A joint working group of the Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organisation of Securities Commissions (Iosco) has published a consultation paper this week setting out recommendations for the operation of trade repositories in the OTC derivatives markets. Data sharing and new data infrastructure is a subject that has been much discussed over recent months and the consultation paper indicates that these repositories will have a significant impact on firms’ data supply chains.
The introduction of repositories in this space is all part of the post-crisis regulatory effort to improve the post-trade infrastructure for the OTC derivatives market. However, there is some degree of disagreement remaining about whether a single or multiple repositories are required. European regulators in particular are concerned that a US-based single repository in the form of the Depository Trust & Clearing Corporation’s (DTCC) Trade Information Warehouse might not be the right option and multiple repositories may be needed, especially one based in Europe.
To this end, the consultation paper sets the ground rules for the establishment and operation of such repositories, which are aimed at centralising information on outstanding OTC derivatives transactions and helping to improve the market’s overall transparency. “A well designed trade repository that operates with appropriate risk controls can provide an effective mechanism to collect and disseminate reliable data in a timely and proper manner to relevant authorities and the public, thereby strengthening the scope and quality of information available regarding the OTC derivatives market,” states the paper.
Exactly what constitutes “reliable” data and a “timely” manner is at the heart of the related derivatives data management challenge. The repository will take the data that is generally held by counterparties and often stored in proprietary systems in various formats with different data fields and turn it into standardised and complete data sets. However, this data will not replace that being used by individual counterparties, counterparty data will instead need to be reconciled with the trade repository data, adding another layer of data processing to the data supply chain.
A proportion of the data held by the repository will therefore be seen as a reliable record of the relevant trade information, says the paper: “Some data maintained in a trade repository may be considered the ‘official legal record’ of the transaction and therefore constitute the data that can be used for various downstream processing.” Regulators are convinced that this will thus bring down some of the cost and risk in the market related to data cleansing, but it will involve another layer of data reconciliation.
Market participants have until the 25 June to provide responses to the regulator on the proposals within the consultation paper, including voicing any concerns they may have about the operational reliability or governance of these repositories.