House Ag Subcommittee on G20 Swap Data Reporting
House
Agriculture
Subcommittee
on Commodity Exchanges, Energy and Credit meeting
Review
of the G20 Swap Data Reporting Goals
Thursday,
February 25, 2016
Key
Topics & Takeaways
- Adopting Global Data Standards: Rep.
Aguilar (D-Calif.) asked whether the CFTC would adopt the global CPMI-IOSCO
standards on data harmonization. The CFTC’s Rogers affirmed that the Agency
expects to implement the global guidance which may require some changes to
existing CFTC rules. Still, Rogers maintained that the CFTC has needs broader
than those addressed by the global framework, which is why it recently put
forth a technical specification covering 120 data fields, including credit,
interest rates and foreign exchange swaps.
- Market Liquidity: Rep. Neugebauer (R-Texas)
expressed concern about how regulations change business models and market
behaviors after the Dodd-Frank Act, and the adverse effect that has on market
liquidity. Kruse agreed that the CFTC’s highly prescriptive reporting
regime may pose liquidity issues, and she advocated for improving a core set of
data that allow regulators to understand the market and then expand it as
necessary (rather than expanding the reporting requirements without addressing
underlying quality issues).
Speakers:
- John Rogers, Chief
Information Officer, Commodity Futures Trading Commission (CFTC)
- Tara Kruse, Co-Head of
Data Reporting and FpML, ISDA
- Marisol Collazo,
Managing Director and CEO of DTCC Data Repository, Depository Trust and
Clearing Corporation
- Andres Gil, Director of
the Center for Capital Markets Competitiveness and & Representative of the
coalition for Derivatives End-Users
- Members of the House Ag
Subcommittee on Commodity Exchanges, Energy and Credit
Opening Remarks
Rep. Austin Scott (R-Ga.), Subcommittee
Chairman
In
his opening
remarks, Scott explained that the objective of the Group of 20 (G20) swaps
data reporting standards were to increase regulatory transparency in
over-the-counter (OTC) derivatives market. Scott noted the progress made
in realizing these transparency objectives five years since the enactment of
the Dodd-Frank Act, however he explained that such progress is uneven and major
gaps remain in translating data collection to meaningful regulatory
oversight. Scott maintained that “real insight” stems from regulators’
abilities to aggregate data from various swap data repositories (SDRs) as well
as from other jurisdictions. Yet he pointed to a lack of common data standards
and common reporting standards, as well as inconsistency among global
regulators, as key factors that undermine regulatory transparency. Scott
expressed interest in hearing more about how policymakers can “continue moving
the ball forward to achieve needed market transparency” without “forcing
artificial standardization and a one-size-fits-all approach” unto highly
customized markets. Scott closed by stating that achieving the regulatory
goals “requires coordination between global regulators to create a coherent
system of regulation that fosters market access and promotes market
integrity.”
Rep. David Scott (D-Ga.), Subcommittee Ranking Member
Scott
recalled that improving data collection on swaps is one of the three main goals
of the Dodd-Frank Act. He argued that the lack of data necessary to form
an overall picture was a “major contributor to [the] financial crisis.”
Scott expressed interest in understanding how policymakers can make inroads to
complete the G20 reforms, particularly by overcoming challenges associated with
aggregating data from multiple repositories and many different jurisdictions.
Scott argued that “good data are essential for good policy decisions,” and
argued that limitations to the swaps reporting regime hinder supervisors’ and regulators’
ability to understand and address vulnerabilities in individual financial
institutions and across the market. Scott maintained that the CFTC will not be
able to complete reforms without a data system that works for both market
participants and the Agency, itself; and underscored the need for industry
input to enable the regulator to “put together a system that works.”
John Rogers, Chief Information Officer, CFTC
In
his opening
remarks, Rogers argued that the CFTC has made “significant process since
2008” when there was “virtually no reporting” of derivatives exposures.
In contrast, Rogers explained that currently all swaps – whether cleared or
uncleared – are reported to SDRs. Further, he noted that public websites
provide price and volume information in real time, which facilitates efficient
price discovery for market participants and end users. Rogers maintained that
the CFTC’s regulatory capacity has “dramatically improved” with the swaps data
reporting regime, but noted that building the system is “complicated” and an
“ongoing” task that requires “constant updates and refinements.” Rogers
held that the Agency is working with the industry and other jurisdictions to
harmonize and standardize data reporting, particularly since different data
reporting regimes hinder the effective aggregation of data.
Rogers
highlighted the Agency’s request for public comment on technical
specifications for certain swap data elements, which he argued identified
where clarification or standardization was needed. He added that the
Agency is actively working to improve the completeness of swaps data, and that
Chairman Massad believes the Commission should improve rules to allow SDRs to
reject data if it is not received completely. Rogers also explained that
the Commission is at the “forefront” of promoting data harmonization
internationally, and noted that he co-chairs the global task force leading
harmonization efforts. Rogers reiterated that swaps data reporting is a
significant global undertaking that will “take time.”
Tara Kruse, Co-head of Data Reporting and
FpML, ISDA
In
her remarks,
Kruse maintained that substantial efforts have been made to realize the G20
commitments. Yet, despite advancements, she argued that U.S. regulators have
“struggled” to fully optimize and understand the data that has been reported to
them. Kruse highlighted the U.S. regulators’ failure to use globally harmonized
standards as a key inhibitor to ensuring data can be aggregated for systemic
risk analysis. For instance, she explained, the U.S. regulators developed
their own unique set of reporting identifiers and their own data fields,
instead of working with industry to develop standard identifiers and
taxonomies. Kruse maintained that the solution is for regulators to work
together with industry on a core set of key fields to improve regulators’
ability to identify systemic risks, but also reduce cost and complexity for
industry.
Kruse
offered four key recommendations to improve the reporting of swaps data: 1) The
Committee on Payments and Market Infrastructure and the International
Organization of Securities Commissions (CPMI-IOSCO) should lead on global data
harmonization; 2) data fields should be specified based on existing industry
standards (using prevailing industry terms and identifiers); 3) domestic
regulators should align rules [i.e. between the CFTC and Securities and
Exchange Commission (SEC)]; and 4) reporting rules should be rationalized and
streamlined to require only data that is needed to understand and analyze risk.
Marisol Collazo, Managing Director and CEO of
DTCC Data Repository, Depository Trust and Clearing Corporation
In
her remarks,
Collazo explained that the 2009 G20 leaders’ commitment to making global
derivatives market safer and more transparent has provided regulatory
authorities with more access to data than ever before. For instance, she
explained that DTCC processes 80 billion messages each week which underscores
the magnitude of the swaps data available to regulators to identify and
anticipate potential systemic risks.
Collazo
noted that the derivatives market is “inherently cross-border” in nature, which
requires a global framework on governance and standardization in order to fully
use data reported to SDRs. She argued that different regulatory requirements
across jurisdictions hinder these goals, and that challenges must be resolved
before regulators can effectively aggregate data and determine the risk profile
of a swap dealer. Collazo maintained that divergent requirements even within
the same data elements negatively impacts data quality and increases
complexity. She recommended standardizing key data terms on a global
basis, which she explained would allow regulators to share data allowing a more
complete view of global derivatives markets. Collazo strongly encouraged the
CFTC to recognize existing market conventions in its efforts to improve data
quality, and to carefully consider proposed changes to the data requirements to
avoid adding unintended complexities to regulatory reporting. Collazo added
that CPMI-IOSCO should continue to establish consistent data standards, and
recommended the establishment of a governance framework to facilitate
management of a global data set and regulatory access to the data, which she
claimed would help achieve the G20’s goals of market transparency and risk
mitigation.
Mr. Andres Gil, Chamber Center for Capital Markets
Competitiveness
In
his remarks,
Gil underscored the need to improve swaps data reporting requirements to avoid
imposing “undue burdens” on derivatives end-users. While Gil supported
the overarching goals of the G20 reforms, he argued that there are “real
economic consequences of getting derivatives regulations wrong,” such as
discouraging use of hedging products by commercial end users. Gil noted
that end-users are faced with multiple reporting regimes in the U.S. and other
jurisdictions, which results in the cumulative impact of discouraging
hedging. He urged policymakers to support the adoption of global
standards rather than proceeding on divergent paths, which he argued would help
strengthen support for Main Street businesses.
Question and Answer
Global
Nature of Derivatives Markets
Chairman
Scott asked why the Financial Stability Board (FSB) aims for individual
regulatory authorities to have a global view of OTC derivatives markets. Kruse
explained that derivatives markets are global markets and may impact market
participants in other regions. Thus, she explained that regulators need to have
a broader view of trading activity to fully understand the risk of a particular
entity under their supervision.
Collazo
added that it is helpful for regulators to understand all of the derivatives
trading activity of financial entities at the parent level, particularly for
credit default swaps (CDS) exposures. For instance, she explained that –
during the financial crisis – DTCC was able to aggregate data showing CDS
exposures of Lehman Brothers to non-US entities, which allowed them to more
accurately estimate the net value of those contracts which was brought down
from an estimated $400 billion to only $6 billion. While she acknowledged
that it took DTCC “a very long, painful day” to do this analysis, it
underscored that trades outside of the U.S. are still relevant for U.S.
regulators, particularly in a crisis scenario.
Volume
of Data Reported
Ranking
Member Scott agreed that cross border harmonization is very critical and asked
about the “enormity” of the data required to identify systemic risk. Collazo
explained that DTCC facilitates derivatives regulatory reporting in the U.S.,
EU, Singapore, Japan, Australia, and three Canadian provinces, which allows
them to examine the data set to identify where divergences exist. She
explained that DTCC processes 80 million messages each week on U.S. trading
volume, which illustrates how much data and messages are being reported to
regulatory authorities. She further explained that data reporting
requirements must leverage existing market conventions to ensure it is reliable
and useful. Since DTCC maintains data in a highly standard way, she
explained, it is able to quickly analyze net exposures between counterparties
such as in the case of Lehman Brothers during the crisis.
Rep.
Neugebauer (R-Texas) expressed concern about how regulations change business
models and market behaviors after the Dodd-Frank Act, and the adverse effect
that has on market liquidity. Neugebauer explained that financial markets
do not perform well if they are illiquid, and asked whether the “highly
prescriptive” reporting regime may pose liquidity issues. Kruse agreed with his
concern, and explained that there is a “misconception” that “more data is
better data,” but she argued that it is optimal to improve a core set of data
that allow regulators to understand the market and then expand it as necessary.
End-User
Burden
Neugebauer
asked whether reporting 120 data fields for each trade would be problematic
predominantly for end users. Gil shared those concerns, and explained that the
expansion of reporting to additional data fields will impose costs that will
flow down to end users. He stressed the need to avoid pricing end-users
out of the market because of these increased costs. Gil explained that
additional reporting costs will be passed on to end users regardless of who is
the required reporting party. He underscored the importance of making
sure that reporting is as targeted as possible and only requiring data fields
that are truly needed.
Rep.
Doug LaMalfa (R-Calif.) asked the panelists to elaborate on burdens imposed on
end users by the data reporting regime. Gil explained that end users have
a continuous obligation to update that information as it evolves. Further,
because of the dual-sided reporting regime in Europe, U.S. based firms that
conduct trades with European counterparts must report transactions in Europe
(but not in the U.S.), which creates complexity that may reduce cross-border
trading.
Progress
in Market Transparency
Rep.
Pete Aguilar (D-Calif.) asked how data reporting has provided greater
transparency to market participants. Rogers explained that there has been
significant advancement in the Commission’s ability to assess exposures of
particular market participants as well as overall in the financial markets
since the financial crisis. He added that the Commission has a variety of
divisions using the data “on a daily basis” to perform oversight functions or
assess risks utilizing the derivatives data available to them.
Aguilar
noted the ongoing work by global regulators to harmonize derivatives data, and
asked whether the CFTC will use those recommendations. Rogers explained
that the CFTC expects to implement the guidance to be issued by
CPMI-IOSCO. To do so, he anticipated that some aspects of the guidance
would not require a change to existing CFTC rules, but that others would
require rule changes.
In
response to Ranking Member Scott’s question, Rogers explained that the
CPMI-IOSCO working group is focusing on 80 fields that are necessary for
aggregation of data, which the CFTC intends to adopt. Yet he explained
that the CFTC has needs broader than those 80 fields, which is why it recently
put forth a technical specification covering 120 data fields, including credit,
interest rates and foreign exchange swaps.
Rogers
further explained that changes may be necessary to the CFTC’s rules to adopt
the global standard, such as changes to Part 45 rules that include very
specific appendices that might require adjustments.
Improving
Data Quality
Ranking
Member Scott asked what is the best path forward to improve data quality
obtained from SDRs. Rogers argued that empowering SDRs to reject data if
it is incomplete or otherwise of poor quality would “substantially improve” the
data that is supplied to the Commission.
Fulfilling
Dodd-Frank Mandates
Chairman
Scott asked whether the CFTC has full and timely access to the data that it
needs to carry out its mandates under the Dodd-Frank Act. Rogers affirmed that
the CFTC has access to the data it needs but expressed the need to refine the
data to ensure it is accurate and complete.
Existing
Market Conventions
Chairman
Scott asked Kruse to elaborate on the importance of regulators adopting
existing market conventions in their reporting framework. Kruse explained
that it is essential for regulators to leverage ISDA’s existing product
definitions that are used to agree and confirm terms of transactions, as well
as electronic data standards that are used in financial products market
language (FpML) to electronically confirm trades. She explained that
there is already a mechanism to harmonize dates, payment times, and other
values but that they are not being utilized in regulatory requirements.
Instead, regulators opted to start “fresh” and “reinvent the wheel” to develop
their own standards.
International
Governance Framework
In
response to a question from Rep. LaMalfa, Collazo explained that an ideal
international governance framework would include representatives from all major
jurisdictions that have derivatives reporting frameworks in place, as well as
industry participants that can provide input on the oversight of certain data
elements. She further advocated for a flexible framework that enables data
standards to evolve so that as changes occur in market, the data is
consistently being updated on a global basis.
Narrower
Set of Data Elements
To
improve data quality, Collazo advocated for narrowing the focus of regulatory
reporting to key economic terms and data elements that are necessary to
aggregate useful information. She suggested maintaining a more narrow set of
data elements, such as 30-40 specific fields and then focus on how that
information could be improved to be useful to regulators.
CFTC
and SEC Coordination
Rep.
Trent Kelly (R-Miss.) asked about the impact of the lack of harmonization between
CFTC and SEC data reporting requirements. Kruse argued that the SEC should
align its reporting fields with the CFTC to “the greatest extent possible” to
reduce costs and improve efficiencies.
Rogers
explained that the CFTC is working with the SEC to coordinate their regulatory
requirements on a specific data level as well as at the policy level. He
added that the SEC also participates in the CPMI-IOSCO initiative which allows
further collaboration between their organizations.
Gill
added that the CFTC provided no-action relief on inter-affiliate reporting
requirements, but stated that the SEC seems likely to continue requiring
inter-affiliate reporting.
More
information about this event can be accessed here.
,Blog Tags:,Blog Categories:,Blog TrackBack:,Blog Pingback:No,Hearing Summaries Issues:Derivatives,Hearing Summaries Agency:House Agriculture Committee,Publish Year:2016
House
Agriculture
Subcommittee
on Commodity Exchanges, Energy and Credit meeting
Review
of the G20 Swap Data Reporting Goals
Thursday,
February 25, 2016
Key
Topics & Takeaways
- Adopting Global Data Standards: Rep.
Aguilar (D-Calif.) asked whether the CFTC would adopt the global CPMI-IOSCO
standards on data harmonization. The CFTC’s Rogers affirmed that the Agency
expects to implement the global guidance which may require some changes to
existing CFTC rules. Still, Rogers maintained that the CFTC has needs broader
than those addressed by the global framework, which is why it recently put
forth a technical specification covering 120 data fields, including credit,
interest rates and foreign exchange swaps.
- Market Liquidity: Rep. Neugebauer (R-Texas)
expressed concern about how regulations change business models and market
behaviors after the Dodd-Frank Act, and the adverse effect that has on market
liquidity. Kruse agreed that the CFTC’s highly prescriptive reporting
regime may pose liquidity issues, and she advocated for improving a core set of
data that allow regulators to understand the market and then expand it as
necessary (rather than expanding the reporting requirements without addressing
underlying quality issues).
Speakers:
- John Rogers, Chief
Information Officer, Commodity Futures Trading Commission (CFTC)
- Tara Kruse, Co-Head of
Data Reporting and FpML, ISDA
- Marisol Collazo,
Managing Director and CEO of DTCC Data Repository, Depository Trust and
Clearing Corporation
- Andres Gil, Director of
the Center for Capital Markets Competitiveness and & Representative of the
coalition for Derivatives End-Users
- Members of the House Ag
Subcommittee on Commodity Exchanges, Energy and Credit
Opening Remarks
Rep. Austin Scott (R-Ga.), Subcommittee
Chairman
In
his opening
remarks, Scott explained that the objective of the Group of 20 (G20) swaps
data reporting standards were to increase regulatory transparency in
over-the-counter (OTC) derivatives market. Scott noted the progress made
in realizing these transparency objectives five years since the enactment of
the Dodd-Frank Act, however he explained that such progress is uneven and major
gaps remain in translating data collection to meaningful regulatory
oversight. Scott maintained that “real insight” stems from regulators’
abilities to aggregate data from various swap data repositories (SDRs) as well
as from other jurisdictions. Yet he pointed to a lack of common data standards
and common reporting standards, as well as inconsistency among global
regulators, as key factors that undermine regulatory transparency. Scott
expressed interest in hearing more about how policymakers can “continue moving
the ball forward to achieve needed market transparency” without “forcing
artificial standardization and a one-size-fits-all approach” unto highly
customized markets. Scott closed by stating that achieving the regulatory
goals “requires coordination between global regulators to create a coherent
system of regulation that fosters market access and promotes market
integrity.”
Rep. David Scott (D-Ga.), Subcommittee Ranking Member
Scott
recalled that improving data collection on swaps is one of the three main goals
of the Dodd-Frank Act. He argued that the lack of data necessary to form
an overall picture was a “major contributor to [the] financial crisis.”
Scott expressed interest in understanding how policymakers can make inroads to
complete the G20 reforms, particularly by overcoming challenges associated with
aggregating data from multiple repositories and many different jurisdictions.
Scott argued that “good data are essential for good policy decisions,” and
argued that limitations to the swaps reporting regime hinder supervisors’ and regulators’
ability to understand and address vulnerabilities in individual financial
institutions and across the market. Scott maintained that the CFTC will not be
able to complete reforms without a data system that works for both market
participants and the Agency, itself; and underscored the need for industry
input to enable the regulator to “put together a system that works.”
John Rogers, Chief Information Officer, CFTC
In
his opening
remarks, Rogers argued that the CFTC has made “significant process since
2008” when there was “virtually no reporting” of derivatives exposures.
In contrast, Rogers explained that currently all swaps – whether cleared or
uncleared – are reported to SDRs. Further, he noted that public websites
provide price and volume information in real time, which facilitates efficient
price discovery for market participants and end users. Rogers maintained that
the CFTC’s regulatory capacity has “dramatically improved” with the swaps data
reporting regime, but noted that building the system is “complicated” and an
“ongoing” task that requires “constant updates and refinements.” Rogers
held that the Agency is working with the industry and other jurisdictions to
harmonize and standardize data reporting, particularly since different data
reporting regimes hinder the effective aggregation of data.
Rogers
highlighted the Agency’s request for public comment on technical
specifications for certain swap data elements, which he argued identified
where clarification or standardization was needed. He added that the
Agency is actively working to improve the completeness of swaps data, and that
Chairman Massad believes the Commission should improve rules to allow SDRs to
reject data if it is not received completely. Rogers also explained that
the Commission is at the “forefront” of promoting data harmonization
internationally, and noted that he co-chairs the global task force leading
harmonization efforts. Rogers reiterated that swaps data reporting is a
significant global undertaking that will “take time.”
Tara Kruse, Co-head of Data Reporting and
FpML, ISDA
In
her remarks,
Kruse maintained that substantial efforts have been made to realize the G20
commitments. Yet, despite advancements, she argued that U.S. regulators have
“struggled” to fully optimize and understand the data that has been reported to
them. Kruse highlighted the U.S. regulators’ failure to use globally harmonized
standards as a key inhibitor to ensuring data can be aggregated for systemic
risk analysis. For instance, she explained, the U.S. regulators developed
their own unique set of reporting identifiers and their own data fields,
instead of working with industry to develop standard identifiers and
taxonomies. Kruse maintained that the solution is for regulators to work
together with industry on a core set of key fields to improve regulators’
ability to identify systemic risks, but also reduce cost and complexity for
industry.
Kruse
offered four key recommendations to improve the reporting of swaps data: 1) The
Committee on Payments and Market Infrastructure and the International
Organization of Securities Commissions (CPMI-IOSCO) should lead on global data
harmonization; 2) data fields should be specified based on existing industry
standards (using prevailing industry terms and identifiers); 3) domestic
regulators should align rules [i.e. between the CFTC and Securities and
Exchange Commission (SEC)]; and 4) reporting rules should be rationalized and
streamlined to require only data that is needed to understand and analyze risk.
Marisol Collazo, Managing Director and CEO of
DTCC Data Repository, Depository Trust and Clearing Corporation
In
her remarks,
Collazo explained that the 2009 G20 leaders’ commitment to making global
derivatives market safer and more transparent has provided regulatory
authorities with more access to data than ever before. For instance, she
explained that DTCC processes 80 billion messages each week which underscores
the magnitude of the swaps data available to regulators to identify and
anticipate potential systemic risks.
Collazo
noted that the derivatives market is “inherently cross-border” in nature, which
requires a global framework on governance and standardization in order to fully
use data reported to SDRs. She argued that different regulatory requirements
across jurisdictions hinder these goals, and that challenges must be resolved
before regulators can effectively aggregate data and determine the risk profile
of a swap dealer. Collazo maintained that divergent requirements even within
the same data elements negatively impacts data quality and increases
complexity. She recommended standardizing key data terms on a global
basis, which she explained would allow regulators to share data allowing a more
complete view of global derivatives markets. Collazo strongly encouraged the
CFTC to recognize existing market conventions in its efforts to improve data
quality, and to carefully consider proposed changes to the data requirements to
avoid adding unintended complexities to regulatory reporting. Collazo added
that CPMI-IOSCO should continue to establish consistent data standards, and
recommended the establishment of a governance framework to facilitate
management of a global data set and regulatory access to the data, which she
claimed would help achieve the G20’s goals of market transparency and risk
mitigation.
Mr. Andres Gil, Chamber Center for Capital Markets
Competitiveness
In
his remarks,
Gil underscored the need to improve swaps data reporting requirements to avoid
imposing “undue burdens” on derivatives end-users. While Gil supported
the overarching goals of the G20 reforms, he argued that there are “real
economic consequences of getting derivatives regulations wrong,” such as
discouraging use of hedging products by commercial end users. Gil noted
that end-users are faced with multiple reporting regimes in the U.S. and other
jurisdictions, which results in the cumulative impact of discouraging
hedging. He urged policymakers to support the adoption of global
standards rather than proceeding on divergent paths, which he argued would help
strengthen support for Main Street businesses.
Question and Answer
Global
Nature of Derivatives Markets
Chairman
Scott asked why the Financial Stability Board (FSB) aims for individual
regulatory authorities to have a global view of OTC derivatives markets. Kruse
explained that derivatives markets are global markets and may impact market
participants in other regions. Thus, she explained that regulators need to have
a broader view of trading activity to fully understand the risk of a particular
entity under their supervision.
Collazo
added that it is helpful for regulators to understand all of the derivatives
trading activity of financial entities at the parent level, particularly for
credit default swaps (CDS) exposures. For instance, she explained that –
during the financial crisis – DTCC was able to aggregate data showing CDS
exposures of Lehman Brothers to non-US entities, which allowed them to more
accurately estimate the net value of those contracts which was brought down
from an estimated $400 billion to only $6 billion. While she acknowledged
that it took DTCC “a very long, painful day” to do this analysis, it
underscored that trades outside of the U.S. are still relevant for U.S.
regulators, particularly in a crisis scenario.
Volume
of Data Reported
Ranking
Member Scott agreed that cross border harmonization is very critical and asked
about the “enormity” of the data required to identify systemic risk. Collazo
explained that DTCC facilitates derivatives regulatory reporting in the U.S.,
EU, Singapore, Japan, Australia, and three Canadian provinces, which allows
them to examine the data set to identify where divergences exist. She
explained that DTCC processes 80 million messages each week on U.S. trading
volume, which illustrates how much data and messages are being reported to
regulatory authorities. She further explained that data reporting
requirements must leverage existing market conventions to ensure it is reliable
and useful. Since DTCC maintains data in a highly standard way, she
explained, it is able to quickly analyze net exposures between counterparties
such as in the case of Lehman Brothers during the crisis.
Rep.
Neugebauer (R-Texas) expressed concern about how regulations change business
models and market behaviors after the Dodd-Frank Act, and the adverse effect
that has on market liquidity. Neugebauer explained that financial markets
do not perform well if they are illiquid, and asked whether the “highly
prescriptive” reporting regime may pose liquidity issues. Kruse agreed with his
concern, and explained that there is a “misconception” that “more data is
better data,” but she argued that it is optimal to improve a core set of data
that allow regulators to understand the market and then expand it as necessary.
End-User
Burden
Neugebauer
asked whether reporting 120 data fields for each trade would be problematic
predominantly for end users. Gil shared those concerns, and explained that the
expansion of reporting to additional data fields will impose costs that will
flow down to end users. He stressed the need to avoid pricing end-users
out of the market because of these increased costs. Gil explained that
additional reporting costs will be passed on to end users regardless of who is
the required reporting party. He underscored the importance of making
sure that reporting is as targeted as possible and only requiring data fields
that are truly needed.
Rep.
Doug LaMalfa (R-Calif.) asked the panelists to elaborate on burdens imposed on
end users by the data reporting regime. Gil explained that end users have
a continuous obligation to update that information as it evolves. Further,
because of the dual-sided reporting regime in Europe, U.S. based firms that
conduct trades with European counterparts must report transactions in Europe
(but not in the U.S.), which creates complexity that may reduce cross-border
trading.
Progress
in Market Transparency
Rep.
Pete Aguilar (D-Calif.) asked how data reporting has provided greater
transparency to market participants. Rogers explained that there has been
significant advancement in the Commission’s ability to assess exposures of
particular market participants as well as overall in the financial markets
since the financial crisis. He added that the Commission has a variety of
divisions using the data “on a daily basis” to perform oversight functions or
assess risks utilizing the derivatives data available to them.
Aguilar
noted the ongoing work by global regulators to harmonize derivatives data, and
asked whether the CFTC will use those recommendations. Rogers explained
that the CFTC expects to implement the guidance to be issued by
CPMI-IOSCO. To do so, he anticipated that some aspects of the guidance
would not require a change to existing CFTC rules, but that others would
require rule changes.
In
response to Ranking Member Scott’s question, Rogers explained that the
CPMI-IOSCO working group is focusing on 80 fields that are necessary for
aggregation of data, which the CFTC intends to adopt. Yet he explained
that the CFTC has needs broader than those 80 fields, which is why it recently
put forth a technical specification covering 120 data fields, including credit,
interest rates and foreign exchange swaps.
Rogers
further explained that changes may be necessary to the CFTC’s rules to adopt
the global standard, such as changes to Part 45 rules that include very
specific appendices that might require adjustments.
Improving
Data Quality
Ranking
Member Scott asked what is the best path forward to improve data quality
obtained from SDRs. Rogers argued that empowering SDRs to reject data if
it is incomplete or otherwise of poor quality would “substantially improve” the
data that is supplied to the Commission.
Fulfilling
Dodd-Frank Mandates
Chairman
Scott asked whether the CFTC has full and timely access to the data that it
needs to carry out its mandates under the Dodd-Frank Act. Rogers affirmed that
the CFTC has access to the data it needs but expressed the need to refine the
data to ensure it is accurate and complete.
Existing
Market Conventions
Chairman
Scott asked Kruse to elaborate on the importance of regulators adopting
existing market conventions in their reporting framework. Kruse explained
that it is essential for regulators to leverage ISDA’s existing product
definitions that are used to agree and confirm terms of transactions, as well
as electronic data standards that are used in financial products market
language (FpML) to electronically confirm trades. She explained that
there is already a mechanism to harmonize dates, payment times, and other
values but that they are not being utilized in regulatory requirements.
Instead, regulators opted to start “fresh” and “reinvent the wheel” to develop
their own standards.
International
Governance Framework
In
response to a question from Rep. LaMalfa, Collazo explained that an ideal
international governance framework would include representatives from all major
jurisdictions that have derivatives reporting frameworks in place, as well as
industry participants that can provide input on the oversight of certain data
elements. She further advocated for a flexible framework that enables data
standards to evolve so that as changes occur in market, the data is
consistently being updated on a global basis.
Narrower
Set of Data Elements
To
improve data quality, Collazo advocated for narrowing the focus of regulatory
reporting to key economic terms and data elements that are necessary to
aggregate useful information. She suggested maintaining a more narrow set of
data elements, such as 30-40 specific fields and then focus on how that
information could be improved to be useful to regulators.
CFTC
and SEC Coordination
Rep.
Trent Kelly (R-Miss.) asked about the impact of the lack of harmonization between
CFTC and SEC data reporting requirements. Kruse argued that the SEC should
align its reporting fields with the CFTC to “the greatest extent possible” to
reduce costs and improve efficiencies.
Rogers
explained that the CFTC is working with the SEC to coordinate their regulatory
requirements on a specific data level as well as at the policy level. He
added that the SEC also participates in the CPMI-IOSCO initiative which allows
further collaboration between their organizations.
Gill
added that the CFTC provided no-action relief on inter-affiliate reporting
requirements, but stated that the SEC seems likely to continue requiring
inter-affiliate reporting.
More
information about this event can be accessed here.