Getting Ready for the CFTC Re-write

Trade reporting rules are changing to align to global standards. To address these changes the CFTC rewrite will be implemented in two phases.

December 5, 2022
Mandated new reporting technical specification with over 175 data elements fields, introduction of the Unique Trade Identifier (UTI), and introduction of collateral reporting. Due to a CFTC no-action letter, firms can begin reporting using the new specification any time between now and December 5, 2022. KOR is live with the re-write specification now!
December 2023
Mandated use of a Unique Product Identifier (UPI) and product taxonomy and ISO XML 20022 format for submitting and receiving data. The phase is expected to be live around December 2023.

Project Approach

As with any major regulatory change project, a structured approach ensures an efficient and complete response to changing requirements. Firms preparing for their re-write should follow these steps:

    The Difficult Bits

    There are several note-worthy challenges of CFTC re-write:

    Doing it alone

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    Many firms have a culture of analyzing and implementing regulatory change in-house. This was the norm at the onset of current reporting regimes but with time firms began to realize problems with this approach and both industry and vendors matured enough to begun offering reliable solutions. To put in bluntly: doing it alone and building it alone is very risky (and in most cases costly). Firms should mutualise the risk by a) selecting reputable vendors who are experts in this field b) participating in and using best practices of industry bodies who are addressing industry wide issues.

    Upcoming XML Standard

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    It is worth noting that the ISO20022 standards are currently being augmented by ISO to support both CFTC and EMIR requirements, including CDE and UPI fields required by global regulatory community. Fields not required in both jurisdictions will be made optional in the overall specification. This should result in a global reporting format going forward.

    While it has been in use under EMIR for a while now, adoption of XML reporting standards will be new for the US and firms might not have the expertise or infrastructure in place to produce and consume XML. Fortunately, leading vendors will offer a translation service, allowing firms to continue submitting the data in flat file format and then converting it to XML before submitting to an SDR. Returning SDR responses and multiple reports will also need to be translated – make the whole exercise best left to competent vendors.

    175+ Data elements

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    Yes, there are a lot of fields and no, not all of them are needed for a specific firm’s asset class and trading scenarios. This is why Step 2 of data gap analysis is so important. Vendors and industry bodies will also advise how to report a particular activity and which specific data elements are required.

    Required quality assurance

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    The P45 verification requirements mean that for most firms a monthly extract of SDR data needs to be reconciled with in house systems of record systems to make sure the reporting program operates properly. This will require systems and people to do the reconciliation and interpret the result. Again, vendors can help with both.

    Most prudent approach is to have an independent, parallel reporting system in house (so called challenger system) or run by a vendor in the cloud, that can provide parallel reporting output in- time thus promptly highlighting any issues with the primary reporting engine. Many banks are already settling on this approach, and vendors such as KOR are offering hosted challenger systems.

    Regulator notification requirements

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    As part of P45 verification above, CFTC wants to be notified if any issues discovered cannot be remediated within 7 days. Understandably firms are nervous about the scope and impact of these notifications. The best approach to take is have a notification process in place (form details have been proposed by ISDA) but to focus on ensuring that data quality is checked in-time and any issues are remediated on the spot (using highly prescriptive Rejections feedback analytics from SDR and/or a parallel challenger reporting system) making the monthly reconciliation a tick in box exercise.

    New collateral reporting

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    Reporting of collateral and margin data, including collateral portfolios is not required till the no-action letter expires in December 2022. We therefore recommend that firms go live with existing Transaction and Valuation requirements now and then include Collateral as late as possible in order to avoid unnecessary reporting over exposure risk. Of course, firms should not plan to start sending first collateral messages collateral on Dec 5th but perhaps a little bit beforehand to ensure smooth transition.

    UPI Support

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    The new UPI standards are complex, and firms will have to use the ANNA DSB service to either create or retrieve a UPI. Firms can either build ANNA connection APIs into their reporting systems or simply send the required reference data (which varies by product and asset class) to a vendor who will obtain the UPI from ANNA’s DSB for them. As always, we at KOR believe in outsourcing commoditized services, so using a vendor should be preferable to building and maintaining an ANNA connection in house.

    Why KOR?

    Firms should not be taking CFTC re-write alone and should not have to wait until the December big bang of legacy SDRs. KOR is the industry’s only independent, licensed (which makes us reliable and accountable) SDR and reporting engine, built from the ground up by industry experts to tackle CFTC re-write and wider regulatory reporting challenges. Our technology is state of the art and our experts are here to help. Partnering with KOR and our partners for CFTC re-write lets firms outsource commoditised reporting functions to industry experts (which reduces both cost and risk) and focus on things that make them special.