Group Co.
Many Miles Traveled, More Yet To Go
Traders Magazine Online News, May 2, 2018
INTRODUCTION
In his 2017 testimony to the U.S. House Committee on Agriculture2, Giancarlo stated, “Of the many mandates to emerge from the financial crisis, visibility into counterparty credit risk of major financial institutions was perhaps the most pressing. The failure to accomplish it is certainly the most disappointing.”
Yet, in cultivating its data management and transaction expertise, the industry has made significant progress over the past eight years toward constructing the framework upon which to build a truly global risk monitoring system for the OTC derivatives market.
Meanwhile, regulators and standard-setting bodies have developed the components of a global reporting and risk monitoring framework, and jurisdictions have started to overcome a number of differences in reporting practices.
Reporting formats, identifiers and rules are converging across regulatory jurisdictions; regulators are increasingly recognizing the need for cross border data aggregation; and in the future new technologies like digital ledger offer tantalizing future possibilities in such an environment, the industry can increase the data-sharing and analytical power of trade reporting.
In the more than 10 years of operating its Deriv/SERV business line, DTCC has interacted closely with numerous participants, industry associations, standards-setting bodies and regulators in the derivatives market space. This paper draws on DTCC’s experience and expertise to summarize progress made to date and proposes how the industry can continue to move toward an integrated reporting framework for the global OTC derivatives market.
POST-CRISIS RESPONSE: TRADE REPOSITORIES IN THEIR INFANCY
The global financial crisis of 2008 prompted the G20’s political leaders, at their September 2009 meeting in Pittsburgh, to mandate the reduction of systemic risk through clearing, collateralization, capital requirements and reporting of OTC derivatives transactions. The precedent for trade-reporting repositories was already in place. In 2003, DTCC established the Trade Information Warehouse (TIW), the market’s first lifecycle processing infrastructure for credit default swaps (CDS) which by necessity, provided a central repository of all relevant trades. By 2008, an estimated 98% of all CDS contracts worldwide were being serviced by TIW using data and processing standards defined in conjunction
with industry participants. TIW laid the foundation for DTCC’s creation of the Global Trade Repository (GTR) service in 2012, which, through locally registered or recognized trade repositories, now collects and reports data in all five asset classes across multiple jurisdictions. National legislators and regulators however, rather than following this global approach to standardization, responded to the G20 commitments by prioritizing domestic compliance. New rules were developed in accordance with local market priorities and realities, building upon existing legal structures that vary across individual jurisdictions. Additionally, multiple trade repositories were established, each having to be individually approved in each jurisdiction where they provided services.
The result: a fragmented global reporting environment in which a firm regulated in multiple jurisdictions might have to report the same OTC derivatives transaction to multiple trade repositories, each one applying different identifiers, reporting rules, data fields, terms and formats.
THE PRESENT STATE OF TRADE REPOSITORIES GLOBALLY
The implementation of OTC Derivatives trade reporting around the world over the past eight years has been a success story in many ways:
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