SEFs, Bank Settle Charges for Swap Reporting Failures

In separate cases, two swap execution facilities ("SEF") and a bank settled CFTC charges for failing to properly report data related to swap transactions.

According to the first Order, an SEF failed to: (i) accurately report and publish data related to thousands of swap transactions executed on its platform; (ii) maintain adequate internal controls and procedures to identify and minimize operational risks, leading to erroneous reporting of transaction data; and (iii) promptly rectify reporting errors, including inaccurate notional values for foreign exchange swaps and incorrect execution times for voice-executed swaps.

According to the second Order, an SEF failed to: (i) report inaccurate swap transaction data on nearly 49,000 swap transactions; (ii) adequately test its redesigned swap transaction and reporting system prior to implementation, which led to coding errors and erroneous data mapping; and (iii) implement a comprehensive reconciliation process capable of detecting and correcting reporting discrepancies.

In both cases, the CFTC found that the respective firms violated CEA Section 5h(f) ("Swap execution facilities") and CFTC Regulations 16.01 ("Publication of market data on futures, swaps and options thereon"), 37.900 ("Core Principle 9-Timely publication of trading information"), 37.901 ("General requirements"), 37.1400 ("Core Principle 14-System safeguards") and 37.1401 ("Requirements").

As a result of these findings, the SEFs were ordered to pay (i) $750,000 and (ii) $550,000 respectively. The CFTC also required the SEFs to enhance their reporting systems and implement robust internal controls to prevent future violations.

In a third Order, the CFTC found that a bank failed to: (i) properly report transactions due to assigning duplicate swap identifiers, thereby conflating distinct transactions; (ii) accurately report primary economic terms for credit and interest rate swap transactions; and (iii) provide correct execution time stamps.

The CFTC stated that during the relevant period, the bank encountered significant challenges on data reporting, leading to valuation updates that were either stale or incorrectly reported. Further, the CFTC said that the bank failed to timely report FX and Equity swaps, primarily due to latency issues caused by those opting for portfolio-level updates.

As a result, the CFTC determined that the bank violated CEA Sections 2(a)(13) ("Jurisdiction of Commission") and 4r(a)(3) ("Reporting and recordkeeping for uncleared swaps") as well as Regulations 43.3 ("Method and timing for real-time public reporting"), 45.3 and 45.4 ("Swap data reporting").

To resolve the charges, the bank agreed to (i) cease and desist from further violations; (ii) pay a civil monetary penalty of $4 million; and (iii) implement remedial measures to enhance its swap reporting processes and overall compliance systems.

In statements related to these cases, CFTC Commissioner Caroline D. Pham said that these cases were a "return to a more normal and rational approach to enforcement actions for operational or technical issues with no misconduct, harm to clients, or financial losses." (See also, previous coverage.) In another statement, Commissioner Pham commended the CFTC's recognition of efforts to cooperate with the agency, contrasting that with a CFTC tendency since 2023 toward excessive punitive measures in swap data reporting cases. She said the CFTC had been prioritizing registration and compliance over the agency's core mission to prevent fraud and manipulation.