The cost of the Commodity Futures Trading Commission’s (CFTC) proposals to introduce new customer data reports, dubbed the account ownership and control report (OCR), is likely to represent a “significant burden” for market participants in the futures industry, according to Futures Industry Association president John Damgard. In a letter sent to CFTC secretary David Stawick last month, Damgard highlights the data management challenges that represent significant barriers to the industry in meeting these new requirements, including a lack of uniformity of data management systems.
The response is a reaction to the proposals regarding new reporting requirements for ownership and control data for the futures market released by the CFTC back in July. In its advanced notice of future rulemaking, the CFTC proposes that futures industry participants should submit OCR reports to the regulator on a periodical basis. Specifically, OCR data would include entity information including trading account numbers, the names and addresses of accounts’ owners and controllers, owners’ and controllers’ dates of birth and other information necessary to uniquely identify owners and controllers to identify related trading accounts.
Damgard asks the CFTC to hold off on implementing these proposals, as he believes them to be “premature”, given the lack of standardisation of data management practices across the industry. Instead he suggests an industry-wide committee should be formed to discuss the operational issues involved in the reporting process and to provide feedback on the “appropriate design” of the OCR.
In the letter, he notes that there are issues with requiring designated contract markets to provide OCR reports, as they are often not the parties that hold the required customer account data. Rather it is the futures commission merchants that hold and maintain this data, but it is not held in a manner that is easily translated into a regulatory reporting format suitable to be submitted to another party. “The financial and operational costs of requiring futures commission merchants to modify their recordkeeping and reporting systems in order to be able to provide designated contract markets with the information proposed to be collected through the OCR in an acceptable format would impose a significant burden on futures commission merchants in any environment,” states the letter.
Damgard therefore indicates that the potential costs “far outweigh the expected benefits” for the regulator and, instead, the CFTC should consider establishing a single repository to store this data for the sector as a whole. This would avoid duplicative procedures for data submission and reconciliation requirements.
However, he also notes the need for uniformity with regards to the “content, format and transmission of OCR data”; standardisation of data management practices is needed. Currently, futures commission merchants’ recordkeeping systems are not uniform in the creation, use, form, storage and retention of this customer data; these systems are generally firm specific in nature. Much like other sectors of the financial services community, entity data remains a challenge due to a lack of standardisation of practices and formats in the market.
Moreover, the futures industry is one step behind some other sectors of the market with regards to storing older account information, according to Damgard, because of its paper-based storage facilities. For those data items that are stored electronically, the problem of legacy and siloed system architectures rears its ugly head, with the related data incompatibilities therein.
The uniformity of the actual data collected is also wanting, states Damgard, as firms may collect different data items from account owners or controllers. This problem is exacerbated by global entities, where relationships between different account holders may reside at different levels or locations within the entity in question, thus providing a dilemma when it comes to reconciling address data for an account holder.
He adds that the CFTC should also carefully reconsider some of the data items it will require in the OCR reports, as data such as taxpayer identification numbers is not currently collected by market participants.
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