The CFTC Rewrite: Navigating a Long Journey

All regulatory transformations, like even the longest journeys, eventually near their end. The CFTC Rewrite may have been a long time in the making—but given the scale of the changes it contains, it’s perhaps little surprise. This major initiative aims to enhance data quality, standardize reporting and align with international standards.

In recent years, the Commodity Futures Trading Commission (CFTC) has introduced a series of significant revisions to its swap data reporting requirements, commonly known as the CFTC Rewrite. Let’s begin with a brief timeline:

With harmonization one of the main goals, a common theme across both phases related to the technical specifications for how fields should be completed becoming far more detailed. At the same time, the new rules mandated a reduction in the number of data fields required.

Reporting counterparties were most impacted by CTFC Phase 1, which came into force at the end of 2022. Firms in scope were required to adapt to a series of new elements such as:

• CDEs (critical data elements)
• UTIs (unique trade identifiers)
• validations to action/event-type matrices
• collateral reporting fields

They also needed to meet more stringent reconciliation requirements, with a particular focus on accurately distinguishing between amendments and corrections. Swap dealers were required to include margin and collateral in required swap continuation data.

"The difficulty in distinguishing between amendments and corrections is often compounded by a lack of transparency in upstream trading systems, especially if the firm lacks an efficient means of handling adjustments.”

Phase 2, introduced in early 2024, brought additional challenges. Under the changes, firms are required to further strengthen their reporting approach to meet the CFTC Rewrite’s data quality standards. Specifically, they need to include the correct UPI (unique product identifier), meet ISO 20022 Standards, submit in XML format and incorporate updated reconciliation requirements.

Of particular concern among firms is the requirement to add the correct UPI according to ISDA’s OTC Derivatives Taxonomy v2.0. Even before the CFTC Rewrite, firms were finding it difficult to populate the Classification of Financial Instrument (CFI) codes. To comply, they must strengthen their data quality processes, implement robust error handling (and reconciliation mechanisms) and ensure rapid correction of data errors. 

On a functional level, firms can expect to feel heightened regulatory scrutiny in several areas:

One of the chief challenges is the new requirement for correcting historical data through back-reporting. After identifying an error, the regulator requests the institution to make amends and present a mitigation plan.

While correcting an historical error (in swap terms, for example) may seem straightforward, the process can be time consuming. The steps to permanently correct such errors typically involve the business analysis team identifying the issue, the technology team fixing it, the change-management team confirming the error resolution and finally obtaining approvals for deployment into production.

Because the CFTC Rewrite requires errors to be corrected rapidly (within a seven-business-day window), such tactical fixes are not scalable. Therefore, firms need an approach that enables users to:

• Prevent such errors from happening in the first place through standard operating processes, such as the ability to test data for completeness and validity.
• Address any errors that do arise with a well-designed procedure within a strong change-management and audit control environment. Ideally, the correction will happen within minutes, not months.

The standard trade and transaction reconciliation approaches previously used will not be adequate for the CFTC Rewrite. Firms must now conduct a three-way reconciliation across front-office data (Books and Records), the reporting data and trade repository (TR) records.

To successfully reconcile, firms may think of this as a massive exercise in data-quality content validation. Plus, keep in mind that the regulator will expect that the firm has verified that its swap data is complete and accurate throughout the process and that all logged breaks and adjustments have been corrected and properly governed.

The increased regulatory pressure brought about by the CFTC Rewrite leaves institutions well-advised to tighten their procedures around increasingly stringent reporting requirements. Doing so not only reduces the risk of costly errors but can play a role in futureproofing an institution from regulatory shifts.

To this end, a comprehensive data management tool can help scale reporting activities while maintaining the required accuracy. Some things to look for in an end-to-end solution include:

• Verification: Help ensure accuracy with validations, reconciliations and audit trails.
• Visualization: Generate graphic displays of data elements for each point in the reporting process.
• Flexibility: Cover a broad selection of regions and tasks, with a platform that integrates regulatory rules and can be extended to meet new requirements.
• Single source of truth: Integrate data management, calculation methods and regulatory rules to simplify report population, generation and signoff.

Consider a platform which allows you to centralize and scale your reporting processes, simplifying your workflow while reducing exposure to risk.

“The CFTC Rewrite raises the bar on reporting, requiring institutions to tighten their procedures to meet increasingly stringent requirements. Strengthening compliance now not only reduces the risk of costly errors but also helps futureproof firms against downstream regulatory change.”

Although major elements of the CFTC Rewrite have now rolled out, there’s still time for those in its scope to strategize on how to most efficiently meet these new requirements. Keep in mind that the direction taken by the CFTC Rewrite fits with the approach of the European Market Infrastructure Regulation (EMIR) Refit, and that of global regimes elsewhere.

Above all, the CFTC Rewrite and related regime changes (Europe’s EMIR Refit, ASIC’s actions in Australia, the HKMA’s rewrite in Hong Kong, etc.) serve as a prompt to rethink reporting processes. The architecting of systems that integrate data, reporting and analytics into a single platform with strong error handling and reconciliation capabilities will be critical to this end.