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CFTC finalizes whistleblower, swap data rules

 WASHINGTON, Aug 4 (Reuters) - The U.S. futures regulator finalized on Thursday new measures on 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 approved rules 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 information such as pricing and trading volumes must be recorded and collected in new swap data repositories.

A CFTC final rule approved 4-1 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 if the database is registered with overseas and U.S. regulators.

"The rule adopted today by the CFTC for swaps data repositories is bad for reform, bad for transparency, and bad for taxpayers," said Dennis Kelleher, the chief executive of Better Markets, a public interest group, who noted the plan will allow big banks retain control of the new derivative entities.

"SDRs control the data and whoever controls the data will have the ability to control the marketplace," he said.

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 will be able to collect millions of dollars in rewards for reporting financial wrongdoing, mirroring a plan approved in May by the Securities and Exchange Commission, that regulators hope will boost the number of tips they receive.

The CFTC and SEC's rules, 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.

A whistleblower could bypass internal reporting, but the CFTC said a whistleblower's decision to report internally first could potentially increase the amount of the award.

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

Jill Sommers, a CFTC commissioner who was the only one to vote against the rule, said "robust" internal compliance programs would go a long way toward preventing, detecting and fixing violations. It would save the CFTC time and money since the whistleblower won't always come to them first.

"Setting up a whistleblower program that allows all whistleblowers to bypass internal compliance programs will likely deprive such programs of the very information they need to be robust and effective," said Sommers, a Republican.

The CFTC also unanimously finalized 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.

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

The CFTC on Thursday announced it will hold rule-making meetings on Sept. 8 and 22, Oct. 4 and 18 and Nov. 1 and 17. O'Malia and Sommers voted against additional meetings until the CFTC can issue a plan listing the timing of when the rules will be finalized and then implemented.

The agency must still finalize the most controversial rules, including proposals to limit excessive speculation, define an end user and capital and margin requirements.

(Reporting by Christopher Doering)

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