CFTC Chair Massad Discusses Swaps Market Framework (with Lofchie Comment)

CFTC Chair Timothy Massad spoke at the DerivOps North America conference. In his speech, he provided updates regarding the CFTC swaps market framework and a potential proposed rule about the reporting workflow that surrounds cleared swaps.

Chair Massad began by highlighting the CFTC's progress, but stated that more work needs to be done. He discussed some of the CFTC's key priorities, such as fine-tuning new rules, overseeing clearinghouses and maintaining a robust surveillance and enforcement program to prevent fraud and manipulation.

Chair Massad reported that, going forward, the CFTC will focus on operational issues regarding package trades and block trades, and will make adjustments to improve trading. Additionally, he mentioned a recent no-action letter that addressed the handling of erroneous trades, and stated that it is important for market participants to have a clear understanding of how to make corrections where appropriate while also being certain that the trades they execute are final.

Chair Massad also discussed related issues concerning data. He said that the CFTC continues to focus on data harmonization and intends to clarify its rules to improve data collection and usage. In particular, Chair Massad mentioned the issue of reporting workflow for cleared swaps. He explained that for a cleared swap trade, the original trade is submitted to the clearinghouse, at which point it is novated and two resulting swaps are created with multiple records. Chair Massad stated that the CFTC intends to proceed with a rulemaking "in the near future" on this issue. He explained that he expects the proposed rules to:

• "ensure consistency and clarity of the reporting workflow for cleared swaps" by providing that when an original swap is accepted (for clearing), terminated and novated into two swaps, the clearinghouse must report a notice of termination to the original swap data repository ("SDR") and the original SDR must accept and record that termination in its records;
• identify clearinghouses as reporting counterparties for resulting swaps, and clarify that the clearinghouses will select the SDRs to which the resulting swaps are submitted;
• mandate new data fields that will allow users of the data to link the original swap and the original SDR to the resulting swap easily, as well as to any subsequent SDR; and
• eliminate the requirement to report "Confirmation Data" for original swaps that are intended to be cleared and then terminated upon acceptance for clearing.

Chair Massad also said that the proposed rule should provide that daily valuations of cleared swaps only need to be supplied to the SDRs by the clearinghouse, which would eliminate the requirement for certain counterparties to the trade to supply their valuations as well.

Lofchie Comment: "Fine-tuning" is the politically acceptable term for trying to address major problems gradually.

See: Chair Massad's Speech.