Dodd-Frank: Reporting to Swap Data Repositories (SDRs)

Data Repositories?

The Dodd-Frank Act was created to restore public confidence following the financial crisis and to prevent another crisis from occurring. Two agencies; the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission were tasked with setting the rules for the implementation of the Dodd-Frank Act and for providing enforcement.

Dodd-Frank consists of 16 distinct titles covering a wide variety of topics. This overview focuses on Title VII of the act, called the Wall Street Transparency and Accountability Act and addresses the Reporting to Swap Data Repositories (SDRs).

Dodd-Frank Act Title VII focuses on the over-the-counter (OTC) derivatives market and seeks to create the following objectives:

  • Minimize systemic risk of derivatives trading.

  • Create transparency in derivatives markets.

  • Provide credit protection for derivatives traders.

Who will Dodd-Frank Title VII affect?

Dodd-Frank Title VII will affect all Swaps dealers (SDs) and Major Swap Participants (MSPs) who trade in the US.

What are the key points of Dodd Frank title VII?

Under Dodd-Frank Title VII, SDs and MSPs entities will be required to provide daily reporting on their derivatives activity to the newly created Swap Data Repository (SDR). All swaps trades, whether cleared or uncleared, are required to be reported to a registered SDR. The reports cover the following areas:

  1. The real-time reporting of the Primary Economic Terms (PET)
  2. Continuation data (lifecycle events)
  3. Pre-enactment and transition swaps.

1. Real Time Reporting

For real-time reporting, SDs and MSPs can report to the SDRs in a variety of ways: they can report directly to the SDR, via a DCM (Designated Contract Market/Exchange) or a SEF (Swap Execution Facility). There is a hierarchy to the real-time reporting, specifically:

  • When executed on a SEF or a DCM, the SEF or DCM must report.
  • When executed off-facility (unless agreed to by the parties to the swap):if a US non-SD/MSP party trades with a non-US, non-SD/MSP party, the US non-financial end user is the reporting counterpart.
  •       if one party is an SD or MSP, the SD or MSP reports,
  •       if one party is an SD and the other is an MSP, the SD reports,
  •       if both parties are the same designation, the parties decide,
  • Firm can use of third parties (including Derivative Clearing Organizations) to assist with reporting obligations.

2. Continuation Data

For the continuation data reporting: the regulations require that SDs/MSPs report lifecycle events of the swap including valuation, rate fixing, options exercise, partial and full terminations, novations, changes, errors, omission, or modifications amongst others.

3. Pre-enactment and transition swaps

Pre-enactment or transition swaps include any swap entered into prior to enactment of the Dodd-Frank Act and the terms of which have not expired as of the date of enactment of that Act.

How will Dodd-Frank impact you?

Swap Dealer or Major Swap Participants:

The organisation will be required to fully comply with Dodd-Frank Title VII reporting (for PET, continuation events, and pre-enactment and transition swaps). It is very likely that EMIR regulations and reporting will be required as well.

Non-Swap Dealers/Major Swap Participant (including end user):

Firms must keep full, complete, and systematic records, together with all pertinent data and memoranda, with respect to each swap in which they are a counterparty

All Parties must keep records of the newly created unique identifiers, the unique swap identifier, the legal entity identifier, and the unique product identifier.

For FX Swaps and forwards, reporting to SDRs will be required, although not on a real-time basis.

The reporting requirements for Dodd-Frank Title VII will be intensive with a combination of real-time reporting and lifecycle reporting. Underpinning the reporting will be fragmentation of internal systems, several types of identifiers, and external venues (SEFs, DCOs) and changes/amendments that will continue to evolve from the Dodd-Frank Regulation.

Related regulations

If you are affected by the this regulation you may also be affected by these:

How can UnaVista help you?

UnaVista can assist you with a number of regulations thereby eliminating the need to build separate solutions for each business problem. Future regulations can be addressed via the platform as required, thereby enabling seamless evolution of your compliance solution

Many market participants are planning their Dodd-Frank reporting requirements around the services of the SEFs and where the transaction is off-exchange, to report directly to the SDR. UnaVista has been designed to address both of these scenarios and to ensure that an organisation has a central repository of information due to the fragmentation of reporting both to the SEF’s and directly (i.e. golden source of regulatory information).

UnaVista can help firm with Dodd-Frank Title VII a number of ways:

Data Import – UnaVista can capture data from multiple sources and in varying formats; this enables organisations to have a central repository for their data for which they can then perform actions including reconciling the data

Reconciliation of Data – UnaVista has a powerful reconciliation engine that can scale to large volumes, across disparate systems and multiple entities. The UnaVista reconciliation engine provides for a quick implementation; it is a modern web-based solution that is hosted at London Stock Exchange. Organisations using the UnaVista reconciliation engine can ensure that their information is fully reconciled regardless of where it was sourced.

Aggregation of Data – UnaVista can aggregate data that is sourced from multiple systems, which can be both internal and external. In a Dodd-Frank reporting environment, organisations may be executing through multiple SEFs and off-exchange. UnaVista can bring all of this data together in one central place; more importantly, it can reconcile the data to ensure that there are no exceptions. This is critical as the reconciliations between the organization in a Dodd-Frank world can consist of being a 3-way reconciliation:

  • the organisation reconciling its data to the SEFs.

  • the organisation reconciling its data to the SDR (via what was sent by the SEF to ensure that all reporting was done – a 3-way reconciliation).

  • the organisation reconciling its data to the SDR where it reported directly

  • the organisation reconciling its data to the SDR for the lifecycle events reporting

Exceptions Management – UnaVista provides for full exceptions management where the data does not reconcile. This ensures a quick time to resolution and keeps the golden source of regulatory information whole.

Reconciliation of Unique Identifiers – Under Dodd-Frank, organisations will have to attach identifiers to their customers and transactions. UnaVista can reconcile the identifiers and ensure that the transaction’s history is completed tied to the identifier.

Reconciliation between intra-group entities – Under Dodd-Frank, there can be the potential that intra-company activity may have to be captured; for example, collateral may need to be posted between different legal divisions within an organisation. Volumes for collateral activity will increase substantially in this situation. UnaVista can reconcile the collateral data (valuations, calls etc.) between the groups so that the organisation is assured that all of the collateral is properly captured and accounted for.

Full Audit Trail – UnaVista provides for a full audit trail and history to comply with Dodd-Frank.

New Products – New products/instrument types can be added quickly to comply with Dodd-Frank.

Automated Confirmations – with UnaVista, an organisation can automate across asset classes all of their confirmations, even if their counterparties are not automated. This again ensures that in the post-trade space, all of the data has been electronically reviewed and reconciled.

Regulatory Compliance – UnaVista can help an organisation ensure that it is in full compliance not only with Dodd-Frank regulation, but through all of the regulations that an organisation may need to comply with (EMIR, BASEL, MiFID………)

 

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