DTCC testified twice before U.S. Congressional Committees over the past few months as part of its strategy to support legislation that would resolve issues surrounding the indemnification provisions and confidentiality requirements of the Dodd-Frank Act. If enacted, the legislation would ensure that regulators continue to have access to a global set of over-the-counter (OTC) derivatives data for systemic risk oversight and mitigation purposes.
During the first hearing before the House Committee on Agriculture on March 14, Larry Thompson, DTCC Managing Director and General Counsel, told the Committee that the Swap Data Repository and Clearinghouse Indemnification Correction Act of 2013 (H.R. 742) represents the only viable solution to the unintended consequences of indemnification. The legislation would remove the indemnification provisions from sections 728 and 763 of the law. Less than a week later, the Committee unanimously approved the bill.
On April 11, DTCC again testified in support of the bill, this time before the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises. Chris Childs, DTCC Data Repository (DDR) CEO, warned the Committee that the indemnification requirement is a significant barrier to the ability of regulators globally to effectively utilize the transparency offered by a trade repository registered in the U.S. On May 7, the House Financial Services Committee unanimously approved the bill in a 52-0 recorded vote.
Both the House Agriculture Committee and the House Financial Services Committee have jurisdiction over Dodd-Frank.
Global data sharing
“The indemnification provision has the potential to reduce transparency into OTC derivatives markets and undo the existing data-sharing system that was developed through the cooperative efforts of more than 50 regulators worldwide,” Thompson stated during the March hearing. “H.R. 742 would send a clear message to the international community that the United States is strongly committed to global data sharing and determined to avoid fragmenting the current global data set for OTC derivatives.”
During the House Financial Services Subcommittee hearing, Childs reiterated DTCC’s strong support for H.R. 742. “We urge Congress to pass H.R. 742 to ensure that technical corrections are addressed and help create the proper environment for the development of a global trade repository system to support systemic risk management and over-sight,” he stated.
The indemnification provision of Dodd-Frank requires a registered swap data repository (SDR), as a condition to sharing information with an entity – like a foreign regulator, to first receive a written agreement that the entity will abide by certain confidentiality requirements and indemnify the SDR for any expenses arising from litigation relating to the information provided. In practice, these provisions are complicated and unworkable.
Thompson and Childs explained that indemnification would likely force non-U.S. regulators to establish national or regional repositories in order to avoid indemnification. This would fragment the current global data and undermine the ability of regulators and the public to obtain a timely, consolidated and accurate view of the global marketplace.
To read Thompson’s and Child’s Congressional testimonies in full, visit www.dtcc.com.