As we discussed in our most recent Alert, the Commodity Futures Trading Commission (“CFTC”) finalized five separate rules in January 2012 to implement the new regulatory structure for over-the-counter swaps markets created by Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. This Alert focuses on the CFTC’s recent rules regarding swap data recordkeeping and reporting requirements.[1]

The CFTC explains that “[t]he fundamental goal of [the recordkeeping and reporting rules] was to ensure that complete data concerning all swaps subject to the [CFTC’s] jurisdiction is maintained in SDRs [“Swap Data Repositories”], where it would be available to the [CFTC] and other financial regulators for fulfillment of their various regulatory mandates, including systemic risk mitigation, market monitoring, and market abuse prevention.” A chart summarizing the broad recordkeeping requirements applicable to swaps may be found here.

Any of the records maintained pursuant to these rules may be inspected by the CFTC, the Securities and Exchange Commission, the Department of Justice or any representative of a prudential regulator authorized by the CFTC.

Both registered entities[2] and counterparties that are not swap dealers or major swap participants must report swap creation data to SDRs. CFTC rules provide a hierarchy for determining which of multiple counterparties to a swap transaction is responsible for reporting. If the swap transaction relates to an asset class for which no SDR accepts data, the creation and continuation data must be reported directly to the CFTC. Generally, creation data must be reported “as soon as technologically feasible” subject to a phased implementation schedule and specific time limits for various transaction types. Continuation data is subject to various reporting timeframes depending on the type of data, the classification of the reporting entity and whether the swap is cleared or uncleared. Reporting entities may voluntarily supplement their reports, and they are required to notify the SDR or CFTC as soon as technologically feasible if they discover errors or omissions in previously reported data. Reporting entities remain fully responsible for the content of a report even if they retain third parties to facilitate the reporting.

The recordkeeping and reporting rules become effective March 13, 2012. A phased series of compliance deadlines, however, is keyed off of other forthcoming CFTC rules.

Financial institutions that participate in swap transactions must ensure that they are familiar with the various recordkeeping and reporting requirements applicable to each type of transaction. They also should continue to monitor the regulators’ progress in defining the terms “swap dealer” and “major swap participant” to determine the level of recordkeeping and reporting to which they will be subjected. While further rulemaking will likely clarify the scope of swap recordkeeping and reporting rules, financial institutions should begin preparing for compliance now.

[1] Swap Data Recordkeeping and Reporting Requirements, 77 Fed. Reg. 2,136 (Jan. 13, 2012).

[2] Swap execution facilities, designated contract markets, derivatives clearing organizations, swap dealers and major swap participants.