CFTC to finish whistleblower, swap data rules

Thu Aug 4, 2011 9:30am EDT

* CFTC to finalize third set of Dodd-Frank rules

* CFTC still must finish nearly 40 more rules

* Regulator to publish meeting dates for rest of 2011

By Christopher Doering

WASHINGTON, Aug 4 (Reuters) - The U.S. futures regulator, is expected to finalize on Thursday new measures outlining requirements for swap data collectors and guidelines for whistle-blowers as it races to meet its obligations required under last year's financial market overhaul law.

The Commodity Futures Trading Commission is far behind schedule in a frenzy to complete nearly 50 rules. The three rules presented Thursday, if passed, will complete about 20 percent of the regulations required under last year's Dodd-Frank financial reform law that gave it oversight of the $600 trillion global swaps market.

The law requires most types of over-the-counter derivatives to trade on exchanges or in new swap execution facilities. The trades also have to pass through clearinghouses, and be recorded and collected in new swap data repositories.

A CFTC final rule outlined on Thursday detailed the requirements for those swap data repositories. SDRs, including those outside the United States, must register with regulators and share their collected data. The CFTC has 180 days to review an application of an entity that wants to register as an SDR.

"Recognizing the importance of SDRs to the regulatory infrastructure of the Dodd-Frank Act, this final rule making establishes a robust - yet flexible - approach toward SDR registration," said Scott O'Malia, a CFTC commissioner.

The final rule included a series of changes from its proposed draft.

The CFTC clarified that as a condition of accepting data, the SDR could not require the submitter to allow it to be used commercially. The repositories also must confirm the data is accurate, but the CFTC now said in some cases they may not be required to with both counterparties in a swap deal.

In addition, foreign regulators with oversight responsibility and proper authority over an SDR would be allowed to access the repository's data directly without going through the CFTC.

The SDRs would not have to comply with all the new requirements until a series of corresponding rules are completed, including the definition of a swap, how data is reported to the SDR and real-time reporting requirements.

"Until those rules are finalized ... the commission can't mandate the registration," a CFTC official said.

BLOWING THE WHISTLE

In a more controversial final rule, whistle-blowers could collect millions of dollars in rewards for reporting financial wrongdoing, mirroring a plan approved in May by the U.S. Securities and Exchange Commission, that regulators hope will boost the number of tips they receive.

The CFTC and SEC's plans, which would pay tipsters between 10 and 30 percent of sanctions over $1 million for original and useful information, has grown into one of the more contentious requirements of the Dodd-Frank law. The CFTC said it averages between 16 and 24 sanctions over $1 million each year.

Companies from Google (GOOG.O) to JPMorgan Chase (JPM.N) have expressed fears the whistle-blower rule will undermine internal compliance programs at public companies by encouraging employees to go directly to the regulator.

"We're not requiring mandatory internal reporting," a CFTC official told reporters on a call in advance of the meeting. "We are going to state in the rule that the commission will consider a whistle-blowers decision to report internally as a factor that can potentially increase the amount of the award."

The CFTC also plans to finalize a rule that would treat agricultural swaps like other over-the-counter derivatives, a move that lifts restrictions and makes it easier for more market participants to use the financial instruments.

Swaps are used by buyers and sellers of farm goods to protect against the risk of price movements.

The futures regulator, which first proposed the rule in January, removed a section on commodity options, which it will issue as a separate rule. A CFTC official said it must first complete various product definitions before it can move forward on commodity options.

Regulators missed a July 16 deadline for implementing most of the rules in Dodd-Frank. As a result, the CFTC and SEC each granted temporary relief to the industry from complying with some swaps rules that had been set to go into effect at that time.

The CFTC is expected on Thursday to announce its rule-making meeting dates for the remainder of the year. The agency must still finalize the most controversial rules, including proposals to limit excessive speculation, define an end user and capital and margin requirements. (Editing by Alden Bentley)

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