While lawmakers and regulators on both sides of the Atlantic share the goal of enhancing transparency in the over-the-counter derivatives marketplace, there’s a growing consensus that a relatively obscure provision in the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act has the potential to frustrate these efforts. With the U.S. Congress unlikely to take remedial action before 2013, the European Parliament has an opportunity to lead the international community and create sound public policy for other nations to follow.
At issue is the Dodd-Frank Act’s requirement that third-party regulators indemnify U.S.-registered trade repositories before obtaining critical market data from them. Trade repositories, which are essentially large databases that aggregate and standardize detailed OTC derivatives trade data, have been endorsed by the G-20 as a critical resource designed to bring transparency and risk mitigation to the market.
When this data is consolidated in a centralized repository, relevant market positions and concentrations of risk are fully transparent to regulators. Today, over 35 of the world’s leading national and regional regulators access and analyze data from DTCC’s global Trade Information Warehouse for credit-default swaps to monitor trading activity in an effort to mitigate risk and help avoid another financial crisis.
Download the Congressional Testimony: Dodd-Frank Indemnification May Hamper Transparency in OTC Derivatives