CFTC Verification Requirements

Even though the CFTC Rewrite went live on December 5th 2022, a key requirement continues to plague the industry, and particularly Swap Dealers on how to best comply with the verification requirements.

As a recap of the requirement.

Under Part 45.14, reporting counterparties are required to compare data for each swap where it is the reporting counterparty (RCP), which has been submitted to the SDR against the swap data in the reporting counterparty's internal books and records. For Swap Dealers, major swap participants and derivatives clearing organizations, this verification must happen at least every 30 days.

For everyone else, it's at least once a quarter.

Additionally, a reporting party has to keep a log of each verification that it performs. For each verification, the log shall include all errors discovered during the verification process, and the corrections performed.

Any errors discovered through this verification process need to be resolved within 7 business days. If the exception can't be rectified in 7 days, then the reporting party has to notify the Commission of the error, and state their plan for the remediation.

So how are reporting parties meeting these requirements? Is there a standard way the industry is doing this across the SDRs?

Cappitech is working with numerous firms to help them meet their verification requirements.

Cappitech reconciles every data field available in the SDR Trade State report against the clients' books and records.

All trades coming from the system of record are ingested by Cappitech. Eligibility, Determination and Validation rules are run against those trades to determine what should have been reported to the SDR.

Once the universe of eligible trades is established, Cappitech builds an end of day position file by aggregating all the eligible trades into positions. Incidentally, some clients prefer to send us their EOD position files which negates the requirement to aggregate on our end. Those

positions in Cappitech are then compared, field by field against the TSR and the result of the reconciliation is categorized into four areas:

1. Fully Matched - Positions are found on both files and all data fields match
2. Missing From Source - Position is not found on the Cappitech file, but is available in the TSR
3. Missing From End Point - Position is not found on the TSR, but is available in the Cappitech file
4. Discrepancy - Position is found on both files, but there is a mismatch on certain data fields

This reconciliation is performed every day as soon as the TSR files are available, and results of the reconciliation are available in the Cappitech Dashboard and can be sent in a CSV directly to the client sFTP folder.

For more information on how Cappitech can help you meet your regulatory verification requirements, please get in touch.

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.