Larry Thompson, DTCC Vice Chairman and General Counsel
With new transaction reporting requirements now in place across all major derivatives markets, the financial community is generating and processing data on an unprecedented scale. However, data collection alone will not ensure that the right information is available to address the transparency goals established by the G20 at the 2009 Pittsburgh Summit. What is most critical is the ability to aggregate and standardize data in order to convert it into actionable information for the purposes of systemic risk mitigation – a capability which has proven somewhat elusive to date.
To understand the challenge of data aggregation requires distinguishing between the requirements of microprudential regulators, who are responsible for local market surveillance, and macroprudential regulators, who are focused on monitoring risk in the financial system.
While national reporting regimes have been mostly effective at providing transparency into local markets, the same is not true at the macroprudential level due to the fragmented nature of jurisdictional reporting rules, which has led to the absence of harmonized global data standards across jurisdictions and trade repository providers.
By lacking a common vocabulary with which to communicate, trade repositories are currently unable to share and aggregate data on a global scale.
As the operator of the largest global trade repository, DTCC strongly supports efforts to create a common data vocabulary, such those being spearheaded by the CPMI IOSCO Harmonization Working Group. Active dialogue between the industry and its supervisors is vital to resolving this fundamental issue.
In order to fully capitalize on the benefits of the data being collected by repositories, regulators need to reach agreement on the specific data set needed for systemic risk identification and move swiftly to adopt consistent reporting standards across jurisdictions for those data fields.
While other practical and legal impediments must also be addressed, including barriers to information sharing, the identification of this unique data set is critical first step.
Without a global dictionary, all other efforts to enhance derivatives transparency could prove futile.
This article first appeared in the Eurofi Financial Forum Newsletter