by Roland Kielman
Regulators in the U.S. and European Union “can help themselves monitor global over-the-counter (OTC) derivative markets” by requiring trades in these instruments to be reported to global, centralized repositories.
This is according to an article in the January issue of Focus, the World Federation of Exchange’s (WFE) newsletter, written by Stewart Macbeth, DTCC managing director and general manager of the Trade Information Warehouse.
The article, entitled Lighting the Lamp, provides a brief synopsis of the ongoing financial regulatory reform efforts in the U.S. and in Europe, particularly in relation to the OTC derivative market, and the need for new rules to ensure transparency and reduce systemic risk.
Macbeth highlights DTCC’s extensive experience in the OTC derivative space and explores the value of a “global solution” that would require all OTC derivative trades to be reported to a central repository per asset class. He also explains the impact such a rule, or its absence, would have on the ability of regulators, investors and the general public to view the market as a whole. Maintaining OTC derivative data in a central location “can provide the lamp regulators need to shine light on these markets,” according to Macbeth.
“In order to protect the safety and soundness of markets, it is necessary for regulators to have timely information about the market-wide exposure of the major market participants,” Macbeth writes. “Without a place where data on global trades can be centrally sourced, in other words, without a unified repository, it will be very difficult for regulators to glean all the information they need to make a knowledgeable assessment of market conditions and risk exposure in a reasonable amount of time.”
The piece also articulates the risks associated with other proposed scenarios regarding the reporting of OTC derivatives. Macbeth notes that alternatives to centralized data storage, such as the model that promotes multiple repositories on a regional basis, could result in “information so fragmented that no single entity will have an overview of the entire market. As a result, regulators, investors and the general public will not be able to see the market picture as a whole, a situation that could prove dangerous at a time of market stress.”
Background on the Federation
The WFE is a trade association composed of 52 publicly regulated stock, futures and options exchanges. It gives members guidance related to their business strategies and management practices.
Focus is the Federation’s monthly review that centralizes business news from individual exchanges while providing a statistical component with key data on members’ markets. It has total circulation of approximately 4,500 readers, including its online and hard-copy editions. To see Focus, including Macbeth’s article, visit world-exchanges.org/news-views/focus. @