by Craig Donner
DTCC continues to expand its presence in Washington by establishing new relationships with a growing range of financial market participants. The outreach effort is designed to build greater awareness of the company and to share insights on issues related to the implementation of the Dodd-Frank Act in the U.S. and financial reform in Europe and Asia.
At the recent National Conference on Banks and Savings Institutions, hosted by the American Institute of Certified Public Accountants (AICPA), Dan Cohen, DTCC managing director and head of Government Relations, participated in a session on the impact of Dodd-Frank. Other featured speakers represented the Federal Deposit Insurance Corporation (FDIC), the American Bankers Association, Deloitte & Touche LLP and the law firm of Davis Polk & Wardwell.
"It's important that DTCC have strong working relationships with a wide range of parties that are active in Washington and have a common interest in financial services," Cohen said. "These events allow us to exchange information and ideas and create opportunities to work together on legislative or regulatory issues. In addition, each public appearance is another building block in our effort to raise awareness of DTCC as a thought leader on financial reform."
OTC derivatives reform
During the panel, Cohen focused primarily on over-thecounter (OTC) derivatives reform and, in particular, on the unintended negative consequences of the indemnification provision of Dodd-Frank. He explained the law's requirement that regulators in Europe, Asia and elsewhere indemnify U.S.-based trade repositories before gaining access to market data would undermine efforts to bring transparency to the OTC derivatives markets.
As part of his presentation on the pace of financial reform in Europe and Asia, Cohen cautioned that the extraterritorial reach of Dodd-Frank could disrupt efforts to harmonize regulations globally. "Indemnification is a perfect example of a relatively obscure issue that could have a significant global impact on reform efforts," he said. "While Europe has an opportunity to establish sound public policy that the U.S. and Asia can harmonize to, it's possible that the European Parliament may choose to adopt a similar reciprocal indemnification provision. If that occurs, the likelihood of regulatory arbitrage increases significantly."
The panelists each offered different views on how Dodd-Frank would perform if another financial crisis were to occur. Cohen said it's too early to tell because the new model for addressing risk in the global derivatives markets is based on the untested idea that what's worked reasonably well for futures markets will work equally as well for derivatives.
"It's unclear whether a model based primarily on a limited number of short-term instruments can be applied to markets roughly 10 times the size," he said. "This is especially true when these markets include a high proportion of longer-term instruments with thousands of different underlying assets and securities."
Cohen also highlighted DTCC's partnership with SWIFT and ISO, with contributions from the Association of National Numbering Agencies, to establish a global legal entity identifier (LEI) standard to accurately identify entities conducting financial transactions. A group of over a dozen global trade associations recently recommended their proposal as the industry's choice for a global LEI solution.
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