In keeping with its recent focus on data repositories, the Depository Trust & Clearing Corporation’s (DTCC) managing director and general counsel, Larry Thompson, this week testified before the Senate Committee on Agriculture, Nutrition, and Forestry stating that OTC derivatives market transparency could be improved by extending to other asset classes the current data repository model used in the credit default swaps (CDS) market. The DTCC has already indicated its interest in extending its Trade Information Warehouse (TIW) to other instruments, as noted during A-Team Insight’s recent interview with TIW general manager Stewart Macbeth, and this testimony is therefore likely to be the first of many.
Thompson contended that it is essential that both cleared and non-cleared trades be reported to a consolidated swaps data repository or a single repository per asset class to ensure that regulators can see risk from a central vantage point across the global market where these instruments are traded. Moreover, he highlighted the TIW as a potential model: “Regulators and the industry are still working toward achieving that same level of public and regulatory transparency in other OTC derivatives asset classes. The key to success is ensuring a high level of cooperation between global regulators and market participants, as well as the continued use of proven, non-commercial infrastructure. It is critical that the SDR system which emerges from the Dodd-Frank Act regulatory process ensure that the kind of comprehensive data, such as that maintained in DTCC’s Trade Information Warehouse for all derivatives markets on a global basis, is maintained and expanded.”
DTCC’s regulatory focused ambitions have scaled up this year, as it attempts to position its services to meet the upcoming wall of regulatory requirements and the TIW is a key part of this endeavour. To this end, Thompson said the TIW’s success in bringing greater transparency to the market was attributable to the “substantial degree of global regulatory cooperation” achieved through the Over the Counter Derivatives Regulators Forum and the OTC Derivatives Regulators Supervisors Group.
Thompson also raised concerns over the potential for data fragmentation if regulatory cooperation or the cooperation of market participants were to fail. This is a subject that Stewart also raised as a concern in terms of finding a balance between competition and fragmentation in the repositories space. According to Thompson, such fragmentation would inevitably lead to misleading reporting of exposures and a very expensive “fix” for the regulators and the marketplace generally.
“Fragmentation of data will leave the task to regulators of rebuilding in multiple instances the complex data aggregation and reporting mechanisms that have already been created,” Thompson said. “That task was one of the primary reasons that the industry and regulators themselves created a single place for the data within DTCC.”
Thompson also cited DTCC’s recent public announcement highlighting its new online CDS data portal, which has been tailored to meet the needs of the regulatory community. Since it was announced earlier this year, it has bagged another regulatory client, bringing the total on board to 20, according to Thomson.