The CFTC and SEC Publish Interim Final Rules for Reporting Pre-Enactment Swaps

October 29, 2010


Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act1 (“Dodd-Frank Act”) provides a detailed framework for regulation of derivatives products, markets and participants. But it is by no means self-operating; the daunting task of making the regulatory scheme, and the markets, work is left to rulemaking by the Commodity Futures Trading Commission (“CFTC”) and the Securities and Exchange Commission (“SEC”).

The two agencies have been busy and productive in the early stages of their efforts to turn Title VII into a set of rules that implements the new framework for the derivatives markets. Thus far, the CFTC has issued seven rule proposals under Title VII, and the SEC has issued parallel rule proposals for two of them.2 In addition, on October 26, 2010, the CFTC voted to publish six additional derivatives rule proposals for comment.3

Recently, the CFTC and SEC each adopted interim final rules (together, the “Interim Final Rules”) for reporting of all unexpired pre-enactment swaps and unexpired pre-enactment security-based swaps, respectively.4 The Interim Final Rules are notable in two respects. First, they require some action (or inaction, more precisely) to be taken by swap counterparties. Second, they recognize an inconsistency in the statute relating to reporting of pre-enactment swaps, and resolve it. The latter point is particularly important to those of us who struggled to determine how the timing of the pre-enactment swap reporting requirement would operate.


Below we outline the provisions of the Interim Final Rules and their practical effect on OTC derivatives market participants. For ease of reference, and because the rules are substantially similar, reference will be made to the CFTC’s rule, unless otherwise noted. References to the “Commission” are to either or both the CFTC and the SEC, as the context indicates.

The Interim Final Rules Generally

The Interim Final Rules have three basic requirements that impose both present and future obligations on swap counterparties:

  • A counterparty to a pre-enactment unexpired swap transaction will be required to report all swap transactions to either a registered swap data repository or the Commission (although swap dealers will bear most of the reporting burden, as discussed below);
  • Upon request from the Commission, a counterparty will be required to report any information requested about any pre-enactment unexpired swap transaction, in a form and manner prescribed by the Commission; and
  • A counterparty to a pre-enactment unexpired swap transaction should retain all information and documents, in their existing format, relating to the terms of the swap transaction. This is a present obligation for all counterparties to a swap that was entered into before July 21, 2010 and that remained unexpired as of that date.

The notes to the Interim Final Rules provide examples of the types of information to be retained, including:

  • Any information necessary to identify and value the transaction;
  • The date and time of execution of the transaction;
  • Information relevant to the price of the transaction;
  • Whether the transaction was accepted for clearing and, if so, the identity of such clearing organization;
  • Any modifications to the terms of the transaction; and
  • The final confirmation of the transaction.

Both the CFTC and SEC have emphasized that information and documents relating to pre-enactment unexpired swaps be preserved in their existing format. The CFTC and SEC have indicated that they believe recordkeeping costs should be low, since no modification to existing information is required.

The CFTC and SEC have solicited public comments to assist in the final rulemakings on this subject.5 Permanent reporting rules for pre-enactment swaps are required to be adopted no later than January 12, 2012.6 

Who/What is Subject to the Interim Final Rules?

The Interim Final Rules apply to any counterparty to a pre-enactment unexpired swap. A pre-enactment unexpired swap is defined in the CFTC’s interim final rule as: “any swap entered into prior to the enactment of the Dodd-Frank Act of 2010 (July 21, 2010) the terms of which had not expired as of the date of enactment of that Act”.
Only one counterparty to a pre-enactment unexpired swap is expected to report. The Interim Final Rules incorporate the Dodd-Frank Act’s order of reporting obligations among different types of counterparties. As between a swap dealer or major swap participant and any other party, the swap dealer or major swap participant will be required to report the transaction. If the transaction is between a swap dealer and a major swap participant, the swap dealer will be required to report. If neither party is a swap dealer or a major swap participant, the parties will select who reports. To the extent the parties have equal status (i.e., both are swap dealers, major swap participants or unregistered entities), they must select which party will report the transaction. Until terms such as “swap”, “swap dealer” and “major swap participant” are further defined by rulemaking, the actual effect and scope of the Interim Final Rules will remain uncertain. It is advisable that any counterparty to a pre-enactment unexpired swap retain all records related to such swap.7 

Scope of the Reporting Requirement

If the Interim Final Rules are adopted as final rules, the information required to be reported to a swap data repository or the Commission for each swap transaction will be a copy of the transaction confirmation, in electronic form if available, or in written form if there is no electronic copy, and the time, if available, that the transaction was executed.

Furthermore, the Commission reserves the right to request data in another form or manner. For example, the Commission may request non-transaction specific summary data from swap dealers, such as a description of counterparties, the total number of pre-enactment swaps entered into and the frequency and duration of pre-enactment swaps entered into.

The Interim Final Rules specifically address reporting and recordkeeping requirements for pre-enactment unexpired swaps and security-based swaps only. The Commission has not yet issued parallel interim rules for reporting and recordkeeping for post-enactment swaps. Under the Dodd-Frank Act, reporting rules for post-enactment swaps are required to be adopted by July 16, 2011, 360 days after enactment. Such rules will most likely apply only to counterparties of uncleared swaps. The SEC implies in its interpretive note to its interim final rule that the record retention requirement in its interim final rule may apply to post enactment security-based swaps as well.

When Will the Reporting Requirement Take Effect?

The Interim Final Rules are already in effect. They will remain in effect for pre-enactment swaps and security-based swaps until the earlier of the effective date of “final” recordkeeping and reporting rules for such swaps or January 12, 2012. A counterparty to a pre-enactment unexpired swap transaction must report the transaction to a registered swap data repository or the Commission by the earlier of the date established in the final reporting rules and 60 days after a swap data repository becomes registered and operational. We note that no swap data repositories have yet registered and that neither Commission is currently prepared to receive swap data.


Swap counterparties should adopt and implement procedures for the retention of swap transaction and summary data in order to comply with the requirements of the Interim Final Rules. Market participants should expect to retain such data until a final rule is issued or submission to a registered swap data repository or the Commission is made possible. Of course, regulated entities may have independent duties to retain that data even after that time.

The reporting requirements are a critical step in achieving one of the core legislative and regulatory objectives under Title VII: bringing transparency to the derivatives markets. Both the CFTC and SEC believe that the enhanced market knowledge achieved through pre-enactment swap reporting will lead to more informed rulemakings going forward. With rulemakings under Title VII in full swing, Bingham lawyers will continue to monitor and communicate future developments for our clients.

1 Public Law 111-203, 124 Stat. 1376 (2010).
2 Rule proposals thus far include, among others, Advance Notices of Proposed Rule Making for definitions contained in Title VII and Notices of Proposed Rule Making for financial resources requirements for derivatives clearing organizations (“DCOs”) and requirements for registered entities regarding the mitigation of conflicts of interests.
3 The additional rule proposals include, among others, DCO eligibility for accepting swaps for clearing, regulations on disruptive trading practices and market manipulation and statutory provisions for registered entities.
4 The effective date for new CFTC Part 44 was October 14, 2010 and the effective date for new SEC Rule 13Aa-2T was October 20, 2010.
5 The CFTC requires public comments regarding its Interim Final Rule by November 15, 2010 and the SEC requires public comments on or before December 19, 2010.
6 Section 723 of the Dodd-Frank Act (new Section 2(h)(5) of the Commodity Exchange Act) requires that pre-enactment swaps be reported to a registered swap data repository or the CFTC or SEC no later than 180 days after the effective date of that subsection, approximately 540 days from the date of enactment of the Dodd-Frank Act.
7 In a public meeting held on October 1, 2010, the CFTC staff indicated that it will endeavor to provide individual guidance to swap counterparties who contact them with questions relating to its interim final rule.

This article was originally published by Bingham McCutchen LLP.