The Commission estimates that swap dealers and MSPs will
have 2,080 annual burden hours associated with the reporting
requirement under proposed Sec. 43.3. With respect to swap end-users,
proposed Sec. 43.3 requires swap end-users to report their swap
transaction and pricing data only for end-user-to-end-user
transactions. In addition, proposed Sec. 43.3 provides that only one
swap end-user in an end-user-to-end-user swap transaction will have the
obligation to report to a real-time disseminator. For that reason, the
Commission estimates that the total number of swap end-users that would
be required to report their swap transaction and pricing data is 1,500
entities or persons.\120\ The Commission estimates that swap end-users
will have four (4) annual burden hours per reporting party or person,
for a total of 6,000 aggregate annual burden hours.\121\
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\120\ The Commission requests comment on the number of swap end-
users that would be required to report their swap transaction and
pricing data pursuant to proposed Sec. 43.3. The Commission
estimates that there will be a total of 30,000 swap market
participants and that 1,500 of those participants will engage in
end-user-to-end-user swap transactions (5% of 30,000) requiring at
least one of those participants to report such swap transaction and
pricing data.
\121\ Estimated burden hours were obtained in consultation with
the Commission's experts on information technology. This estimate
includes the expectation that end users who participate in end-user-
to-end-user swaps will contract with other entities to report the
swap transaction and pricing data to a registered SDR or third party
service provider. The Commission requests comment on these
estimates.
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Based on the foregoing, the Commission has determined the estimated
aggregate annual burden hours on swap markets and with respect to off-
facility swap transactions to be 748,560.
ii. Public Dissemination Requirement
Proposed Sec. 43.3 requires a registered SDR to publish through an
electronic medium swap transaction and pricing data received from
reporting parties as soon as technologically practicable, except when
the registered SDR is required to delay the publication of information
relating to large notional swaps or block trades. The Commission
estimates that there will be approximately 15 registered SDRs \122\
Proposed Sec. 43.3(h) requires registered SDRs to receive and publicly
disseminate real-time swap transaction and pricing data at all times,
24-hours a day. The Commission anticipates that there will be 6,900
annual burden hours per registered SDR. Based on the foregoing, the
Commission has determined the estimated aggregate annual burden hours
to be 103,500 for all registered SDRs.\123\ Therefore, the total
aggregate annual burden hours associated with this public dissemination
requirement, including the burden hours associated with third party
service providers, is estimated to be 207,000.
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\122\ Because the Commission has not regulated the swap market,
the Commission was unable to collect data relevant to these
estimates. For that reason, the Commission requests comment on these
estimates.
\123\ The Commission estimates that there will be 15 third-party
service providers. These third-party service providers are
anticipated to have the same public dissemination and recordkeeping
burden hours as those estimated for registered SDRs. Proposed Sec.
43.3(d) would require a swap market that chooses to publicly
disseminate swap transaction and pricing data in real-time through a
third-party service provider to (1) ensure that any such third-party
service provider that publicly disseminates the swap market's swap
transaction and pricing data in real-time does so in a manner that
complies with those standards for registered swap data repositories
described in this part; and (2) ensure that the Commission has
access to any such swap transaction and pricing data, through either
the swap market or via direct access to the third-party service
provider. Additionally, certain off-facility swaps may be publicly
disseminated through a third-party service provider in those
instances where no registered SDR is available to accept and publish
the swap transaction and pricing data. Therefore, although the
ultimate responsibility is on the swap market who uses a third-party
service provider to ensure it complies with standards set forth in
part 43 for registered SDRs, the third-party service provider will
be the entity actually performing the public dissemination and, in
some cases, recordkeeping function for certain swaps. Therefore, as
was estimated for registered SDRs, the Commission estimates a public
dissemination burden of 6,900 hours per third-party service
provider, for an aggregate of 103,500 annual burden hours for all
third-party service providers. Also, the Commission estimates a
recordkeeping burden of 250 hours per third-party service provider,
for an aggregate of 3,750 annual burden hours for all third-party
service providers.
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iii. Recordkeeping Requirement
Under proposed Sec. 43.3(i), swap markets (an estimated 57
entities or persons), registered SDRs (an estimated 15 entities or
persons) and reporting parties must retain all data relating to a
reportable swap transaction for a period of not less than five years
following the time at which such reportable swap transaction is
publicly disseminated in real-time. With respect to swap markets and
real-time disseminators, the Commission estimates that proposed
recordkeeping requirement will be 250 annual burden hours per swap
market and registered SDR.\124\ As referenced above, the Commission
anticipates that 1,500 swap end-users will be reporting parties for the
purposes of this part of the Commission's regulations. Since the
Commission anticipates that there will be lower levels of activity
relating to the requirement for swap end-users, the Commission
estimates that there will be two (2) annual burden hours per swap end-
user. It is important to note that the Commission addresses the
recordkeeping requirements of swap dealers and MSPs in a separate, but
related rulemaking relating to the internal business conduct standards
of these entities as part of the Commission's overall rulemaking
initiative implementing the Dodd-Frank Act.\125\
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\124\ See footnote 123 above.
\125\ An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it
displays a currently valid control number. The Commission invites
public comment on the accuracy of its estimate that no additional
recordkeeping or information collection requirements related to swap
dealers and MSPs would result from the rules proposed herein.
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Based on the foregoing, the Commission estimates that the aggregate
annual burden hours associated with the recordkeeping requirement under
the proposed Sec. 43.3 will be 39,250.
iv. Determination of Appropriate Minimum Block Size
Under proposed Sec. 43.5(g), registered SDRs (an estimated 15
entities or persons) will be required to determine the appropriate
minimum block size for swaps for which these registered SDRs receive
data in accordance with Section 2(a)(13)(G) of the CEA. A registered
SDR shall set and publish annually the appropriate minimum block size
for each swap instrument as the greater of the numbers derived from two
formulas: A distribution test and a multiple test as described in the
proposal. Additionally, under proposed Sec. 43.5(i), the SDR shall set
the appropriate minimum block size for newly-listed swaps one month
after the registered SDR receives data in accordance with Section
2(a)(13)(G). The registered SDR may set the appropriate minimum block
size for newly-listed swaps by placing them in
[[Page 76170]]
a category of existing swap instrument with an appropriate minimum
block size or by creating a new category of swap instrument and
performing the calculations described in Sec. 43.5(g). The Commission
estimates that proposed requirement will impose 20 annual burden hours
per registered SDR.
Based on the foregoing, the Commission estimates that the aggregate
annual burden hours associated with this requirement under the proposed
Sec. 43.5(g) and (i) will be 300.
3. Information Collection Comments
The Commission invites the public and other Federal agencies to
comment on any aspect of the reporting and recordkeeping burdens
discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission
requests comments in order to: (i) Evaluate whether the proposed
collection of information is necessary for the proper performance of
the functions of the Commission, including whether the information will
have practical utility; (ii) evaluate the accuracy of the Commission's
estimate of the burden of the proposed collection of information; (iii)
determine whether there are ways to enhance the quality, utility and
clarity of the information to be collected; and (iv) minimize the
burden of the collection of information on those who are to respond,
including through the use of automated collection techniques or other
forms of information technology.
Comments may be submitted directly to the Office of Information and
Regulatory Affairs, by fax at (202) 395-6566 or by e-mail at
[email protected]. Please provide the Commission with a copy
of submitted comments so that all comments can be summarized and
addressed in the final rule preamble. Refer to the Addresses section of
this notice of proposed rulemaking for comment submission instructions
to the Commission. A copy of the supporting statements for the
collections of information discussed above may be obtained by visiting
RegInfo.gov. OMB is required to make a decision concerning the
collection of information between 30 and 60 days after publication of
this release in the Federal Register. Consequently, a comment to OMB is
most assured of being fully effective if received by OMB (and the
Commission) within 30 days after publication of this notice of proposed
rulemaking. Nothing in the foregoing affects the deadline enumerated
above for public comment to the Commission on the proposed rules.
C. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') was adopted to address the
concerns that government regulations may have a significant and/or
disproportionate effect on small businesses. To mitigate this risk, the
RFA requires agencies to conduct an initial and final regulatory
flexibility analysis for each rule of general applicability for which
the agency issues a general notice of proposed rulemaking.\126\ These
analyses must describe the impact of the proposed rule on small
entities, including a statement of the objectives and the legal bases
for the rulemaking; an estimate of the number of small entities to be
affected; identification of federal rules that may duplicate, overlap,
or conflict with the proposed rules; and a description of any
significant alternatives to the proposed rule that would minimize any
significant impacts on small entities.\127\
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\126\ See 5 U.S.C. 601 et seq.
\127\ See 5 U.S.C. 603, 604.
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Proposed part 43 shall affect real-time disseminators (i.e.,
registered SDRs and third-party service providers), SEFs, DCMs, swap
dealers, MSPs and swap end-users that transact with other swap end-
users. The Commission has previously established certain definitions of
``small entities'' to be used by the Commission in evaluating the
impact of its regulations on small entities in accordance with the
RFA.\128\ In its previous determinations, the Commission has concluded
that DCMs are not small entities for the purpose of the RFA.\129\
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\128\ See 5 U.S.C. 601 et seq.
\129\ See 47 FR 18618 (Apr. 30, 1982).
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As registered SDRs and SEFs are new entities to be regulated by the
Commission pursuant to the Dodd-Frank Act, the Commission previously
has not determined whether these entities are ``small entities'' for
the purpose of the RFA. The Commission is proposing to determine that
registered SDRs and SEF covered by these proposed regulations, for
reasons similar to those applicable to DCMs, are not small entities for
purposes of the RFA. Specifically, the Commission proposes that
registered SDRs and SEFs should not be considered small entities based
on, among other things, the central role they will play in the national
regulatory scheme overseeing the trading of swaps. Because they will be
required to accept swaps across asset classes, registered SDRs will
require significant resources to operate. With respect to SEFs, not
only will SEFs play a vital role in the national economy, but they will
be required to operate a self-regulatory organization, subject to
Commission oversight, with statutory duties to enforce the rules
adopted by their own governing bodies. Most of these entities will not
be small entities for the purposes of the RFA.
With respect to swap dealers, the Commission previously has
determined that futures commission merchants (``FCMs'') should not be
considered to be small entities for the purposes of the RFA.\130\ Like
FCMs, swap dealers will be subject to minimum capital and margin
requirements, and are excepted to comprise the largest global financial
firm. Additionally, the Commission is required to exempt from
designation entities that engage in a de minimis level of swaps.\131\
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\130\ See 47 FR 18618 (Apr. 30, 1982).
\131\ See id. at 18619.
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Similarly, with respect to swap dealers and MSPs, the Commission
has previously determined that large traders are not ``small entities''
for RFA purposes. Like large traders, swap dealers and MSPs will
maintain substantial positions, creating substantial counterparty
exposure that could have serious adverse effects on the financial
stability of the United States banking system or financial markets.
Although the regulations will require reporting from a single end-
user transacting in a swap with another end-user, in all other
situations (such as when an end-user engages in a swap with a swap or
MSP), the reporting requirement will be borne by the swap dealer or
MSP. Additionally, most end-users regulated by the Employee Retirement
Income Security Act of 1974 (``ERISA'') \132\ such as pension funds,
which are among the most active end-users in the swap market, are
prohibited from transacting directly with other ERISA-regulated end-
users. The Commission does not believe that the reporting requirements
under this rulemaking will create a significant economic impact on a
substantial number of small entities.
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\132\ See 29 U.S.C. 1106.
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Accordingly, the Chairman, on behalf of the Commission, hereby
certifies pursuant to 5 U.S.C. 605(b) that the proposed rules, will not
have a significant impact on a substantial number of small entities.
Nonetheless, the Commission specifically requests comment on the impact
these proposed rules may have on small entities.
List of Subjects in 17 CFR Part 43
Real-time public reporting; block trades; large notional swaps;
reporting and recordkeeping requirements.
[[Page 76171]]
In consideration of the foregoing, and pursuant to the authority in
the Commodity Exchange Act, as amended, and in particular Section
2(a)(13) of the Act, the Commission hereby proposes to amend Chapter I
of Title 17 of the Code of Federal Regulation by adding part 43 as
follows:
PART 43--REAL-TIME PUBLIC REPORTING
Sec.
43.1 Purpose, scope, and rules of construction.
43.2 Definitions.
43.3 Method and timing for real-time public reporting.
43.4 Swap transaction and pricing data to be publicly disseminated
in real-time.
43.5 Block trades and large notional swaps for particular markets
and contracts.
Appendix A to Part 43--Data Fields for Real-Time Public Reporting
Authority: 7 U.S.C. 2(a), 12a(5) and 24a, amended by Pub. L.
111-203, 124 Stat. 1376 (2010).
Sec. 43.1 Purpose, scope and rules of construction.
(a) Purpose. This part sets forth rules relating to the collection
and public dissemination of certain swap transaction and pricing data
to enhance transparency and price discovery.
(b) Scope. (1) The provisions of this part shall apply to all swaps
as defined in Section 1a(47) of the Act and any implementing
regulations therefrom, including:
(i) Swaps subject to the mandatory clearing requirement described
in Section 2(h)(1) of the Act (including those swaps that are excepted
from the requirement pursuant to Section 2(h)(7) of the Act);
(ii) Swaps that are not subject to the mandatory clearing
requirement described in Section 2(h)(1) of the Act, but are cleared at
a registered derivatives clearing organization;
(iii) Swaps that are not cleared at a registered derivatives
clearing organization and are reported to a registered swap data
repository that accepts and publicly disseminates swap transaction and
pricing data in real-time; and
(iv) Swaps that are required to be cleared under Section 2(h)(2) of
the Act, but are not cleared.
(2) This part applies to all swap execution facilities, designated
contract markets, swap data repositories, as well as parties to a swap
including registered or exempt swap dealers, registered or exempt major
swap participants and U.S.-based end-users.
(c) Rules of Construction. The examples in this part and in
appendix A to this part 43 are not exclusive. Compliance with a
particular example or application of a sample clause, to the extent
applicable, constitutes compliance with such portion of the rule to
which the example relates.
Sec. 43.2. Definitions.
As used in this part:
(a) Act means the Commodity Exchange Act, as amended.
(b) Affirmation means the process by which parties to a swap verify
(orally, in writing, electronically or otherwise) that they agree on
the primary economic terms of a swap (but not necessarily all terms of
the swap). Affirmation may constitute ``execution'' of the swap or may
provide evidence of execution of the swap, but does not constitute
confirmation (or confirmation by affirmation) of the swap.
(c) Appropriate minimum block size means the minimum notional or
principal size of a swap instrument that qualifies swaps within such
category of swap instrument as a block trade. The appropriate minimum
block size is calculated by a registered swap data repository or is
prescribed by the Commission.
(d) As soon as technologically practicable means as soon as
possible, taking into consideration the prevalence, implementation and
use of technology by comparable market participants.
(e) Asset class means the broad category of goods, services or
commodities underlying a swap. The asset classes include interest rate,
currency, credit, equity, other commodity and such other asset classes
as may be determined by the Commission.
(f) Block trade means a swap transaction that:
(1) Involves a swap that is made available for trading or execution
on a swap market;
(2) Occurs off the swap market's trading system or platform
pursuant to the swap market's rules and procedures;
(3) Is consistent with the minimum block trade size requirements
set forth in Sec. 43.5; and
(4) Is reported in accordance with the swap market's rules and
procedures and the appropriate time delay set forth in Sec. 43.5(k).
(g) Confirmation means the consummation (electronically or
otherwise) of legally binding documentation (electronic or otherwise)
that memorializes the agreement of the parties to all terms of a swap.
A confirmation must be in writing (whether electronic or otherwise) and
must legally supersede any previous agreement (electronically or
otherwise).
(h) Confirmation by affirmation. The process by which one party to
a swap acknowledges its assent to the complete swap terms submitted by
the other party to the swap. If the parties to a swap are using a
confirmation service vendor, complete swap terms may be submitted
electronically by a party to such vendor's platform and the other party
may affirm such terms on such platform. With the affirmation by one
party to the complete swap terms submitted by the other party, the swap
is legally confirmed and a legally binding confirmation is consummated
(i.e., ``confirmation by affirmation'').
(i) Embedded option means any right, but not an obligation,
provided to one party of a swap by the other party to the same swap
that provides the party in possession of the option with the ability to
change any one or more of the economic terms of the swap as they were
previously established at confirmation (or were in effect on the start
date).
(j) Executed means the completion of the execution process.
(k) Execution means an agreement by the parties (whether orally, in
writing, electronically, or otherwise) to the terms of a swap that
legally binds the parties to such swap terms under applicable law.
Execution occurs immediately following or simultaneous with the
affirmation of the swap.
(l) Large notional swap means a swap transaction that:
(1) Involves a swap that is not available for trading or execution
on a swap market;
(2) Is consistent with the appropriate size requirements for large
notional swaps set forth in Sec. 43.5; and
(3) Is reported in accordance with the appropriate time delay
requirements set forth in Sec. 43.5(k).
(m) Minimum block trade size means the minimum notional or
principal amount, as determined by each swap market, for a block trade
in a particular type of swap that is listed or executed on such swap
market. The minimum block trade size shall be equal to or greater than
the appropriate minimum block size.
(n) Newly-listed swap means a swap that is listed on any swap
market where an appropriate minimum block size has not been published
by a registered swap data repository pursuant to Sec. 43.5.
(o) Novation means the process by which a party to a swap transfers
all of its rights, liabilities, duties and obligations under the swap
to a new legal party other than the counterparty to the swap. The
transferee accepts all
[[Page 76172]]
of the transferor's rights, liabilities, duties and obligations under
the swap. A novation is valid so long as the transferor and remaining
party to the swap are given notice, and the transferor, transferee and
remaining party to the swap consent to the transfer.
(p) Off-facility swap means any reportable swap transaction that is
not executed on or subject to the rules of a swap market.
(q) Other commodity means any commodity that cannot be grouped in
the credit, currency, equity or interest rate asset class categories.
(r) Public dissemination and publicly disseminate means to publish
and make available swap transaction and pricing data in a non-
discriminatory manner, through the Internet or other electronic data
feed that is widely published and in machine-readable electronic
format.
(s) Real-time disseminator means a registered swap data repository
or third-party service provider that accepts swap transaction and
pricing data from multiple data sources and publicly disseminates such
data in real-time pursuant to this part.
(t) Real-time public reporting means the reporting of data relating
to a swap transaction, including price and volume, as soon as
technologically practicable after the time at which the swap
transaction has been executed.
(u) Remaining party means a party to a swap that consents to a
transferor's transfer by novation of all of the transferor's rights,
liabilities, duties and obligations under such swap to a transferee.
(v) Reportable swap transaction means any executed swap, novation,
swap unwind, partial novation or partial swap unwind, or such post-
execution events that affect the pricing of a swap.
(w) Reporting party means the party to a swap with the duty to
report a reportable swap transaction in accordance with this part and
Section 2(a)(13)(F) of the Act.
(x) Social size means the greatest of the mode, median and mean
transaction sizes of a particular swap contract or swap instrument, as
commonly observed in the marketplace.
(y) Swap instrument means a grouping of swaps in the same asset
class with the same or similar characteristics.
(z) Swap market means any registered swap execution facility or
registered designated contract market that makes swaps available for
trading.
(aa) Swap unwind means the termination and liquidation of a swap,
typically followed by a cash settlement between the parties to such
swap.
(bb) Third-party service provider means an entity, other than a
registered swap data repository, that publicly disseminates swap
transaction and pricing data in real-time on behalf of a swap market
or, in the case of an off-facility swap where there is no registered
swap data repository available to publicly disseminate the swap
transaction and pricing data in real-time, on behalf of a reporting
party.
(cc) Transferee means a party to a swap that accepts, by way of
novation, all of a transferor's rights, liabilities, duties and
obligations under such swap with respect to a remaining party.
(dd) Transferor means a party to a swap that transfers, by way of
novation, all of its rights, liabilities, duties and obligations under
such swap, with respect to a remaining party, to a transferee.
(ee) Unique product identifier means a unique identification of a
particular level of the taxonomy of the asset class or sub-asset class
in question, as further described in Sec. 43.4(f) and Sec. 45.4(c) of
this chapter. Such unique product identifier may combine the
information from one or more of the data fields described in appendix A
to this part 43.
(ff) U.S. person means any U.S.-based swap dealer, major swap
participant, eligible contract participant, end-user or other U.S.-
based entity or person that transacts in a swap.
Sec. 43.3 Method and timing for real-time public reporting.
(a) Responsibilities of parties to a swap to report swap
transaction and pricing data in real-time. (1) In general. A reporting
party shall report any reportable swap transaction to a real-time
disseminator as soon as technologically practicable.
(2) Swaps listed or executed on a swap market. (i) For swaps
executed on a swap market's trading system or platform, a reporting
party shall satisfy its reporting requirement under this section by
executing such reportable swap transaction on the swap market.
(ii) For block trades executed pursuant to the rules of a swap
market, the reporting party shall satisfy its reporting requirement by
reporting such trades to the swap market in accordance with the rules
of the swap market and Sec. 43.5.
(3) Off-facility swaps. Except as otherwise provided in Sec. 43.5,
all off-facility swaps shall be reported as soon as technologically
practicable following execution, by the reporting party, to a
registered swap data repository that accepts and publicly disseminates
swap transaction and pricing data in accordance with the rules set
forth in this part. The following persons shall be reporting parties
for off-facility swaps:
(i) If only one party is a swap dealer or major swap participant,
the swap dealer or major swap participant shall be the reporting party.
(ii) If one party is a swap dealer and the other party is a major
swap participant, the swap dealer shall be the reporting party.
(iii) If both parties are swap dealers, the swap dealers shall
designate which party shall be the reporting party.
(iv) If both parties are major swap participants, the major swap
participants shall designate which party shall be the reporting party.
(v) If neither party is a swap dealer nor a major swap participant,
the parties shall designate which party (or its agent) shall be the
reporting party.
(4) Special rules when no registered swap data repository will
accept and publicly disseminate data. If no registered swap data
repository is available to accept and publicly disseminate swap
transaction and pricing data, the reporting party of an off-facility
swap may satisfy the real-time public reporting requirement under this
part by publicly disseminating such data through a third-party service
provider in the same manner that a swap market may report through a
third-party service provider.
(b) Public dissemination of swap transaction and pricing data. (1)
Reportable swap transactions executed on a swap market. (i) A swap
market shall publicly disseminate all swap transaction and pricing data
for swaps executed thereon, as soon as technologically practicable
after the swap has been executed. A swap market shall satisfy this
public dissemination requirement by either sending or otherwise
electronically transmitting swap transaction information to a
registered swap data repository that accepts and publicly disseminates
swap transaction and pricing data or by publicly disseminating swap
transaction information through a third-party service provider for
public dissemination.
(ii) A swap market that sends swap transaction information to a
third-party service provider to publicly disseminate such data in real-
time does not satisfy its requirements under this section until such
data is publicly disseminated pursuant to this part.
(2) Prohibition of disclosure of data prior to sending data to a
real-time disseminator.
(i) No swap market or reporting party shall disclose swap
transaction and pricing data prior to the public
[[Page 76173]]
dissemination of such data by a real-time disseminator.
(ii) Notwithstanding the disclosure prohibition of Sec.
43.5(b)(2)(i), a swap market may disclose swap transaction and pricing
data available to participants on its market prior to the public
dissemination of such data, provided that such disclosure is made no
earlier than the disclosure of such data to a real-time disseminator
for public dissemination.
(iii) Notwithstanding the disclosure prohibition of Sec.
43.5(b)(2)(i), a swap dealer may disclose swap transaction and pricing
data for off-facility swaps available to its customer base prior to the
public dissemination of such data, provided that such disclosure is
made no earlier than the disclosure of such data to a registered swap
data repository that accepts swap transaction and pricing data for
public dissemination.
(c) Requirements for registered swap data repositories in providing
the real-time public dissemination of swap transaction and pricing
data. (1) Compliance with part 49 of this chapter. Any registered swap
data repository that accepts and publicly disseminates swap transaction
and pricing data in real-time shall comply with part 49 of this chapter
and shall publicly disseminate swap transaction and pricing data as
soon as technologically practicable upon receipt of such data, unless
the data is subject to a time delay in accordance with Sec. 43.5.
(2) Acceptance of all swaps in an asset class. Any registered swap
data repository that accepts and publicly disseminates swap transaction
and pricing data in real-time for swaps in its selected asset class
shall accept and publicly disseminate swap transaction and pricing data
in real-time for all swaps within such asset class.
(3) Annual independent review. Any registered swap data repository
that accepts and publicly disseminates swap transaction and pricing
data in real-time shall perform, on an annual basis, an independent
review in accordance with established audit procedures and standards of
the registered swap data repository's security and other system
controls for the purposes of ensuring compliance with the requirements
in this part.
(d) Requirements if a swap market publicly disseminates through a
third-party service provider. If a swap market chooses to publicly
disseminate swap transaction and pricing data in real-time through a
third-party service provider, such swap market shall --
(1) Ensure that any such third-party service provider that publicly
disseminates the swap market's swap transaction and pricing data in
real-time does so in a manner that complies with those standards for
registered swap data repositories described in this part.
(2) Ensure that the Commission has access to any such swap
transaction and pricing data, through either the swap market or via
direct access to the third-party service provider.
(e) Availability of swap transaction and pricing data to the
public. Registered swap data repositories shall publicly disseminate
swap transaction and pricing data in such a format that may be
downloaded, saved and/or analyzed.
(f) Errors or omissions. (1) In general. Any errors or omissions in
swap transaction and pricing data that were publicly disseminated in
real-time shall be corrected or cancelled in the following manner:
(i) If a party to the swap that is not the reporting party becomes
aware of an error or omission in the swap transaction and pricing data
reported with respect to such swap, such party shall promptly notify
the reporting party of the correction.
(ii) If the reporting party to a swap becomes aware of an error or
omission in the swap transaction and pricing data which it reported to
a swap market or real-time disseminator with respect to such swap,
either through its own initiative or through notice by the other party
to the swap, the reporting party shall promptly submit corrected data
to the same swap market or real-time disseminator.
(iii) If the swap market becomes aware of an error or omission in
the swap transaction and pricing data reported with respect to such
swap, or receives notification from the reporting party, the swap
market shall promptly submit corrected data to the same real-time
disseminator.
(iv) Any registered swap data repository that accepts and publicly
disseminates swap transaction and pricing data in real-time shall
publicly disseminate any cancellations or corrections to such data, as
soon as technologically practicable after receipt or discovery of any
such cancellation or correction.
(2) Improper cancellation or correction. Reporting parties, swap
markets and registered swap data repositories that accept and publicly
disseminate swap transaction and pricing data in real-time shall not
submit or agree to submit a cancellation or correction for the purpose
of re-reporting swap transaction and pricing data in order to gain or
extend a delay in publication or to otherwise evade the reporting
requirements in this part.
(3) Cancellation. A registered swap data repository that accepts
and publicly disseminates swap transaction and pricing data in real-
time shall cancel any incorrect data that had been publicly
disseminated, by publicly disseminating a cancellation of such data, in
the manner and format described in Appendix A to this part.
(4) Correction. A registered swap data repository that accepts and
publicly disseminates swap transaction and pricing data in real-time
shall correct any incorrect data that had been publicly disseminated to
the public, by publicly disseminating a cancellation of the incorrect
swap transaction and pricing data and then publicly disseminating the
correct data, as soon as technologically practicable, in the manner and
format described in Appendix A to this part.
(g) Hours of operation. A registered swap data repository that
accepts and publicly disseminates swap transaction and pricing data in
real-time:
(1) Shall maintain hours of operation to receive and publicly
disseminate swap transaction and pricing data at all times, twenty-four
hours a day;
(2) May declare, on an ad hoc basis, special closing hours to
perform system maintenance and shall provide reasonable advance notice
of its special closing hours to market participants and to the public;
and
(3) Shall, to the extent reasonably possible under the
circumstances, avoid scheduling special closing hours when, in its
estimation, the U.S. market and major foreign markets are most active.
(h) Acceptance of data during special closing hours. During special
closing hours, a registered swap data repository that accepts and
publicly disseminates swap transaction and pricing data in real-time
shall have the capability to receive and hold in queue information
regarding reportable swap transactions pursuant to this part.
(i) Recordkeeping. All data related to a reportable swap
transaction shall be maintained for a period of not less than five
years following the time at which such reportable swap transaction is
publicly disseminated pursuant to this part.
(1) Retention of data by a swap market. Any swap market and any
registered swap data repository that accepts and publicly disseminates
swap transaction and pricing data in real-time shall retain all swap
transaction information that is received from reporting parties for
public dissemination, including data related to block trades and large
notional swaps and information that is received by a swap market or by
a registered swap
[[Page 76174]]
data repository that accepts and publicly disseminates swap transaction
and pricing data in real-time but is not publicly reported pursuant to
Sec. 43.4(c).
(2) Retention of data by a swap dealer or major swap participant.
In accordance with this part and part 23 of this chapter, a swap dealer
or major swap participant shall retain all data relating to a
reportable swap transaction that such swap dealer or major swap
participant sends to a swap market or a registered swap data repository
that accepts and publicly disseminates such data in real-time or that
such swap dealer or major swap participant retains in accordance with
Sec. 43.5.
(j) Fees. Any fees or charges assessed on a reporting party or swap
market by a registered swap data repository that accepts and publicly
disseminates swap transaction and pricing data in real-time for the
collection of such data must be equitable and non-discriminatory. If
such registered swap data repository allows a discount based on the
volume of data reported to it for public dissemination, such discount
shall be provided to all reporting parties and swap markets
impartially.
Sec. 43.4 Swap transaction and pricing data to be publicly
disseminated in real-time.
(a) In general. Swap transaction information shall be reported to a
real-time disseminator so that the real-time disseminator can publicly
disseminate swap transaction and pricing data in real-time in
accordance with this part, including the manner and format requirements
described in appendix A to this part 43 and this section.
(b) Public dissemination of data fields. Any registered swap data
repository that accepts and publicly disseminates swap transaction and
pricing data in real-time shall publicly disseminate the information in
the data fields described in appendix A to this part.
(c) Additional swap information. A registered swap data repository
that accepts and publicly disseminates swap transaction and pricing
data in real-time may require reporting parties and swap markets to
report to such registered swap data repository, such information that
is necessary to match the swap transaction and pricing data that was
publicly disseminated in real-time to the data reported to a registered
swap data repository pursuant to Section 2(a)(13)(G) of the Act or to
confirm that parties to a swap have reported in a timely manner
pursuant to Sec. 43.3. Such additional information shall not be
publicly disseminated by the registered swap data repository that
accepts and publicly disseminates swap transaction and pricing data in
real-time on a transactional or aggregate basis.
(d) Amendments to data fields. The Commission may determine from
time to time to amend the data fields described in appendix A to this
part.
(e) Anonymity of the parties to a swap transaction. (1) In general.
Swap transaction and pricing data that is publicly disseminated in
real-time may not disclose the identities of the parties to the swap. A
registered swap data repository that accepts and publicly disseminates
such data in real-time may not do so in a manner that discloses or
otherwise facilitates the identification of a party to a swap.
(2) Use of general description. Reporting parties and swap markets
shall provide a registered swap data repository that accepts and
publicly disseminates swap transaction and pricing data in real-time
with a specific description of the underlying asset(s) and tenor of the
swap; this description must be general enough to provide anonymity but
specific enough to provide for a meaningful understanding of the
economic characteristics of the swap. This requirement is separate from
the requirement that a reporting party must report swap data to a
registered swap data repository pursuant to Section 2(a)(13)(G) of the
Act. If a swap dealer or major swap participant does not report the
exact description of the underlying asset(s) or tenor for the purposes
of real-time reporting pursuant to this part, because such exact
description would facilitate the identity of a party to a swap, such
swap dealer or major swap participant must comply with the related
documentation and recordkeeping requirements described in Part 23 of
this chapter.
(f) Unique product identifier. If a unique product identifier is
developed that sufficiently describes one or more swap transaction and
pricing data fields for real-time reporting described in appendix A to
this part, then such unique product identifier may be used in lieu of
the data fields that it describes.
(g) Price forming continuation data. Any swap-specific event
including, but not limited to novations, swap unwinds, partial
novations, and partial swap unwinds, that occurs during the life of a
swap and affects the price of such swap shall be publicly disseminated
pursuant to this part.
(h) Reporting of notional or principal amount. (1) Off-facility
swaps. The actual notional or principal amount for any off-facility
swap shall be reported by the reporting party to the registered swap
data repository that accepts and publicly disseminates such data in
real-time.
(2) Swaps executed on or pursuant to the rules of a swap market.
The actual notional or principal amount for any block trade executed
pursuant to the rules of a swap market shall be reported by the
reporting party to the swap market. A swap market shall transmit the
actual notional amount for all swaps executed on or pursuant to its
rules to the real-time disseminator.
(i) Public dissemination of notional or principal amount. The
notional or principal amount data fields described in Appendix A to
this Part 43 shall be publicly disseminated as follows:
(1) If the notional or principal amount is less than 1 million,
round to nearest 100 thousand;
(2) If the notional or principal amount is less than 50 million but
greater than 1 million, round to the nearest million;
(3) If the notional or principal amount is less than 100 million
but greater than 50 million, round to the nearest 5 million;
(4) If the notional or principal amount is less than 250 million
but greater than 100 million, round to the nearest 10 million;
(5) If the notional or principal amount is greater than 250
million, round to ``250+''.
Sec. 43.5 Block trades and large notional swaps for particular
markets and contracts.
(a) In general. The provisions in this Sec. 43.5 shall apply to
both block trades on swaps and large notional swaps.
(b) Eligible block trade or large notional swap parties. (1) In
general. Parties to a block trade or large notional swap must be
``eligible contract participants'' as defined in Section 1a(18) of the
Act. However, a designated contract market may allow a commodity
trading advisor acting in an asset managerial capacity and registered
pursuant to Section 4n of the Act, or a principal thereof, including
any investment advisor who satisfies the criteria of Sec. 4.7(a)(2)(v)
of this chapter, or a foreign person performing a similar role or
function and subject as such to foreign regulation, to transact block
trades for customers who are not eligible contract participants, if
such commodity trading advisor, investment advisor or foreign person
has more than $25,000,000 in total assets under management. A person
transacting a block trade on behalf of a customer must receive written
instruction or prior consent from the customer to do so.
(2) Election to be treated as a block trade or large notional swap.
Parties to a swap of a large notional value shall elect to have the
swap treated as a block
[[Page 76175]]
trade or large notional swap. Any reporting party or swap market shall
indicate such election to a real-time disseminator.
(c) Block trades on swaps. (1) A swap market that permits block
trades must have rules that specify the minimum size of such block
trades pursuant to this section.
(2) The reporting party of a block trade shall report the block
trade transaction and pricing data to the swap market, as soon as
technologically practicable after execution of the block trade and
pursuant to the rules of such swap market.
(3) The swap market shall transmit block trade transaction and
pricing data to a real-time disseminator as soon as technologically
practicable after receipt of such data. Such information shall not be
publicly disseminated until the expiration of the appropriate time
delay described in Sec. 43.5(k).
(d) Large notional swaps. A registered swap data repository that
accepts and publicly disseminates swap transaction and pricing data in
real-time shall not publicly report the large notional swap transaction
and pricing data until the expiration of the appropriate time delay
described in Sec. 43.5(k). Immediately upon expiration of the
appropriate time delay, the registered swap data repository that
accepts and publicly disseminates swap transaction and pricing data in
real-time must publicly disseminate the large notional swap transaction
and pricing data.
(e) Off-facility swaps in which neither counterparty is a swap
dealer or a major swap participant. Off-facility swaps in which neither
counterparty is a swap dealer or a major swap participant may qualify
as large notional swaps. Parties to such transactions shall follow the
requirements for large notional swaps in Sec. 43.5.
(f) Time-stamp and reporting requirements for block trades and
large notional swaps. In addition to the requirements under Sec. 43.4
and appendix A to this part, a swap market and a registered swap data
repository that accepts and publicly disseminates swap transaction and
pricing data in real-time shall have the following additional time-
stamp requirements with respect to block trades and large notional
swaps:
(1) A swap market shall time-stamp swap transaction and pricing
data with the date and time, to the nearest second of when such swap
market:
(i) Receives data from a reporting party; and
(ii) Transmits such data to a real-time disseminator.
(2) A registered swap data repository that accepts and publicly
disseminates swap transaction and pricing data in real-time shall time-
stamp such data with the date and time, to the nearest second when such
swap data:
(i) Is received from a swap market or reporting party; and
(ii) Is publicly disseminated.
(3) All records relating to the time-stamps required by this
section shall be maintained for a period of at least five years from
the execution of the block trade or large notional swap.
(g) Responsibilities of registered swap data repositories in
determining appropriate minimum block size.
(1) In general. A registered swap data repository shall determine
the appropriate minimum block size for swaps for which such registered
swap data repository receives data in accordance with Section
2(a)(13)(G) of the Act. A registered swap data repository shall set the
appropriate minimum block size for each swap instrument as the greater
of the numbers derived from the distribution test and the multiple test
described in this paragraph. To qualify as a block trade, the notional
or principal amount of the swap must be equal to or greater than the
appropriate minimum block size.
(i) Distribution test. To apply the distribution test to a swap
instrument, a registered swap data repository shall apply the minimum
threshold to the distribution of the notional or principal transaction
amounts, each as set forth in this paragraph.
(A) In determining the distribution of the notional or principal
transaction amounts of a swap instrument, a registered swap data
repository shall evaluate the transaction sizes, rounded in the manner
discussed in Sec. 43.4(i), for all swaps within a category of swap
instrument, by looking at swaps within the category of swap instrument
that are executed: on all swap execution facilities; on all designated
contract markets; and as off-facility swaps. Registered swap data
repositories may also consider other economic information to establish
the total market size of a category of swap instrument, in consultation
with the Commission.
(B) The minimum threshold shall be a notional or principal amount
that is greater than 95% of the notional or principal transaction sizes
in a swap instrument during the applicable period of time, as
represented by the distribution of the notional or principal
transaction amounts for such swap.
(ii) Multiple test. To apply the multiple test to a swap
instrument, a registered swap data repository shall multiply the block
multiple by the social size, as described in this paragraph.
(A) In determining the social size for a swap instrument, the
registered swap data repository shall calculate the mode, mean and
median transaction sizes for all swaps in the category of swap
instrument and choose the greatest of the mode, mean and median
transaction sizes.
(B) For all swaps, the block multiple shall be five.
(2) Initial determination of appropriate minimum block size for
newly-listed swaps. A registered swap data repository shall make its
initial determination of the appropriate minimum block size for a
newly-listed swap one month after such newly-listed swap is first
executed and reported to the registered swap data repository. Such
registered swap data repository may make such a determination by:
(i) Grouping a newly-listed swap into an existing category of swap
instrument for which the registered swap data repository has already
determined an appropriate minimum block size; or
(ii) Creating a new category of swap instrument for the newly-
listed swap and calculating the appropriate minimum block size based on
the previous month's data.
(3) Publication of appropriate minimum block sizes. A registered
swap data repository shall publish the appropriate minimum block sizes
on its Internet Web site for all swap instruments. Additionally, a
registered swap data repository shall publish the types of swaps that
fall within a particular category of swap instrument, for which the
registered swap data repository has received data on its Internet Web
site. The appropriate minimum block size information and swap
instrument information on the registered swap data repository's
Internet Web site must be available to the public in an open and non-
discriminatory manner.
(4) Annual update. A registered swap data repository shall each
year beginning in January 2012, publish and update the appropriate
minimum block sizes for the swap instruments for which the registered
swap data repository accepts data. Any such updates must be posted on
the registered swap data repository's Internet Web site by the tenth
business day of each year. The registered swap data repository shall
calculate the appropriate minimum block size based on the data that it
has received over the previous year. If a registered swap data
repository has received data for a category of swap instrument for less
than one year, the appropriate minimum block size shall be calculated
based on such data.
[[Page 76176]]
(5) Appropriate minimum block size determination when more than one
registered swap data repository. If more than one registered swap data
repository maintains data for a swap instrument, then the Commission
shall prescribe the manner in which the appropriate minimum block trade
size shall be determined.
(h) Responsibilities of swap markets in determining minimum block
trade sizes. For any swap listed on a swap market, the swap market
shall set the minimum block trade size. Swap markets must set the
minimum block trade sizes for all listed contracts at levels greater
than or equal to the appropriate minimum block sizes posted on the swap
data repositories' Internet Web sites. Swap markets shall immediately
apply any change to the minimum block trade size of a listed swap
following the posting of a new or adjusted appropriate minimum block
size on a registered swap data repository's Internet Web site, pursuant
to the requirements set forth in part 40 of this chapter. If a swap
listed on a swap market does not have an appropriate minimum block
size, such swap market shall apply the rules set forth in Sec.
43.5(i).
(i) Minimum block trade size determination for newly-listed swaps.
For any newly-listed swap, the swap market that lists the swap for
trading shall set the minimum block trade size.
(1) If a newly-listed swap is within the parameters of a category
of swap instrument for which a registered swap data repository has
posted an appropriate minimum block size, the swap market shall set the
minimum block size for such newly listed swap at a level equal to or
greater than such appropriate minimum block size.
(2) In determining the minimum block trade size for a newly-listed
swap that is not within an existing category of swap instrument, swap
markets shall take into account:
(i) The anticipated distribution of notional or principal
transaction amounts;
(ii) The social size for swaps in other markets that are in
substance the same as such newly-listed swap; and
(iii) The minimum block trade sizes of similar swaps in the same
asset class.
(3) In determining the minimum block trade size for a newly-listed
swap that is not within an existing category of swap instrument, the
swap market that lists the swap must ensure that the notional or
principal amount selected represents a reasonable estimate of the
greater of:
(i) A notional or principal amount that is greater than all but 95%
of the anticipated distribution of notional or principal transaction
amounts over the one month period immediately following the first
execution of the swap; or
(ii) Five times the anticipated social size over the one month
period immediately following the first execution of the swap.
(j) Responsibilities of the parties to a swap in determining the
appropriate minimum large notional swap size. (1) The parties to a
large notional swap shall be responsible for determining the category
of existing swap instrument in which such swap should be included. Once
the category of existing swap instrument is identified by the parties
to the swap, the parties shall refer to the appropriate minimum block
size that is associated with such existing swap instrument and made
available to the public on the appropriate registered swap data
repository's Internet Web site, or as otherwise prescribed by the
Commission. The notional or principal amount of the swap must be equal
to or greater than the appropriate minimum block size of the swap
instrument in order to qualify as a large notional swap. If there is
not a swap instrument with an appropriate minimum block size available
to reference, then such swap between the parties shall not qualify as a
large notional swap or for any time delay in reporting. In determining
the appropriate swap instrument, the following factors shall be
documented--
(i) The similarities of the terms of the swap between the parties
compared to the terms of swaps that are grouped within the existing
swap instrument; and
(ii) Other swaps listed on swap markets that are grouped within an
existing category of swap instrument.
(2) To the extent that the parties to a large notional swap are
swap dealers and/or major swap participants, such parties shall
maintain records illustrating the basis for the selection of the swap
instrument for the large notional swap pursuant to part 23 of this
chapter. Such records shall be made available to the Commission upon
request.
(3) In the event that the parties to a swap seek to qualify such
swap as a large notional swap, but are unable to determine, identify or
agree on the appropriate swap instrument to refer to, such swap shall
not qualify as a large notional swap and shall not qualify for any time
delay in reporting.
(k) Time delay in the real-time public reporting of block trades
and large notional swaps. (1) In general. The time delay for the real-
time public reporting of a block trade or large notional swap begins
upon execution. It is the responsibility of the registered swap data
repository that accepts and publicly disseminates swap transaction and
pricing data in real-time to ensure the block trade or large notional
swap transaction and pricing data is publicly disseminated following
the appropriate time delay described in this section.
(2) Time delay for standardized block trades and large notional
swaps. The block trade or large notional swap transaction and pricing
data shall be reported to the public by the swap market (through a
third-party service provider) or registered swap data repository that
accepts and publicly disseminates such data within 15 minutes of the
time of execution reflected in the data. This provision covers all
swaps under Sections 2(a)(13)(C)(i) and (iv) of the Act.
(3) Time delay for customized large notional swaps. The large
notional swap transaction and pricing data shall be reported to the
public by the registered swap data repository that accepts and publicly
disseminates such data subject to a time delay as may be prescribed by
the Commission. This provision covers all swaps under Sections
2(a)(13)(C)(ii) and (iii) of the Act.
(l) Data to be reported to the public. With respect to block trades
and large notional swaps, all information in the data fields described
in appendix A to this part and Sec. 43.4 shall be disseminated to the
public.
(m) Aggregation. Except as otherwise stated in this paragraph, the
aggregation of orders for different accounts in order to satisfy the
minimum block trade size requirement is prohibited. Aggregation is
permissible if done by a commodity trading advisor acting in an asset
managerial capacity and registered pursuant to Section 4n of the Act,
or a principal thereof, including any investment advisor who satisfies
the criteria of Sec. 4.7(a)(2)(v) of this chapter, or a foreign person
performing a similar role or function and subject as such to foreign
regulation, if such commodity trading advisor, investment advisor or
foreign person has more than $25,000,000 in total assets under
management.
Appendix A to Part 43--Data Fields for Real-Time Public Reporting
The data fields described in Table A1 and Table A2, to the
extent applicable for a particular reportable swap transaction,
shall be real-time reported to the public. Table A1 and Table A2
provide guidance and examples for compliance with the reporting of
each data field.
[[Page 76177]]
Table A1--Data Fields and Suggested Form and Order for Real-Time Public Reporting of Swap Transaction and
Pricing Data
----------------------------------------------------------------------------------------------------------------
Field Description Example Data application
----------------------------------------------------------------------------------------------------------------
Cancellation...................... An indication that a CANCEL............... Information is needed to
reportable swap inform market
transaction has been participants and the
incorrectly or public that swap
erroneously reported and transaction and pricing
is canceled. There shall data was erroneously
be a clear indication to disseminated to the
the public that the public.
reportable swap
transaction is being
canceled (e.g.,
``CANCEL'') followed by
the swap transaction and
pricing data that is
being canceled same form
and manner that it was
erroneously reported. Any
cancellations should be
made in accordance with
Sec. 43.3(f).
If a reportable swap
transaction is canceled,
it may be corrected by
reporting the
``Correction'' data field
and the correct
information.
Correction........................ An indication that the CORRECT.............. Information needed to
swap transaction and inform market
pricing data that is participants and the
being reported is a public that a particular
correction to previously reportable swap
publicly disseminated transaction that is
swap transaction and being reported is a
pricing data that correction to swap
contained an error or transaction and pricing
omission. In order for a data that has been
correction to occur, the publicly disseminated by
registered swap data a real-time
repository that accepts disseminator.
and publicly disseminates
swap transaction and
pricing data shall first
cancel the incorrectly
reported swap transaction
and pricing data and the
follow such cancellation
with the correction.
There shall be a clear
indication to the public
that the swap transaction
and pricing data that is
being reported is a
correction (e.g.,
``CORRECT''). Any
corrections should be
made in accordance with
Sec. 43.3(f).
Date stamp........................ The date of execution of 13-10-07............. Information needed to
the reportable swap indicate the date of
transaction. The date execution of the
shall be displayed with reportable swap
two digits for day, transaction (if not the
month, and year. The date same day).
stamp shall be reported
only when the reportable
swap transaction is
executed on a day other
than the current day or
if the reportable swap
transaction is a
correction or
cancellation.
Execution time-stamp.............. The time of execution of 15:25:47............. Information needed to
the reportable swap indicate the time of
transaction in execution of the
Coordinated Universal reportable swap
Time (UTC). The time- transaction.
stamp shall be displayed
with two digits for each
of the hour, minute and
second.
Cleared or uncleared.............. An indication of whether C.................... Information needed to
or not a reportable swap indicate whether or not
transaction is cleared by a reportable swap
a derivatives clearing transaction is cleared
organization. If the through a derivatives
reportable swap clearing organization.
transaction is cleared by
a derivatives clearing
organization, a ``C'' may
be used and if uncleared
a ``U'' may be used.
Alternatively, the
entirety of the data
fields reported to the
public for the reportable
swap transaction may be
color coded white if the
swap is cleared by a
derivatives clearing
organization and red if
the reportable swap
transaction is uncleared.
Indication of other price An indication that the B*................... Information needed to
affecting term (non-standardized reportable swap indicate whether a
swaps). transaction has one or reportable swap
more additional term(s) transaction is non-
or provision(s), other standardized (bespoke)
than those listed in the and to inform the public
required real-time data that there are one or
fields, that materially more additional term(s)
affect(s) the price of or provision(s) that
the reportable swap materially affect the
transaction. Reportable price of the reportable
swap transactions that swap transaction.
are reported with this
designation would be non-
standardized (bespoke)
swaps.
[[Page 76178]]
Some common material price
affecting terms may
include counterparty
credit, collateral, day
count fraction, changing
notional amount, etc. A
``B*'' may be used to
indicate that a
reportable swap
transaction has a
material price affecting
term that is not
otherwise shown..
Block trades and large notional An indication of whether a BLK.................. Information needed to
swaps. reportable swap indicate whether a
transaction is a block reportable swap
trade or large notional transaction is a block
swap. If a reportable trade or a large
swap transaction is a notional swap. This
block trade or a large information is important
notional swap and subject since it will alert
to a time delay in real- market participants and
time public reporting the public to the
pursuant to Sec. 43.5, differences in notional
such block trade or large or principal amount and
notional swap may be the time delay in real-
indicated as follows: time reporting the swap
block trade or large transaction and pricing
notional swap (``BLK''). data.
If a trade is not a block
trade or large notional
swap, then this field may
be left blank.
Execution venue................... An indication of the venue OFF.................. Information needed to
of execution of a indicate whether a
reportable swap reportable swap
transaction. Such transaction is executed
indication may be on a swap market, as an
indicated with a three off-facility swap, or as
character reference code a block trade or large
as follows: reportable notional swap.
swap transaction executed
on or pursuant to the
rules of a swap market
(SWM) or an off-facility
swap (OFF).
Swap instrument................... A description of the SWI-ST-USD-IRS (e.g., Information needed to
instrument used to short term USD understand what swap
determine the appropriate interest rate swaps). instrument was used by
minimum block size for the parties to a block
block trades and large trade or large notional
notional swaps. The swap swap to determine the
instrument may be appropriate minimum
reported with the letters block trade size that
``SWI'' followed by the was relied on to delay
description of the swap reporting pursuant to
instrument. The swap Sec. 43.5.
instrument should be
described in such a
manner that it is clear
to market participants
and the public what is
being reported. If there
is no swap instrument,
then ``NA'' may be
reported.
Start date........................ The date that the 20-02-09............. Information needed to
reportable swap indicate when the terms
transaction becomes of the reportable swap
effective or starts. The transaction become
effective date shall be effective or start.
displayed with two digits
for day, month, and year.
If a standardized start
date is established for a
particular swap, for
example, the start date
is always T+1 for a
particular swap contract
or the start date is
standardized to start on
a given date in the
future (e.g., the first
of the following month),
this field may not be
necessary.
Asset class....................... An indication of one of IR................... Information needed to
the five broad categories broadly describe the
as described in Sec. underlying asset to
43.2(e). Reportable swap facilitate comparison
transactions may be with other similar
reported in the following reportable swap
asset classes with an transactions.
appropriate two character
symbol: interest rate
(IR), currency (CU),
credit (CD), equity (EQ),
other commodity (CO)..
Sub-asset class for other An indication of a more AG (agriculture swap) Information needed to
commodity. specific description of define with greater
the asset class for other specificity, the type of
commodity. Such sub-asset other commodity that is
classes for other being real-time reported
commodity reportable swap and to facilitate
transactions may include, comparison with other
but are not limited to, similar reportable swap
energy, precious metals, transactions.
metals--other,
agriculture, weather,
emissions and volatility.
The sub-asset class may
be reported with an
appropriate two character
symbol (e.g., energy
(EN)).
Contract type..................... An indication of one of S-................... Information needed to
four specific contract describe the reportable
types of reportable swap swap transaction and to
transactions. The be able to compare such
following product types reportable swap
shall be reported with an transaction to other
appropriate two character similar reportable swap
symbol: swap (S-), transactions.
swaption (SO), forward
(FO) and stand-alone
options (O-).
[[Page 76179]]
Contract sub-type................. An indication of more SS (basis swap)...... Information needed to
specificity into the type define with greater
of contract described in specificity, the type of
the contract type field. contract that is being
Such contract sub-types real-time reported and
may include, but are not to facilitate comparison
limited to, basis swaps, with other similar
index swaps, broad based reportable swap
security swaps, and transactions.
basket swaps. The
contract sub-type may be
reported with an
appropriate two character
symbol (e.g., basket swap
(SK)).
Price-forming continuation data... An indication of whether PN................... Information needed to
such reportable swap describe whether the
transaction is a post- reportable swap
execution event that transaction is a post-
affects the price of the execution event for a
reportable swap pre-existing swap (i.e.,
transaction. The not a newly executed
following price-forming swap) that materially
continuation data may be affects the price of the
reported with a reportable swap
designation as follows: transaction.
novation (N-), partial
novation (PN), swap
unwind (U-), partial swap
unwind (PU), other price-
forming continuation data
(PF).
Underlying asset 1................ The asset, reference asset TX (e.g., TX Information needed to
or reference obligation represents describe the reportable
for payments of a party's ``Treasury 10 swap transaction and to
obligations under the year''). help market participants
reportable swap and the public evaluate
transaction reference. the price of the
The underlying asset may reportable swap
be a reference price, transaction.
index, obligation,
physical commodity with
delivery point, futures
contract or any other
instrument agreed to by
the parties to a
reportable swap
transaction.
Reporting entities may
refer to Sec. 43.4(e)
when reporting underlying
asset.
Underlying asset 2................ The asset, reference asset IIIL (e.g., IIIL Information needed to
or reference obligation represents 3-month describe the reportable
for payments of a party's LIBOR). swap transaction and to
obligations under the help market participants
reportable swap and the public evaluate
transaction reference. the price of the
The underlying asset may reportable swap
be a reference price, transaction.
index, obligation,
physical commodity with
delivery point, futures
contract or any other
instrument agreed to by
the parties to a
reportable swap
transaction..
Reporting entities may
refer to Sec. 43.4(e)
when reporting underlying
asset..
If there are more than two
underlying assets, such
underlying assets shall
be reported in the same
manner as above.
Price notation.................... The premium, yield, spread 2.53................. Information needed to
or rate, depending on the describe the reportable
type of swap, that is swap transaction and to
calculated at affirmation help market participants
and nets to a present and the public evaluate
value of zero at the price of the
execution. The pricing reportable swap
characteristic shall not transaction.
include any premiums
associated with margin,
collateral, independent
amounts, reconcilable
post-execution events,
options on a swap, or
other non-economic
characteristics. The
format in which the
pricing characteristic is
real-time reported to the
public shall be the
format commonly sought by
market participants for
each particular market or
contract.
Additional price notation......... The additional pricing +0.25................ Additional information
characteristic shall needed to describe the
include any premiums reportable swap and to
associated with margin, help market participants
collateral, independent and the public evaluate
amounts, reconcilable the price of the
post-execution events, reportable swap
front end payments, back transaction.
end payments, or other
non-economic
characteristics not
illustrated in the
reporting field for
pricing characteristic.
The additional pricing
characteristic shall not
include options as they
are reported elsewhere.
The format in which the
additional pricing
characteristic is real-
time reported to the
public shall be as an
addition or subtraction
of the pricing
characteristic and in a
way commonly sought by
market participants for
each particular market or
contract.
[[Page 76180]]
Unique product identifier......... Certain fields may be To be determined..... Information needed to
replaced with a unique describe the reportable
product identifier, if swap transaction and for
such unique identifier market participants and
exists, to the extent the public to be able to
that such unique product compare such reportable
identifier adequately swap transaction to
describes such fields.. other similar reportable
swap transactions. Such
information would
substitute the
information described in
one or more reportable
fields in accordance
with Sec. 43.4.
Notional currency 1............... An indication of the type EUR.................. Information needed to
of currency that the describe the type of
notional amount is in. currency of the notional
The notional currency may amount.
be reported in a commonly
accepted code (e.g., the
three character
alphabetic ISO 4217
currency code).
Notional or principal amount 1.... The total currency amount 200.................. Information needed to
or quantity of units of identify the size of the
the underlying asset. The reportable swap
notional or principal transaction and to help
amounts for reportable evaluate the price of
swap transactions, the reportable swap
including block trades transaction.
and large notional swaps
shall be reported
pursuant Sec. 43.4.
Notional currency 2............... An indication of the type USD.................. Information needed to
of currency that the describe the type of
notional amount is in. currency of the notional
The notional currency may amount.
be reported in a commonly
accepted code (e.g., the
three character
alphabetic ISO 4217
currency code).
Notional or principal amount 2.... The total currency amount 45................... Information needed to
or quantity of units of identify the size of the
the underlying asset. The reportable swap
notional or principal transaction and to help
amounts for reportable market participants and
swap transactions, the public evaluate the
including block trades price of the reportable
and large notional swaps, swap transaction.
shall be reported
pursuant to Sec. 43.4.
Each notional or principal
amount (if there is more
than one) should be
labeled with a number
(e.g., 1, 2, 3, etc.)
such that the number
corresponds to the
underlying asset for
which the notional or
principal amount is
applicable.
If there are more than two
notional or principal
amounts, each such
additional notional or
principal amount shall be
reported in the same
manner.
Payment frequency 1............... An integer multiplier of a 2M................... Information needed to
time period describing identify the pricing
how often the parties to characteristic of the
the reportable swap reportable swap
transaction exchange transaction and to help
payments associated with market participants and
each party's obligation the public evaluate the
under the reportable swap price of the reportable
transaction. Such payment swap transaction.
frequency may be
described as one letter
preceded by an integer.
Such letter convention
may be reported as
follows: D (daily), W
(weekly), M (monthly), Y
(yearly).
Payment frequency 2............... An integer multiplier of a 6W................... Information needed to
time period describing identify the pricing
how often the parties to characteristic of the
the reportable swap reportable swap
transaction exchange transaction and to help
payments associated with market participants and
each party's obligation the public evaluate the
under the reportable swap price of the reportable
transaction. Such payment swap transaction.
frequency may be
described as one letter
preceded by an integer.
Such letter convention
may be reported as
follows: D (daily), W
(weekly), M (monthly), or
Y (yearly).
Each payment frequency (if
there is more than one)
should be labeled with a
number (e.g., 1, 2, 3,
etc.) such that the
number corresponds to the
underlying asset for
which the payment
frequency is applicable.
If there are more than two
payment frequency, each
such additional payment
frequency shall be
reported in the same
manner.
[[Page 76181]]
Reset frequency 1................. An integer multiplier of a 1Y................... Information needed to
period describing how identify the pricing
often the parties to the characteristic of the
reportable swap reportable swap
transaction shall transaction and to help
evaluate and, when market participants and
applicable, change the the public evaluate the
price used for the price of the reportable
underlying assets of the swap transaction.
reportable swap
transaction. Such reset
frequency may be
described as one letter
preceded by an integer.
Such letter convention
may be reported as
follows: D (daily), W
(weekly), M (monthly), or
Y (yearly).
Reset frequency 2................. An integer multiplier of a 6M................... Information needed to
period describing how identify the pricing
often the parties to the characteristic of the
reportable swap reportable swap
transaction shall transaction and to help
evaluate and, when market participants and
applicable, change the the public evaluate the
price used for the price of the reportable
underlying assets of the swap transaction.
reportable swap
transaction. Such reset
frequency may be
described as one letter
preceded by an integer.
Such letter convention
may be reported as
follows: D (daily), W
(weekly), M (monthly), or
Y (yearly).
Each reset frequency (if
there is more than one)
should be labeled with a
number (e.g., 1, 2, 3,
etc.) such that the
number corresponds to the
underlying asset for
which the reset frequency
is applicable.
If there are more than two
reset frequencies, each
such additional reset
frequency shall be
reported in the same
manner.
Tenor............................. The maturity, termination, Z15.................. Information needed to
or end date of the determine the end month
reportable swap and year of the
transaction. The tenor reportable swap
may be displayed with the transaction and to help
3 character month and market participants and
year format used for the public evaluate the
futures contracts.. price of the reportable
swap transaction.
Reporting entities may
refer to Sec. 43.4(e)
in reporting tenor.
----------------------------------------------------------------------------------------------------------------
If a swap has more than one embedded option, or multiple
swaptions provisions, all such option provisions shall be reported
in the same manner pursuant to the fields in Table A2 of Appendix A
to this Part 43. When disseminated to the public, multiple embedded
options associated with the same swap shall be clearly described and
clearly linked to the swap with which the embedded option is
associated.
Table A2--Additional Real-Time Public Reporting Data Fields for Options, Saptions and Swaps With Embedded
Options
----------------------------------------------------------------------------------------------------------------
Field Description Example Data application
----------------------------------------------------------------------------------------------------------------
Embedded option on swap........... An indication of whether EMBED1............... Information needed to
or not the option fields describe whether an
are for an embedded option is embedded in a
option. This indication swap to prevent
may be displayed as confusion and allow the
``EMBED1,'' ``EMBED2,'' market participants and
etc. and should precede the public to understand
the option fields that the information that is
describe the embedded being reported.
option.
Option Strike Price............... The level or price at O25.................. Information needed to
which an option may be indicate the level or
exercised. The option price at which the
strike price may be option may be exercised
displayed with the letter to market participants
``O'' followed and the public.
immediately by the level
or price.
[[Page 76182]]
Option Type....................... An indication of the type P-................... Information needed to
of option. The option adequately describe the
type may be displayed option to market
with a two character code participants and the
as follows: put (P-), public.
call (C-), purchase to
pay fixed vs. floating
(PF), purchase to receive
fixed vs. floating (RF)
cap (PC), floors (F-),
collar (RC), straddle (D-
), strangle (G-),
amortizing (A-),
cancelable (NC),
compounding (DC), knock-
in (KI), knock-out (KO),
reverse knock-in (RI),
reverse knock-out (RO),
one touch (OT), no touch
(NT), double one-touch
(DO), double no touch
(DN), butterfly (BU),
collar (L-), condor (R-),
callable inverse snowball
(JC), other exotic option
types (XX).
Option Family..................... An indication of the style EU................... Information needed to
of the option adequately describe the
transaction. The option option to market
style/family may be participants and the
displayed as a two letter public.
code as follows: European
(EU), American (AM),
Bermudan (BM), Asian
(AS), other option style/
family (YY).
Option currency................... An indication of the type USD.................. Information needed to
of currency of the option identify the type of
premium. The option currency of the option
currency may be reported premium to market
in a commonly accepted participants and the
code (e.g., the three public.
character alphabetic ISO
4217 currency code).
Option premium.................... An indication of the 50000................ Information needed to
additional cost of the explain the market value
option to the reportable of the option to market
swap transaction as a participants and the
numerical value, not as public at the time of
the difference of the execution. This field
premiums of the party's will allow the public to
obligations to the understand the price of
reportable swap the reportable swap
transaction. This field transaction.
shall be combined with
the option currency field.
Option lockout period............. An indication of the first J19.................. Information is needed to
allowable exercise date identify when the option
of the option. Such can first be exercised
option lockout date shall and to help market
be rounded to the month participants and the
and reported using the public evaluate the
three character month and price of the option.
year format used for
futures contracts.
Option expiration................. An indication of the date Z20.................. Information is needed to
that the option is no identify when the option
longer available for can no longer be
exercise. Such option exercised and to help
expiration shall be market participants and
rounded off to the month the public evaluate the
and reported using the price of the option.
three character month and
year format used for
futures contracts.
----------------------------------------------------------------------------------------------------------------
Issued in Washington, DC, on November 19, 2010, by the
Commission.
David A. Stawick,
Secretary of the Commission.
Statement of Chairman Gary Gensler
Real-Time Public Reporting of Swap Transaction Data
I support the proposed rulemaking to implement a real-time public
reporting regime for swaps. The proposed rules are designed to fulfill
Congress's direction to bring public transparency to the entire swaps
market, both standardized and customized swaps. This post-trade
transparency will enhance price discovery and liquidity while ensuring
anonymity and protection for large trades in appropriate cases. Per
Congress's direction, the proposal requires real time reporting for
swap transaction and pricing data to occur as soon as technologically
practicable for trades other than trades of large notional size or
block trades. Congress mandated that these trades be reported without
delay regardless of whether they are standardized or customized.
With regard to block trades or trades of large notional size, the
proposed rule includes two important features: a time delay and a
method to report the large sizes. With regard to the delay, the
proposed rule includes a 15-minute delay on standardized blocks. This
compares to the futures marketplace, which currently has a five-minute
delay for blocks, and the equities marketplace, which has an even
shorter delay. With regard to customized trades of large notional size,
the proposal asks a series of questions as to whether a similar delay
of 15 minutes would be appropriate for interest rate, currency and
other financial swaps and what delays may be appropriate for customized
large trades referencing physical commodities. The second important
feature with regard to block trades or trades of large notional size is
a reporting method that transactions greater than $250 million notional
amount--even the very largest of trades--will just be reported as being
greater than $250 million. This will protect anonymity and promote the
liquidity of these large trades.
The proposal on real time reporting includes the methods by which
to calculate what a block trade is across the market for various swap
instruments. This will be based on data collected by the swap data
repositories in each of the asset classes. Lastly, the proposal
includes an initial
[[Page 76183]]
implementation date of January 2012 to provide time for the initial
setting of block sizes based on market data and time for market
participants to prepare for such real time reporting requirements.
Real time post-trade reporting is critical to promoting market
integrity and to benefit the investing and hedging public. When
corporations, municipal governments, farmers and merchants seek to
hedge their risk, they will benefit from seeing an accurate picture of
where similar transactions are being priced concurrent with their
decision-making. It is an essential ingredient of well-functioning
markets. Such transparency increases liquidity and enhances the price
discover function of the market.
[FR Doc. 2010-29994 Filed 12-6-10; 8:45 am]
BILLING CODE P