CFTC Adopts Interim Final Rule for Reporting Swaps Entered Into After July 21, 2010 under Section 723 of the Dodd-Frank Act

On December 9, 2010, the CFTC adopted an interim final rule (the “IFR”) regarding the reporting of information about “transition swaps” (which are defined as swap transactions that have been entered into after July 21, 2010, the date of enactment of the Dodd-Frank Act, and prior to the effective date of the swap data reporting and recordkeeping rules implementing the Dodd-Frank Act).[1]

Under the IFR, transition swaps must be reported (the mechanics of which are discussed below) in accordance with the requirements set forth in new Section 2(h)(5)(B) of the Commodity Exchange Act (the “CEA”), which was added by Section 723 of the Dodd-Frank Act.  CEA Section 2(h)(5)(B) generally requires parties to transition swaps to report certain information regarding such swaps to a swap data repository (“SDR”) or to the CFTC.  Because rules implementing the reporting requirements of CEA Section 2(h)(5)(B) have yet to be put into effect, the CFTC adopted this IFR to regulate the reporting and record retention relating to transition swaps before such rules become effective.[2]

Although open for comment, the IFR is binding on swap market participants from its date of adoption.[3]

Record Retention and Data Reporting
Interim Regulation 44.03 sets forth the IFR’s reporting requirements with respect to transition swaps.[4] The Regulation requires that parties to a transition swap report related data to the SDR or CFTC by the “compliance date” set forth in the rules that will be promulgated pursuant to CEA Section 2(h)(5)(B) or “within 60 days after an appropriate [SDR] becomes registered with the [CFTC] and commences operations to receive and maintain data related to such swap, whichever occurs first….”  Data to be reported include “[a] copy of the transaction confirmation, in electronic form if available, or in written form if there is no electronic copy,” the “time, if available, that the transaction was executed,” and a report to the CFTC, on request, “in the form and manner prescribed” by the CFTC of any “information relating to the swap transaction.”[5]

The Release notes that, although CEA Section 2(h)(5)(B) does not explicitly contain record retention requirements, “implicit in the reporting requirements established by these provisions is the necessity for counterparties to these transactions to retain information and data related to the terms of each transaction so that it may subsequently be reported.”  A Note to Interim Regulation 44.03(a) sets forth the categories of information that parties to transition swaps should retain.  Such information should include:

  • the terms of the swap, including but not limited to any information necessary to identify and value the transaction;
  • the date and time of execution of the transaction;
  • the “volume” of the swap, including its notional or principal amount;
  • information relevant to the price and payment for the transaction until the swap is terminated, reaches maturity or is novated;
  • whether the transaction has been accepted for clearing and, if so, the identity of such clearing organization;
  • any modification(s) to the terms of the transaction; and
  • the final confirmation of the transaction.

The Release states that affected parties might find the record retention requirement burdensome, and that the CFTC tried to confine the types of data required to be retained to “material information.”  Further, in a Note to the IFR included in the regulatory text, the CFTC does not require the creation or retention of new records or the reformatting of existing records.

Reporting Parties
Interim Regulation 44.03(b) indicates which party to the transition swap must report the required information under the IFR.  The IFR sets forth three scenarios.  If one of the parties to the transaction is a swap dealer (“SD”) or major swap participant (“MSP”), and the other is not, such SD or MSP must report the transaction.  If one party is an SD and the other is an MSP, the SD must report the transaction.  Finally, if none of the parties is an SD or MSP, the parties must select which party will report the swap.

The imposition of reporting obligations for transition swaps in the IFR reflects the fact that, even for those swaps that will not be required to be cleared or traded on exchanges, enactment of the Dodd-Frank Act subjects all swaps to certain regulatory requirements.  Commercial end-users that anticipate being exempt from most of the new requirements of Dodd-Frank, particularly if they enter into transactions with other commercial end-users, should keep the reporting obligations in mind, because where the parties are both commercial end-users, one of them will be required to report information.  For swaps being entered into after the enactment of Dodd-Frank, where it is not clear which party to a transaction will have the reporting obligation, the parties also may want to specify in any new agreement the party that will have the reporting obligation and price the deal accordingly


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