The CFTC approved a final rule to amend the definitions of “portfolio reconciliation” and “material terms” in order to facilitate swap portfolio reconciliation. The portfolio reconciliation is the process through which the parties to a swap (i) exchange the terms of all swaps in the swap portfolio between the counterparties, (ii) exchange each counterparty’s valuation of each swap in the swap portfolio between the counterparties as of the close of business on the immediately preceding business day, and (iii) resolve any discrepancy in material terms and valuations.
The rulemaking adopts suggestions of commenters by requiring counterparties to exchange only the material terms of swaps, and by defining “material terms” as encompassing only the minimum primary economic terms of a swap, as defined in appendix 1 of part 45 of the CFTC rules. The final rule also eliminates the requirement that data fields be exchanged when they do not affect the valuation of the swap or the payment obligations of the counterparties, thereby reducing the number of data fields with differences that parties must resolve in portfolio reconciliation exercises.
In a separate statement, CFTC Commissioner J. Christopher Giancarlo emphasized that the final rule “is much improved from the propos[ed]” version, and that it “streamlines the portfolio reconciliation process and reduces costs for market participants without undermining the [CFTC’s] objectives for portfolio reconciliation.”
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