CFTC designates unique product identifier for swaps recordkeeping and reporting: Compliance deadline is January 29, 2024

Starting no later than January 29, 2024 (the Compliance Deadline), entities registered with the Commodity Futures Trading Commission (CFTC) and their swap counterparties must comply with new swap recordkeeping and reporting requirements.

To facilitate compliance, the CFTC issued an order designating a unique product identifier and product classification system for use in swap recordkeeping and reporting. The CFTC determined that the unique product identifier issued by the Derivatives Service Bureau Limited for swaps in the credit, equity, foreign exchange and interest rate asset classes (the covered classes) satisfies the CFTC’s requirements for a unique product identifier and product classification system and must be used by entities registered with the CFTC and their swap counterparties by the Compliance Deadline.

Background

Title VII of the Dodd-Frank Act amended the Commodity Exchange Act to set forth regulations for swaps. Particularly, it included a requirement to retain and report data regarding swap transactions to swap data repositories pursuant to its Part 45 regulations.

Regulation § 45.7 prescribes the use of a unique product identifier and product classification system in recordkeeping and swap data reporting for all swaps. Such unique product identifier and product classification system, as required by regulation § 45.7, must identify the swap asset class, its subtype, and the underlying product for the swap, with enough specificity such that it shall “(i) enable the Commission and other regulators to fulfill their regulatory responsibilities, and (ii) assist in real-time public reporting of swap transaction and pricing data pursuant to part 43.”[1]

At the time that § 45.7 was adopted, the CFTC acknowledged the lack of an existing unique product identifier or product classification system for swaps, but noted that such a system must be designated for use in recordkeeping and swap data reporting. The CFTC noted that the Financial Stability Board (FSB), an international body that monitors and makes recommendation about the global financial system, would consult with regulatory and industry experts to create such a system.[2]

The FSB called for the creation of a system to assign codes to each unique product. The product attributes associated with each code would be discoverable by reference to standardized tables with data elements that vary by asset class (the Reference Data Library). Data elements include detail regarding the asset class, asset class sub-type, underlying asset, and other swap product attributes.

CFTC designates acceptable unique product identifier and product classification system

The FSB designated the Derivatives Service Bureau Limited (DSB) to issue unique product identifier codes and operate the Reference Data Library. The CFTC determined that the unique product identifier codes issued by DSB for swaps in the covered classes were an acceptable system that satisfied the two requirements of § 45.7: (i) enabling the CFTC and other regulators to fulfill their regulatory responsibilities and (ii) assisting in real-time public reporting of swap transactions:

Enables the CFTC and other regulators to fulfill their regulatory responsibilities

The system created by the DSB contains reference data elements that detail the asset class, sub-types, underlying assets, and product attributes of the swap. Identification of swaps using unique product identifier codes allows the CFTC and other regulators to aggregate data from various swap transactions which in turn enhances transparency and facilitates oversight of the market, allowing for the ability to detect, mitigate, and prevent systemic risk and market manipulation.

Assists in real-time public reporting of swap transaction and pricing data

The DSB’s unique product identifier codes for swaps allow for real time reporting. Unique product identifier codes will appear in real-time public swaps reports, thus increasing public transparency and standardizing public reporting across swap data repositories. The codes also identify products with enough specificity that it also allows for price discovery. Whereas prior to this order, there were various product identifier and classification systems used in the market, this order will cause a shift such that the unique product identifier codes issued by DSB will now appear in all public reports for swaps within the covered classes, more easily allowing market participants and the pubic to compare swap transactions. 

For any questions related to the topic of this Commodities Alert, the CFTC and/or the Dodd-Frank Act, please contact the authors.