WASHINGTON--(BUSINESS WIRE)--The Depository Trust & Clearing Corporation (DTCC) today testified that the most effective and quickest way to achieve the transparency goals of Dodd-Frank in the over-the-counter (OTC) derivatives market is to extend to other asset classes the current model used in the credit default swaps (CDS) market.
In testimony today before the Senate Committee on Agriculture, Nutrition, and Forestry, Larry Thompson, DTCC managing director and general counsel, said that it is essential that both cleared and non-cleared trades be reported to a consolidated swaps data repository (SDR) or a single SDR per asset class to ensure that regulators can see risk from a central vantage point across the global market where these instruments are traded. As an example, Thompson pointed to the role of DTCC’s Trade Information Warehouse (TIW), which holds 98 percent of all credit derivative transactions in the global marketplace, in bringing significant transparency to that market.
“Regulators and the industry are still working toward achieving that same level of public and regulatory transparency in other OTC derivatives asset classes,” said Thompson. “The key to success is ensuring a high level of cooperation between global regulators and market participants, as well as the continued use of proven, non-commercial infrastructure. It is critical that the SDR system which emerges from the Dodd-Frank Act regulatory process ensure that the kind of comprehensive data, such as that maintained in DTCC’s Trade Information Warehouse for all derivatives markets on a global basis, is maintained and expanded.”
Transparency in the CDS Market
Thompson cited the cooperation between regulators and the industry in the wake of the financial crisis to improve transparency in the CDS market by enhancing the capabilities of the TIW. The TIW’s success in bringing greater transparency to the market was attributable to the “substantial degree of global regulatory cooperation” achieved through the Over-the-Counter Derivatives Regulators Forum and the OTC Derivatives Regulators Supervisors Group.
Thompson also raised concerns over the potential for data fragmentation if regulatory cooperation or the cooperation of market participants were to fail. According to Thompson, such fragmentation would inevitably lead to misleading reporting of exposures and a very expensive “fix” for the regulators and the marketplace generally.
“Fragmentation of data will leave the task to regulators of rebuilding in multiple instances the complex data aggregation and reporting mechanisms that have already been created,” Thompson said. “That task was one of the primary reasons that the industry and regulators themselves created a single place for the data within DTCC.”
Regulatory Portal Further Enhances Transparency & Mitigates Risk
Thompson cited DTCC’s recent public announcement highlighting its new “on-line” portal, which leverages the TIW’s global data set to provide regulators secure and direct access to the type of detailed data that would be essential to enhancing transparency across all OTC derivatives asset classes. At present, 20 different regulators worldwide have linked to this portal. Thompson said that had such a portal existed in 2008, “regulators could have used this integrated information to take corrective measures before risky positions became so large that they threatened the fabric of the global financial system.”
The TIW is a centralized, comprehensive global electronic database containing detailed trade information for the market. The TIW database holds approximately 2.3 million contracts with a gross notional value of $29 trillion.
DTCC publishes comprehensive market-wide CDS information registered in the TIW free of charge to the general public and provides comprehensive standard position risk reports to appropriate authorities worldwide (as well as responding to over 100 ad hoc requests from such authorities).
DTCC, through its subsidiaries, provides clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, money market instruments and over-the-counter derivatives. In addition, DTCC is a leading processor of mutual funds and insurance transactions, linking funds and carriers with their distribution networks. DTCC's depository provides custody and asset servicing for more than 3.6 million securities issues from the United States and 121 other countries and territories, valued at US$36.5 trillion. In 2010, DTCC settled nearly US$1.66 quadrillion in securities transactions. DTCC has operating facilities and data centers in multiple locations in the United States and overseas. For more information, please visit www.dtcc.com.