Federal Register, Volume 79 Issue 58 (Wednesday, March 26, 2014)[Federal Register Volume 79, Number 58 (Wednesday, March 26, 2014)]

[Rules and Regulations]

[Pages 16672-16675]

From the Federal Register Online via the Government Printing Office [www.gpo.gov]

[FR Doc No: 2014-06574]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 49

RIN 3038-AE14

Swap Data Repositories–Access to SDR Data by Market Participants

AGENCY: Commodity Futures Trading Commission.

ACTION: Interim final rule; request for comment.

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SUMMARY: The Commodity Futures Trading Commission (“Commission” or

“CFTC”) is adopting an interim final rule to clarify the scope of

permissible access by market participants to swap data and information

maintained by a registered swap data repository (“SDR”).

Specifically, the interim final rule clarifies that, for a swap that is

executed anonymously on a swap execution facility or designated

contract market, and then cleared in accordance with the Commission’s

straight-through processing requirements, the data and information

maintained by a registered SDR that may be accessed by either

counterparty to the swap does not include the identity of the other

counterparty to the swap, the identity of the other counterparty’s

clearing member for the swap, or such counterparty’s or clearing

member’s legal entity identifier.

DATES: Effective date: This interim final rule is effective March 26,

2014.

Comment date: Comments on this interim final rule must be submitted

on or before April 25, 2014.

ADDRESSES: You may submit comments, identified by RIN number 3038-AE14,

by any of the following methods:

Agency Web site–via Comments Online process: http://comments.cftc.gov. Follow the instructions for submitting comments

through the Web site.

Mail: Melissa D. Jurgens, 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.

Federal eRulemaking Portal: http://www.regulations.gov.

Follow the instructions for submitting comments through the portal.

Please submit your comments using only one method.

All comments must be submitted in English, or if not, accompanied

by an English translation. Comments will be posted as received to

http://www.cftc.gov. You should submit only information that you wish

to make available publicly. If you wish the Commission to consider

information that you believe 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 procedures

established in Sec. 145.9 of the Commission’s regulations.1

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1 See 17 CFR 145.9.

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The Commission reserves the right, but shall have no obligation, to

review, pre-screen, filter, redact, refuse, or remove any or all of

your submission from http://www.cftc.gov that it may deem to be

inappropriate for publication, such as obscene language. All

submissions that have been redacted or removed that contain comments on

the merits of this action will be retained in the public comment file

and will be considered as required under the Administrative Procedure

Act and other applicable laws, and may be accessible under the Freedom

of Information Act.

FOR FURTHER INFORMATION CONTACT: Nora Flood, Attorney Advisor, (202)

418-5354, [email protected], or Laurie Gussow, Special Counsel, (202)

418-7623, [email protected], Division of Market Oversight, Commodity

Futures Trading Commission, Three Lafayette Centre, 1155 21st Street

NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background

A. Dodd-Frank Act Section 728; CEA Section 21

B. Access to SDR Data by Market Participants

II. Scope of Permissible Access to SDR Data and Information by

Counterparties to Anonymously Executed, Cleared Swaps

A. Discussion

B. Amendment to 17 CFR 49.17(f)(2)

III. Request for Comment on Interim Final Rule

IV. Related Matters

A. Administrative Procedure Act

B. Paperwork Reduction Act

C. Regulatory Flexibility Act

D. Cost Benefit Considerations

I. Background

A. Dodd-Frank Act Section 728; CEA Section 21

On July 21, 2010, President Obama signed into law the Dodd-Frank

Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).2

Title VII of the Dodd-Frank Act amended the Commodity Exchange Act

(“CEA” or “Act”) 3 to establish a comprehensive new regulatory

framework for swaps. The legislation was enacted to reduce systemic

risk, increase transparency, and promote market integrity within the

financial system by, among other things: (1) Providing for the

registration and comprehensive regulation of swap dealers and major

swap participants; (2) imposing clearing and trade execution

requirements on standardized derivative products; (3) creating a

rigorous recordkeeping and data reporting regime with respect to swaps,

including real-time public reporting; and (4) enhancing the

Commission’s rulemaking and enforcement authorities over all registered

entities, intermediaries and swap counterparties subject to the

Commission’s oversight.

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2 Public Law 111-203, 124 Stat. 1376 (2010).

3 7 U.S.C. 1 et seq.

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Section 728 of the Dodd-Frank Act added new section 21 to the CEA,

establishing swap data repositories, or “SDRs”, as a new category of

Commission registered entity. The SDR

[[Page 16673]]

category was established to enhance transparency, promote

standardization, and reduce systemic risk by facilitating the

collection and maintenance of swap transaction data and information,

and making such data and information directly and electronically

available to regulators.4 New CEA section 21 addresses the

registration and regulation of SDRs and sets forth duties and core

principles with which an SDR must comply in order to register and

maintain registration. One of those duties, set forth in CEA section

21(c)(6), is that an SDR “maintain the privacy of any and all swap

transaction information that [it] receives from a swap dealer,

counterparty, or any other registered entity.” 5

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4 Section 2(a)(13)(G) of the CEA, added by section 727 of the

Dodd-Frank Act, requires all swaps–whether cleared or uncleared–to

be reported to a registered SDR.

5 Section 21(c)(6) of the CEA.

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Section 21 also directs the Commission to adopt rules governing

registered SDRs.6 On December 23, 2010, the Commission published in

the Federal Register a notice of proposed rulemaking (“NPRM”) to

implement the provisions of CEA section 21.7 After reviewing the

public comments received on the NPRM, the Commission adopted final SDR

rules as 17 CFR part 49, published in the Federal Register on September

1, 2011 (“Final SDR Rules”).8

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6 Section 21(h) of the CEA.

7 Swap Data Repositories, 75 FR 80897 (Dec. 23, 2010).

8 Swap Data Repositories: Registration Standards, Duties and

Core Principles, 76 FR 54538 (Sept. 1, 2011).

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B. Access to SDR Data by Market Participants

The Final SDR Rules contain certain provisions addressing access to

the data and information reported to and maintained by a registered

SDR. Privacy and confidentiality requirements applicable to registered

SDRs are set forth in Sec. 49.16, and access to SDR data is addressed

in Sec. 49.17.

Access to SDR data by market participants is directly addressed in

Sec. 49.17(f). In the NPRM, the Commission proposed Sec. 49.17(f) to

generally prohibit access by a market participant to swap data

maintained by a registered SDR unless, pursuant to an exception set

forth in Sec. 49.17(f)(2), the specific data was originally submitted

by such market participant.9 Based on comments received on the

NPRM,10 the Commission adopted final Sec. 49.17(f) largely as

proposed, but with a revision to the exception in Sec. 49.17(f)(2) to

provide that data and information related to a particular swap may be

accessed by either counterparty to the swap.

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9 Proposed Sec. 49.17(f)(1) provided that “[a]ccess of swap

data maintained by the registered swap data repository to market

participants is generally prohibited.” The exception set forth at

proposed Sec. 49.17(f)(2) provided that “[d]ata and information

maintained by the registered swap data repository may be accessed by

market participants if the specific data was originally submitted by

such party.” 75 FR at 80932.

10 See discussion in the preamble to the Final SDR Rules of

comments received from the American Benefits Council and the

Committee on the Investment of Employee Benefit Assets, and from the

Global Foreign Exchange Division formed in cooperation with the

Association for Financial Markets in Europe, the Securities Industry

and Financial Markets Association and the Asia Securities Industry

and Financial Markets Association, each indicating that proposed

Sec. 49.17(f) should be modified to allow both counterparties to a

swap to access data and information maintained at an SDR for that

swap. 76 FR 54555.

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Final Sec. 49.17(f)(1) provides that “[a]ccess of swap data

maintained by the registered swap data repository to market

participants is generally prohibited.” Final Sec. 49.17(f)(2)

provides that “[d]ata and information related to a particular swap

that is maintained by the registered swap data repository may be

accessed by either counterparty to that particular swap.” As noted in

the preamble to the Final SDR Rules, “[t]he underlying basis for this

regulation was to maintain the privacy and confidentiality of the

reported data while also limiting potential access to reported swap

data to the rightful parties to a swap.” 11

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11 76 FR 54555.

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II. Scope of Permissible Access to SDR Data and Information by

Counterparties to Anonymously Executed, Cleared Swaps

A. Discussion

Pursuant to Sec. 49.17(f)(1), access by market participants to

swap data maintained by a registered SDR is generally prohibited. An

exception to this general prohibition is set forth at Sec.

49.17(f)(2), which provides that data and information related to a

particular swap may be accessed by either counterparty to the swap.

The exception provided in Sec. 49.17(f)(2) must be read with

reference to the CEA; as a matter of construction, the exception must

fall within the bounds of statutory requirements. The exception

provided in Sec. 49.17(f)(2) thus includes an implicit condition:

counterparty access to data and information related to a particular

swap cannot be obtained in contravention of any CEA requirement or

prohibition. As discussed above, CEA section 21(c)(6) requires a

registered SDR to maintain the privacy of any and all swap transaction

information that the SDR receives from a swap dealer, counterparty or

any other registered entity. Accordingly, Sec. 49.17(f)(2) authorizes

counterparty access to data and information related to a particular

swap only to the extent that such access is consistent with an SDR’s

privacy obligations under CEA section 21(c)(6).

When a swap is executed anonymously on a swap execution facility

(“SEF”) or designated contract market (“DCM”) and then cleared in

accordance with the Commission’s straight-through processing

requirements 12–such that the counterparties to the swap would not

otherwise be known to one another–the identity of each counterparty to

the swap and its clearing member for the swap, as well as the legal

entity identifier (“LEI”) 13 of such

[[Page 16674]]

counterparty and its clearing member, is information that is private

vis-[agrave]-vis the other counterparty to the swap, and this privacy

must be maintained by a registered SDR pursuant to CEA section

21(c)(6). This statutory privacy obligation now operates implicitly to

limit the scope of Sec. 49.17(f)(2)–which, accordingly, does not

permit a counterparty to a swap that is executed anonymously on a SEF

or a DCM, and then cleared in accordance with the Commission’s

straight-through processing requirements, to access the identity of the

other counterparty to the swap or that counterparty’s clearing member

for the swap, or the other counterparty’s or its clearing member’s

LEI.14 The Commission is adopting this interim final rule to clarify

the scope of Sec. 49.17(f)(2),15 by making explicit the limitation

on counterparty access to data and information related to an

anonymously executed, cleared swap that applies by virtue of the

privacy requirements of CEA section 21(c)(6).

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12 See 17 CFR 1.74, 23.610 and 39.12(b)(7), which set forth

rules governing the timeframe for submitting a trade to, and

subsequent acceptance of the trade by, a derivatives clearing

organization.

13 Part 45 of the Commission’s regulations, 77 FR 2136

(January 13, 2012), which establishes swap data recordkeeping and

reporting requirements, provides in Sec. 45.6 that each

counterparty to any swap subject to the jurisdiction of the

Commission must be identified in all recordkeeping and swap data

reporting required under part 45 by means of a single legal entity

identifier, or “LEI”, issued pursuant to Commission rules. Part 46

of the Commission’s regulations, 77 FR 35200 (June 12, 2012), which

establishes swap data recordkeeping and reporting requirements for

“pre-enactment swaps” and “transition swaps” (each as defined in

part 46), provides in Sec. 46.4 that each counterparty to a pre-

enactment swap or transition swap in existence on or after April 25,

2011, must obtain an LEI, which must be used for purposes of swap

data recordkeeping and reporting as prescribed in Sec. 46.4.

The Commission is a participant in an international process, now

led by an international Regulatory Oversight Committee (“ROC”) of

which the Commission is a member, to establish a global LEI system.

In response to requests from other international financial

regulators participating in this process, the Commission is, on a

transitional basis, referring to the identifier designated for use

in recordkeeping and reporting pursuant to part 45 and part 46 as

the CFTC Interim Compliant Identifier (“CICI”). See Availability

of a Legal Entity Identifier Meeting the Requirements of the

Regulations of the Commodity Futures Trading Commission and

Designation of Provider of Legal Entity Identifiers to be Used in

the Recordkeeping and Swap Data Reporting, 77 FR 53780 (September 4,

2012), as amended by Amended Order Designating the Provider of Legal

Entity Identifiers to Be Used in Recordkeeping and Swap Data

Reporting Pursuant to the Commission’s Regulations, 78 FR 38954

(June 28, 2013) (the “Amended Designation Order”).

The global LEI system is currently in the process of becoming

operational, with the ROC already in place, a number of pre-Local

Operating Units (“pre-LOUs”) already endorsed by the ROC, and a

Central Operating Unit (“COU”) in the process of being

established. The ROC now refers to the identifiers issued by the

various endorsed pre-LOUs, including the CICI, as “pre-LEIs”.

Since specified conditions set forth in the Amended Designation

Order have now been satisfied, any ROC-endorsed pre-LEI may

currently be used for purposes of compliance with part 45 and part

46. Once the global LEI system is fully operational, ROC-endorsed

pre-LEIs, including CICIs, will transition into the global LEI

system and be referred to as LEIs.

For purposes of this interim final rule, the term legal entity

identifier, or “LEI”, refers to an LEI, a pre-LEI or a CICI, as

the context requires.

14 While the name of a counterparty’s clearing member for a

swap, and such clearing member’s LEI, is not information regarding

the swap that is required to be reported to a registered SDR

pursuant to part 45 or part 46 of the Commission’s regulations, the

Commission understands that such information may be included with

reports of required swap data, and may therefore be “information

related to a particular swap that is maintained by the registered

[SDR]”.

15 The Commission notes that it has received inquiries from

market participants regarding the scope of permissible counterparty

access to data and information maintained by a registered SDR for

swaps that are executed anonymously on SEFs and DCMs and cleared,

including a request for interpretive guidance dated February 28,

2013, from the Managed Funds Association to the Commission’s

Division of Market Oversight.

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B. Amendment to 17 CFR 49.17(f)(2)

To effect the clarification described above, the Commission is

amending Sec. 49.17(f)(2) by adding language providing that the data

and information maintained by the registered swap data repository that

may be accessed by either counterparty to a particular swap shall not

include the identity or the legal entity identifier (as such term is

used in 17 CFR part 45) of the other counterparty to the swap, or the

other counterparty’s clearing member for the swap, if the swap is

executed anonymously on a swap execution facility or designated

contract market, and cleared in accordance with Commission regulations

1.74, 23.610, and 37.12(b)(7).

III. Request for Comment on Interim Final Rule

The Commission invites comments on this interim final rule.

Comments must be submitted to the Commission on or before the date that

is 30 days after the date of publication of the interim final rule in

the Federal Register. Comments on the interim final rule must be

submitted pursuant to the instructions provided above.

IV. Related Matters

A. Administrative Procedure Act

The Administrative Procedure Act (“APA”) 16 generally requires

a Federal agency to publish notice of a proposed rulemaking in the

Federal Register.17 This requirement does not apply, however, when an

agency “for good cause finds . . . that notice and public procedure

thereon are impracticable, unnecessary, or contrary to the public

interest.” 18 Moreover, while the APA generally requires that an

agency publish an adopted rule in the Federal Register 30 days before

it becomes effective, this requirement does not apply if the agency

finds good cause to make the rule effective sooner.19

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16 5 U.S.C. 553 et seq.

17 See 5 U.S.C. 553(b).

18 See 5 U.S.C. 553(b)(3)(B).

19 See 5 U.S.C. 553(d)(3).

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In this interim final rulemaking the Commission is, by amendment,

clarifying the scope of Sec. 49.17(f)(2), by making explicit a

limitation on counterparty access to SDR data and information that

applies by virtue of CEA section 21(c)(6). In the absence of such a

clarifying amendment that same limitation would continue to apply

implicitly, since the scope of Sec. 49.17(f)(2) cannot exceed the

bounds of statutory privacy requirements. Because the interim final

rule does not alter in any way substantive rights and obligations under

Sec. 49.17(f)(2)–the scope of this regulatory provision is limited in

precisely the same manner by CEA section 21(c)(6), regardless of

whether such limitation is implicit, as it is currently, or made

explicit through the clarifying amendment effected by this interim

final rule–the advance notice and public procedure that is generally

required pursuant to the APA is not necessary in the present instance.

For good cause, the Commission therefore finds that publication of a

notice of proposed rulemaking in the Federal Register is unnecessary.

Similarly, since the interim final rule simply makes explicit a

limitation on the scope of counterparty access to SDR data and

information that already applies by operation of statute, the

Commission, for good cause, finds that no transitional period, after

publication in the Federal Register, is necessary before the amendment

to Sec. 49.17(f)(2) made by this interim final rule becomes effective.

Accordingly, this interim final rule shall be effective immediately

upon publication in the Federal Register.

B. Paperwork Reduction Act

The Paperwork Reduction Act (“PRA”) 20 imposes certain

requirements on Federal agencies in connection with their conducting or

sponsoring any collection of information as defined by the PRA. Under

the PRA, 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 from the Office of Management and

Budget (“OMB”).21 Since this interim final rule serves to clarify,

by amendment, the scope of an already existing regulatory provision,

the Commission has determined that the interim final rule will not

impose any new information collection requirements that require

approval of OMB under the PRA.

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20 44 U.S.C. 3501 et seq.

21 See 44 U.S.C. 3507.

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C. Regulatory Flexibility Act

The Regulatory Flexibility Act (“RFA”) requires that Federal

agencies consider whether the rules that they issue will have a

significant economic impact on a substantial number of small entities

and, if so, to provide a regulatory flexibility analysis respecting the

impact.22 By clarifying the scope of Sec. 49.17(f)(2), this interim

final rule serves to clarify existing obligations and responsibilities

of registered SDRs, which the Commission has previously, in connection

with its swap data recordkeeping and reporting rules, determined are

not small entities.23 Therefore, the interim final rule will not have

a significant economic impact on a substantial number of small

entities.

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22 See 5 U.S.C. 601 et seq.

23 See 77 FR 2170-2171.

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D. Cost Benefit Considerations

Section 15(a) of the CEA requires the Commission to consider the

costs and benefits of its actions before promulgating a regulation

under the CEA or issuing certain orders. Section 15(a) 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

[[Page 16675]]

financial integrity of futures markets; (3) price discovery; (4) sound

risk management practices; and (5) other public interest

considerations.24 The Commission considers the costs and benefits

resulting from its discretionary determinations with respect to the

section 15(a) factors.

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24 CEA section 15(a).

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This interim final rule does not represent an exercise of

Commission discretion that alters substantive rights and obligations

imposed by statute and Commission rule currently. As discussed earlier,

the interim final rule merely clarifies the existing scope of Sec.

49.17(f)(2) by making explicit a statutory limitation that, absent this

clarification, applies implicitly: The exception to the general

prohibition against market participant access to SDR data does not

sanction practices that contravene the statutory privacy requirements

of CEA section 21(c)(6). As such, substantively, the interim final rule

poses no incremental costs or benefits relative to regulatory

requirements that are now operative.25

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25 Complying with these existing requirements may, however,

entail some expenditure. For example, to comply with CEA section

21(c)(6) registered SDRs may incur certain costs associated with

programming their systems to recognize swaps that are executed

anonymously on a SEF or a DCM and cleared, as described herein, and

to prevent a counterparty’s access to the identity and LEI of the

other counterparty to such a swap, and such counterparty’s clearing

member for the swap.

—————————————————————————

This interim final rule is not void of any discretionary element,

however. By issuing the interim final rule, the Commission is

exercising its discretion to clarify, by amendment, the existing scope

of Sec. 49.17(f)(2), rather than leaving this regulatory provision in

its current form. By making explicit a limitation on the scope of Sec.

49.17(f)(2) that exists by virtue of the statutory privacy requirements

of CEA section 21(c)(6), the interim final rule addresses a potential

source of uncertainty for market participants,26 and, in so doing,

promotes the public interests in market integrity and, more generally,

in regulatory clarity and certainty. Conversely, the Commission sees no

costs resultant from this discretionary act of clarification.27

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26 See note 15, supra.

27 The Commission recognizes that if, to date, any market

participant has not read Sec. 49.17(f)(2) with reference to the

statutory privacy limitations of CEA section 21(c)(6), the market

participant may have developed systems and processes that require

modification to comply with these statutory limitations. In any such

case, the clarifying amendment effected by this interim final rule

should alert the market participant to the need for modification.

Such modification may entail some cost to implement. However, any

such modification costs would not arise from the Commission’s

exercise of its discretion, in this interim final rule, to clarify

Sec. 49.17(f)(2) by making explicit an existing statutory

limitation on the scope of this regulatory provision. Such

modification costs would be required to achieve statutory compliance

regardless of whether or not the Commission provided such

clarification through this interim final rule.

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List of Subjects in 17 CFR Part 49

Swap data repositories, Registration and regulatory requirements.

For the reasons stated in the preamble, the Commodity Futures

Trading Commission amends 17 CFR part 49 as follows:

PART 49–SWAP DATA REPOSITORIES

0

1. The authority citation for part 49 continues to read as follows:

Authority: 7 U.S.C. 12a and 24a, as amended by Title VII of the

Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124

Stat. 1376 (2010), unless otherwise noted.

0

2. Revise Sec. 49.17(f)(2) to read as follows:

Sec. 49.17 Access to SDR data.

* * * * *

(f) * * *

(2) Exception. Data and information related to a particular swap

that is maintained by the registered swap data repository may be

accessed by either counterparty to that particular swap. However, the

data and information maintained by the registered swap data repository

that may be accessed by either counterparty to a particular swap shall

not include the identity or the legal entity identifier (as such term

is used in part 45 of this chapter) of the other counterparty to the

swap, or the other counterparty’s clearing member for the swap, if the

swap is executed anonymously on a swap execution facility or designated

contract market, and cleared in accordance with Commission regulations

in Sec. Sec. 1.74, 23.610, and 37.12(b)(7) of this chapter.

* * * * *

Issued in Washington, DC, on March 20, 2014, by the Commission.

Christopher J. Kirkpatrick,

Deputy Secretary of the Commission.

Note: The following appendix will not appear in the Code of

Federal Regulations.

Appendix to Swap Data Repositories–Access to SDR Data by Market

Participants–Commission Voting Summary

On this matter, Acting Chairman Wetjen and Commissioners Chilton

and O’Malia voted in the affirmative. No Commissioner voted in the

negative.

[FR Doc. 2014-06574 Filed 3-25-14; 8:45 am]

BILLING CODE 6351-01-P

 

Last Updated: March 26, 2014