by Stuart Z. Goldstein
Larry Thompson, DTCC managing director and general counsel, testified before the Senate Committee on Agriculture, Nutrition and Forestry that the most effective and quickest way to achieve the transparency goals of Dodd-Frank in the over-the-counter (OTC) derivatives market is to extend to other asset classes the current model used in the credit default swaps (CDS) market
In his March 3 testimony, Thompson said that it is essential that both cleared and non-cleared trades be reported to a consolidated swaps data repository (SDR) or a single SDR per asset class to ensure that regulators can see risk from a central vantage point across the global market where these instruments are traded. As an example, Thompson pointed to the role of DTCC’s Trade Information Warehouse (TIW), which holds 98% of all credit derivative transactions in the global marketplace, in bringing significant transparency to that market.
“Regulators and the industry are still working toward achieving the same level of public and regulatory transparency in other OTC derivatives asset classes as is currently available in the CDS market,” said Thompson. “The key to success is ensuring a high level of cooperation between global regulators and market participants, as well as the continued use of proven, noncommercial infrastructure. It is critical that the SDR system that emerges from the Dodd-Frank Act regulatory process ensure that the kind of comprehensive data, such as that in DTCC’s Trade Information Warehouse, is also maintained across multiple OTC derivatives asset classes.”
Transparency in CDS market
Thompson cited the cooperation between regulators and the industry in the wake of the financial crisis to improve transparency in the CDS market by enhancing the capabilities of the TIW. The TIW’s success in bringing greater transparency to the market was attributable to the “substantial degree of global regulatory cooperation” achieved through the Over-the-Counter Derivatives Regulators Forum and the OTC Derivatives Regulators Supervisors Group.
Thompson also raised concerns during his testimony over the potential for data fragmentation if regulatory cooperation or the cooperation of market participants were to fail. @