Alert October 30, 2012

CFTC Issues Interpretive Guidance Regarding Swap Data Repositories and Non-US Regulators

The CFTC issued interpretive guidance designed to clarify that the confidentiality and indemnification provisions in Section 21(d) of the Commodity Exchange Act (CEA) should not operate to inhibit or prevent foreign regulatory authorities from accessing data in which they have an independent and sufficient regulatory interest.

Section 21(c)(7) of the CEA (codified as 7 U.S.C. 24a(c)(7)) requires swap data repositories (“SDRs”) to “make available all data obtained by the [SDR]” to domestic and foreign regulators under certain circumstances.  CEA Section 21(d) (codified as 7 U.S.C. 24a(d)), however, requires that entities receiving that data must first provide the SDR with a written agreement stating that it will abide by certain confidentiality restrictions and will indemnify the SDR and CFTC for any expenses arising from litigation relating to the information provided.

Although previous CFTC rulemaking specified that an “appropriate foreign regulator” may access SDR data without executing a confidentiality and indemnification agreement, the CFTC chose to issue interpretive guidance in response to concerns that certain aspects of the rules remained unclear.  The final interpretive guidance clarifies that a registered SDR would not be subject to the confidentiality and indemnification provisions if it is also registered or recognized in the regulatory regime of a foreign jurisdiction and if the relevant data has been reported to the SDR pursuant to the foreign jurisdiction’s regulations.  The guidance also provides that a foreign regulator’s access to data from a registered SDR that is also registered or recognized in the regulatory regime of the foreign jurisdiction and where the data has been reported pursuant to the foreign jurisdiction’s regulations “will be dictated by that foreign jurisdiction’s regulatory regime and not by the CEA or Commission regulations.”

The guidance passed on a 3-2 party line vote.  Commissioners Sommers and O’Malia issued a joint dissenting statement explaining that the guidance fails to incorporate comments received from the European Securities and Markets Authority and that the guidance does not relieve U.S. regulators other than the CFTC and SEC of the requirement to execute an indemnification agreement—which Commissioners Sommers and O’Malia state they are prohibited from doing—before they can directly access SDR swap data.