SWAPS—CFTC designates unique product identifier and classification system for swap recordkeeping, data reporting - 17 February 2023

Advances in swap data reporting will increase regulatory insight into market activity, necessary to promote market integrity, says Commissioner Romero.

The CFTC issued an order on Thursday that will require registered entities and swap counterparties to use unique product identifiers (UPIs) issued by the Derivatives Service Bureau Limited for all swaps in credit, equity, foreign exchange and interest rate asset classes. The Commission set a compliance date of January 29, 2024 for the order.

The Derivatives Service Bureau-issued UPIs meet the Commission’s UPI and product classification system requirements, the CFTC said. In addition, the agency said its designation of the UPIs issued by DSB will further international harmonization as other jurisdictions also begin to require the use of the UPIs in swaps reporting and recordkeeping.

“As swap markets are global markets, global harmonization enhances the use of swap data for regulators, market participants and the public,” said CFTC Commissioner Christy Goldsmith Romero. “The CFTC has been collaborating with global regulators on uniform standards for defining and representing swap products.”

Identification enables aggregation. In its order, the CFTC said the identification of swaps by the UPI code issued by DSB will allow the Commission and other regulators to aggregate swap transaction data at various levels of product classification. The use of the UPIs also will enhance transparency and facilitate the oversight of swaps markets, the Commission said.

For example, reporting by UPI code to all four swap data repositories (SDRs) registered with the Commission would enable the CFTC to not only aggregate transactions across the SDRs, but also to aggregate by any reference data element contained in the Reference Data Library. All interest rate swap transactions with the same unique product identifier will be able to be aggregated, as well as all interest rate swap transactions referencing the same underlying interest rate index.

The DSB’s function. The CFTC’s move follows action taken in April 2019 by the international Financial Stability Board when it designated the DSB as both the service provider for a future UPI system assigned to OTC derivatives products and the operator of the UPI reference data library.

Combined with other standardized identifiers already used in swaps recordkeeping and reporting, such as legal entity identifiers, unique product identifier codes issued by DSB will provide a regulatory tool to facilitate the Commission’s ability to link and aggregate data to detect and mitigate systemic risk and prevent market manipulation, as first directed by the Dodd-Frank Act.

Continuing in the footsteps of Dodd-Frank. Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act amended the CEA to include a regulatory framework for swaps. Those amendments added provisions requiring the retention and reporting of data regarding swap transactions to SDRs with the goal of enhancing transparency, promoting standardization and reducing systemic risk. In line with the CEA amendments, the Commission added swap data recordkeeping and reporting requirements. The Commission said it plans to publish UPI-related modifications to its current technical specifications for swaps on the CFTC website.

© 2021 CCH Incorporated and its affiliates and licensors. All rights reserved.