CFTC Commodity Reporting Task Force Questions Answers

CFTC Commodity Reporting Task Force – Questions Answers

I.Contents

II.Policy

1.Who will need to report under part 20? What are the deadlines?

2.What positions need to be reported? From what perspectives?

3.How are clearing orgs and clearing firms defined?

4.Counterparty Identification (form 102S)

5.What is the definition of a swap for part 20 reporting?

6.What is the definition of a swaption?

7.Exactly what products (commodities) are reportable?

8.How does the counterparty work for cleared trades?

9.If you need to report both sides, will they net to zero?

10.If trades are on existing large trader report already, should they be reported in the new report? Will they continue to be dual reported?

11.If trades are dual reported, will the CFTC expect that the resulting positions will be identical between the reports?

12.Non-delta adjusted futures equivalent – how to compute? will there be guidance?

III.Technical – Data Representation

1.Is there an interim reporting format?

2.How will this be reported in FpML?

3.How to report cases where based on a daily future (rather than a monthly future)?

4.How to handle structured options with multiple strikes?

5.How to represent basis trades like “spark spread” / “heat rate swap”?

6.What will happen with the old CFTC large trader report format?

7.Where is the list of the commodity reference price codes? How will it be maintained?

8.How to report for dealer acting as prime broker

9.Execution Facility

10.Price Reference Month

11.The Position Report

12.Decimals Position Reporting

13.Final Reporting

14.Fractional Lots

A.Other Technical

1.How exactly will swap dealers report the positions of their counterparties vs. their own? What will the report look like for each case?

2.Sizing – how many records will be produced/submitted each day by firms?

II.Policy

1.Who will need to report under part 20? What are the deadlines?

Under an advisory expected to be released by Wed 9/14, the deadline for reporting cleared swaps is expected to be pushed bach until Nov. 20, and the deadline for reporting bilateral (uncleared) swaps will be pushed back until Jan. 20. Originally: Clearing organizations will need to report by September 20. (8/26 Bruce noted internal CFTC recommendation to push back 2 more months (to Nov. 20) – (8/31 update: Bruce confirmed push back 2 months. Discussing 4 months for uncleared swaps. Members may still start reporting in new format starting Sept 20. Drafting 20.10 letter to describe the changes to the implementation schedule. CFTC will provide further guidance on what swaps are covered.As an interim solution until the Part 20 reports are ready, CFTC will require a monthly open interest report especially for uncleared swaps, but is still defining what constitutes “open interest”. CFTC can’t provide guidance on extraterritoriality issues at this point in time; it would be helpful to keep track of issues, and the CFTC welcomes specific questions and scenarios from trading businesses.)
Clearing member firms will need to report by November 20 for cleared swaps and Jan. 20 for bilateral (uncleared) swaps.
Swap Dealers will need to report within 60 days (or whatever is specified in the regulation) of when the Swap Dealer definition is approved by the CFTC (the SD definition is hoped to be put to the vote by fall of 2011, but this is not definite)In addition, Bruce noted internal recommendation is to push back uncleared trade reporting by 6 mo.
> Action: CFTC to provide clarification on the expected timing of the SD definition (8/26 Bruce noted probably not before October meeting. Probably 60 days TBD) (9/12 earliest expected October.)
There is a 6-month grace period that can be requested, during which time a data submitter can request to submit the data in a different format. The CFTC issued an advisory on this.

2.What positions need to be reported? From what perspectives?

Clearing organizations will need to report positions for all of the cleared swaps on the covered commodities. (ref 20.3 a)
Clearing Organizations only (ICE, CME, LCH, Others) would produce Tables 1, 2, and 3 for cleared OTC Swaps that fall under the required reporting.According to RJ, these three reports should never need to be produced by a Clearing Member or a Swap Dealer.
Clearing member firms will need to report positions for all of the cleared swaps on the covered commodities (confirmed). If a firm is a clearing member firm of a commodity clearing house, but is not authorized to clear any of the 46 covered commodities (for example if it only clears other asset classes), it is not considered a clearing firm for the purposed of compliance with the Part 20 requirements.
Swap dealers will need to report all of their positions on swaps on covered commodities, plus all of their counterparties’ position on covered commodities.(confirmed, in principle records 102s id shown)

3.How are clearing orgs and clearing firms defined?

we think that the set of clearing organizations is well defined
we think that the set of clearing firms is the set of organizations that clear through clearing organizations is well-defined
if anyone thinks there’s a case that isn’t well-defined, please forward to Kate Mitchell of the CFTC
NGX exchange is a clearing org, but all trades are physically settled -> not reportable

4.Counterparty Identification (form 102S)

RJ (ICE) asked clarification on section B part 3 (pp. 43856) . If filing 102S form about a counterparty, would clearing members not be held to series S filings rule for cleared transactions? Jim noted the CFTC was presuming that if information could not be collected about the original counterparty on the position report itself, it could be ascertained from the 102.Firms that are reporting 102S counterparties may use the same identifiers as they do for 102 forms, but are not required to do so. The 102S filing is not a “form”, just a filing. It could be an email/spreadsheet that contains the information specified in Section 20.5 part 1 (name, address, contact info, description of trading activity (e.g. hedging, risk management).
Action 4 > Series S Filings - The CFTC will discuss internally and provide further guidance (RJ asked if the CFTC will combine the 102 and 102s? Bruce noted if a firm already has a 102,a 102s will still need to be submitted.(these may be combined in the future). The CFTC will need the 102s identifier to be allocated for swaps reporting, (8/29 In Part 20, 20.5 includes a requirement to update 102S reports when the information changes) (9/12: Bruce F. noted that the CFTC is developing a combined 102 and 102S form that would eventually replace the 102S form; ETA is a few months at least.

5.What is the definition of a swap for part 20 reporting?

a)Are swaps that turn into futures included?

Swaps that turn into futures, such as those done under Clearport, are not subject to the Part 20 regulations,

b)Are Physically-settled swaps included?

This is currently unclear. The definition of “swap” is currently based on the definition in part 35 of the regulations, which is a bit vague on physical settlement. These are to be used until the new Dodd-Frank Act definitions are approved. It is the opinion of many participants in the TF that physically settled swaps are not included under Part 20 reporting requirements, and this appears to be supported by the definition of “swap” under the Dodd-Frank Act (see below under #6). However, according to Bruce Fekrat of the CFTC the existing swap definitions will also remain in effect, but it is unclear whether physically settled swaps will be considered “forwards” (and thus out of scope of Part 20 reporting) or as swaps.

> Action: CFTC will consult with attorneys to provide guidance on whether physically settled swaps are included.8/26 under part 35 broad def but earlier defs e.g., 1993 continue to apply. Reporting parties to exercise best judgment until final guidance available. RJ noted physically-settled swaps have never been reported on ICE. Bruce will clarify internally.

Related question:
(Leif Jensen/Yingying Liu, David Hermann GS)
Are physical swaps reported under the rule? It’s not clear they are covered in the definition of Swap that applies. As a particular example, what about the ICE Henry Physical Basis LD1 Contract?[Pete confirmed physically settled contract, but traded/cleared on NGX. David will clarify with Leif]This is an example in the CFTC rule and appears to refer to this product.

c)Are spreads between futures reportable under part 20?

(S. Boudard, BNPP)

the definition of what can be considered as a SWAP is very ambiguous.
+ Certain products (NE, NOB) listed by the CME group are "SWAP" contracts but the truth is these contracts are more spreads (price defined by the price difference of the gasoline in 2 places of US)
+ a swap (ex fix rate vs variable) this is composed of 2 legs (or buyer) that are betting of 2 different trends of the market (exchange of one fix rate by one variable). This in the listed world can be applied for any trade as the position held by a company has a reversed trade held by another company (zero sum game).
+ is considered as a SWAP all position for a client which is "zero out" :
Ex Client A is long 10 and short 15 HO SEP 2011
=> The SWAP is then Long/ short 10 HO SEP 2011 which should be reported
+ can a swap be "cross client"
Ex Client A is long 10 and client B short 15 HO SEP 2011 (both cleared by BNPP)
=> The SWAP is then Long/ short 10 HO SEP 2011 which should be reported as such.
=> could you please clarify the definition of the SWAP and what is needed to be reported This is confirmed by the CFTC – transactions that are just paired futures trades are not included in the Part 20 scope.

d)other related questions

Following a request from ISDA to have Listed Derivatives Clearing representants from members at the weekly meetings, I have been contacted by my colleagues from the Swap trading side. I am still unclear on the CFTC requirements for the Listed products as we are already reporting on all listed products cleared by xxxx.

What would be different from what is already reported ?
This would also cover bilateral (not just cleared) swaps, and there would be more information required about the positions.

Does the CFTC require more fields/information to be reported back?

Yes, for example for swaptions there are more fields that must be reported.

6.What is the definition of a swaption?

a)Are options on swaps included?

we think yes[ref. part 20.1 last definition Swaption is defined.: “Swaption means an option to enter into a swap or a swap that is an option”

Both Stephen Brown and Peter Stockman believe that “option” is defined broadly as under Dodd-Frank , ie. as some kind of OTC derivative with embedded optionality.

The definition of a swap can be found in the original legislation signed July 2010: The Wall Street Transparency and Accountability Act a.k.a the Dodd-Frank Act. In particular the definition of a swap can be found in Section 721. Definitions. 1a(47) of Section 721 inserts the definition of a swap into the Commodity Exchange Act.
1a(47)(A) defines instruments that are included in the definition of a "swap". 1a(47)(i) includes various sorts of options. 1a(47)(iii) includes various underlyers that we would recognize as commodities including weather (XVII), energy (XVIII), metals (XIX), agriculturals (XX) , emissions (XXI) and other commodities (XXII)
1a(47(B) defines instruments which are excluded from the definition of a "swap". In particular 1a(47)(B)(ii) excludes instruments which amount to a "sale of a nonfinancial commodity or security for deferred shipment or delivery, so long as the transaction is intended to be physically settled;"(8/26 Holly MS confirmed that based on her organization’s internal compliance assessment, they are included)

b)Are swaps containing embedded options included? (e.g. options strips/caps/floors)

yes, see above

c)Are complex options included?

yes, see above. This would include trades with averaging features (average price options), trades with multiple strikes, etc.

d)Are there any types of options that aren’t included?

purely exchange traded options would not be included.

7.Exactly what products (commodities) are reportable?

(Leif Jensen/Yingying Liu, David Hermann GS)

Would appreciate if these could be circulated whenever ICE, CME, and other exchanges have determined which of their products are reportable. It would also be very useful to have the appropriate Commodity Reference Price for each product.

ICE has provided its list(see attached table at end of document)

CME does not believe it has any products for which this applies, and is awaiting confirmation from the CFTC.

8.How does the counterparty work for cleared trades?

For cleared trade, the beneficial owner of the account should be reported. The CFTC documentation will probably need to be updated to reflect this.[102S id for beneficiary]. The FpML should distinguish the account holders/clients from counterparties. In theFpML it maybe will be possible to show how an omnibus account links back to another entity, e.g. to a US affiliate of a UK firm… Do we want to do that?
> Action: CFTC to update its documentation to adjust terminology for “counterparties” for cleared trades.
> Action: Brian to update examples if necessary to sync up with CFTC definitions.

Related question:

o(S. Boudard, BNPP)

oIn the Future Derivative world, the clearing firm do not have the vision of the counterparties with who the deal was made once it is cleared. Thus, whoever has the opposite side of the trade is unknown and can't be reported.
ex : BNPP client buys 5 lots of HO @ Morgan. At the end of the day, the only long position will be sent to the BNPP's system and reported to the CFTC and to the exchange via the LTF.
certain information like the counterparties and the execution facilities are not clearing houses purposes and does not make sense to me to be reported.
=> could you please clarify the objective of this part ?

9.If you need to report both sides, will they net to zero?

Not necessarily – you don’t need to report counterparties whose exposure in a given commodity futures equivalent month is under 50 contracts. (Ref 20.1.i/ii/iii). Once a cpty has any future equivalent month with an exposure over 50 contracts, all that cpty’s position must be reported, and they must continue to be reported until all have gone under 50 contracts, plus one day to show that fact. Or a report can just decide to report everything if that is more convenient.

10.If trades are on existing large trader report already, should they be reported in the new report? Will they continue to be dual reported?

Yes, they should be reported in the new format and dual reported until the old format is phased out. However, there is an intent to delay implementation of the part 20 rules for those trades, so that they will only be reported once until the firm migrates to the new part 20 report, at which time the old reporting of those trades will be phased out.
In some cases, the trades will be triple reported – it may be that the clearing firm and the swap dealer both need to report a trade, as well as the existing large trader report.

11.If trades are dual reported, will the CFTC expect that the resulting positions will be identical between the reports?

The CFTC will recognize that the reports may reflect different scope or cutoff and therefore may have different values, and won’t expect an exact match, even for the exact same population.

12.Non-delta adjusted futures equivalent – how to compute? will there be guidance?

For some products (e.g. swaptions), non-delta adjusted futures equivalent are not well defined in the industry/are a non-standard measure (because not useful for risk management) …
> Action: the CFTC will issue guidance on how to do this. CFTC to add example in guidebook. CFTC is considering deferring implementation of this field (only) until the requested guidance can be provided in the ,FTC guide book.
Further detail on this from (Leif Jensen/Yingying Liu, David Hermann GS)
This is not a traditional risk measure and poses a number of interpretation problems. What is the definition of “swaption” for which this field is required?
Example 1: what would be non delta adjusted position of a binary put paying $1M if the CLZ11 settlement on date D is <=X ? Does the non-delta adjusted position on reporting date R depend on the price of the CLZ11 contract on date R?
Example 2: A worst-of call option paying $1M * Max( 0, Min( CLZ11, NGZ11 * 20) – 100 ) per settlement prices on date D. Does the non-delta adjusted position show exposure to both CLZ11 and NGZ11? Or perhaps only the one that achieves the minimum inside the payoff formula?
Example 3: A hybrid product that delivers a number of equity shares or bonds, depending in some way on the CLZ11 settlement on date D.
There may be very substantial technical challenges to report non-delta adjusted position figures for products such as above that are not vanilla swaptions or options, and the most sensible resolution may be just to clarify that they are not “swaptions” for which this information is required.

III.Technical – Data Representation

1.Is there an interim reporting format?

What format should be used until the FpML reports are ready? CFTC would prefer some kind of computer readable spreadsheet or CSV like format, details are flexible at this point. (current CSV limited in characters… couldn’t fit everything required in part 20)
some firms are planning to submit a csv with the columns in the various examples in the regulations. [should we produce a sample so column headers will align?]

2.How will this be reported in FpML?