CFTC Prepares for Swap Reporting

Terry Flanagan

Regulators are preparing for an avalanche of Big Data resulting from mandatory reporting of OTC swaps transactions.

At an April 30 meeting of the Commodity Futures and Trading Commission’s Technology Advisory Committee (TAC), CFTC Commissioner Scott O’Malia outlined the steps the agency was taking for managing the transaction data being collected by Swap Data Repertories (SDRs).

Scott O’Malia, commissioner, Commodity Futures Trading Commission

Scott O’Malia, commissioner, Commodity Futures Trading Commission

“I have called for a cross-divisional data unit with staff dedicated full-time to organizing and examining data for completeness and accuracy, interpreting and analyzing the data, and developing the necessary analytical tools to identify market risk,” O’Malia said.

Another potential tool would be the development of a written “Guidebook” to articulate specific instructions to market participants and SDRs in order to make the data reporting process more consistent and efficient.

“Both the end result and the process, which featured extensive interaction between the Commission and market participants, have been instrumental in getting the reporting system up and running,” he said. “I would hope for similar gains with SDR reporting.”

Central reporting of OTC transactions is one of the three pillars of derivatives reforms, along with execution and central clearing. The CFTC is one of the first regulatory bodies globally to require mandatory reporting of OTC derivatives trading.

The CFTC has extended the deadlines for reporting to SDRs under the CFTC’s Part 43 for swap counterparties that are financial entities until May 29, 2013, for equity, FX and other commodity spasm. The deadline for interest rate and credit swaps was April 10, 2013.

In addition, the deadline for financial swap counterpoise to report historical swap transactions under Part 46 has been extended until September 30, 2013 for all swap asset classes.

The Depository Trust & Clearing Corp. created the first global trade repository, for credit derivatives, in 2006, primarily to provide processing efficiencies for the burgeoning OTC market segment. Since 2008, the DTCC has built global trade repository services for OTC derivatives in multiple asset classes.

DTCC operates a multi-asset class swap data repository (SDR) in the U.S. The SDR, which is operated by DTCC Data Repository (U.S.), or DDR, went live on October 12, the first day of required swap data reporting.

For Europe, the current dates indicated by ESMA are September 23, 2013 for credit and interest rate derivatives, and January 1, 2014 for FX, equity and commodity derivatives.

Impendium Systems, a provider of regulatory applications has extended its Elements regulatory platform for reporting to approved Trade Repositories.

By extending the Elements regulatory Platform for Emir reporting, Impendium enables clients to consolidate their MiFID, Dodd Frank, Remit and Emir reporting via a single consolidated and normalized data set.
“We are seeing a number of different strategies to address this enterprise issue including looking to enhance existing trade feeds to exchanges who will look to act as the data repository,” said Rory McLaren, chief technology officer at Impendium Systems. “This may be appropriate if you only utilize a single exchange across all your trading activities globally, but for the majority of institutions who will need to derive this data across multiple asset classes, the Elements regulatory platform is a key asset in resolving the regulatory burden.”

Swaps transactions need to be reported in near real-time, creating technical challenges for the reporting firms and for DDR.

The CFTC’s O’Malia said that he expected “the TAC’s focus on SDR/data issues to continue well beyond today’s meeting. We will continue to refine our priorities for reporting in order to reach the most effective and efficient ways to collect, manage and utilize data to best effect. These are big challenges, and I will continue to commit the TAC’s attention and resources to help solve these big challenges.”

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