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by Roland Kielman

Related Information

DTCC Comments

To ensure the quality and consistency of data reported to and by global trade repositories, an international advisory group recently released for public comment a “Report on OTC Derivatives Data Reporting and Aggregation Requirements.”

The report was published jointly by the Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlement and the technical committee of the International Organization of Securities Clearing Organizations (IOSCO). It outlines the data reporting requirements for market participants and trade repositories, and makes recommendations for how that data could be aggregated to achieve greater market transparency.

CPSS-IOSCO produced the report at the recommendation of the Financial Stability Board – the international supervisory group responsible for guiding the implementation of the G20’s numerous commitments regarding reform of the global over-the-counter (OTC) derivatives market. The report, expected to be finalized by the end of 2011, will set out the guiding principles for trade reporting and data aggregation worldwide.

Market transparency

Trade repositories are recognized throughout the financial regulatory community for their ability to bring transparency to previously opaque markets. The G20 advocates that all OTC derivatives trades be reported to a trade repository, and the Dodd-Frank Act identifies repositories as one of the “three pillars” of new infrastructure requirements.

The CPSS-IOSCO report strongly supports the role of trade repositories, stating that, “by centralising the collection, storage, and dissemination of OTC derivatives data, trade repositories can play an important role in providing information to authorities and to the public that could serve to promote financial stability, assist in the detection and prevention of market abuse, and enhance the transparency of the market.”

The report, designed to create sound and consistent data reporting standards for trade repositories, focuses primarily on the minimum data reporting requirements, including guidance on standardized data formats, for market participants reporting to trade repositories, trade repositories reporting to the public and regulators, as well as subsequent methods for data aggregation. Collectively, these standards will reinforce the ability of trade repositories to provide regulators with the tools necessary for analyzing and assessing systemic risk.

Reporting requirements and aggregation

Among the many recommendations, CPSS and IOSCO call for the use of “transaction level data” as the minimum requirement for trades reported to, and stored by, a trade repository. This would include information on the counterparties to the trade and data on the underlying entity, as well as event and operational data.

The report acknowledges the need for various levels of granularity in the data a trade repository makes available to its regulators, citing the varied and evolving needs of regulators in different jurisdictions. For example, while transaction level data is a critical tool in conducting market surveillance, the report maintains that aggregated market data is essential for regulators attempting to monitor and mitigate systemic risk.

Recognizing that generating and maintaining aggregated market data is a unique challenge, the report advocates the development of a legal entity identifier (LEI) system as an essential tool for achieving aggregated data by asset class. The authors encourage the efforts of DTCC, SWIFT and the International Organization for Standards (ISO) in developing the global LEI solution, while also calling for the industry-led development of a standard product classification system that can be used to classify and describe OTC derivatives products, regardless of jurisdiction.@

[To access the report, go to cpss96.htm.]