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SEC and CFTC Adopt Interim Rules Requiring Reporting of Pre-Dodd-Frank Swap Transactions

Investor Services Update John P. Vail

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act") was signed into law on July 21, 2010 and establishes the framework for future clearing and reporting of swap transactions.[1] The Securities and Exchange Commission ("SEC") has jurisdiction over security-based swap transactions while the Commodities Futures Trading Commission ("CFTC") has jurisdiction over other swap transactions. The Act also requires that each of the agencies adopt interim final rules for the reporting of security-based swap transactions and swap transactions that were entered into prior to July 21, 2010, and which remained in existence at that time (a "Pre-enactment Swap"). Both the SEC and CFTC have now issued these interim final rules, which will govern until final rules are adopted.

Swap Definition

The Act broadly defines a "swap" to cover most commonly traded over-the-counter derivatives, including options on interest rates, currencies, commodities, securities, indices and various other financial or economic interests or property, contracts in which payments and deliveries depend on the occurrence or non-occurrence of certain contingencies (e.g., a credit default swap), and swaps on rates and currencies, total return swaps, and various other common swap transactions.

Filing Information

The CFTC Interim Rule is now a part of the CFTC Regulations at new Part 44.[2] The SEC's Interim Rule is Rule 13Aa-2T found at Part 240 of its Regulations.[3] Both rules require that a designated counterparty to a Pre-enactment Swap submit, with respect to the transaction, the following information to a registered swap data repository ("SDR") or to the CFTC, in the case of a swap transaction, or to a registered security-based swap data repository ("SSDR") or the SEC, in the case of a security-based swap transaction: (i) a copy of the transaction confirmation in electronic form, if available, or in written form if there is no electronic copy; and (ii) if available, the time the transaction was executed.

Reporting Deadlines

The above-described reporting obligation, however, will not commence until the earlier of: (i) 60 days after the registration of an appropriate SDR or SSDR, as applicable; and (ii) a date to be established by the CFTC or SEC, as appropriate, no later than January 12, 2012. The Act had stated that Pre-enactment Swaps should be reported to a SDR, SSDR or appropriate agency within 30 days after issuance of the Interim Rules or such other period as the agencies determined to be appropriate. However, the CFTC, in particular, noted that immediate reporting was impractical because (1) there are no registered SDRs to immediately accept swap data; (2) the CFTC is not prepared to accept swap data; and (3) the CFTC has not adopted rules to govern the registration of swap dealers or major swap participants or the reporting and maintenance of swap data. The SEC noted this impracticality as well.

Both Interim Rules were, however, made effective immediately upon their issuance to enable the agencies to request information, if they desire, from counterparties and to obligate such counterparties to preserve all information that they may eventually need in order to satisfy the reporting obligations.

The Interim Rules provide that, with respect to a swap in which only one counterparty is a swap dealer or major swap participant, it is that entity's responsibility to report the swap. With respect to a swap in which one counterparty is a swap dealer and the other counterparty is a major swap participant, the swap dealer must report the swap. Where neither counterparty is a swap dealer or major swap participant, the counterparties must select one of them to report the swap. The terms "swap dealer" and "major swap participant" have not yet been defined but will be before the reporting obligations begin.

Each agency added a note to its rule stating that each counterparty to a Pre-enactment Swap that may be required to report should retain, in its existing format, all information and documents, to the extent and in such form as they presently exist, relating to the terms of a swap transaction, including, but not limited to:

  • Any information necessary to identify and value the transaction; the date and time of execution of the transaction.

  • Information relevant to the price of the transaction.
  • Whether the transaction was accepted for clearing and, if so, the identity of the clearing organization.
  • Any modifications to the terms of the transaction.
  • The final confirmation of the transaction.

It can be expected that the burdens of filing will primarily fall on swap dealers and major swap participants. However, it is advisable for all parties to Pre-enactment Swaps to retain the information identified by the agencies. Parties expecting to qualify as commercial end users in a swap transaction should be cognizant of the recordkeeping obligations because if a swap transaction is between two commercial end users, one of them will need to report their swap transaction.[4] A party currently entering into a swap transaction should also be sure to designate in the agreement covering the swap which party will undertake the reporting obligation with respect to the transaction.

For more information on this client update, or if you have any questions, please contact John P. Vail at (312) 715-5042 / john.vail@quarles.com or your Quarles & Brady LLP attorney.




[1] The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, H.R. 4173, Pub. Law 111-203.
[2] 75 FR 198 (2010); 17 CFR Part 44.
[3] 75 FR 202 (2010); SEC Release No. 34-63094.
[4] It is expected that regulations will further define the term "commercial end user," but that it will generally be a user that is not a "financial entity" that is using the swap "for hedging or mitigating commercial risk."