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July 20, 2017
Effective date of Interpretive Notice to NFA Compliance Rule 2-49: Swap Valuation Dispute Filing Requirements
The CFTC recently approved NFA's Interpretive Notice to NFA Compliance Rule 2-49 which, among other things, specifies the types of swap valuation disputes that must be reported and standardizes the information that swap dealers (SD) are required to report to NFA. The Interpretive Notice will be effective for dispute notices required to be filed on or after January 2, 2018.
In January 2016, the CFTC issued an order authorizing NFA to receive, review, maintain and serve as the official custodian of swap valuation dispute notices that SDs are required to file pursuant to Regulation 23.502(c). See Notice I-16-07 for additional information. NFA began receiving these notices in March 2016.
Given NFA's experience with these notices to date, NFA has determined that the notices would be more useful for SD monitoring, risk profiling and providing periodic reports to the CFTC, if the notices contained standardized information that could be tracked and monitored across SDs and the industry.
The Interpretive Notice requires SDs to electronically submit a notice of a reportable swap valuation dispute by completing an NFA form requiring specified information. The Interpretive Notice also specifies the types of disputes that must be reported, which vary depending on whether the counterparty is one with which the SD exchanges collateral.
The Interpretive Notice requires SDs to file notices of swap valuation disputes that have not been resolved within the time frames set forth in CFTC Regulation 23.502(c) for the following:
- Disputes involving the amount of initial margin to be posted or collected pursuant to a Collateralized Eligible Master Netting Agreement if the amount of the dispute exceeds the $20 million reporting threshold.
- Disputes involving the amount of variation margin that is to be exchanged pursuant to a Collateralized Eligible Master Netting Agreement if the amount of the dispute exceeds the $20 million reporting threshold.
- Disputes involving transaction or portfolio valuations if the SD does not exchange collateral with the counterparty and the counterparty notifies the SD that it is disputing any valuation provided by the SD if the dispute exceeds the $20 million reporting threshold.
The Interpretive Notice also requires SDs to amend any previously filed notice on the 15th (or the following business day if the 15th is a weekend or holiday) and last business day of each month if the amount of the dispute has increased or decreased in $20 million incremental bands based on the dispute amount on the reporting date. Finally, SDs are required to terminate a previously filed dispute when it is resolved or falls below the reportable threshold. Termination notices are due on the 15th (or the following business day if the 15th is a weekend or holiday) and last business day of each month based on the dispute amount on the reporting date.
SDs will be required to provide the following applicable information for each reportable swap valuation dispute by completing an NFA form through WinJammer™.
- NFA ID
- Legal Entity Identifier (LEI)
- Dispute Reportable Date
- Dispute Type
- Dispute Termination Date
- Disputed Amount (USD)
- CSA/Netting Agreement ID*
- Counterparty Name
- Counterparty LEI or Privacy Law Identifier (PLI)
- Unique Swap Identifier (USI)**
- Base Currency Notional Amount**
- Base Currency Code**
- Notional Value USD Equivalent**
- Asset Class**
- Product Type**
*These reporting items are only applicable to initial margin or variation margin disputes.
**These reporting items are only applicable to transactions where collateral is not exchanged.
To help SDs understand the updated filing requirements, NFA will provide Member training and system instructions in the fall. More information regarding this Interpretive Notice is available in the May 25, 2017 submission letter to the CFTC.
If you have questions, contact Alessandra Riccardi, Director of Risk and Capital, OTC Derivatives (firstname.lastname@example.org or 212-513-6029) or Sean Yu, Senior Risk Analyst II, OTC Derivatives (email@example.com or 212-346-5641). Technical questions may be directed to Jamie Syrek, Senior Systems Manager, OTC Derivatives (firstname.lastname@example.org or 312-781-1577).