Grygo is the chief content officer for FTF & FTF News.
Without much fanfare, the CFTC in mid-February ordered registered entities and swap counterparties to use the unique product identifiers (UPIs) supplied by the Derivatives Service Bureau (DSB) for swaps in the credit, equity, foreign exchange, and interest rate asset classes to bolster transparency and compliance with CFTC swap recordkeeping and reporting requirements.
In addition, the CFTC set Jan. 29, 2024 as the compliance date for applying DSB UPIs to over-the-counter (OTC) swap transactions.
To remind you, the Financial Stability Board (FSB) has designated DSB “as the sole UPI Service Provider to facilitate the creation and distribution of UPIs,” DSB officials note.
“The UPI is designed to aid the effective aggregation of OTC derivatives transaction reports on a global basis, facilitating the effective use of OTC trade reporting data, to help authorities assess systemic risk and detect market abuse. Reporting parties are being mandated to incorporate the UPI into their reporting workflows and submit them to trade repositories,” the DSB explains.
In light of the CFTC’s actions, “the DSB’s UPI User Acceptance Test (UAT) environment will be available from 17 April 2023, nine months prior to the United States regulatory mandate coming into effect,” DSB officials say.
As for the UPI production environment, it “will be available from 16 October 2023, three months prior to the United States regulatory mandate coming into effect,” DSB officials say. “Upon the launch of the DSB UPI Service in UAT, the DSB Client Onboarding and Support Platform (COSP) will also become available. The COSP is an online, self-service platform enabling users to onboard to the UPI Service and manage their UPI user access and connectivity requirements.”
For global markets, the CFTC “expects the use of UPIs will increase transparency in the swaps market, enabling the commission to fulfill its regulatory responsibilities and assist in the real-time public reporting of swap transaction and pricing data,” according to the official CFTC announcement.
Christy Goldsmith Romero
The order should serve as proof of the CFTC’s commitment “to harmonize and standardize the swaps data elements required to be reported under the Commission’s regulations with those required to be reported by authorities in other jurisdictions,” explains Vince McGonagle, director of the division of market oversight, in a prepared statement. “Commission staff will publish UPI-related modifications to Parts 43 and 45 Technical Specification in the near future on the Commission’s website here.”
The move got vocal support from CFTC Commissioners Christy Goldsmith Romero and Caroline D. Pham.
“As swap markets are global markets, global harmonization enhances the use of swap data for regulators, market participants, and the public. The CFTC has been collaborating with global regulators on uniform standards for defining and representing swap products. I look forward to increased transparency in swap markets through the use of standardized product identifiers,” Romero says.
In her statement of support, Pham provided some of the history behind the move, the ongoing operational challenges, and suggestions for what the CFTC must do next.
“Market participants, service providers, and financial market infrastructures have expended tremendous resources, time, and effort to implement CFTC swap data reporting requirements, as well as those of other regulators around the world,” Pham says.
“Frequently, these reporting requirements have presented significant operational challenges due to the lack of clarity and standardization in data fields and other elements. Sometimes, there has been an outright conflict in legal and other requirements across jurisdictions, or other issues resulting in duplicative or inconsistent reporting,” says Pham, who adds that “the CFTC’s work is not done.”
The commissioner noted that during the regulator’s first Global Markets Advisory Committee (GMAC) meeting “members raised important issues concerning the implementation of UPIs by the CFTC that still need to be considered, including the possibility of differences between the underlying data values and those derived from UPIs, different UPIs reported by two counterparties to the same trade, and differences in International Organization for Standardization (ISO) messages and accepted values for the same critical data element fields,” Pham says.
Looking ahead, the CFTC “must continue its work to ensure the improvement of data quality and data utility in its markets by partnering with market participants, service providers, and financial market infrastructures to achieve the goals of the G20,” Pham says.
Caroline D. Pham
In particular, Pham says that the work of the Regulatory Oversight Committee (ROC), which is the International Governance Body for global derivatives identifiers and data elements such as UPIs, should be supported to facilitate the consistent implementation of the recommendations of the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions (CPMI-IOSCO).
The CFTC should also “work with international standard setters and other jurisdictions to consider how to amalgamate data used by supervisory authorities to enhance the supervision and oversight of global markets to improve the monitoring of systemic risk,” Pham says.
The full text of Romero’s statement can be found here: http://bit.ly/3ICrtmB
Pham’s full statement can be found here: http://bit.ly/3kDsFy7
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