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The Depository Trust and Clearing Corporation (DTCC) today testified before a Senate Committee that the company is fully prepared to meet the September deadline for compliance with new swap data reporting requirements in the Dodd-Frank Act.
During a hearing of the Senate Committee on Agriculture, Nutrition and Forestry, entitled “Dodd-Frank Wall Street Reform and Consumer Protection Act: 2 Years Later," Larry Thompson, DTCC Managing Director and General Counsel, told the Committee that two DTCC subsidiaries have already applied for registration with the Commodity Futures Trading Commission (CFTC) to operate as swap data repositories for all OTC derivatives asset classes – credit, interest rate, commodity, equity, and foreign exchange (FX). These new SDRs will be operational for interest rate and credit swaps in August – well in advance of the mid-September reporting deadline.
“DTCC will be ready on Day One to meet the new reporting requirements," Thompson said. “Over the past two years, DTCC has made substantial investments to design, develop and implement systems to support swap data reporting for all five OTC derivative asset classes. This infrastructure has been designed with maximum flexibility so that it can evolve over time to meet the changing needs of regulators and market participants. Regulators can leverage these resources in their efforts to enhance market transparency and ensure a safe and sound financial system."
DTCC’s ability to provide transparency into OTC derivatives markets predates the adoption of Dodd-Frank and reflects extensive experience operating the centralized, comprehensive global electronic data repository for the credit default swap (CDS) market, which holds detailed trade information on more than 98 percent of all CDS transactions globally.
Comprehensive global market information is published weekly by DTCC and is made available at no cost to regulators and the public at www.dtcc.com. DTCC also launched a “Regulatory Portal" in January 2011 to give regulators efficient access to more granular data. Today, over 40 regulators worldwide are accessing the portal, including U.S., European, and Asian authorities as well as regulators from other regions.
"Against the backdrop of the sovereign debt crises, corporate failures, credit downgrades and significant losses by financial institutions as a result of OTC derivatives transactions, data transparency in the CDS market achieved through voluntary industry reporting has helped to ensure market stability during times of volatility and given supervisors and the public the ability to more fully understand risk concentrations and levels of exposure," Thompson said.
Thompson said that while transparency represents an important first step in giving regulators the tools they need to better understand systemic risk and more effectively perform market surveillance and oversight, the next step involves regulators acquiring the analytical tools to red flag excessive risk-taking so they can take action quickly to prevent or mitigate systemic shocks to the financial system.
“Regulators must have the appropriate tools to analyze the data for both systemic risk oversight purposes and to identify potential abusive or manipulative market behavior," Thompson said. “Having the raw data is important, but unless regulators are equipped with the necessary resources to understand and analyze the data, the full benefits of reporting swap transactions will not be realized. It is critical, for reasons of both time and money, that regulators leverage the capabilities of existing infrastructures to develop the necessary tools needed to identify certain risky behaviors on an automated basis."
Thompson also urged regulators to implement new reporting mandates that ensure the continued aggregation of swaps data. DTCC has raised concerns previously over the indemnification provisions of Dodd-Frank, which could fragment the global data set for OTC derivatives and undermine efforts to increase market transparency.
In addition, Thompson noted that the public sector is not currently in the position to allocate scarce resources and the extensive time needed to develop data collection and reference data efforts, like the Legal Entity Identifier initiative. DTCC has suggested that the industry shoulder these costs in order to free up the public sector to make investments in developing critical analytical tools and perform required oversight.
