CFTC Staff Letter 25-43: No-Action Position on Swap Error Correction Rules

2 should have been reported, the reporter must completely and accurately report data for the swap. 8

Generally, “the requirement to correct any error applies regardless of the state of the swap that is the subject of the swap data, including a swap that has terminated, matured, or otherwise is no longer considered to be an open swap.” 9 However, the error correction requirements do not apply to errors in swap transaction and pricing data or swap data for swaps for which the record retention period under regulation 45.2 has expired at the time the error is discovered. 10 The form and manner of error corrections is not required to be made using the prevailing validations and technical specifications of the SDR; however the form and manner for error corrections “shall conform to [an SDR]’s policies and procedures . . . for correction of errors.”11
III. No-Action Positions Requested
ISDA requests three no-action positions with respect to the Error Correction Regulations.

1. The Part 45 “Dead Swaps” Request.
   First, ISDA requests a no-action position with respect to the application of the Error Correction Regulations for certain swaps that are matured, terminated, or otherwise no longer open at the time an error is discovered (herein, “Dead Swaps”). Specifically, ISDA requests that the Division take a no-action position with respect to the application of the Part 45 Error Correction Regulations to (1) any Dead Swap that (a) matured, terminated, or otherwise was no longer open as of the “Last Change Date” or (b) matured, terminated, or otherwise was no longer open two years prior to the discovery of the relevant error; and (2) any other Dead Swap with respect to Part 45 data, except for correcting an error in Part 45 data in the most recently reported data for the affected trades if the error relates to a Legal Entity Identifier (“LEI”), Unique Transaction Identifier (“UTI”), or a data element listed in Appendix A to Part 43. 12 ISDA defines “Last Change Date” as the date any “new or amended Part 43 and/or Part 45 reporting requirements or changes to the Commission’s technical specifications” is “implemented.”13 ISDA cites costs and burdens associated with making such error corrections as the rationale for this requested no-action position. With respect to Dead Swaps that were no longer open at the time of the “Last Change Date,” ISDA states that “[w]hen new or amended Part 43 and/or Part 45 reporting requirements or changes to the Commission’s technical specifications . . . take effect after a swap has become a Dead Swap . . . SDRs adopt[] revised data validation frameworks.”14

According to ISDA, reporting counterparties that discover errors in such Dead Swaps must then “build the capability to correct errors in Dead Swaps data” with these new validation parameters. 15

This may entail “possibly obtaining data not currently in their reporting environment and building 8 See id. 9 Id. 10 17 C.F.R. § 43.3(e)(3); 17 C.F.R. § 45.2; 17 C.F.R. § 45.14(a)(3). 11 17 C.F.R. § 43.3(e)(1)(iii); 17 C.F.R. § 45.14(a)(1)(iii). See also Certain Swap Data Repository and Data Reporting Requirements, Final Rule, 85 Fed. Reg. 75601, 75610 (Nov. 25, 2020). 12 Request at 4. ISDA requests that with respect to correcting the Unique Product Identifier (“UPI”) data element, “the required error correction would apply to the data field(s) required to be reported for Part 43 by the relevant SDR in lieu of the UPI data field.” Request at 4 n.12. 13 Request at 3. 14 Id. 15 Id.

3 one-off solutions . . . at significant cost” or “mak[ing] inferences from other data, which potentially may not be perfectly accurate.”16 With respect to Dead Swaps that were open at the time of the “Last Change Date,” “error correction requirements present the costs and burdens of retrieving data (often from archival systems), ensuring that such data is formatted appropriately for submission to an SDR and can be processed by reporting gateways and other systems, retrieving the Dead Swaps at the SDR, and reporting corrected data to the SDR.”17 ISDA states that “these costs and burdens are disproportionate to the benefits of the error correction, especially where the error to be corrected relates to a data element that is a non-economic term (i.e., a data element that is not [an LEI], [UTI], or a data element listed in Appendix A to Part 43.”18 ISDA also asserts that there are “less burdensome and more efficient ways for the Commission to collect this data than to mandate systemic error correction requirements for Dead Swaps.”19
2. The Part 45 “Open Swaps” Request.
Second, ISDA requests that the Division take a no-action position with respect to the application of the Part 45 Error Correction Regulations to errors in swap data other than the most recently reported swap data for a trade. 20 This requested no-action position would apply to “Open Swaps.”21 ISDA states that correcting errors “for all data submitted (not just the most recently submitted data)” with respect to a given trade “is operationally burdensome and time-consuming for reporting counterparties.”22 ISDA cites as examples an obligation to correct the Financial Entity Indicator data element for all data submitted for every swap with a given counterparty (not just the most recently submitted data) and an obligation to correct errors in valuation or collateral information for all data submitted (not just the most recently submitted data). 23 ISDA also states that the Commission “can obtain additional data from reporting counterparties upon request” from reporting counterparties. 24
3. The Part 43 Request.
Third, ISDA requests that the Division take a no-action position “providing that, with respect to any Dead Swaps or Open Swaps, the Part 43 Error Correction Rules only require a reporting counterparty to correct an error in part 43 data that (x) relates to a data element listed in
Appendix A to Part 43 and (y) was (or was required to be) submitted to an SDR as of the later of
(i) the Last Change Date or (ii) one year prior to discovery of the relevant error.”25 16 Id. 17 Id. 18 Id. 19 Request at 4 n.8. 20 Request at 5. 21 “Open swap means an executed swap transaction that has not reached maturity or expiration, and has not been fully exercised, closed out, or terminated.” 17 C.F.R. § 45.1(a). 22 Request at 4. 23 See id. 24 Id. 25 Request at 5.

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ISDA states that “the costs of such corrections outweigh any purported benefits to the Commission and the public.”26 ISDA “expect[s] . . . that market participants will find little utility in corrected Part 43 data for Dead Swaps or Open Swaps . . . given that such data likely will not be useful for real-time price discovery purposes.”27 ISDA also states that “there are less burdensome and more efficient ways for the Commission to collect this data if needed.”28
IV. No-Action Positions and Related Conditions
The Division recognizes that correcting errors in swap reporting may impose burdens on reporting counterparties. The Division has decided to take several no-action positions to address swap data errors going forward based on the representations and statements made in ISDA’s Request. First, with respect to error corrections required by regulation 45.14(a)(1) for swaps that are matured, terminated, or otherwise no longer open:

1. the Division will not recommend that the Commission initiate an enforcement action
   against a reporting counterparty for failure to correct an error for any swap that: (a) matured, terminated, or otherwise was no longer open 29 as of the effective date of (i) the most recent change to the Part 45 rules 30 that affects the content or format of the data required to be reported or (ii) the most recent technical specifications for the applicable asset class published pursuant to regulation 45.15 31; or (b) matured, terminated, or otherwise was no longer open two years prior to the discovery of the relevant error; and
2. the Division will not recommend that the Commission initiate an enforcement action
   against a reporting counterparty for failure to correct an error for any other swap that matured, terminated, or otherwise is no longer open with respect to Part 45 data, except if the error relates to an LEI, UTI, or a data element listed in Appendix A to Part 43. 32

For swaps in the commodity asset class, a reporting counterparty must also correct errors in any product related data element reported to an SDR in lieu of a Unique Product Identifier. 33 Second, with respect to error corrections required by regulation 45.14(a)(1), the Division will not recommend that the Commission initiate an enforcement action against a reporting 26 Id. 27 Id. 28 Request at 5 n.13. 29 17 C.F.R. § 45.1(a). 30 17 C.F.R. Part 45. 31 17 C.F.R. § 45.15. 32 In the request, ISDA states that data elements listed in Appendix A to Part 43 “are also required to be reported under
Part 45.” Request at 4 n.11.
33 See Request at 4 n.12 (stating that “[a]s long as the Unique Product Identifier (‘UPI’) is not required to be reported under Part 43 for swaps in the commodity asset class, the required error correction would apply to the data field(s) required to be reported for Part 43 by the relevant SDR in lieu of the UPI data field”).

5 counterparty for failure to correct, for any open swap 34, errors other than in the most recently reported swap data for a given swap. Third, with respect to error corrections required by regulation 43.3(e)(1), the Division will not recommend that the Commission initiate an enforcement action against a reporting counterparty for failure to correct errors with respect to data element(s) other than a data element listed in Appendix A to Part 43 for a swap that was (or was required to be) submitted to an SDR. In addition, the Division will not recommend that the Commission initiate an enforcement action against a reporting counterparty for failure to correct errors with respect to data element(s) required to be reported under Part 43 (regardless of whether listed in Appendix A to Part 43) if the error occurred before: (a) the effective date of (i) the most recent change to the Part 43 rules 35 that affects the content or format of the data required to be reported, or (ii) the most recent technical specification for the applicable asset class published pursuant to regulation 43.7(a)(1), or (b) one year prior to discovery of the relevant error. 36 This letter expresses a staff position only with respect to enforcement of the Error Correction Rules. This letter and the no-action position taken herein represent the views of the Division only, and do not necessarily represent the positions or views of the Commission or of any other Commission division or office. This letter and the no-action position taken herein are not binding on the Commission. 37 Except as explicitly provided in this letter, the no-action position taken herein does not excuse persons from compliance with any applicable requirements of the CEA or Commission regulations. Further, this letter, and the no-action position contained herein, are based upon the representations made to the Division. Any different, changed, or omitted material facts or circumstances may render this letter void. As with all no-action letters, the Division retains the authority to, in its discretion, further condition, modify, suspend, terminate or otherwise restrict the terms of the no-action position provided herein. Sincerely, ____________________ Rahul Varma Acting Director Division of Market Oversight 34 17 C.F.R. § 45.1(a). 35 17 C.F.R. Part 43. 36 With respect to each of these no-action positions, staff notes that the Commission does not require error corrections to be made using the prevailing validations and technical specifications. See Final Rule, Certain Swap Data Repository and Data Reporting Requirements, 85 Fed. Reg. 75601, 75610 (Nov. 25, 2020) (stating “The Commission does not agree with the recommendation that the regulation be revised to require error corrections to be made using the prevailing validations and technical specifications of the SDR. The Commission notes that final § 49.10(e) provides discretion to SDRs to establish, maintain, and enforce policies and procedures designed for the
SDRs to fulfill their responsibilities under final § 49.10(e), which includes the discretion to require error corrections to use prevailing validations and the SDR’s technical specifications.”). 37 See 17 C.F.R. § 140.99(a)(2) (“A no-action letter binds only the issuing Division . . . and not the Commission or other Commission staff.”).