The Road to Dodd-Frank: Best Practices for Information Management – Part I


Partha S. Chatterjee, Principal, SunGard Global Services

Dodd-Frank Act is on pace to bring significant change in the American financial regulatory environment, affecting almost every aspect of the nation’s financial services industry.  In the words of CFTC Chairman Gary Gensler: ““The Wall Street reform bill will – for the first time – bring comprehensive regulation to the swaps marketplace. Swap dealers will be subject to robust oversight. Standardized derivatives will be required to trade on open platforms and be submitted for clearing to central counterparties.”

In short, Dodd-Frank compliance requires a wide range of information – trading, confirmation, valuation, interfaces to and from swap data repositories, swap transaction monitoring, and many new compliance reporting requirements. All of these requirements are technological and process challenges, which need to be solved by all trading organizations, as well as most any entity transacting in swaps, within specific defined deadlines. This is not an easy responsibility to fulfill.

As such, there are several challenges firms must overcome.
• Information may be available but spread across multiple systems.
• Information may not be at the granularity and frequency required by CFTC.
For example, consider rule 17 CFR Part 151 on position limits for agricultural commodity futures and options contracts and the physical commodity swaps that are economically equivalent to such contracts. This rule also defines forms 404 and 404S whereby organizations must report positions applicable for reportable contracts. Firms need to be able to provide consolidated information at the right granularity for these reports.
• Current business processes may not support the timing and oversight requirements of CFTC.
For example, deals may be entered at the end of the day, or transaction data may not be centralized in a single system across geographies and business units. Real-time public reporting of swap transaction data (17 CFR Part 43) plans to implement a framework for all swap transactions. This requires real-time entry of correct transaction and pricing information and reporting of the same.
• Firms may not currently have automated interfaces to the exchanges and transaction platforms, known as designated clearing markets (DCMs) and swap execution facilities (SEF) in Title VII of the Dodd-Frank Act.
Section 727 establishes standards and requirements related to real-time reporting and the public availability of swap transaction and pricing data. Absence of automated interfaces may adversely affect reporting of primary economic terms (transaction details for deals) and confirmations.
• Firms may not currently have real-time interfaces for monitoring and regulatory reporting.

Clearly there are many challenges facing trading organizations with Dodd-Frank compliance looming. The regulators need timely, granular information, combined with efficient and timely business processes (in some cases automated) for deal entry and confirmation. They will also require real-time interfaces to SDRs, intraday and end-of-day monitoring, and, most importantly, CFTC-compliant reports, with the right data elements, proper calculations in the right format.
On the road to Dodd-Frank compliance, are you ready? In part II of our information management blog series, learn the details of a best practice approach for tackling Dodd-Frank requirements.

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