Clearing Hikes Data Costs
Swaps information lies buried in Excel spreadsheets.
Central clearing of OTC derivatives, one of the cornerstones of financial reforms, may succeed in lowering systemic risk, but it will substantially increase the volumes of information that firms will need to track and store.
“Most regulations are demanding that firms provide more information or demonstrate that they can provide information – liquidity risk, reporting etc.,” Daniel Simpson, CEO of Cadis, told Markets Media. “One thing we’re seeing is that data underpins all regulations.”
Compliance with regulations such as Dodd-Frank, Basel III and Solvency II is a unifying theme for financial services institutions and this is driving demand for enterprise data management.
In order to meet the standards required by the regulators, firms must be able to present the right data on demand.
“If you look at OTC derivatives, central clearing of OTCs will be a nightmare,” Simpson said. “Most firms are using their accounting systems as their book of records, and there’s only a small subset of data that is stored within the accounting system. CCPs are looking for more information which tends to be buried in Excel or on paper contracts for long dated swaps and all of that information needs to be rekeyed.”
The Cadis EDM platform functions as the central hub for all transactions, securities, prices, rates, counterparty and issuer data.
“We empower those who understand the data to manage the data, no matter the complexity, volume or scope of the project,” said Simpson.
Cadis reported 19 new global clients in 2011, among them Prudential, ING, Loomis Sayles, Robeco, SCOR Global Investments and Indexium.
“These firms benefit from cleansed, validated and centralised data to feed into their risk, trading and compliance platforms,” said Simpson.
Regulators have become increasingly focused on data as they seek to transform OTC derivatives toward and exchange-traded model.
For example, they’re pushing for a system of legal entity identifiers (LEIs), by which counterparties to transactions would be tagged.
The Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) have issued recommendations on minimum data reporting requirements, access to data by regulators, LEI development, continued international consultation regarding implementation of LEIs, and development of an international product classification system for OTC derivatives.
The recommendations address the Financial Stability Board’s call for minimum data reporting requirements and standardized formats, and for a methodology and mechanism for aggregation of data on a global basis. The FSB is a working group led by representatives of CPSS and IOSCO that’s charged with implementing the G20 reforms for OTC derivatives.
The association supports the CFTC’s effort to establish new clearing mandates.
Centrally cleared and settled transactions have been in continuously increasing demand.
LCH SwapAgent registered over 10,000 trades in 2021, a five fold increase.
Overall trading volumes across all products fell 8% from 2020.
Klimpel won Excellence in Human Clearing at Markets Media Group’s 2021 Women in Finance (U.S.) Awards.