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by Steve Letzler

On September 20, the Commodity Futures Trading Commission (CFTC) provisionally approved an application by DTCC Data Repository (U.S.) LLC (DDR) to create and operate a multi-asset-class swap data repository (SDR) in the U.S.

“We are pleased with the CFTC’s approval of DDR as a swap data repository,” said Michael Dunn, Chairman of DDR. “We will be fully ready to operate on October 12, the first day of required reporting. This is an important step forward in implementing the Dodd-Frank Act and helping to bring greater transparency to the OTC derivatives market. It will allow the financial services industry to partner with regulators to more effectively monitor and mitigate potential systemic risk.”

CFTC reporting schedule

Under CFTC rules, the process of reporting trades in credit and interest rate derivatives to an SDR is scheduled to begin October 12, 2012. Reporting of trades in all other derivatives classes will need to begin 90 days after that, in mid-January 2013, and trades between buyside firms will be required to be reported beginning in mid-April 2013. The CFTC is one of the first regulatory bodies globally to require mandatory reporting of OTC derivatives trading.

The CFTC approved DDR to operate for credit, equity, interest rate and foreign exchange derivatives. A request to also operate for commodities derivatives has been made, with approval still pending, but completion of that application is expected well before the January 2013 deadline.

Industry perspective

“DTCC’s global trade repository will provide a very efficient means for us to meet our global regulatory reporting obligations,” said Lawrence Waller, Head of Market Operations, JPMorgan Chase. “This efficiency will help to ensure that reporting of swap data remains accurate and complete.”

“The DDR’s mission is to create a resilient and robust reporting infrastructure to enable the industry to meet its global OTC derivative trade reporting requirements,” said Oliver Stuart, Managing Director, Global Head of Derivatives Operations at Morgan Stanley. “The industry has invested significant resources in partnership with DDR to ensure compliance with the reporting requirements of the Dodd-Frank Act and the broader G20 mandate, so this provisional approval from the CFTC is an important milestone both for the DDR and the industry.”

“DTCC is working with the industry to meet the transparency needs of regulators, not only in the U.S. but globally, and expects to register solutions in many other jurisdictions as they finalize their rules, working closely with the Global Financial Markets Association [GFMA], the International Swaps and Derivatives Association [ISDA], market participants and regulators, so as to become a valuable information resource to all,” said Alberto Giovannini, DTCC Deriv/SERV Board member.

History of the repositories

DTCC created the first global trade repository, for credit derivatives, in 2006, primarily to provide processing efficiencies for the burgeoning over-the-counter (OTC) market segment.

Following the financial crisis in 2008, the credit trade repository was able to provide regulators significant information about exposures, which led to global support for trade repositories, or swap data repositories as they are known in the U.S., to assist regulators in gaining transparency into the market and gauging and managing systemic risk issues.

After 2008, DTCC was selected in several industry competitions held by the GFMA and ISDA to provide global trade repository services for OTC derivatives in multiple asset classes. Four of those asset classes, credit derivatives, equity derivatives, interest rate derivatives and commodity derivatives, are already fully or partially operational, and the repository for foreign exchange is expected to be operational in January 2013.

The addition of the U.S.-based SDR is a critical element of the DTCC effort to ensure regulators have access to as complete a global database as possible in each derivatives asset class.

Current holdings

Today, DTCC’s existing repository for credit derivatives holds more than 98% of the OTC credit derivatives trading globally, with almost 3,000 firms voluntarily participating in the repository.

DTCC also receives more than 70% of the OTC interest rate derivatives trades globally, with more than 4 million contracts with a notional value of more than $504 trillion housed in the repository, and more than 60% of the equities derivatives globally.

DDR will help firms ensure compliance with CFTC regulations.@