Commodity Futures Trading Commission 

 Office of Public Affairs 

 Three Lafayette Centre 

 1155 21st Street, NW 

 Washington, DC 20581 

 www.cftc.gov

Proposed Rule on Confirmation, Portfolio Reconciliation, and Portfolio 

Compression Requirements for Swap Dealers and Major Swap Participants 

The Commodity Futures Trading Commission (Commission) is proposing regulations establishing requirements for 

swap confirmation, portfolio reconciliation and portfolio compression for swap dealers and major swap 

participants. 

Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) 

Section 731 of the Dodd-Frank Act amends the Commodity Exchange Act (CEA) by adding section 4s, which sets forth a 

number of requirements for swap dealers and major swap participants. This rulemaking is being proposed pursuant to 

section 4s(i). Section 4s(i)(1) requires swap dealers and major swap participants to “conform with such standards as may be 

prescribed by the Commission by rule or regulation that relate to the timely and accurate confirmation, processing, netting, 

documentation, and valuation of all swaps.” Section 4s(i)(2) expressly directs the Commission to “adopt rules governing 

documentation standards for swap dealers and major swap participants.” 

The proposed regulations would require swap dealers and major swap participants to adhere to certain standards for the timely 

and accurate confirmation of swaps transactions and would require the reconciliation and compression of swap portfolios. 

Confirmation, portfolio reconciliation, and portfolio compression have been recognized as important post-trade processing 

mechanisms for reducing risk and improving operational efficiency. The specific confirmation, reconciliation, and 

compression obligations required by the proposed regulations would vary, depending upon whether the particular swaps 

transaction or portfolio is between a swap dealer and major swap participant, or involves other types of counterparties. The 

Commission will propose additional rules related to the documentation provisions under section 4s(i) in the coming weeks. 

Proposed Confirmation Rules 

The proposed regulations would require each swap dealer and major swap participant that enters into a swap transaction with 

another swap dealer or major swap participant to execute a confirmation for the swap transaction on the same calendar day as 

execution. The times prescribed for achieving swap confirmation would vary, depending upon whether the swap transaction 

is electronically executed or electronically processed. 

A swap dealer or major swap participant that enters into a swap transaction with a counterparty other than a swap dealer or 

major swap participant would be required to send an acknowledgement of the swap transaction on the same day as execution. 

It also would be required to have policies and procedures in place to confirm the swap transaction on the same calendar day as 

execution for financial entities, as defined in section 2h(7)(c) of the CEA, and on the next business day for all other 

counterparties. The procedures would have to include an obligation to furnish to, or receive from, its prospective 

counterparty, a draft acknowledgement specifying the terms of the swap transaction (other than pricing and the terms to be 

definitively agreed to at execution), prior to execution. 

The swap transactions to which the acknowledgement and confirmation requirements apply would be defined to include all 

events that would result in a new swap or in a change in the terms of a swap. Such events would include execution as well as 

various ownership actions that might occur during the life cycle of the swap, such as termination prior to the scheduled 

maturity date or the assignment, novation, exchange, transfer, amendment, conveyance, or extinguishing of the rights or 

obligations of the swap. Both the acknowledgements and the confirmations required by the proposed regulations would, by 

definition, be required to include all of the terms of the swap transaction. 

Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 
Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 

Finally, a swap dealer or major swap participant would be required to make and maintain certain records of the required 

acknowledgements and confirmations.

Proposed Portfolio Reconciliation Rule 

The proposed regulations would require swap dealers and major swap participants to engage in portfolio reconciliation with 

respect to swap transactions, other than those that are cleared by a derivatives clearing organization. The required portfolio

reconciliations could be performed bilaterally by the counterparties or by qualified third parties, and the counterparties would 

be required to agree, in writing, to the terms of the reconciliation. 

Swap dealers and major swap participants would be required to reconcile swap portfolios with other swap dealers or major 

swap participants daily, weekly, or quarterly, depending upon the size of the particular swap portfolio. Discrepancies in 

material terms identified as part of a portfolio reconciliation process would be required to be resolved immediately. 

Discrepancies in valuation would be required to be resolved within one business day, if the difference between the lower 

valuation and the higher valuation is less than 10% of the higher valuation. The proposed regulations would not prescribe any 

specific procedures that must be followed to resolve a discrepancy in valuation. 

For swap portfolios involving a counterparty that is not a swap dealer or major swap participant, the proposed regulations 

would require that swap dealers and major swap participants establish written policies and procedures to perform portfolio 

reconciliation. The frequency parameters of the portfolio reconciliation process would be similar to the frequency 

requirements for swap portfolios between swap dealers and major swap participants. The proposed regulations would not, 

however, prescribe deadlines for the resolution of discrepencies in the material terms or valuation of swaps. Instead, swap 

dealers and major swap participants would be required simply to establish written procedures that are reasonably designed to 

resolve identified discrepancies in a timely fashion. 

Finally, the proposed regulations would require that swap dealers and major swap participants retain records of each 

discrepancy identified during portfolio reconciliation that is not resolved within one business day. 

Proposed Portfolio Compression Rule 

The proposed regulations would establish certain offset and portfolio compression requirements and related recordkeeping 

obligations for swap dealers and major swap participants with respect to swaps in which their counterparty is also a swap 

dealer or major swap participant. 

Specifically, swap dealers and major swap participants would be required to participate in multilateral portfolio compression 

exercises required by Commission regulation or order or offered by a derivatives clearing organization, a self-regulatory 

organization, or a self-regulatory association of which the swap dealer or major swap participant is a member, to the extent 

their swap transactions are eligible for compression. Specific swaps could be excluded from a portfolio compression exercise, 

if including the swaps would be likely to increase the risk exposure of the swap dealer or major swap participant. Swap dealers 

and major swap participants also would be permitted to establish counterparty, market, cash payment, and other risk 

tolerances and to exclude potential counterparties from compression exercises, provided that risk tolerances or counterparty 

exclusions are not used to evade the compression requirements. 

Swap dealers and major swap participants also would be required to terminate bilaterally all fully offsetting swaps between 

them within one day and to engage annually in bilateral portfolio compression exercises with counterparties that are also swap 

dealers or major swap participants, except to the extent that the counterparties have mutually participated in a multilateral 

exercise involving the swaps between them during the same year. 

The proposed regulation would not mandate portfolio compression exercises for swaps between a swap dealer or a major 

swap participant and other types of counterparties. Instead, swap dealers and major swap participants would be required to 

maintain written policies and procedures for periodically terminating any fully offsetting swaps and for periodically engaging in 

compression exercises, to the extent that the swaps are able to be terminated through compression.