SDR Data Sharing Clarified

Terry Flanagan

Swap data repositories based in the United States will be able to share information with their foreign counterparts without requiring indemnification, according to a final rule implementing provisions for SDRs published by the Commodity Futures Trading Commission.

The Dodd-Frank Act requires that SDRs obtain indemnifications from foreign regulators before sharing information. However, in its final rule, the CFTC states that confidential swap data reported to, and maintained, by an SDR may be appropriately accessed by foreign regulators without requiring an indemnification agreement, provided that the SDR is also registered with the foreign regulator.

The CFTC based its determination on Dodd-Frank’s directive “to promote effective and consistent global regulation of swaps.” The CFTC said it doesn’t interpret the indemnification provision to apply in circumstances where a foreign regulator possesses independent sovereign legal authority to obtain access to information and data held and maintained by an SDR.

Under the final rule issued by the CFTC, SDRs located outside the U.S. would need to provide the CFTC with prompt access to books and records and submit to onsite inspection and examination.

European regulators say this would subject SDRs in Europe, which are called trade repositories, to be subject to two regulatory regimes, one in Europe and one in the United States. Instead, they say, the CFTC should allow those trade repositories already subject to European regulations to register with the CFTC without being subject to onsite inspections.

“The issue of on-site inspection of foreign firms has been a thorny transatlantic issue since it was first raised in the audit context under Sarbanes-Oxley,” Barbara Matthews, managing director at BCM International Regulatory Analytics, told Markets Media.

“It becomes harder in the swaps context since supervisors are having a very difficult time defining the circumstances under which it will be acceptable, appropriate, and legally permissible to share sensitive financial information on a cross-border basis,” Matthews said. “The final rule in the U.S. and the pending legislation in the EU demonstrate the finite limits of informal international frameworks under the G-20, IOSCO, and FSB umbrellas.”

Depository Trust & Clearing Corp. (DTCC), which operates the Trade Information Warehouse (TIW), an electronic repository for credit derivatives, maintains that the indemnification provision would have led to a proliferation of local repositories, which would make it difficult to obtain a full picture of any particular asset class.

According to DTCC, foreign regulators will be unlikely or unable to grant U.S.-based SDRs indemnification in exchange for access to information. This extraterritorial mandate is inconsistent with traditions and legal structures in Europe, which operates on an MOU basis or through multinational forums, such as the OTC Derivatives Regulators Forum (ODRF), to establish policy and procedures to safeguard data usage and sharing.

The European Parliament is poised to adopt counter legislation in the final version of its financial reform package, meaning that U.S. regulators like the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) would likely face diminished access to information held in overseas repositories.

DTCC this year launched an automated portal to provide regulators worldwide with direct, on-line access to global credit default swap (CDS) data.

The portal is intended to help regulators conduct oversight responsibilities related to OTC derivatives. Currently, 19 regulators around the world are live on the portal, which was designed based on guidance provided by the ODRF with respect to data access protocols.


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