DTCC Connection

May 02, 2011 • DTCC Connection

DTCC Participates in Roundtable On New Regulations for Swaps Market

by Roland Kielman


With regulatory agencies continuing the effort to try and formulate a path to finalizing Dodd-Frank rulemakings, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) recently hosted a two-day roundtable on Title VII of the Dodd-Frank Act to discuss phasing and timing of the implementation process for the derivatives market.


Three DTCC executives participated as panelists during the multi-session roundtable, held at the CFTC’s Washington, D.C., office.


CFTC Chairman Gary Gensler and SEC Chairman Mary Schapiro have both encouraged DTCC to share its views on the implementation of swap-related rules. For its part, DTCC regulatory outreach is a critical component of its efforts to build awareness among regulators and market participants of the company’s role in mitigating systemic risk and enhancing market transparency.


Building Consensus

The roundtables were held to gain insight from the industry on how to build consensus for the best course of action for the agencies’ proposed rules by providing a forum to hear from a broad swath of market participants as a single group. To facilitate dialogue on Title VII, the SEC and CFTC circulated a series of concepts and questions prior to the event to help guide the discussions.


The roundtable consisted of seven panel discussions that included more than 70 panelists from throughout the industry, with staff members from the CFTC and SEC acting as moderators.


The DTCC panelists were Larry Thompson, DTCC managing director and general counsel; Peter Axilrod, DTCC managing director, New Business Development; and Marisol Collazo, DTCC vice president of the Trade Information Warehouse.


Phased implementation

Thompson was a panelist in the session that addressed the process for registering and making operational the clearing entities, trading platforms and data repositories involved in the swaps market. Panelists debated the sequencing for implementation of final rules for these entities. Thompson discussed seeking consensus on the core concept that it is beneficial to have these platforms operational before full implementation of the new regulatory regime.


The panel also addressed the regulation of swaps by asset class and most panelists seemed to agree that a phased-in approach based on asset class was reasonable. "You need to have the trade data to make sensible decisions," Thompson said. "To ensure that this data is available, it is important that the implementation timeline require data repositories to be the first to meet registration and operational requirements. Subsequent phasing by asset class should begin with those classes already capable of compliance, such as credit default swaps and interest rate products."


Thompson also stated that regulatory harmonization, both domestically and internationally, is critical to the successful implementation of new swaps-based rules.


Connectivity and infrastructure

Axilrod participated in the panel that focused on connectivity and infrastructure within the swaps market. He reinforced a consensus among the panelists that much of the connectivity and infrastructure are already in place, citing only minor impediments to achieving full connectivity between infrastructure entities.


The panel also debated the advantages of requiring single swap data repositories (SDRs) based on asset class as compared to the development of multiple data repositories. While acknowledging the benefits of competition in the scenario allowing multiple SDRs, Axilrod expressed DTCC’s concern that multiple SDRs could lead to data fragmentation and reduced transparency in the swaps market.


Swap data reporting

Collazo’s panel addressed issues related to the implementation of swap data reporting and dissemination rules. The issue of data fragmentation was in the spotlight as the panel discussed the possibility of derivatives clearing organizations (DCOs) registering as SDRs even though they may not cover the full asset class. Collazo stressed that any potential SDR must, by statute, be able and willing to accept all data of a particular asset class to ensure unified reporting of swaps transactions.


Panelists agreed that for several asset classes, including credit default swaps (CDS), interest rate products and, to some extent commodities, the necessary infrastructure is already in place for the reporting envisaged by Dodd-Frank.


Collazo encouraged regulators to consider asset classes that already have robust electronic trade data available in determining a phased-in approach. "The essential infrastructure is largely in place for asset classes such as credit default swaps and interest rates," she said. "Comprehensive data for CDS trades are already available to regulators, and future data reporting should consider the different perspectives that regulators need to carry out their respective mandates. This data is used to monitor systemic risk at a global scale, thus requiring access to a broad view of the market, and to determine the exposure of individual entities, which requires more granular data. It is essential that those responsible for data reporting take these perspectives into consideration."


Collazo encouraged regulators to consider asset classes that already have robust electronic trade data available in determining a phased-in approach. "The essential infrastructure is largely in place for asset classes such as credit default swaps and interest rates," she said. "Comprehensive data for CDS trades are already available to regulators, and future data reporting should consider the different perspectives that regulators need to carry out their respective mandates. This data is used to monitor systemic risk at a global scale, thus requiring access to a broad view of the market, and to determine the exposure of individual entities, which requires more granular data. It is essential that those responsible for data reporting take these perspectives into consideration." @


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