Recent letters between Michel Barnier, the European Commission’s internal market and services commissioner, and US Treasury secretary Timothy Geithner indicate that data sharing is very much at the top of the regulatory agenda at the moment, especially with regards to derivatives. The issue of trade data repositories is at the heart of the debate, as European regulators are concerned that a US-based single repository might not be the right option and multiple repositories may be needed, especially one based in Europe.
Currently, the Depository Trust & Clearing Corporation’s (DTCC) Trade Information Warehouse is the only recognised data repository for OTC credit derivatives, following its approval by the Fed as such earlier this year. The DTCC finally won approval to establish its Warehouse Trust subsidiary, which will operate the repository, as a regulated entity at the start of 2010 after a solid year of campaigning.
However, Barnier sent a letter to Geithner this week calling for “unfettered access” to this derivatives data in order to be able to track risk across the global markets. This indicates, as predicted by Reference Data Review when the Committee of European Securities Regulators (CESR) released its consultation paper, that Europe is keen for a European alternative to the DTCC’s repository. Data is becoming a more politicised issue than ever before.
The storage of derivatives trade data, including counterparty and pricing information, on a central repository has received the backing of the majority of the regulatory community, with a view to reducing the risk in this sector. The industry has also pledged its support for the establishment of these repositories, as indicated by the commitment to provide the relevant transaction data to supervisory authorities made by the International Swaps and Derivatives Association (ISDA) last month.
However, the issue of whether there should be a single global repository or multiple has caused some degree of friction in the political arena. The concern of those in favour of a single repository is that data may become too fragmented across multiple repositories and this would negate the benefit of establishing a repository in the first place. After all, regulators are seeking to have a more consolidated view of the markets globally.
But those on the side of multiple repositories, especially a European one, are concerned that a US-based repository would not provide enough access to non-US regulators. Europeans are keen for a European-based repository to be established in order to ensure that they also have guaranteed easy access to the required data in the case of the default of a systemically important financial institution or another market crisis. The issue is also deeply political, as the regulators are not keen to cede power to the US in this space.
These discussions therefore indicate that the establishment of a second repository based in Europe is imminent. However, it remains to be seen whether this will have a negative impact on the market overall in terms of systemic risk monitoring or the two will complement each other.