Energy Companies Unprepared for OTC Regulations04.22.2013
Although the Commodity Futures trading Commission has granted a temporary reprieve from swap reporting under the Dodd-Frank Act, energy companies and financial firms that utilize swaps to for hedging their exposures still need to ramp up their compliance procedures in order to meet an expected onslaught of CFTC information requests.
“Swap reporting will require new IT responses, with the primary need to consolidate and aggregate data form disparate systems in order to report that data for compliance,” said Patrick Woody, senior strategist for regulatory risk compliance at SAS RiskAdvisory.
According to a survey of oil and gas trading companies, utilities and hedge funds conducted by research firm CommodityPoint, many market participants have made little progress in developing compliance processes. “Most of the energy companies are barely ready when it comes to reporting,” Woody said.
On April 9, 2013, the CFTC granted last minute no-action relief from portions of the CFTC’s swap reporting rules. The relief delays certain compliance deadlines for many swap market participants, including corporate end-users and buy-side financial institutions.
The no-action relief generally grants financial entities (other than Swap Dealers and Major Swap Participants) and non-financial entities additional time to comply with their swap reporting obligations, but financial entities did not receive any additional time to report interest rate and credit swaps, and must have started reporting on April 10, 2013 if they are the reporting party.
The CFTC will use the data that’s reported to the SDRs for trade surveillance, and companies should be prepared for a sharp increase in inquiries, for which they will need to be able to pull data together quickly in order to respond.
“For Dodd-Frank, trade surveillance is next big compliance surprise,” said Woody. “Just as the industry is beginning to get a handle on swap reporting, a level of regulation end users in the OTC market have not faced before, the CFTC is tooling up to make use of all the additional data those reports will generate, and will make requests and inquires for more information based on what’s coming in to their systems. Those CFTC requests will require a major time commitment.”
Reporting of swaps data will potentially allow the Commission to track systemic risk by conducting market oversight across various trading venues (Designated Contract Markets (DCMs) and future Swaps Execution Facilities (SEFs)).
“Unfortunately, because the Commission’s rules did not clearly identify the data fields or the format in which such data has to be reported, the Commission has been struggling with managing and analyzing this data,” said CFTC Commissioner Scott O’Malia in an April 16 speech. “To be clear, inconsistent reporting and variability in the data, as well as technology shortfalls combined with incongruent rules, have made the data presently unusable to the Commission.”
The CFTC has also granted separate no-action relief for the reporting obligations imposed on inter-affiliate swaps. There has been no extension of the deadline to comply with the CFTC’s swap recordkeeping requirements or the deadline for all swap market participants to obtain a legal entity identifier, for which the deadline remains April 10, 2013.
Swap Dealers and Major Swap Participants must comply with external business conduct rules on May 1, 2013 and ISDA continues to encourage market participants to adhere to the August 2012 Dodd-Frank Protocol (“Protocol”) as quickly as possible in order to facilitate compliance with these rules.
Traders are increasingly being asked how ESG fits in execution.
Richard Turner of Insight Investment sees more automation and more transparency around cost and outcomes.
The suite enables GAM to seamlessly manage market risk exposure and liquidity and investment risk.
Asset manager anticipates an SEC decision on converting its fund to a spot bitcoin ETF by early July.
Fidelity continues to hire thousands to support cryptocurrency.