US Trade Reporting Simplified
Derivatives trade reporting in the United States commenced in 2013 after the introduction of Dodd Frank in 2010. The intent of the legislation was to restore public confidence and reduce risks in the derivatives markets.
The US is a trade reporting regime that is single-sided, which means only one counterparty to a transaction performs the trade reporting for both counterparties.
There are two regimes/regulators that may apply, both of which aim to monitor for systemic risk:
CFTC
Has jurisdiction over swaps/OTC Derivatives)
SEC
Has jurisdiction over security-based swaps (SBS):
- SEC 10c-1a; or
- SEC SBS – the SBSR Regulation
The SEC have joint jurisdiction over mixed swaps i.e. any derivative which is a swap, as well as an SBS.
Determining which regime trades are reportable under is a complex task.
CFTC
What is the CFTC?
CFTC stands for the U.S. Commodity Futures Trading Commission. CFTC reporting commenced in 2013 with a substantial revision of the CFTC Rules commencing on 5 December 2022 (otherwise known as CFTC Rewrite). The CFTC regulates swaps and swaps dealers.
What is the reporting obligation under the CFTC Rules?
This is the US equivalent to the EMIR regime which requires OTC transactions to be reported to trade repositories under a single-sided reporting regime.
Who is required to report?
There is a hierarchy of counterparties which determines who the reporting counterparty is for off-facility swaps. The parties to the trade would report to the appropriate registered swap data repository (SDR) for public dissemination as follows:
- Where only one party is a swap dealer (SD) or major swap participant (MSP), then the SD or MSP is to do the reporting;
- Where one party is a SD and the other is an MSP, the SD is to do the reporting; and
- In all other scenarios, the parties can designate who should do the reporting.
In cases where swaps are not executed off-facility but are executed on a swap execution facility (SEF) or designated contract market (DCM), reporting is satisfied by the parties if they execute the transaction on or pursuant to the rules of the relevant SEF or DCM i.e. to be ‘as soon as technologically practicable.’
What to report and to whom?
Swaps that are interest rate, credit, equity, FX forwards and commodity derivatives are required to be reported under Dodd-Frank. These swaps are to be reported to the CFTC via an SDR.
Among other criteria, the definition of a ‘Swap’ excludes:
- notes, bonds and other debt securities, and
- options on a single security or group or index of securities.
The reporting essentially needs to include the primary economic terms and any event impacting the contract terms or valuations – the intent is to allow for the monitoring of any systemic risk.
What does Real Time reporting mean under the CFTC regime?
In-scope OTC transactions are reportable ‘as soon as technologically practicable’ after the transaction is executed and according to industry standard, this is usually 15 minutes after execution. Execution occurs immediately after or simultaneously with an affirmation of a swap transaction and ultimately, is the formation of a legal agreement between parties to a swap trade, whether in oral, written or electronic form. ‘Affirmation’ is when the parties to a swap transaction verify (orally, in writing or electronically) their agreement on the primary economic terms of the contract, but does not have to be in relation to all terms.
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SEC
What is the SEC?
The U.S. Securities and Exchange Commission (SEC) is an independent agency of the US Federal government which was created after the Wall Street crash of 1929. The purpose of the SEC is to govern all aspects of the securities industry and enforce laws against market manipulation. The SEC ultimately regulates security-based swaps (SBS) and security-based swap dealers (SBSD).
SEC SBS
What is the reporting obligation?
The SEC swap transaction reporting regime (SEC Part 45) came into effect on 8 November 2021 under which reportable trades are to be reported to a Security Based Swap Data Repository (SBSDR). The real-time reporting regime (SEC Part 43) came into effect on 14 February 2022.
Their purposes are as follows:
- SEC Part 45 – to provide the financial markets with transparency on pricing.
- SEC Part 43’s – to allow for the regulatory monitoring of any systemic risk.
The SEC oversees the reporting of OTC derivative swaps related to ‘single name’ Credit and Equity securities under the Security Based Swap Reporting (SBSR) portion of the Dodd Frank legislation i.e. the SBSR Regulation.
Who is required to report?
All firms trading SBS which are ‘US Persons’ (including their foreign branches, if any) and ‘Guaranteed Non-US Persons’ are to report in relation to both Part 43 and Part 45. Registered Foreign Dealers (RDFs) or Major Participants (MPs) have to do reporting under Part 45 also but the requirement slightly differs in relation to Part 43. RFPs or MPs only report in relation to Part 43 to the extent their security-based swaps are either:
- with a U.S. person or guaranteed non-U.S. person; or
- cleared by a clearing agency with a principal place of business in the US.
*US persons are U.S. citizens or aliens with a permanent residence in the U.S., and any corporation, partnership, or other organization organized under U.S. law.
*Guaranteed Non-US persons are persons who non-U.S. persons but receives a guarantee from a U.S. person on its performance on security-based swaps.
What has to be reported and to whom?
All details of the swap have to be reported to the SEC through a SBSDR and such details are to include:
- the reporting real-time public price dissemination (PPD) data – as required under SEC Part 43; and
- reporting full transaction data for all outstanding SBS trades – as required under SEC Part 45.
When does the reporting have to be done by?
Rule 901(j) of Regulation SBSR provides that the timeframe for reporting the requisite information is 24 hours after the time of execution of the SBS.
However, note that the SEC issued a No-Action Statement with respect to the relevant regulations providing that if registered SDRs and their participants follow the CFTC’s protocols on swap reporting and public dissemination in relation to their SBS reporting, the SEC will have no basis to undertake enforcement action with respect to Parts 45 and 43, which differ from the CFTC requirements.
SEC 10c-1a
What is the reporting obligation?
The SEC 10c-1a regime’s final rules came into effect on 2 January 2024 but has several phases of compliance. It requires certain parties and transactions (i.e. ‘covered persons’ and ‘covered securities loans’ (described below)) to be compliant on 2 January 2026. For more detailed information in relation to SEC 10c-1a, please see our article here.
This is the US equivalent to the European SFTR regime which requires securities financing transactions to be reported to trade repositories with the aim of increasing transparency and efficiency for the securities lending sector.
Who is required to report?
The reporting obligation applies to ‘covered persons’ that have entered into ‘covered securities loans’. Covered persons are either brokers or dealers that have borrowed margin securities or someone that has entered into a covered securities loan (i.e. transactions where a reportable security, subject to the below Reporting Frameworks, are loaned out to someone).
Reporting Frameworks:
- Consolidated Audit Trail (CAT);
- Trade Reporting and Compliance Engine (TRACE); or
- Municipal Securities Rulemaking Board Real Time Reporting System (MSRB RTRS).
What has to be reported and to whom?
The below terms from the ‘covered securities loans’ have to be reported to FINRA:
Security issuer’s legal name and borrower type classification;
Loan effective and termination dates;
Platform or venue name;
Amount of the securities lent out and collateral details;
Details on rates, fees, charges and any rebates;
Legal names of parties to transaction*; and
For broker dealer lenders, information on whether the security is lent from their own capital (this won’t be made public).
When does the reporting have to be done by?
Submissions to FINRA are required by end of day.
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