On April 10, 2013, certain reporting and recordkeeping requirements imposed by the CFTC pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") will become effective.1 Although some electric and gas utilities, cooperative or municipal utilities, or other similar energy companies that engage in hedging activities with financial entities may not be directly affected by these obligations, companies that engage in swaps with nonfinancial companies may be required to meet the reporting requirements.
- Swap Reporting Obligations
To enhance swap market transparency to regulators and the public, the Dodd-Frank Act establishes a comprehensive swap reporting regime. Under the regime, the "reporting counterparty" to a swap is required to report information about swaps to a swap data repository ("SDR").
Most electric and gas utilities (including cooperatives and municipals) are not likely to be considered "reporting counterparties" because they are not financial entities as defined in CEA § 2(h)(7)(C).2 Under the Dodd-Frank Act, nonfinancial entities do not have any reporting obligations for swap transactions in which the counterparty is a swap dealer, major swap participant ("MSP") or a financial entity as defined in CEA § 2(h)(7)(C). However, the utility or other nonfinancial company must provide the swap dealer, MSP or financial entity counterparty with all necessary information to meet the reporting requirements, but in most instances, the swap dealer, MSP or financial entity counterparty will have all the information needed to meet its reporting obligations. If the non-reporting counterparty becomes aware of any errors or omissions in the data reported, the non-reporting party must notify the reporting party of the error or omission.
Where, however, a nonfinancial company enters into a swap with another nonfinancial company (including inter-affiliate swaps), the counterparties must elect which one of them will report the swap data to the SDR. The information that must be reported includes data on the primary economic terms of the swap, as well as confirmation, valuation and continuation data. If the swap is cleared through a regulated clearinghouse, neither party will be subject to reporting obligations because the required data will flow from the clearinghouse to the SDR.
- Swap Recordkeeping Obligations
All parties to swap transactions will be required to keep "full, complete and systematic records" of their swap transactions. These records, which must be made available to the CFTC, SEC and U.S. Department of Justice for inspection, must be maintained for at least five years after termination of a swap and must be retrievable within five business days.
Recordkeeping obligations differ depending on whether a swap is a "new" swap or a "historical" swap. Historical swaps include so-called "pre-enactment" and "transition" swaps. Pre-enactment swaps are swaps in existence on July 21, 2010 — the date upon which the Dodd-Frank Act became law. Transition swaps are swaps entered into on or after that date but before the April 10, 2013 date for implementation of the recordkeeping requirements.
Counterparties to historical swaps that terminated before April 25, 2011 are required to keep all information and documents relating to the terms of the transactions that they possessed as of October 14, 2010 (for pre-enactment swaps) and December 17, 2010 (for transition swaps). Counterparties to these swaps are not required to recreate documentation or to alter the method by which the information they have is organized and stored.
Counterparties to historical swaps in existence on or after April 25, 2011, however, must keep records of certain minimum primary economic terms, as well as additional documentation, to the extent it has been in the counterparty's possession at any time after April 25, 2011. The additional documentation includes, for example, confirmations, master agreements and credit support agreements.
All information relevant to new swaps (i.e., non-historical swaps) must be retained, including all records demonstrating that a counterparty is entitled to elect the end user exception with respect to any particular swap.