Securities Regulation Daily CFTC streamlines requirements for swaps portfolio reconciliation
Monday, May 2, 2016

CFTC streamlines requirements for swaps portfolio reconciliation

By Lene Powell, J.D.

The CFTC has approved a final rule amendment to streamline reconciliation requirements for swap portfolios. Regulation 23.500(i) was amended to provide that swap dealers (SDs) and major swap participants (MSPs) only need to exchange the “material terms” of swaps with their counterparties, for which discrepancies must be reconciled. Previously, parties had to exchange many swap data elements, only some of which were required to be validated. The definition of “material terms” in Regulation 23.500(g) was also amended. The amendments will become effective when published in the Federal Register.

CFTC Commissioner J. Christopher Giancarlo said he was pleased to support the amendments, which he said will reduce costs for market participants without undermining the Commission’s objectives for portfolio reconciliation.

2015 proposal. Currently, SDs and MSPs are required by CFTC Regulation 23.502 to reconcile their swap portfolios with one another and give non-SD and non-MSP counterparties regular opportunities for portfolio reconciliation. Parties must exchange terms and valuations for each swap, then compare and validate “material” terms.

With the aim of reducing the burden of resolving discrepancies not relevant to an ongoing swap without impairing the CFTC’s regulatory mission, the CFTC proposed in September 2015 to amend the rule to exclude nine specific data fields. All commenters on the proposal urged the Commission to further reduce the scope of terms required to be reconciled.

“Material terms.” The amendment streamlines the definition of “portfolio reconciliation” in Regulation 23.500(i)(1) by adding “material” to the terms that must be exchanged by parties to a swap. As amended, “portfolio reconciliation” is defined as a process by which the two parties to one or more swaps exchange the material terms of all swaps in the swap portfolio between the counterparties.

In addition, the definition of “material terms” in Regulation 23.500(g) was amended to mean the minimum primary economic terms of a swap, as defined in Appendix 1 of Part 45, except for 24 specific data fields (“Excluded Data Fields”). The 24 data fields are excluded only for the purposes of portfolio reconciliation, not for swap reporting or recordkeeping.

MainStory: TopStory Derivatives Swaps

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