This is Probably a Final Warning

On June 10, 2022, the CFTC Division of Data (“Division of Data”) released a Staff Advisory (Letter No. 22-06) entitled “Reporting of Errors and Omissions in Previously Reported Data.”  The Division of Data seeks to address the high volume of bilateral swaps incorrectly denoted as live when in fact they are cancelled.

The Takeaway:

  • “Continuation Data” is squarely on the radar of the Division of Data.  The timely reporting of trade lifecycle events has been an obligation since the beginning of Dodd Frank.
  • The Division of Data has specifically highlighted the increasing number of reporting errors for bilateral swaps that are set to a “live” status, but in actuality were cancelled.
  • The Division of Data emphasized the duty of DCOs and reporting parties to timely submit continuation data.  The division has updated its form for submitting trade reporting errors that cannot be electronically corrected.  DCOs and reporting parties should take notice of the Division of Data’s extended efforts because such efforts usually proceed enforcement actions.

What’s really going on here?

There seem to be a significant number of market participants that have deficiencies in trade lifecycle reporting.  Especially with respect to trade cancellations. How does this happen?

  • Swaps are executed OTC and then given up / novated by clearing.
  • Swaps are executed but later canceled between the parties.
  • In both cases the reporter’s technology and process should correctly update the trade lifecycle to “cancelled.”  However it appears that many firms have deficiencies updating trades.

Under the CFTC Reporting Rules, reporting obligations continue for the entire duration of a trade.  Your reporting solution must continually capture trade events and ask itself, “Have I seen this trade before, and is there anything different?”  If there is a difference (e.g., “cancellation” status update), then the reporting system should trigger a reportable event.  That’s how we do it in the K3 reporting system and always have.

Final Warning

Reading between the lines (please read the advisory for yourself), the Division of Data is sending a final warning on this issue. The DOD has announced its position, as well as update a process for communicating reporting errors that can not be timely corrected.

In our opinion DoD is sending a very clear signal that Wells Notices are coming next.

If you would like to discuss your continuation data process or any other related reporting issues we are always happy to share our experience.