CFTC Approves Final DCO Reporting and Information Requirement and Three Proposals at the Commission Open Meeting

The US Commodity Futures Trading Commission (CFTC) has published the outcome of its most recent open meeting on July 26, 2023. Specifically, the Commission approved one final rule and three proposed rules as briefly described below:
#### Final rule as regards reporting and information requirements for derivatives clearing organizations (DCOs)
Following a corresponding consultation in November 2022, the CFTC has now published the final revisions to various rules under Statutory Instrument 17 CFR Part 39 concerning business operation requirements of DCOs and revisions to rule § 140.94 under Statutory Instrument 17 CFR Part 140 pertaining to various registration, filing, or publication requirements of DCOs. The final rule outlines and takes into account the feedback the Commission has received to its consultation and defines the final requirements as they will apply 18 months after the rule’s effective date for the requirements under § 39.19 and subpart C. All other modifications will come into force on the effective date of the rule which will be 30 days following its publication in the Federal Register. Specifically, the new rule updates the daily and event-triggered reporting requirements of DCOs to enhance oversight, provide clarification, and ease reporting burdens of DCOs and makes minor modifications as regards the delegation of authority within DCOs. Some of the key changes are noted below: The rule
– removes the requirement for DCOs to daily report certain information such as variation margins and cash flows by individual customer account;
– implements a new provision that allows DCOs to report additional information in their daily reports, if so desired;
– implements a new requirement to oblige DCOs to report to the Commission any material issues concerning the „performance, stability, liquidity, or financial resources of any credit facility funding arrangement, liquidity funding arrangement, custodian bank, or settlement bank used by the DCO“;
– introduces new Appendix C to Part 39 which replaces the Reporting Guidebook and thus implements into the legislation the daily cash flow reporting requirements of DCOs.
– clarifies obligations of DCO’s pertaining to the reporting of customer LEI information;
– implements enhanced requirements pertaining to the segregation of customer funds, treatment of customer funds, and regulatory capital of certain DCO and
– permits the delegation of authority for routine matters to the staff and the division director.
#### Upcoming consultation on proposed rule amendments to 17 CFR Parts 23 and 37 as regards „Swap Confirmation Requirements for Swap Execution Facilities (SEFs)“
The Commission agreed to propose amendments to its swap confirmation requirements to
– include new provisions under its enforceablity provision in 17 CFR Part 37 to oblige SEFs to provide to each counterparty to a transaction executed in accordance with the SEF’s rules a written record detailing all transaction terms. This record takes precedence over conflicting terms in any prior agreements and acts as an official confirmation of the transaction. The confirmation process should occur promptly using available technology, although for certain bundled orders involving swaps, specific customer identifiers might be excluded from the confirmations.
– permit the incorporation by reference „terms from underlying, previously negotiated agreements governing such transaction between the counterparties“ in the confirmation statement for uncleared swap transactions.
– stipulate in 17 CFR Part 23, rule § 17.501 regarding swap confirmations that a swap transaction conducted through or in accordance with the regulations of a swap execution facility or designated contract market will be considered as meeting the requirements for swap confirmation, as long as the rules of the swap execution facility or designated contract market state that confirmation of all transaction terms will occur promptly after execution based on technological feasibility.
#### Upcoming consultation on proposed rule amendments to 17 CFR Parts 37, 38, and 40 concerning „Amendments to Provisions Common to Registered Entities“
The Commission agreed to propose amendments to Statutory Instrument 17 CFR Part 40 which outlines the procedures for registered entities to submit self-certifications, rule amendments, and new products for trading and clearing. Additionally, Part 40 covers the Commission’s evaluation and handling of these submissions. The proposed changes are non-material in nature and aim to make the Part 40 regulations more transparent, easier to understand, and more beneficial for both market participants and the Commission. The revisions to the other parts only contain updates to noted references.
#### Upcoming consultation on proposed rule amendments to Statutory Instrument 17 CFR Part 23 as regards margin requirements for uncleared swaps for swap dealers (SDs) and major swap participants (MSPs)
The Commission agreed to propose a new rule aimed at modifying margin requirements for uncleared swaps, specifically those pertaining to swap dealers (SDs) and major swap participants (MSPs) not under the oversight of a prudential regulator. The suggested amendment would relief certain collective investment vehicles that obtain their initial capital, either in full or in part, from a sponsor entity (referred to as seeded funds) from initial margin requirements. This change would effectively also relieve SDs and MSPs from the responsibility of posting and collecting IM in relation to such seeded funds for their uncleared swaps. This exemption would remain applicable for a period of up to three years from the inception of trading by the eligible seeded fund.
The Commission’s proposal also involves the elimination of a provision that currently disqualifies securities issued by specific pooled investment funds (such as money market and similar funds) that engage in asset transfers via securities lending, securities borrowing, repurchase agreements, reverse repurchase agreements, and analogous arrangements from being utilized as eligible collateral for IM purposes. This move aims to broaden the spectrum of assets that meet the criteria for eligible collateral. Furthermore, the Commission intends to amend the existing haircut schedule outlined in Commission Regulation 23.156(a)(3)(i)(B) by incorporating a previously overlooked footnote that was omitted during the original formulation of the rule.
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All proposed rule amendments will be open for public comment for 60 days following the publication in the Federal Register.