DTCC Connection

Nov 03, 2015 • DTCC Connection

Data Standards Critical to Risk Mitigation in OTC Derivatives Markets

By Joseph King

Larry Thompson
Larry Thompson, DTCC Vice Chairman and General Counsel

The financial community is generating, processing and aggregating over-the-counter derivatives data at an unprecedented scale, but data collection alone will not provide the actionable information necessary to mitigate systemic risk. Standards are the answer, according to Larry Thompson, Vice Chairman and General Counsel for The Depository Trust & Clearing Corporation.

Thompson focused on the importance of establishing global data standards during a panel discussion at Sibos 2015 in Singapore. Thompson was joined on the panel, titled Raising The Bar for Quality Data in Trade Reporting, A Solution in Sight?, by Stephan Wolf, CEO, Global Legal Entity Identifier Foundation (GLEIF) and Irene Mermigidis, Executive Vice President, Head of Network Management, Clearstream Banking. The session was moderated by Paul Janssens, BIC Registration Authority, SWIFT.

During the discussion, Thompson noted that while national reporting regimes have been mostly effective at providing transparency into local markets, the same is not true across jurisdictions. That’s because of the fragmented nature of regional reporting rules and the absence of harmonized global data standards across jurisdictions and trade repository providers. He noted that because of the lack of common data standards and definitions, trade repositories are currently unable to share and aggregate data on a global scale.

Challenges of Fragmentation

The panel recognized that different reporting requirements and obligations across jurisdictions present significant compliance challenges and higher costs for market participants, infrastructure providers and trade repositories.

Related: The Need for Greater Market Transparency

That is why, Thompson said, DTCC favors consistent data standards to be adopted across jurisdictions, leveraging existing industry or other standards, where possible, such as the Legal Entity Identifier (LEI) and the ISO 20022 standard (recently mandated, to positive effect, by MiFID II/R), among others.

Typically, standards have been identified after a regulation has been agreed upon. For example, in Europe the development of standards is a post-primary regulation activity in the form of Implementing and Regulatory Technical Standards (ITS/RTS). Thompson said the timing should be reversed so that possible standards could be agreed ahead of regulation with the regulation reinforcing the use of specific global standards where appropriate.

Critical to the Industry

Panellists noted that collaboration with global supervisors to reach agreement on the global data set required is vital to identify systemic risk.

In June, DTCC issued its recommendations on global data harmonization to the CPMI IOSCO Harmonization working group, detailing a proposed path towards a global data harmonization, with credit derivatives identified as the first step. The approach involves harmonizing approximately 30 data fields across global trade repository providers, essentially creating a global data dictionary; these fields are viewed as critical to financial stability and systemic risk analysis.

Related: Data Dictionary Critical to Global Transparency Goals

Thompson concluded that implementation timelines for global and jurisdictional data quality efforts, current and future, should be aligned amongst regulators in order to decrease cost and risk for the industry and allow trade repositories to create standard release cycles.

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