SEC implements key step for derivatives oversight 11 years after Dodd-Frank

Rick Steves

It is Gary Gensler behind the wheel of regulatory change, again. At the time, the leading reformer since the financial crisis had called to “urgently close the gaps in our laws to bring much-needed transparency and regulation to the over-the-counter derivatives market to lower risks, strengthen market integrity and protect investors.”

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The U.S. Securities and Exchange Commission (SEC) has approved the DTCC Data Repository (U.S.) application to operate as a registered security-based swap data repository (SBSDR).

This is a key step in completing the implementation of derivatives oversight in the U.S., which was set out in Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).

Dodd-Frank divided the regulatory oversight of derivatives between the SEC for security-based swaps (SBS; those that reference single security or loan or a credit default swap that references a narrow-based index) and the Commodity Futures Trading Commission for all other swaps.

Gary Gensler, SEC Chair, said: “Implementing Regulation SBSR fulfills an important mandate under the Dodd-Frank Act. A centralized database of security-based swap transactions is an essential reform to better understanding these markets, for surveillance, and for enforcement. The data repository also will facilitate public reporting of security-based swap transactions, bringing much-needed transparency to these markets.”

DDR, part of DTCC’s Global Trade Repository (GTR) service, will function as a registered SBSDR for transactions in the equity, credit, and interest rate derivatives asset classes, seamlessly reporting transactions directly to the SEC.

Kate Delp, DTCC Executive Director and General Manager at DDR, added: “We are pleased to receive SEC approval of DDR’s application as an SBSDR, and look forward to offering security-based swap transaction reporting capabilities within our global platform. This marks an important step forward in continuing to provide greater transparency in the OTC derivatives market.

“We are proud to extend our trade reporting capabilities in the U.S. and are committed to working with our clients to help them prepare for the reporting date. Now is the time to begin to implement and test trade reporting solutions as the reporting compliance date draws near.”

DTCC’s GTR service for North America provides transaction reporting services for OTC derivatives in the U.S. and Canada through the legal entity DTCC Data Repository (U.S.) LLC.

DDR is a Commodity Futures Trading Commission (CFTC) provisionally registered Swap Data Repository (SDR) and is authorized by Canadian regulators to provide derivatives reporting services for all Canadian provinces and territories.

Globally, GTR has almost 9,000 clients and 150 partner firms, providing reporting to over 60 regulators across 35 countries.

November 8, 2021, was set as the first compliance date for Regulation SBSR, which governs regulatory reporting and public dissemination of security-based swap transactions.

This regulation is a key component of the security-based swap regulatory regime and provides for the reporting of security-based swap information to registered SDRs and for public dissemination of transaction, volume, and pricing information.

In an effort to enhance transparency in the security-based swap market, Congress established centralized recordkeeping facilities known as SDRs. The purpose of SDRs is to maintain accurate records of security-based swap transactions and the integrity of those records, and to provide these records to relevant authorities. These records may assist relevant authorities in:

Monitoring the build-up and concentration of risk exposures in the security-based swap market;
Preventing market manipulation, fraud, and other market abuses;
Performing prudential supervision and macroprudential (systemic risk) supervision; and
Resolving issues and positions after an institution fails.
Section 13(n) of the Exchange Act specifies the requirements and core principles with which SDRs are required to comply, including registering with the Commission.

SDR Registration, Duties and Core Principles, Reporting and Dissemination of Security-Based Swap Information
On February 11, 2015, the Commission adopted 21 new rules that would increase transparency and provide enhanced reporting requirements in the security-based swap market. The rules require SDRs to register with the Commission and establishes a framework for the reporting and public dissemination of security-based swap transactions.

The 12 core SDR rules create a framework for SDRs to register with the Commission by filing a new Form SDR and to update the filing when certain information becomes inaccurate. The rules would also provide a process for the Commission to cancel or revoke the registration of an SDR. The rules include an exemption from registration for certain non-U.S. persons performing the functions of an SDR within the U.S. when specific conditions are met.

Concurrent with its adoption of Regulation SBSR, the Commission proposed new rules, rule amendments and guidance to Regulation SBSR.

Gary Gensler, the new Chair of the SEC, has signed off the approval of the DTCC Data Repository (U.S.) application to operate as a registered security-based swap data repository (SBSDR).

This key step, which was made 11 years after the Dodd-Frank Act, has once again one of the leading reformers behind the wheel. After the financial crisis, he called to “urgently close the gaps in our laws to bring much-needed transparency and regulation to the over-the-counter derivatives market to lower risks, strengthen market integrity and protect investors.”

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