Source: http://www.cftc.gov/LawRegulation/FederalRegister/ProposedRules/2010-30884
Timestamp: 2013-06-19 07:15:00
Document Index: 151168517

Matched Legal Cases: ['art 45', 'art 43', 'art 43', 'art 43', 'art 43', 'art. 313', 'art 45', 'art 45', 'art 43', 'art 145', 'art 45', 'art 43', 'art 43', 'art 45']

FR Doc 2010-30884[Federal Register: December 9, 2010 (Volume 75, Number 236)]
[Proposed Rules] [Page 76666-76677]
[DOCID:fr09de10-21] =======================================================================
SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC) is proposing regulations to implement new statutory provisions established under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Section 731 of the Dodd-Frank Act added new sections 4s(f) and (g) to the Commodity Exchange Act (CEA), which set forth reporting and recordkeeping requirements and daily trading records requirements for swap dealers and major swap participants. The proposed rules would establish the regulatory standards for compliance with these new sections of the CEA.
DATES: Submit comments on or before February 7, 2011.
ADDRESSES: You may submit comments, identified by RIN number 3038-AC96 and Reporting, Recordkeeping, and Daily Trading Records Requirements for Swap Dealers and Major Swap Participants, by any of the following methods:
All comments must be submitted in English, or if not, accompanied by an English translation. Comments will be posted as received to http://www.cftc.gov. You should submit only information that you wish to make available publicly. If you wish the Commission to consider information that may be exempt from disclosure under the Freedom of Information Act, a petition for confidential treatment of the exempt information may be submitted according to the established procedures in Sec. 145.9 of the Commissions regulations, 17 CFR 145.9.
FOR FURTHER INFORMATION CONTACT: Sarah E. Josephson, Associate Director, 202-418-5684, sjosephson@cftc.gov; Frank N. Fisanich, Special Counsel, 202-418-5949, ffisanich@cftc.gov; or Christopher Hower, Attorney Advisor, 202-418-6703, chower@cftc.gov; Division of Clearing and Intermediary Oversight, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.
\1\ See Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the Dodd-Frank Act may be accessed at http://www.cftc.gov/LawRegulation/
Section 4s(f)(1) requires swap dealers and major swap participants to ``make such reports as are required by the Commission by rule or regulation regarding the transactions and positions and financial condition of the registered swap dealer or major swap participant.'' \4\ Under sections 4s(f)(1)(B)(i) and (ii), the Commission is authorized to prescribe the books and records requirements of ``all activities related to the business of swap dealers or major swap participants,'' regardless of whether or not the entity has a prudential regulator. All books and records shall be open to inspection and examination by any representative of the Commission, and under section 4s(f)(1)(D), books and records relating to security-based swap agreements also must be open to inspection and examination by the Securities and Exchange Commission.
\4\ Recordkeeping related to the swap dealer's or major swap participant's financial condition reports will be prescribed in separate rulemaking proposals and are not included in the proposed rules below.
Section 4s(g)(1) requires that swap dealers and major swap participants ``maintain daily trading records of the swaps of the registered swap dealer and major swap participant and all related records (including related cash and forward transactions) and recorded communications, including electronic mail, instant messages, and recordings of telephone calls.'' Section 4s(g)(3) requires that daily trading records for each swap transaction be identifiable by counterparty, and section 4s(g)(4) specifies that swap dealers and major swap participants maintain a ``complete audit trail for conducting comprehensive and accurate trade reconstructions.''
The Commission would adopt the regulations discussed below pursuant to authority granted under sections 4s(h)(1)(D), 4s(h)(3)(D), 4s(f), 4s(g), and 8a(5) of the CEA.\5\ The Dodd-Frank Act requires the Commission to promulgate these provisions by July 15, 2011.
\5\ Section 8a(5) of the CEA authorizes the Commission to promulgate such regulations as, in the judgment of the Commission, are reasonably necessary to effectuate any of the provisions or to accomplish any of the purposes of the CEA.
Proposed Sec. 23.201 sets forth the records swap dealers and major swap participants must maintain. The records required under the proposed rule would include full and complete swap transaction information, including all documents on which swap information is originally recorded. Under proposed Sec. 23.201(a)(1), such records would be required to be maintained in a manner
that is identifiable and searchable by transaction and by counterparty. The rule would require retention of all documents customarily generated in accordance with market practice that demonstrate the existence and nature of the transaction.
Proposed Sec. 23.201(a)(2) would require retention of records of each position held by the swap dealer or major swap participant, identified by product and counterparty. Position records would be required to be linked to transaction records in a manner that permitted identification of the transaction that established the position. Position information would be retained in accordance with Commission regulations under part 45, which provides for unique product identifiers and unique counterparty identifiers.
Proposed Sec. 23.201(a)(3) would require swap dealers and major swap participants to maintain records for transactions executed on a swap execution facility (SEF) or designated contract market (DCM) or cleared by a derivatives clearing organization (DCO). It should be noted, that for transactions that are executed on a SEF or DCM, or cleared on a DCO, many of the requirements of the daily trading record rule, described below, would be easily achieved through procedures established by the SEF, DCM, or DCO (e.g., confirming the transaction, valuing the transaction, or margining the position).
Proposed Sec. 23.201(b) would require that swap dealers and major swap participants keep basic business records, including, among other things, minutes from meetings of the entity's governing body, organizational charts, and documentation of audits conducted. Additionally, certain financial records,\6\ records of complaints \7\ against personnel, and marketing materials would be required to be kept. Under proposed Sec. 23.201(c), swap dealers and major swap participants would be required to maintain records of information required to be submitted to a swap data repository.
\6\ Financial condition reporting, including reporting for compliance with capital rules, will be proposed in a separate rulemaking.
\7\ A complaint is defined in proposed rule 23.200 as any formal or informal complaint, grievance, criticism, or concern communicated to the swap dealer or major swap participant in any format relating to, arising from, or in connection with, any trading conduct or behavior or with the swap dealer or major swap participant's performance (or failure to perform) any of its regulatory obligations, and includes any and all observations, comments, remarks, interpretations, clarifications, notes, and examinations as to such conduct or behavior communicated or documented by the complainant, swap dealer, or major swap participant.
Finally, under proposed Sec. 23.201(d) swap dealers and major swap participants would be required to maintain records of information required to be reported on a real-time public basis and records of information relating to large notional swaps in accordance with proposed part 43 and CEA section 2(a)(13).\8\ Specifically, with regard to large notional swaps, swap dealers and major swap participants should retain a record of the rationale for determining that the swap is a large notional swap in accordance with new part 43 of the Commission regulations. Additionally, for the purposes of real-time reporting under part 43, if less specific information relating to a required data field is reported to protect the identities of the parties to a swap (e.g., underlying asset or tenor), a swap dealer or major swap participant must retain a record of the rationale for why reporting less specific information is necessary to protect the anonymity of the parties to the swap.
\8\ The proposed real-time reporting rules under part 43 are available on the Commission's Web site at http://www.cftc.gov.
The Commission requests comment on all aspects of proposed Sec. 23.201. In particular, the Commission solicits comment on the following questions:
Section 4s(g)(1) of the CEA requires that swap dealers and major swap participants maintain daily trading records of their swaps and ``all related records (including related cash and forward transactions).'' This section also requires that swap dealers and major swap participants maintain recorded communications, including electronic mail, instant messages, and recordings of telephone calls. Section 4s(g)(2) provides that the daily trading records shall include such information as the Commission shall require by rule or regulation. Section 4s(g)(3) requires that daily trading records for each swap transaction be identifiable by counterparty, and section 4s(g)(4) specifies that swap dealers and major swap participants maintain a ``complete audit trail for conducting comprehensive and accurate trade reconstructions.''
Proposed Sec. 23.202 would prescribe daily trading record requirements, which would include trade information related to pre-
execution, execution, and post-execution data. Proposed Sec. 23.202(a) would require swap dealers and major swap participants to ensure (1) that they preserve all information necessary to conduct a comprehensive and accurate trade reconstruction for each swap, and (2) that they maintain each transaction record as a separate electronic file identifiable and searchable by transaction and counterparty.
Proposed Sec. 23.202(a)(1) would require registrants to keep pre-
execution trade information. This would include records of all oral and written communications that lead to the execution of a swap, whether communicated by telephone, voicemail, facsimile, instant messaging, chat rooms, electronic mail, mobile device, or other digital or electronic media. This rule would require swap dealers and major swap participants to maintain recordings of telephone calls and other communications created in the normal course of its business, but would not establish an affirmative new requirement to create recordings of all telephone conversations if the complete audit trail requirement can be met through other means, such as electronic messaging or trading.
Significant technological advancements in recent years, particularly with respect to the cost of capturing and retaining copies of electronic material, including telephone communications, have made the prospect of establishing recordkeeping requirements for digital and electronic communications more economically feasible and systemically prudent. Evidence of these trends was examined in March 2008 by the United Kingdom's Financial Services Authority (``FSA''), which studied the issue of mandating the recording and retention of voice conversations and electronic communications.\9\ The FSA issued a Policy Statement detailing its findings and ultimately implemented rules relating to the recording and retention of such communications, including a recent determination that all financial service firms will be required to record any relevant communication by
employees on their work cell phones.\10\ Similar rules that mandate recording of certain voice and/or telephone conversations have been promulgated by the Hong Kong Securities and Futures Commission \11\ and by the Autorit[eacute] des March[eacute]s Financiers in France,\12\ and have been recommended by the International Organization of Securities Commissions (IOSCO).\13\
\9\ Financial Services Authority, ``Policy Statement: Telephone Recording: recording of voice conversations and electronic communications,'' (March 2008).
\10\ Julia Werdigier, ``Britain to Tape Traders' Cell Phones to Fight Fraud,'' New York Times (Nov. 12, 2010).
\11\ Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission para. 3.9 (2010) (H.K.).
\12\ General Regulation of the Autorit[eacute] des March[eacute]s Financiers art. 313-51 (2010) (Fr.).
\13\ Press Release, International Organization of Securities Commissions, ``IOSCO Publishes Recommendations to Enhance Commodity Futures Markets Oversight,'' (Mar. 5, 2009), http://www.iosco.org/
news/pdf/IOSCONEWS137.pdf. The IOSCO members on the committee formulating the recommendations included Brazil, Canada (Ontario and Quebec), Dubai, France, Germany, Hong Kong, Italy, Japan, Norway, Switzerland, the United Kingdom, and the United States.
On February 5, 2009, the Commission's Division of Market Oversight (DMO) issued an advisory, which made clear that the existing language of Sec. 1.35 of the Commission's regulations ``appl[ies] to records that are created or retained in an electronic format, including e-mail, instant messages, and other forms of communication created or transmitted electronically for all trading.'' \14\ The advisory, which specifically addresses the Commission's recordkeeping requirements as applicable to futures commission merchants, introducing brokers, and DCM members, states that ``[t]he Commission's recordkeeping regulations, by their terms, do not distinguish between whatever medium is used to record the information covered by the regulations, including e-mails, instant messages, and any other form of communication created or transmitted electronically.''
\14\ A copy of the advisory, titled ``Advisory for Futures Commission Merchants, Introducing Brokers, and Members of a Contract Market over Compliance with Recordkeeping Requirements,'' is available on the Commission's Web site at http://www.cftc.gov.
Accordingly, the Commission is proposing Sec. 23.202(a)(1), which would require swap dealers and major swap participants to maintain records of all communications provided or received concerning information that leads to the execution of a swap, whether conveyed by telephone, voicemail, facsimile, instant messaging, chat rooms, electronic mail, mobile device, or other digital or electronic media. As noted above, the proposed Sec. 23.202(a) would require that each recorded communication be maintained as a separate electronic file identifiable and searchable by transaction and counterparty.
The Commission solicits comments on the potential costs and effects of requiring that all pre-execution communications be recorded. Additionally, the Commission requests comment on whether it should require a record of the source of quotations, including the source of any input if the quotation is generated by a formula or model. Comments also are requested regarding whether the retention period for pre-
execution communications should be shorter than the retention period applicable to other business records.
Proposed Sec. 23.202(a)(2) would require the recording of execution information, including all terms of each swap and the date and time, to the nearest minute, that the swap was executed. Post-
execution data, such as records of all confirmations, reconciliations, and margining of swaps would be required under proposed Sec. 23.202(a)(3). The collateralization of risk exposure resulting from the business of the swap dealer or major swap participant would be recorded under Sec. 23.202(a)(4).
Proposed Sec. 23.202(b) would require that swap dealers and major swap participants retain information of cash or forward transactions that are related to swaps as required by section 4s(g)(1). Proposed Sec. 23.200 defines a related cash or forward transaction as ``a purchase or sale for immediate or deferred physical shipment or delivery of an asset related to a swap where the swap and the related cash or forward transaction are used to hedge, mitigate the risk of, or offset one another.'' The recordkeeping requirements for related cash and forward transactions generally track the same requirements as swaps. The Commission believes that requiring one approach to recordkeeping will be simpler for swap dealers and major swap participants to implement and will provide the Commission with information necessary for its regulatory oversight.
The Commission requests comment on all aspects of proposed Sec. 23.202. With respect to records regarding related cash and forward transactions, the Commission solicits comment upon whether the Commission has provided sufficient clarity concerning what type of information would be required to be retained. The Commission also requests comment on whether it should require swap dealers and major swap participants to keep records related to high frequency trading, and what the nature of those records should be.
Proposed Sec. 23.203 prescribes the form and manner in which records shall be retained, and prescribes the period of time for which maintenance of records is required. Generally speaking, Sec. 23.203 corresponds to the recordkeeping requirements of Sec. 1.31 insofar as records are required to be kept for a period of at least 5 years, and shall be readily accessible for the first two years of that period.
Proposed Sec. 23.203(a) would require that records be kept at the principal place of business of the swap dealer or major swap participant. If the principal place of business is outside of the United States, then the swap dealer or major swap participant must provide the requested records at a place designated by a representative of the Commission within 72 hours of receiving the request.
Proposed Sec. 23.203(b) would require that all records be maintained in accordance with Sec. 1.31 of the Commission's regulations, except that records of, or related to, each swap transaction be retained until the termination, maturity, expiration, transfer, assignment, or novation of the swap, and for five years after such time. In other words, the swap dealer or major swap participant must maintain records for the life of the swap or the period in which the entity holds the position on its books (whichever is shorter), plus five additional years. Additionally, records of any swap data must be maintained in accordance with requirements under part 45, which was recently proposed by the Commission.\15\
\15\ The proposed rules under part 45 are available on the Commission's Web site at http://www.cftc.gov.
Proposed Sec. 23.204 implements the reporting requirements of Commission rules to be prescribed under CEA section 4r(a) related to reporting of swaps to a swap data repository. Proposed Sec. 23.205 implements the reporting requirements of Commission rules to be prescribed under CEA section 2(a)(13) related to real-time public reporting of swap transactions and pricing data.\16\ Each of the reports required under the proposed rules would assist the Commission to monitor the swap markets and the operations of swap dealers and major swap participants and to enforce their compliance with the Commission's rules.
\16\ In a recent release of proposed Part 43 and pursuant to CEA section 2(a)(13)(A), reporting parties, for the purposes of real-
time public reporting, will be obligated to report certain data fields relating to swaps ``as soon as technologically practicable'' following the execution of a swap.
The Regulatory Flexibility Act (RFA) \17\ requires that agencies consider whether the rules they propose will have a significant economic impact on a substantial number of small entities. The Commission previously has established certain definitions of ``small entities'' to be used in evaluating the impact of its regulations on small entities in accordance with the RFA.\18\ The proposed rules would affect swap dealers and major swap participants.
\18\ 47 FR 18618, Apr. 30, 1982.
Swap dealers and major swap participants are new categories of registrants. Accordingly, the Commission has not previously addressed the question of whether such persons are, in fact, small entities for purposes of the RFA. The Commission previously has determined, however, that futures commission merchants are not small entities for purposes of the RFA.\19\ The Commission's determination was based, in part, upon the obligation of futures commission merchants to meet the minimum financial requirements established by the Commission to enhance the protection of customers' segregated funds and protect the financial condition of futures commission merchants generally.\20\ Like futures commission merchants, swap dealers will be subject to minimum capital and margin requirements and are expected to comprise the largest global financial firms. In addition, the Commission is required to exempt from swap dealer designation any entities that engage in a de minimis level of swaps dealing in connection with transactions with or on behalf of customers. The Commission anticipates that this exemption would exclude small entities from registration. For essentially the same reasons that futures commission merchants have previously been determined not to be small entities and in light of the exemption from the definition of swap dealer for those engaging in a de minimus level of swap dealing, the Commission is hereby proposing that swap dealers not be considered ``small entities'' for purposes of the RFA for this rulemaking.
\19\ Id. at 18619.
The Commission also has determined previously that large traders are not ``small entities'' for RFA purposes.\21\ In that determination, the Commission considered that a large trading position was indicative of the size of the business. Major swap participants, by statutory definition, maintain substantial positions in swaps or maintain outstanding swap positions that create substantial counterparty exposure that could have serious adverse effects on the financial stability of the United States banking system or financial markets. Accordingly, for purposes of the RFA for this rulemaking, the Commission is hereby proposing that major swap participants not be considered ``small entities'' for essentially the same reasons that large traders have previously been determined not to be small entities.
\21\ Id. at 18620.
The Paperwork Reduction Act (PRA) \22\ imposes certain requirements on Federal agencies (including the Commission) in connection with their conducting or sponsoring any collection of information as defined by the PRA. This proposed rulemaking would result in new collection of information requirements within the meaning of the PRA. The Commission therefore is submitting this proposal to the Office of Management and Budget (OMB) for review in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The title for this collection of information is ``Reporting, Recordkeeping, and Daily Trading Records Requirements for Swap Dealers and Major Swap Participants.'' An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. The OMB has not yet assigned this collection a control number.
\22\ 44 U.S.C. 3501 et seq.
If the proposed regulations are adopted, responses to this collection of information would be mandatory. The Commission will protect proprietary information according to the Freedom of Information Act and 17 CFR part 145, ``Commission Records and Information.'' In addition, section 8(a)(1) of the CEA strictly prohibits the Commission, unless specifically authorized by the CEA, from making public ``data and information that would separately disclose the business transactions or market positions of any person and
trade secrets or names of customers.'' The Commission is also required to protect certain information contained in a government system of records according to the Privacy Act of 1974, 5 U.S.C. 552a.
Swap dealers and major swap participants would be required to comply with the recordkeeping requirements of Sec. Sec. 23.201, 23.202, and 23.203 and the reporting requirements of Sec. Sec. 23.204 and 23.205. The proposed regulations generally would require swap dealers and major swap participants to keep transaction and position records of their swaps (including daily trading records of swaps and related cash and forward transactions); to maintain specified business records (including records related to the swap dealer's or major swap participant's governance, financial status, and complaints); to report certain swap transaction data to swap data repositories; to satisfy certain real time public reporting requirements; and to maintain records of information reported to swap data repositories and for real time public reporting purposes.
The annual burden associated with these proposed regulations is estimated to be 2,096 hours, at an annual cost of $209,600 for each swap dealer and major swap participant. Burden means the total time, effort, or financial resources expended by persons to generate, maintain, retain, disclose, or provide information to or for a federal agency. This hourly burden primarily results from the recordkeeping obligations that would be imposed by proposed Sec. Sec. 23.201 and 23.202.
Specifically, the Commission anticipates that swap dealers and major swap participants will spend approximately eight hours per trading day (2,016 hours per year) compiling and maintaining transaction records, including daily trading records. The Commission believes that swap dealers and major swap participants already maintain the vast majority of the required transaction records (particularly execution and post-execution records) as part of their customary and usual business practices and that any additional expenditure generally would be limited to the costs associated with developing and preserving certain pre-execution data and communications set forth in proposed Sec. 23.202, which currently may not be kept by affected registrants (for example, records of oral and written communications and records related to quotes, bids, and offers) as well as the time required to input any unique transaction terms into electronic recordkeeping systems. The Commission believes that registrants will expend an additional 63 hours per year compiling daily records of their positions, identified by product and counterparty, as required by proposed Sec. 23.201.
Finally, the Commission does not anticipate that the requirements to report swap transactions to swap data repositories in accordance with proposed Sec. 23.204, to engage in real time public reporting of swap transaction and pricing data in accordance with proposed Sec. 23.205, and to maintain the electronic systems and procedures necessary to report transactions and data in the manner required by the regulations would result in any additional hourly burdens or costs to swap dealers and major swap participants other than those set forth in the recently proposed part 45 regulations for swap data recordkeeping and reporting \23\ and in the recently proposed part 43 regulations governing real-time public reporting of swap transaction data \24\ promulgated as part of the Commission's implementation of the Dodd-
\23\ The proposed rules are available on the Commission's Web site at http://www.cftc.gov. The Commission has estimated the average hour burden incurred by swap dealers and major swap participants in connection with reporting to swap data repositories to be 2,080 hours. This estimate was based upon the assumption that a significant number of swap dealers and major swap participants would dedicate the equivalent of at least one full time employee to ensuring compliance with the relevant reporting obligations (2,080 hours = 52 weeks x 5 days x 8 hours). The Commission noted that it believed this assumption to be reasonable due to the volume of swap transactions to be processed by such entities, the information required by proposed regulations and the frequency with which reports would be made. The Commission also estimated the cost of the obligation to report a unique swap identifier to other registered entities and swap participants to be 6 annual burden hours per entity and the estimated cost of reporting their ownership and affiliation information into a confidential database to be 2 hours per entity.
\24\ The Commission has estimated that swap dealers and major swap participants will incur 2,080 annual burden hours in connection with the real-time reporting requirements.
According to recent Bureau of Labor Statistics, the mean hourly wage of an
employee under occupation code 11-3031, ``Financial Managers,'' (which includes operations managers) that is employed by the ``Securities and Commodity Contracts Intermediation and Brokerage'' industry is $74.41.\25\ Because swap dealers and major swap participants include large financial institutions whose operations management employees' salaries may exceed the mean wage, the Commission has estimated the cost burden of these proposed regulations based upon an average salary of $100 per hour.
\25\ http://www.bls.gov/oes/current/oes113031.htm.
Estimated aggregate number of responses: 75,600 [300 registrants x 252 trading days].
Estimated annual burden per registrant: 2,016 hours [252 trading days x 8 hours per trading day].
Estimated aggregate annual hour burden: 604,800 hours [300 registrants x 252 trading days x 8 hours per trading day].
Estimated annual burden per registrant: 63 hours [252 trading days x .25 hours per record].
Estimated aggregate annual hour burden: 18,900 hours [300 registrants x 252 trading days x .25 hours per record].
Estimated aggregate number of responses: 1,500 [300 registrants x 5 complaints per registrant].
Estimated aggregate annual hour burden: 1,500 [300 registrants x 5 complaints per registrant].
Estimated aggregate number of responses: 3,600 [300 registrants x 12 monthly compilations].
Estimated annual burden per registrant: 12 hours [1 hour x 12 months].
Estimated aggregated annual hour burden: 3,600 [300 registrants x 12 monthly compilations].
Based upon the above, the aggregate hour burden cost for all registrants is 628,800 burden hours and $62,880,000 [628,800 x $100 per hour].
According to recent Bureau of Labor Statistics, the mean hourly wages of computer programmers under occupation code 15-1021 and computer software engineers under program codes 15-1031 and 1032 are between $34.10 and $44.94.\26\ Because swap dealers and major swap participants generally will be large entities that may engage employees with wages above the mean, the Commission has conservatively chosen to use a mean hourly programming wage of $60 per hour. Accordingly, the start-up burden associated with the required technological improvements would be $9,600 [$60 x 160 hours] per affected registrant or $2,880,000 in the aggregate.
\26\ http://www.bls.gov/oes/current/oes113031.htm.
The Commission invites the public and other federal agencies to comment on any aspect of the recordkeeping burdens discussed above. The Commission specifically request comment upon its determination that certain of the proposed recordkeeping requirements would not impose any additional information collection burdens upon affected registrants and the appropriateness of the burden hours attributed to other recordkeeping obligations.\27\ Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits comments in order to: (i) Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information will have practical utility; (ii) evaluate the accuracy of the Commission's estimate of the burden of the proposed collection of information; (iii) determine whether there are ways to enhance the quality, utility, and clarity of the information to be collected; and (iv) minimize the burden of the collection of information on those who are to respond, including through the use of automated collection techniques or other forms of information technology.
\27\ The Commission notes that, because it has not regulated swap dealers, swap market participants, or the swaps market in the past, it has not previously collected data on the number of particular swap market participants or the average number of daily transactions in which particular types of swaps market participants engage.
Section 15(a) of the CEA \28\ requires the Commission to consider the costs and benefits of its actions before issuing a rulemaking under the CEA. By its terms, section 15(a) does not require the Commission to quantify the costs and benefits of a new regulation or to determine whether the benefits of the rule outweigh its costs; rather, it requires that the Commission ``consider'' the costs and benefits of its actions.
Costs. With respect to costs, the Commission has determined that for swap dealers and major swap participants, costs to institute recordkeeping and reporting systems and personnel in order to satisfy the new regulatory requirements are far outweighed by the benefits to the financial system as a whole. As described above, it is expected that the any additional cost imposed by the recordkeeping requirements of proposed regulations 23.201, 23.202, and 23.203 \29\ would be minimal because the information and data required to be recorded is information and data a prudent swap dealer or major swap participant would already maintain during the ordinary course of its business. Moreover, most swap dealers and major swap participants have adequate, existing resources and recordkeeping structures that are capable of adjusting to the new regulatory framework without material diversion of resources away from commercial operations.
\29\ As discussed previously, the cost burdens associated with the reporting requirements contained in proposed regulation 23.204 and 23.205 are addressed in separately proposed rulemakings.
2. Subpart F, (consisting of Sec. Sec. 23.200, 23.201, 23.202, 23.203, 23.204 and 23.205) is added to read as follows:
Subpart F--Reporting, Recordkeeping, and Daily Trading Records Requirements for Swap Dealers and Major Swap Participants
23.200 Definitions.
23.201 Required records.
23.202 Daily trading records.
23.203 Records; retention and inspection.
23.204 Reporting to swap data repositories.
23.205 Real-time public reporting.
Sec. 23.200 Definitions.
(d) Counterparty means any party to a derivative. When referring to a derivative between a swap dealer or major swap participant and any other person, ``counterparty'' means such other person.
(f) Execution means, with respect to a swap, an agreement by the parties (whether orally, in writing,
electronically, or otherwise) to the terms of a swap that legally binds the parties to such swap terms under applicable law.
(5) Any other person, the body or person with ultimate decision-
making authority over the activities of such person.
Sec. 23.201 Required records.
(ii) The daily trading records required to be kept in accordance with Sec. 23.202.
(2) Position records. Records of each position held by each swap dealer and major swap participant, identified by product and counterparty, including records reflecting whether each position is ``long'' or ``short'' and whether the position is cleared. Position records shall be linked to transaction records in a manner that permits identification of the transactions that established the position.
(1) Each swap dealer and major swap participant shall identify, retain, and produce for inspection all information and data required to be reported in
accordance with part 43 of this chapter, along with a record of the date and time the swap dealer or major swap participant made the report.
Sec. 23.202 Daily trading records.
(iii) The unique swap identifier, as required by Sec. 45.4(a) of this chapter, for each swap;
(v) The name of the counterparty with which each such swap was executed, including its unique counterparty identifier, as required by Sec. 45.4(b) of this chapter;
(vii) The product name of each swap, including its unique product identifier, as required by Sec. 45.4(c) of this chapter;
(b) Daily trading records for related cash and forward transactions. Each swap dealer and major swap participant shall make and keep daily trading
records of all related cash or forward transactions it executes, including all documents on which the related cash or forward transaction information is originally recorded. Each swap dealer and major swap participant shall ensure that its records include all information necessary to conduct a comprehensive and accurate trade reconstruction for each related cash or forward transaction. Each swap dealer and major swap participant shall maintain each transaction record as a separate electronic file identifiable and searchable by transaction and by counterparty. Such records shall include, but are not limited to:
(b) Record retention. (1) The records required to be maintained by this chapter shall be maintained in accordance with the provisions of Sec. 1.31, except as provided in paragraphs (b)(2) and (3) of this section. All records required to be kept by the Act and by Commission regulations shall be kept for a period of five years from the date the record was made and shall be readily accessible during the first two (2) years of the five-year period. All such records shall be open to inspection by any representative of the Commission, the United States Department of Justice, or any applicable prudential regulator. Records relating to swaps defined in section 1a(47)(A)(v) shall be open to inspection by any representative of the Commission, the United States Department of Justice, the Securities and Exchange Commission, or any applicable prudential regulator.
(3) Records of any swap data reported in accordance with part 45 of this chapter shall be maintained in accordance with the requirements of Sec. 45.2 of this chapter.
Sec. 23.204 Reports to swap data repositories.
Sec. 23.205 Real-time public reporting.
Appendices to Reporting, Recordkeeping, and Daily Trading Records Requirements for Swap Dealers and Major Swap Participants--Commission Voting Summary and Statements of Commissioners
I support the proposed rule regarding reporting, recordkeeping and daily trading records for swap dealers and major swap participants. The rule establishes the records to be maintained by swap dealers and major swap participants and the required reporting by such entities. This proposal will help increase transparency and promote market integrity. The proposed rules are consistent with the Congressional requirement that swap dealers and major swap participants
comply with rigorous recordkeeping and real-time reporting regimes.