End-User Swap Reporting Obligations Under Dodd-Frank

 

End-users in the United States traditionally have entered into swaps with counterparties that, following the implementation of the Dodd-Frank Act, registered with the CFTC as “swap dealers.”  Pursuant to CFTC regulation 45.8, where one party to a swap is a registered swap dealer, that party (known as the “reporting counterparty”) is the one required to report relevant swap data to a “swap data repository” (“SDR”).  The reporting requirements of the Dodd-Frank Act apply to new swaps, as well as swaps existing on or after the enactment of the Dodd-Frank Act but entered into before the required reporting date (known as “historical swaps”).  The exact compliance date for reporting historical swap data depends on the type of swap and the type of reporting counterparty; for example, swap dealers were required to report swap data for interest rate swaps by October 12, 2012.  However, where neither party is registered as a swap dealer, an end-user that is the sole “U.S. person” to a swap may find itself in the position of being the reporting counterparty.[1]  In such a case, the end-user has been granted additional time to comply with the Dodd-Frank reporting requirements.

As a general rule, in accordance with a CFTC No-Action Letter, “[a] non-SD/MSP counterparty [i.e., a non-swap dealer or major swap participant] is required to be in compliance with its reporting obligations under the swap data reporting rules by April 10, 2013.”[2]  However, the same No-Action Letter provided that “the Division [of Market Oversight] will not recommend that the [CFTC] take enforcement action against a non-financial swap counterparty for failing to report historical swaps data, for all swap asset classes, pursuant to Part 46 of the [CFTC’s] regulations, until 12:01 a.m. eastern time on October 31, 2013.”[3]  Therefore, end-users have until such date and time to report historical swap data.

Of course, end-users usually enter into swaps on one-off occasions, for example, to hedge interest rate risk relating to a borrowing.  Therefore, they often lack the necessary infrastructure and operational capability to routinely report trades.  As an accommodation, certain non-U.S. financial institutions that are not registered as swap dealers have offered to enter into contracts with end-users under which the financial institutions agree to report historical swap data to SDRs.  However, not all non-U.S. financial institutions have offered to provide such an accommodation; in such cases, it may be helpful for an end-user to engage a third party service provider to assist it with its reporting obligations.

Note that both reporting counterparties and non-reporting counterparties have an obligation to correct errors and omissions of swap data previously reported to an SDR.  Specifically, CFTC regulation 45.14 provides that “[c]orrections of errors or omissions shall be reported [by a reporting counterparty] as soon as technologically practicable after discovery of any such error or omission.”  Moreover, a non-reporting counterparty that discovers any error or omission “shall promptly notify the reporting counterparty of each such error or omission” and “[u]pon receiving such notice, the reporting counterparty shall report a correction of each such error or omission to the swap data repository.”[4]

In the United Kingdom, which is not one of the eleven participating member-states, a Parliamentary Committee recently recommended that the Government consider the “viability, benefits and risks” of an FTT on high frequency trading, despite the Government’s strong opposition to such a tax within the EU.


[1] Specifically, CFTC regulation 45.8 provides that “if both counterparties to a swap are non-SD/MSP counterparties [i.e., non-swap dealers or major swap participants] and only one counterparty is a U.S. person, that counterparty shall be the reporting counterparty.”

[2] CFTC Letter No. 13-10, “Time-Limited No-Action Relief for Swap Counterparties That Are Not Swap Dealers or Major Swap Participants, from Certain Swap Data Reporting Requirements of Parts 42, 45 and 46 of the Commission’s Regulations” (April 9, 2013), 3.

[3] Id. at 6.

[4] 17 C.R.F. § 45.14.