Larry Thompson, DTCC Vice Chairman and General Counsel
On Friday, December 4, President Obama signed into law legislation that removed the indemnification provisions from the Dodd-Frank Act. The provisions effectively blocked the sharing of over-the-counter (OTC) derivatives data among regulators and complicated efforts to improve market transparency and mitigate systemic risk.
The repeal legislation was sent to the President’s desk with overwhelming bipartisan support from both chambers of U.S.Congress.
“We applaud the U.S. Administration, Senate and House of Representatives for taking action to strengthen global information sharing by signing into law legislation that removes Dodd-Frank’s indemnification provisions,” said Larry Thompson, DTCC Vice Chairman and General Counsel. “By signing this non-controversial measure into law, we’re one step closer to ensuring regulators globally can obtain a consolidated and accurate view of the OTC derivatives marketplace – a key goal established by the Group of 20 (G20) in the wake of the 2008 financial crisis.”
Removal of the Dodd-Frank indemnification requirement was a longstanding priority of DTCC, which first called attention to the issue in 2010. DTCC played a prominent role in raising awareness about the indemnification provisions and its unintended consequences among lawmakers on Capitol Hill and overseas.
“From the outset, we recognized that these provisions would significantly limit the value offered by the swap data reporting regime mandated by the Dodd-Frank Act,” Thompson said. “The collection of data is important, but what is most critical is the ability to aggregate and share this data, not only among regulators globally, but domestically as well. If left unaddressed, the indemnification provisions would have made this nearly impossible.”
Related: Three Steps to Realizing the G-20 Transparency Goals by Larry Thompson
Many foreign regulators indicated that they would be unable or unwilling to sign an indemnification agreement, and U.S. regulators also signaled that they would be unable to fulfill such a request – a reality that immediately put new transparency mandates at risk of failure almost before they had been fully implemented. As a result, many global regulators – including high-ranking members of the U.S. Commodity Futures Trading Commission, U.S. Securities Exchange Commission, and European Securities and Markets Authority, among others – publically supported measures to remove the provisions.
Outreach Raises Awareness
DTCC initiated a political outreach campaign to raise awareness about the issue. It encouraged policymakers to safeguard the transparency goals of the G20 and Dodd-Frank by repealing the provisions. DTCC executives testified before U.S. Congress on nine occasions between 2010 and 2015 to bring attention to the issue and other developments related to the global implementation of new reporting mandates.
Related: DTCC Testimony Before the House Committee on Agriculture “Dodd Frank Turns Five: Assessing the Progress of Global Derivatives Reforms”
In addition, DTCC conducted dozens of in-person briefings for Members of Congress and staff to highlight the importance of globally aggregated data and the impact of indemnification on regulators’ ability to obtain a holistic view of risk in the marketplace.
“Our experience providing unprecedented transparency into the credit default swap market through voluntary reporting prior to the crisis put us in a unique position to illustrate the power of data when it is aggregated and shared on a global scale,” said Marisol Collazo, CEO of the DTCC Derivatives Data Repository U.S. LLC. “When we demonstrated how difficult it would be to replicate this transparency with the indemnification provisions in place, many members on both sides of the political aisle became strong advocates for this non-controversial correction.”
Beginning in 2012, the indemnification correction was introduced in the House of Representatives in various forms on numerous occasions – both as stand-alone legislation and as a part of broader legislative packages. Most notably, in June 2013 the House approved H.R. 742 the Swap Data Repository and Clearinghouse Indemnification Correction Act of 2013 in a 420-2 recorded vote, an unprecedented margin given the politically delicate nature of negotiations involving legislation related to Dodd-Frank.
Related: Removing Dodd-Frank's Indemnification Provisions
While significant work remains to achieve true global data transparency, the passage of H.R. 22 and the subsequent repeal of Dodd-Frank’s indemnification provisions put regulators one step closer to cross-border data aggregation and systemic risk mitigation.
“Moving forward, guidelines and rules governing data access need to be established and authorities must continue efforts to harmonize data sets and create the global data standards needed to support cross-border aggregation,” Thompson said. “In addition, a data governance framework must be established to support standardization and harmonization efforts. DTCC looks forward to continuing to work with global policymakers to find solutions to these important issues.”