ISDA Chief Executive Officer Scott O'Malia offers informal comments on important OTC derivatives issues in derivatiViews, reflecting ISDA's long-held commitment to making the market safer and more efficient.

This week’s decision by the Commodity Futures Trading Commission (CFTC) to delay implementation of certain amendments to its swap data reporting rules until December 5 is a significant and welcome development, and will give market participants vital breathing space to make the necessary changes to their systems. It is important to remind everyone that this is the first step in what could be a multi-phase revision process, with firms required to make further updates in 2023. Given the planning and resourcing required for implementation, we would urge the CFTC to clearly spell out how and when these extra changes will be made – transparency we think will be essential in guiding firms in their compliance efforts.

The CFTC’s current round of amendments significantly reduces the overall number of swap data elements required to be reported and achieves greater consistency with international standards. However, final technical requirements were only published on September 30, 2021, giving little time for swap data repositories to develop their final message specifications and firms to review, design and build their swap reporting systems to incorporate those specifications. That is why this delay is important – giving participants until December 5, 2022 to introduce the revised elements of the CFTC’s Part 43, 45, 46 and 49 reporting rules, and until December 4, 2023 to comply with so-called block-and-cap amendments, will help ensure the changes are fully implemented.

The implementation work is significant, and ISDA is currently developing a mutualized solution that will help industry participants meet the new deadline. As part of our digital regulatory reporting initiative, ISDA is modelling the amended CFTC rules into human-readable, machine-executable open-source code using ISDA’s Common Domain Model. This will eliminate inconsistencies in how the rules are interpreted and applied across the industry, and avoid the need for each firm to individually build reporting logic from scratch, creating greater efficiency in implementation efforts and reducing costs.

But while the CFTC’s current amendments are designed to enhance transparency and improve the quality of what is reported, it is also critical to have full transparency into the implementation process. Having redesigned their swap reporting systems to comply with the new rules, firms face having to make other significant changes just round the corner, essentially making the CFTC rule revisions into a two- or three-step process.

The additional changes will incorporate a new global unique product identifier (UPI) into the CFTC rules, along with the ISO 20022 messaging schema – developments the CFTC expects to be available for implementation no later than the end of 2023. Both changes will likely result in further overhauls to reporting systems, with the logic developed to implement the current amendments having to be discarded and replaced.

All these changes would ideally occur at once, reducing the burden on firms to a minimum and avoiding unnecessary implementation costs. At the very least, we think it’s important for firms to have a very clear picture of what these additional amendments will involve and when they will be required in order to help with their implementation planning.

We all want greater transparency in swap data reporting, better data quality and alignment with global standards, and the CFTC amendments take a big step towards achieving that. But it’s also important to have full regulatory transparency too – which is why we’re asking the CFTC to provide specific details and timelines for application of the UPI and ISO 20022 standards into CFTC rules via a clear, transparent implementation roadmap.

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