On December 19, 2017, the National Futures Association (NFA) issued a reminder notice to its members regarding the upcoming effective dates for the submission of standardized data for swap valuation dispute notices (see Notice I-17-13) and monthly risk data reports (see notice I-17-10, as reported in the June 2, 2017, edition of Corporate and Financial Weekly Digest).
In January 2016, the Commodity Futures Trading Commission issued an order authorizing NFA to receive, review, maintain and serve as official custodian of swap valuation dispute notices that swap dealers (SDs) are required to file pursuant to CFTC Rule 23.502(c). The CFTC later approved NFA Interpretive Notice I-17-13 to NFA Compliance Rule 2-49 which, among other things, standardized the information that SDs are required to report electronically to NFA and specifies that SDs must file notices of swap valuation disputes that have not been resolved within the time frames set forth in CFTC Rule 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; or
- 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 is effective for dispute notices required to be filed on or after January 2.
Additionally, as a key component of NFA’s regulatory oversight program for SDs, NFA can identify firms that may pose heightened risk and allocate NFA’s regulatory oversight resources accordingly. NFA’s board of directors determined that this risk monitoring function will be more effective if it includes the ability to monitor SD risk exposures on a regular basis. To achieve this, NFA’s board approved a list of 10 metrics that SDs will be required to report electronically to NFA on a monthly basis. These metrics include: (1) Value at Risk (VaR) for interest rates, credit, FX, equities, commodities and total VaR; (2) total stressed VaR; (3) interest rate sensitivity; (4) credit spread sensitivity; (5) FX market sensitivity; (6) commodity market sensitivities; (7) total swaps current exposure before collateral; (8) total swaps current exposure net of collateral; (9) total credit valuation adjustment or expected credit loss; and (10) a list of the 15 largest swaps counterparty current exposures for current exposures before collateral and for current exposures net of collateral.
The first risk data report as of December 29, 2017, is due January 31.
NFA’s reminder notice is available here.
NFA’s notice I-17-10 is available here.
NFA’s notice I-17-13 is available here.