The Depository Trust & Clearing Corporation (DTCC) will be focusing on taking its services forward this year in line with regulatory developments, according to Stewart Macbeth, general manager of the DTCC’s Trade Information Warehouse (TIW). At the start of this year, it launched its automated portal for regulatory access to global credit default swap (CDS) data and the plan is to potentially extend these services and those of the TIW to other instruments, he explains to Reference Data Review.
TCC’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.
“We have published aggregate data about the CDS market and we have been building out this data set since late 2008,” explains Macbeth. “In mid-2010, US regulators issued some guidance about the data they needed in order to effectively perform their supervisory functions. The guidance also set jurisdictional boundaries between the different regulators in the US market. This is what compelled us to develop our CDS portal for regulators and we have been developing suitable reports for these regulators in accordance with the guidelines.”
Regulators such as the Commodity Futures Trading Commission (CFTC) have been particularly vocal about the data requirements for new trade repositories within certain markets; the swaps markets, in the case of the CFTC. In Europe, the Committee of European Securities Regulators (CESR, which is now ESMA) has also championed the need for a trade repository for OTC derivatives data and discussed the relevant requirements. These discussions and requirements are therefore being closely monitored by the DTCC in order to shape its offering to the regulatory community.
“Our goals this year are to take these services forward in alignment with regulatory developments and to potentially extend into other markets,” explains Macbeth. However, he notes that trouble may lie ahead as the US swaps data repository requirements and not consistent with the European Market Infrastructure Regulation (EMIR) or MiFID. “It is clear that within the US market, for example, that there will be price dissemination and very detailed information about contracts that must be submitted to repositories, but European regulators are not looking for the same level of detail for these repositories.”
This divergence is because some European regulators are focused on oversight at a systemic or prudential level, whereas others are focused on surveillance of individual trades. In the US, these two aspects of regulation are viewed together rather than separate, elaborates Macbeth. “There is a clear need for aggregate and consistent data acknowledged within Dodd Frank and the regulatory requirements largely apply to US persons. However, the fact that the regulation covers all US traded and cleared products may mean that if a different tack is taken by other regulators outside of the US then there is the danger of some duplication of trade data taking place during aggregation processes,” he warns. “There is a key need for data to be produced that can be aggregated and is compatible with global data sources, otherwise fragmented data sources will remain.”
This logic also applies to the counterparty and client data equation, which is on the ‘to do’ list of many of the regulators at the moment in terms of introducing greater standardisation. Macbeth indicates that the DTCC expects regulators will recognise the need for the adoption of globally consistent counterparty codes and to do this, they therefore will have to recognise one standards body for these codes.
“There may be some initial issues with territoriality, but we foresee this being possible in the near future,” he contends. He also reckons that the US and Europe are both aware of the issues, regardless of the fact the US appears to be pushing ahead with change first. “MiFID endorsed the use of Swift Bank Identifier Codes (BICs) when it was implemented back in 2007, so I think European regulators are already aware of the counterparty data issue,” he says.
As for the future of the trade repository space, Macbeth is convinced that more change is ahead: “There are various trade repository providers within individual markets and we are the only repository in the credit derivatives market. We have also been endorsed by the G14 dealers for use within the equity derivatives market. However, there may be more than one repository in each market in the future, as US regulators recognise a competitive model to provision.”
He points to recent discussion about how central clearers will position themselves in the relatively nascent repository market as proof of potential competition due to the fact “they believe they also have a rich data set for the subset of trades in the market they clear”. Macbeth reckons the industry will definitely see more market side processes to understand who could offer repository services to other markets such as commodities.
“However, all of this will have to be balanced so that there is not fragmentation of information across these individual markets,” he cautions. Much progress has been made since the DTCC launched its credit derivatives trade confirmations service back in 2003 and began down the trade repositories path. The TIW has established itself within the credit and equity derivatives markets and the financial crisis certainly had its part to play in emphasising the importance of the central storage of trade data for these markets.
“The introduction of a centralised trade data warehouse means that firms can now reconcile to a central data set,” says Macbeth. “Trade repositories are now generally seen as a useful tool for the regulatory community.”