In its feedback to the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) joint proposals regarding reporting to swaps data repositories, derivatives specialist vendor Markit suggests the industry needs a data aggregator in order to gather together the data spread across the various repositories in the market. This indicates that Markit may be considering extending its reach even further in the derivatives data space, following its tie up earlier this year with Omgeo by providing such a data aggregation service to the regulatory community.
In the data vendor’s response to the regulators, it raises concerns regarding a proliferation of these new repositories and the resulting fragmentation of data. “Markit believes that a data aggregator will be necessary in order to provide useful real-time reporting as well as an overall appropriate view of the marketplace for regulators,” it contends as a solution to this fragmentation problem. The response also promotes the SEC’s proposal for dissemination of swap transaction and pricing data to the public in real time, above the CFTC’s own proposals, and notes that it might be “preferable to designate an entity capable of putting information together from multiple swaps data repositories”.
These references to an external data aggregator are likely to represent the vendor’s intentions for a future bid to service this requirement, given its involvement in the derivatives data sector thus far. The vendor already partners with the Depository Trust & Clearing Corporation (DTCC) to provide the MarkitServ platform for electronic trade confirmation of OTC derivatives; provides data aggregation services under its research product banner (such as Markit MSA); provides a centralised repository of transactional loan data; and online document storage capabilities with the Markit Document Exchange (MDE) platform, among other things.
Markit also notes that swaps data repositories could themselves offer value added, transaction related services to the market, such as matching, confirmation and portfolio valuation. However, these would be separate from the “core” regulatory functions of the repositories and Markit noted that using this data for commercial purposes would require a licence of some sort. One can therefore expect to see much more from the vendor in the swaps data space in the future, as it ramps up its regulatory and data focused activities overall.
To this end, earlier this month, Markit partnered with post-trade solution provider Omgeo to connect Omgeo’s standing settlement and account instructions (SSI) database Alert to MDE, the latter’s online document storage platform. Markit has previously indicated that MDE is aiming to eventually become a one stop shop for all the data needed from the buy side by providing reference data extraction and validation services. By linking the documents on MDE to the accounts on Omgeo Alert, the vendors claim that the sell side can identify the counterparty, access its associated documents and efficiently open an account. And this is just one data related development on the cards for this year.
Turning briefly back to its response to the CFTC and SEC, Markit also notes that both regulators need to get on the same page because at the moment, there are several discrepancies between their individual proposals for this space. For example, the vendor points out the potential for an arbitrage opportunity for market participants when one leg of a transaction falls under the SEC’s jurisdiction and another under the CFTC’s jurisdiction such as when dealing with single name credit default swaps (CDS).
On the subject of pricing, Markit’s response also indicates that there may be special factors that have an effect on the price of a swap that may mislead market participants. It also mentions that the vendor has looked at a counterparty value adjustment and that everyone in the market has different approaches, which may make compliance with some of the data fields difficult.
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