us_fsi_dodd frank swaps reporting final_111011

7/31/2019 US_FSI_Dodd Frank Swaps Reporting Final_111011

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Dodd-Frank swaps reportingor large fnancial institutions

A season o change


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2

Why should I be worried? 3

What does the swaps reporting legislation aim to do? 4

What are the key roles or swaps reporting? 5

What are the timelines and reporting requirements? 6

How is the trade lie cycle impacted 8

What should I do? 9

Contents


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Dodd-Frank swaps reporting or large fnancial institutions 3

Why should I be worried?

Swaps reporting requirements, part o Title VII o the

Dodd-Frank Act, necessitate nancial institutions to make a

number o operational and technological changes to meet

regulatory standards. A number o these changes are

undamental (e.g., reporting inrastructure and interacting

with swap data repositories, or SDRs) and will need to be

completed regardless o modications made to the rules

over the coming months. There are other impacts (e.g.,

coding or missing data elds) that will depend on thenal rulemaking.

Design, build, and test o changes will require much

lead time to implement. Early action is needed to

allow enough time to prepare or the operational and

technological modications required.

A number o anticipated impacts have been identied and

prioritized below based on estimated level o eort.

Key impacts Level o eort*

Reporting inrastructure design and

implementation

Trading systems data eld modications

Trade fow process redesign

Receiving, storing, and handling unique

identiers

Reconciliation process and supporting

organizational design

Denition and identication o eligible

trades

Retention o trade data

Regulatory, legal, and industry stakeholder

groups coordination

* Level o eort estimated based on time to implement and complexity

Given the substantial and widespread impacts o the

swaps reporting legislation, careul planning is essential

to prepare or the new regulations. This document

outlines the Title VII background, key players, timeline,requirements, and impacts, as well as a suggested

approach to moving orward.


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What does the swaps reporting legislationaim to do?

The Dodd-Frank Act was passed as a direct response to

widespread calls or changes in regulation ollowing the

nancial crisis o the late 2000s. The legislation aims to

promote stability by improving the accountability and

transparency o the U.S. nancial system.

Title VII denes specic data to be reported and its

related timing. The rules are applicable to all swap trades

conducted by a U.S. domiciled entity or with a U.S.domiciled counterparty. All major swap asset classes are in

scope (i.e., interest rate, credit, equity, oreign exchange,

and commodities swaps).

Dodd-Frank background

The Dodd-Frank Wall Street Reorm and Consumer

Protection Act, signed into law by President Barack

Obama on July 21, 2010, regulates most transactions

in the over-the-counter (OTC) derivatives market,

which had been ormally deregulated by the

Commodity Futures Modernization Act o 2000. In

the series o 16 nancial regulatory provisions, Title

VII (Wall Street Transparency and Accountability)

addresses the regulation o derivatives transactions,

specically swaps and securities-backed swaps,

which have aligned along historical jurisdiction to

being regulated by the Commodity Futures Trading

Commission (CFTC) and Securities and Exchange

Commission (SEC) respectively.

Standardization o contracts and data

Title VII mandates standardization and compliance in both

reporting and recordkeeping o pertinent swaps data.

While some products such as exchange-traded derivativesare highly standardized, the over-the-counter (OTC)

derivatives market permits customization o agreement

terms. Transorming these contracts to meet the

standardization criteria is anticipated to be challenging,

partially due to the complexity o the underlying assets, as

well as the specic requirements o end users.

Illustrative requirements or a swaps participant

Key elements Requirement

Real-time data reporting (electronically

executed and conrmed)

< 15 min

Paper conrmations due (not electronically

executed and conrmed)

< 24 hours

Backload historical trades by Q2 12*

Real-time reporting to SDRs by Q3 12*

*To be determined

Source: CFTC and SEC proposed and interim nal rule, and CFTC

public meetings


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What are the key roles or swaps reporting?

A number o new marketplace roles have arisen as a result

o Title VII, and the CFTC and SEC are mandated to work

with each other, as well as with the Federal Reserve, to

dene the underlying principles, policies, and processes or

swap transactions. Title VII signicantly mandates adding

market intermediary parties to enhance transparency and

control, such as clearing transactions through regulated

Key

players and

utilities

Regulators

SEFs SDRs

DCOs

Considerations:

Willnon-U.S.regulatorspublishswaps

reporting legislation?

Willdifferingregulatorsissuesimiliar

nal rules?

Considerations:

Whatdata/tradeswillDCO/CCPsreport

on the swap dealer's behal?

Willclearingorreportingbe

required rst?

Considerations:

Whatdata/tradeswillSEFsreportonthe

swap dealer's behal?

Whoarethekeyplayers?

Considerations:

HowmanySDRswilltherebeintotal

and by asset class?

WillSDRshavetheirownsetof

requirements?

Source: Deloitte Research

Executives and fnancial institutions are asking similar questions

What are the dierent components o the legislation? By when do we need to get this done?

Whatisthescope?HowamIcurrentlypositionedtomeettherequirements?

What are the biggest impacted areas? Are more than technology and operations involved?

Where should I start?

Roles and utilities

derivatives clearing organizations (DCOs) and trading

through regulated exchanges or swap execution acilities

(SEFs). The act also requires the CFTC and SEC to publish

rules or market participants, DCOs, and SEFs to report

swap transactions to registered SDRs.

While the nal list o DCO, SEF, and SDR participants has

yet to be identied, the diagram below notes the key roles

and participant considerations.


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What are the timelines and reportingrequirements?

Regulatory timeline

Title VII outlines two distinct reporting requirements: the back loading o historical data (historical swaps reporting)

and the ongoing reporting o newly executed trades within required time rames (real-time swaps reporting). The

nalization o rules and compliance dates is expected to be delayed. A phased approach by asset class is anticipated or

implementation o the regulations.

2010 2011 2012 2013

Jul. 21

Dodd-Frank law passed

Historical swaps reporting1 Real-time swaps reporting

Pre-enactment swaps Transition swaps

CFTC proposed

rule released

Dodd-Frank

effectivedate/SDR

registration2

Real-time and

historical reporting

begins2

Apr. 25

Q4 2011

(TBD)

Q2/Q32012(TBD)

Source: CFTC and SEC proposed and interim nal rules, and CFTC public meetings

Reporting requirements

The CFTC and SEC have published a set o proposeddata elds; however, the rules and denitive lists o elds

have not been nalized. Organizations should begin to

understand how they are expected to report the data elds

requested by the CFTC and SEC or real-time and historical

reporting to SDRs. In addition, organizations should

develop plans to address the standardization o reerence

data (e.g., unique identiers, such as the unique swap

identier and the unique product identier) and determine

in-scope products and transactions.

Rule What to report

Trade reporting

timingrequirements

Historical

swaps

reporting

CFTC

Primaryeconomicterms(or

terms o the transaction or

historical swaps expired or

terminated beore April 25,

2011). Both data sets are a

subset o the real-time data

elds

Modications(onlyappliesto

historical swaps in existence on

or ater April 25, 2011)

Conrmationterms(onlyapplies

to historical swaps in existence

on or ater April 25, 2011)SEC

Note:Granularrequirements

yet to be dened; however,

expected to be in-line with

CFTCs requirements

One-time upload

o historical

swaps data

by asset class

(potential

incremental,

multiple

step-back

loading)

1 Swaps executed prior to and live as o July 21, 2010 (pre-enactment swaps) or executed on or ater July 21, 2010 and prior to go-live o real-time

reporting (transition swaps).

2Compliance/effectivedatesexpectedtobedelayed.Datesshowninchartrepresentindustryconsensusonestimateddelays.Expectationisthat

real-time reporting will be phased in by the asset class.


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Rule What to reportTrade reporting timing

requirements

Real-time

swaps

reporting

Economicsoftrade

(e.g., primary

economic terms and

SEC elds)

Conrmations

Electronicallyexecutedand

conrmed: 15 minutes

Notelectronically

executed, but electronically

conrmed: 30 minutes

Notelectronicallyexecuted

or conrmed: 24 hours

Swap continuation data(e.g., modications and

post-trade events)

Lifecycle(equitiesandcredit): intraday

Snapshot(rates,

oreign exchange, and

commodities):Sameday/

end o day

Recordkeeping

For CFTC real-time swaps reporting, parties must retain all

data relating to the transaction or a period o no less than

ve years. The ve-year retention requirement also applies

to CFTC historical swaps, with dierent data requirements

depending on i the swap is pre-enactment or transition,

and i it was in existence on or ater the proposed rule

date (April 25, 2011). Clarity is still needed rom the SEC

regarding retention requirements.

Questions or determining reporting

responsibility

IsthetradeexecutedonaSEF?

IsthetradeclearedviaaDCO?

IfneitherSEFnorDCOisresponsibleforreporting,

which counterparty will report?

Reporting responsibility

The responsibility or reporting required data sets is driven

by our dierent execution and clearing scenarios (shown

below). Based on these scenarios, reporting responsibility

or required data sets can all on the SEF, the DCO, or the

counterparties. In the uture, as trades are executed on

SEFs and cleared through DCOs, reporting is anticipated

to be perormed by these third parties (with the

counterparties responsible or checking that the reportinghas been perormed). Until trades are executed on SEFs

and cleared through DCOs, counterparties will likely have

to report. In situations where the counterparties report,

responsibility is determined based on counterparty status

(i.e., swap dealer, major swap participant, other). Given

the multiple reporting parties involved in swap reporting,

nancial institutions will likely need to develop and

implement a reconciliation process to identiy incorrectly

reported or unreported data.

Execution and clearing scenarios Swap participant

reporting responsibilitySEF executed? DCO c leared?

- - High

- Medium

- Medium

Low


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8

How is the trade lie cycle impacted andwhat execution ramework should I ollow?

Reporting typically involves collecting, tracking, managing, and reporting trade inormation to appropriate

stakeholders toward the end o the trade lie cycle. Real-time swaps reporting, however, requires disclosing data

earlier in the trade lie cycle.

Sales and product

managementOn-boarding Risk management

Trade execution,

clearing and

settlement

Margin and

collateral

Reporting and

client service

Aected area Typical reporting

OTC derivatives trade lie cycle

Title VII requires that data be disseminated within 15 minutes, 30 minutes, or 24 hours ollowing trade execution,

depending on the method o execution and clearing. This requirement diers rom typical end-o-day client reporting

and will likely result in nancial institutions developing solutions that will allow or the timely transmission o data to

the regulators.

Execution ramework

Given the tight regulatory time rames and numerous challenges, an execution ramework should be adopted to

standardize reporting processes and develop a broad reporting solution.

Organization and people

Organizationalmodelredesign

Increasedtrainingforstaffonnewregulation

Centralizedvs.decentralizedfunctions

Effectivecommunications

Coordinationwithdifferentregulatory,legal,

and industry stakeholder groups

Leveragingofexistingregulatoryfunctions

and integration with existing and new

regulatory processes

Technology and inrastructure

Broadreportingsolution

Real-timevisibilityintoreporteddata

Reportingrulesengine

Auditdatarepository

Datagovernance/standardizationacross

asset classes

Systemsintegration/enhancements

Handlingandsupportingofreferencedata

Process

Trade-flowprocessredesigntostaywithin

time rames

Definitionofbroadreconciliationand

exception processes across historical and

real-time reporting

Definitionandidentificationoftradeseligible

or reporting

Align

SimpliyExecute

Key objectives

Regulatorycompliance

Costavoidance

Seamlessintegration

Efciencymanagement


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10/12

10

Robert Contri

Vice Chairman

U.S. Financial Services

Deloitte LLP

Phone: +1 212 436 2043

[email protected]

Ricardo Martinez

PrincipalDeloitte & Touche LLP

Phone: +1 212 436 2086

[email protected]

Randi Brosterman

Principal

Deloitte Consulting LLP

Phone: +1 917 854 4974

[email protected]

Forrest Danson

Principal

U.S. SecuritiesReal Estate and Financial Services


Phone: +1 312 486 2685

[email protected]

Ed Tracy

Principal


Phone: +1 973 602 5361

[email protected]

Kamal Mistry

Principal


Phone: +1 914-661-8001

[email protected]

Ajay Malhotra

Senior Manager


Phone: +1 203 252 0749

[email protected]

Contributors

Anuj Shah

Senior Manager


Phone: +1 201-336-4707

[email protected]

Gregory Zammitti

ManagerDeloitte Consulting LLP

Phone: +1 917-284-0877

[email protected]

Nicholas Clarke

Manager


Phone: +1 850-321-3886

[email protected]

Andrew Tripp

Consultant

Deloitte Consulting LLPPhone: +1 631-897-8390

[email protected]

Matt Johnsen

Business Analyst


Phone: +1 646-761-3119

[email protected]

Contacts


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