11.03.2011
By Terry Flanagan

Regulators Agree to Disagree

Despite individual nuances, Dodd-Frank and MiFID/EMIR are working to reduce systemic risk in OTC world.

The Dodd-Frank Act in the U.S. and MiFID/EMIR in the European Union are bolstering the efforts to achieve reforms in the financial markets, even if they’re not proceeding in lockstep, experts say.

“The new regulations were not designed to support the G-20 reforms, but they have the same intent: to avoid another credit crisis by increasing transparency and identifying and monitoring systemic risk,” Tony Scianna, deputy head of strategy for SunGard’s capital markets business, told Markets Media.

“So while each rule will have its own nuances, the overall intent is to help, not to hinder the efforts,” he said.

Regulators will continue to cooperate with each other, and regulations will expand beyond initial scope wherever authorities adopt rules that are introduced in other jurisdictions.

“Differences between regulatory regimes will continue to exist,” said Scianna. “However, regulators, with support from the industry, will aim to reduce regulatory arbitrage by working toward common goals of greater market oversight, stability and transparency.”

Regardless of the individual regulations, the goal is to promote transparency in the markets and around the world.

“Regulators will require firms to report a greater breadth and depth of up-to-date information, possibly on demand, to assist their efforts to reduce systemic risk and increase transparency,” Scianna said.

Firms will need to be able to capture relevant data in as close to real time as possible, standardize it, and have access to it 24/7 for reports to relevant agencies and their own management.

The development of Legal Entity Identifiers will be one of many projects on which industry groups will coordinate for a single response to regulators, Scianna said.

SunGard has  enhanced its clearing systems to support the different flavors of swaps currently offered by clearinghouses, and continues to add functionality to support the emerging cleared OTC derivatives marketplace, including LCH Swapclear, CME IRS and CDS, ICE Clear Credit and IDCG.

“SunGard’s strategy for cleared OTC products is to provide customers with a modular, flexible solution that can handle everything from trade execution and SEF connectivity to middle- and back-office functions, independent margin and valuation, risk management, collateral management, and regulatory reporting,” said Scianna. “This approach helps our customers manage OTC derivatives clearing in whatever way that is best for them and their business.”

The borders between geographies, asset classes and lines of business will continue to break down as regulators and management demand an enterprise-wide view of activities, risk and exposure, Scianna said.

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