New Dodd-Frank rules have allowed regulators their first look into swap data repositories, but the quality of swap data is not always up to par. In fact, it has been called “a mess” by CFTC Commissioner Scott O’Malia, who also chairs its Technology Advisory Committee. O’Malia sat down with John Lothian News editor-at-large Doug Ashburn at SEFCON IV to discuss the commission’s data challenges and his “call to action” in early 2014.
After the financial crisis in 2008-09, regulators in the U.S. and around the world instituted a complete overhaul of the financial markets, with one of the chief goals being full transparency in the previously unregulated swaps market. The regulatory wish list included central counterparty clearing of swaps, the trading of swaps on registered platforms, and the reporting of trade data to central repositories, so that market overseers can identify risks that may be building in the system.
The Dodd-Frank Act put the lion’s share of rule writing, implementation and enforcement of swaps in the hands of the Commodity Futures Trading Commission (CFTC). The rules are, for the most part, in force, but a number of issues remain. Among the more critical areas of need is in the reporting and aggregation of swap data. Though the three swap data repositories operating in the U.S. – DTCC, CME Group and ICE – have been fulfilling their regulatory requirements in the reporting of swap data, there is a limit to what the CFTC is able to do with the data.
“Our data is a mess,” says CFTC Commissioner Scott O’Malia. “It is not reliable, it is not clean, in many cases we suffer from over-compliance, duplication of reporting, and inconsistencies of standards. This has really compromised our ability to effectively use this data.”
O’Malia, who also chairs the CFTC’s Technology Advisory Committee* (TAC), is calling for a plan of action in early 2014. In February, the commission will make its first determinations as far as which classes of swaps will become “made available to trade,” at which point the swaps will be required to trade on designated contract markets (exchanges) or swap execution facilities (a new type of entity given life by Dodd-Frank).
O’Malia says the first step is to work with the TAC and the three SDRs to harmonize the data such that it can be of use to regulators. Then the commission can shift its resources from “cleaning and sorting” data to actual oversight of the market.
*JohnLothianNews.com publisher John Lothian serves on the CFTC’s TAC committee.