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DTCC’s Not So Subtle Positioning

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Last year, the Depository Trust & Clearing Corporation (DTCC) kicked off its bid to set itself up as an industry data utility with the acquisition of UK-based counterparty and entity data vendor Avox, but at that point, it was rather cautious about publically declaring its intentions in the regulatory data space. Not so this year, with its response to the US Office of Financial Research (OFR) last month, which actively promotes its capabilities as the data collection facility underlying the new Treasury agency, its recent launch of an automated portal for regulatory access to global credit default swap (CDS) data and chairman and CEO Don Donahue’s testimony this week before the House Financial Services Committee, which further emphasises the potential of its Trade Information Warehouse (TIW) in the derivatives oversight context.

As for its OFR bid, DTCC indicates in its response that it meets most of the basic criteria set out by the new agency in its proposals: it is industry (user) owned; it is operated on an at-cost basis; it has proven data storage capabilities and experience; and the potential for truly global coverage and connectivity. However, although its acquisition of European-based Avox has bought it some credibility across the pond, it may still struggle in certain European markets due to its perceived US centricity. One can expect to see the DTCC’s efforts to address these concerns being stepped up over the next few months. The launch of the CDS data portal is merely the start of this campaign.

The CDS data portal itself has been designed to provide on demand access to regulators on global OTC derivatives transactions data in order to enable them to track systemic risk. The service can therefore be tailored to the particular requirements of the individual regulator, according to DTCC, thus aiming to highlight its cross border appeal. The vendor indicates that 19 regulators are currently using the portal, but who are they and how many of them are US-based?

Unfortunately, the names of the regulators currently live on the CDS data portal are confidential, although the DTCC indicates they are from Europe and the US. This hardly seems in the spirit of greater global transparency, but regulators are often a secretive bunch and what’s good for the gander, isn’t necessarily always deemed applicable to the goose (to mangle an analogy).

The percentage of US versus European regulators using the platform is roughly 50/50, according to a DTCC spokesperson. However, the countries from which these regulators originate would be a better metric to determine how open the global community is to the idea of the DTCC as a global data utility and that data is not publically available.

The very fact that there are a number of European regulators connected to the platform already is, no doubt, a good sign for the DTCC. However, if the majority of these are from a particular region of Europe, then this could indicate that the DTCC may have a longer road to travel in terms of upping its global cred. After all, Continental Europe has a track record of appearing very frosty to initiatives emanating from across the pond.

However, the DTCC will not be resting on its laurels in the meantime. Donahue did his bit this week to champion the cause of a single global utility for this OTC data – rather than the federated model or multiple regional utilities, as proposed by 10 of the respondents to the OFR in the context of reference data. Although Donahue was referring directly to the OTC derivatives data markets in his testimony, he could equally have been talking about the OFR’s underlying reference data utility.

For proof, note the tone of this part of Donahue’s testimony, which ticks all the OFR boxes, as well as those for the monitoring of OTC derivatives data: “It was critical to the success of this process to remove commercial concerns from what is and should remain primarily a regulatory and supervisory support function. As a true industry governed utility, with both buy side and sell side firms, not to mention self-regulatory organisations, as stakeholders, DTCC has so far been able to secure the cooperation of virtually all market participants and all clearers and trading platforms with any significant volume. The challenge going forward is to bring similar regulatory and public transparency to other parts of the swap markets.”

He suggested that extremely rapid implementation of such a regulatory data utility could be achieved (in six to nine months, no less) if the regulatory community opts to use already existing infrastructure in the form of the DTCC’s TIW, otherwise known as “proven, non-commercial infrastructure that distinguishes the function of swap data repositories from commercial considerations and jurisdictional squabbles”. To this end, one of the key terms that the DTCC seems to be associating its offering to the market with is ‘transparency’, and Donahue repeatedly referred to the need for transparency of data in his speech.

These terms are certainly reflective of the DTCC’s newly strengthened message to the market: it is a utility that is already doing a lot of what the regulatory community needs it to and it could represent the lowest cost option for a market already burdened with regulatory funding crises and a recessionary climate. Moreover, Donahue had no qualms about warning the House Financial Services Committee about the potential costs of choosing the wrong route, which he said could lead to misleading reporting of exposures and a very expensive “fix” for the regulators and the marketplace generally.

If you missed it on the regulations.gov website, the DTCC’s submission on the subject of the OFR’s legal entity identification proposals is available to download below.

PS If I am able to find out the percentage of US versus other international regulators using the CDS data portal, you’ll be the first to know!

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