An interim rule approved last month by the US Commodity Futures Trading Commission requiring the reporting of certain swap deals entered into before the financial regulatory reform law took effect will impose new costs and burdens on energy firms, a number of industry trade groups told the agency.
In Monday comments to the CFTC, the groups, including the Edison Electric Institute, the Working Group of Commercial Energy Firms and the Not-For-Profit Electric End User Coalition asked the agency to provide a "safe harbor" for firms that make good-faith efforts to comply with a rule they see as ambiguous and incomplete.
"Without clear guidance regarding the scope and application of the [rule], participants in certain [over-the-counter] derivatives markets, notably energy markets, must make good-faith determinations as to whether certain transactions are reportable as pre-enactment swaps," the Working Group wrote.
Under the interim rule, counterparties of unexpired swap deals entered into before the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law July 21 must be reported to the CFTC or to a still-to-be-created swap data repository. EEI told the agency that interim rule "creates significant legal and regulatory uncertainty," largely because it requires reporting of swaps before the CFTC and Securities and Exchange Commission have defined the term swap under the Dodd-Frank law.
"The lack of clarity on the definition of 'swap' in addition to the definitions of 'swap dealer' and 'major swap participant' coupled with the broad language in the [rule] requires market participants to make a good faith determination as to the definitions and then proceed with satisfying ambiguous and potentially costly retention and reporting requirements," EEI said.
EEI said to address this ambiguity its members will interpret swap as consistent with existing US law, but asked that required reporting documents be limited to final confirmations, master agreements and any modifications and annexes. In addition, EEI said it wants any forward contracts and option contracts that contain an obligation for physical delivery to be exempt from the reporting rule, a request echoed by the Working Group of Commercial Energy Firms.
The group, whose members include BP, ConocoPhillips, Constellation Energy, Hess and Vitol, Monday asked that when identifying which swaps to report, its members be allowed to rely on regulations in place before Dodd-Frank and asked that the CFTC limit the amount of information reported. For example, it may be difficult for firms to report time of execution for a particular trade, because this information is not typically retained.
In separate comments Monday, Hess wrote that the CFTC should "recognize that until the key terms in the Dodd-Frank Act are defined, a swap counterparty can make only a good-faith effort, based on its reasonable assumptions, to comply with the reporting and record retention requirements in the [rule]."
And the Not-For-Profit Electric End User Coalition told the CFTC it believes the rule "creates uncertainty as to what business records end users are required to retain in respect of pre-enactment swaps."
The coalition's member firms often do not have data storage systems to comply with this rule, it said, adding that it "would be impossible for an end user hedging commercial risk to retain all information relevant to the value or pricing of any particular swap transaction."
The coalition comprises three power trade groups: the National Rural Electric Cooperative Association, the American Public Power Association and the Large Public Power Council.
In its comments, the American Gas Association wrote that the reporting rule may be too burdensome for industry and said the CFTC should require market participants to provide a limited amount of information on a given swap. For example, summary data of swaps should be required, rather than copies of transaction confirmations which "can be lengthy and contain much extraneous information," the AGA said.
"To ensure that gas utilities and other end users should not be required to invest in significant information systems upgrades or management processes to document and report these few transactions, the [CFTC] should ensure that end users need only report basic data and that a variety of easy reporting schemes are available, such as on-line forms or email submissions," the AGA added.
In Monday comments to the CFTC, the groups, including the Edison Electric Institute, the Working Group of Commercial Energy Firms and the Not-For-Profit Electric End User Coalition asked the agency to provide a "safe harbor" for firms that make good-faith efforts to comply with a rule they see as ambiguous and incomplete.
"Without clear guidance regarding the scope and application of the [rule], participants in certain [over-the-counter] derivatives markets, notably energy markets, must make good-faith determinations as to whether certain transactions are reportable as pre-enactment swaps," the Working Group wrote.
Under the interim rule, counterparties of unexpired swap deals entered into before the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law July 21 must be reported to the CFTC or to a still-to-be-created swap data repository. EEI told the agency that interim rule "creates significant legal and regulatory uncertainty," largely because it requires reporting of swaps before the CFTC and Securities and Exchange Commission have defined the term swap under the Dodd-Frank law.
"The lack of clarity on the definition of 'swap' in addition to the definitions of 'swap dealer' and 'major swap participant' coupled with the broad language in the [rule] requires market participants to make a good faith determination as to the definitions and then proceed with satisfying ambiguous and potentially costly retention and reporting requirements," EEI said.
EEI said to address this ambiguity its members will interpret swap as consistent with existing US law, but asked that required reporting documents be limited to final confirmations, master agreements and any modifications and annexes. In addition, EEI said it wants any forward contracts and option contracts that contain an obligation for physical delivery to be exempt from the reporting rule, a request echoed by the Working Group of Commercial Energy Firms.
The group, whose members include BP, ConocoPhillips, Constellation Energy, Hess and Vitol, Monday asked that when identifying which swaps to report, its members be allowed to rely on regulations in place before Dodd-Frank and asked that the CFTC limit the amount of information reported. For example, it may be difficult for firms to report time of execution for a particular trade, because this information is not typically retained.
In separate comments Monday, Hess wrote that the CFTC should "recognize that until the key terms in the Dodd-Frank Act are defined, a swap counterparty can make only a good-faith effort, based on its reasonable assumptions, to comply with the reporting and record retention requirements in the [rule]."
And the Not-For-Profit Electric End User Coalition told the CFTC it believes the rule "creates uncertainty as to what business records end users are required to retain in respect of pre-enactment swaps."
The coalition's member firms often do not have data storage systems to comply with this rule, it said, adding that it "would be impossible for an end user hedging commercial risk to retain all information relevant to the value or pricing of any particular swap transaction."
The coalition comprises three power trade groups: the National Rural Electric Cooperative Association, the American Public Power Association and the Large Public Power Council.
In its comments, the American Gas Association wrote that the reporting rule may be too burdensome for industry and said the CFTC should require market participants to provide a limited amount of information on a given swap. For example, summary data of swaps should be required, rather than copies of transaction confirmations which "can be lengthy and contain much extraneous information," the AGA said.
"To ensure that gas utilities and other end users should not be required to invest in significant information systems upgrades or management processes to document and report these few transactions, the [CFTC] should ensure that end users need only report basic data and that a variety of easy reporting schemes are available, such as on-line forms or email submissions," the AGA added.
