Cybersecurity. Another area where I expect us to take action soon is cybersecurity. We are very focused on the risk of cyberattacks, particularly by those who may be looking to intentionally disrupt our markets.

The Commission recently approved the National Futures Association’s cybersecurity guidance that will require members to adopt – and enforce –policies and procedures to secure customer data and protect their electronic systems.

We are also considering some proposals to ensure that the major exchanges, clearinghouses, and swap data repositories are doing adequate evaluation and testing of their own cybersecurity and operational risk protections.

As with automated trading, I expect these will be principles-based standards.

These are just a few of the things on our plate. There is work going on in many other areas, of course, including position limits and clearinghouse equivalence and recognition. But now I want to turn to the subject of swap data reporting.

I want to focus on this subject for a couple reasons. First, it is fundamentally important to the overall work of creating a sensible framework for regulating swaps. And second, there have been questions about the quality and usefulness of the swaps data.

And I believe that speaking about this subject to this audience, in this city, is the right time and place to discuss this issue in some detail. I often compare the effort to build the data reporting system to a big infrastructure project. It is a huge undertaking, one that will take considerable time. And Chicago is the place where much of the infrastructure of the futures industry was created. That infrastructure, created over many years, transformed the industry. It transformed how businesses of all kinds can hedge commercial risk. And let’s not forget, Chicago also played a leading role in another transformative infrastructure project in our nation’s history—the building of the national railroad system. Building an international data reporting system has some similarity to laying the tracks for a transcontinental railroad.

The FIA Expo brings together people who have worked in this industry for a long time, who understand the incredible innovation that this industry has experienced. You understand the operational and infrastructure issues that have created the foundation on which this industry grew. And so I think you will appreciate both the progress we have made, and the challenges we still face, when it comes to data reporting.

Important Progress on Data Reporting

Let me start by stepping back for a moment. Let’s remember where we were just a few years ago. In the fall of 2008, there was virtually no reporting of swap positions or transactions. That made it very tough for regulators to act in the midst of the crisis. Neither regulators nor market participants could assess the exposures of major institutions, or the interconnectedness of those exposures. The opaque nature of this market likely contributed to excessive risk-taking in the first place.

Today, the landscape is quite different. Reporting was a key goal of the G-20 leaders, and one of the most significant reforms of the Dodd-Frank Act. Now, all swaps, whether cleared or uncleared, must be reported to swap data repositories (SDRs). There are four SDRs operating in the United States, and two dozen internationally. We have requirements for who must report, what they must report, when they must report – and how the SDRs operate.

Regulators and market participants are seeing the benefits.

For example, you can now go to public websites of the SDRs and see the price and volume for individual swap transactions in real-time. This post-trade transparency facilitates efficient price discovery for all market participants, including end-users.

You can go to the CFTC website for a Weekly Swaps Report that gives a snapshot of the market, sliced and diced in various ways. And you can even sign up to receive it by email. Here’s our most recent report, showing outstanding notional amount of swaps in a few categories.

Users of swaps have access to data through SEF platforms and vendors that facilitate price discovery. Here’s an example of the daily post-trade data you can find for all swap transactions executed on one SEF. And of course, a key feature of SEFs is to provide pre-trade price information as well.

The transparency has fostered private sector innovation. One good example is right here: the FIA publishes a “SEF tracker” that provides a very good picture of what’s happening on swap execution facilities. Here’s your most recent report. And others are enhancing public data in additional ways, such as by aggregating information from the SDRs in real-time.

The swaps data is also improving our ability to oversee this market. As with futures and options data, swaps data is critical in helping us fulfill our core responsibilities.

Consider risk surveillance, for example. Over the years we have built a sophisticated surveillance system for futures that relies on a variety of inputs from clearinghouses, clearing members and large traders. Among other things, we receive data on clearing member positions by house and customer account, as well as by individual customer; large trader reporting; amounts of initial margin held and variation margin paid and received; as well as the financial resources of firms. With these and other inputs, we can look at market risk, liquidity risk, credit risk and concentration risk on a daily basis – at the clearinghouse, clearing member, and trader level. We can stress test exposures and back test the adequacy of margin coverage, for example.

Today, we are building swaps into risk surveillance systems so that we can identify and monitor swaps activities and exposures. We want to be able to stress test those exposures, compare them to available margin, and look at potential systemic issues. We want to look at activity and risk at the clearinghouse, clearing member, swap dealer and large customer level. And with uncleared exposures, we want to look at activity between particular counterparty pairs, and the interconnectedness of large institutions, among other things.

Risk surveillance is just one function. We need swaps data for enforcement, market surveillance, economic analysis of market trends, and evaluation of new products. In all these functions, we face similar challenges in creating an efficient and accurate reporting system.

Building this system is complex. Our futures reporting rules are just a few pages, in large part because we rely on a relatively small number of reporting entities. In addition, contracts are highly standardized. In swaps, there are thousands of entities reporting on an infinite variety of transactions. Because swaps are not tied to a single platform, and can be traded on a variety of platforms or bilaterally, we must have the ability to analyze and aggregate swaps data from across all these execution and clearing venues. Because there is much greater variety in swap transactions and terms than in futures contracts, we must have a reporting system that recognizes that variation but still enables us to aggregate where appropriate.

And because a swap can go through many stages and changes —through the clearing process, then through compression or reconciliation, and perhaps through other amendments—we must have ways to track that swap through its life cycle.

As I noted earlier, the process of building this system is like building a big infrastructure project. It is complex, and it takes time. It is iterative: as we understand the data better, and as the market evolves, we are refining the system. It is a process that requires collaboration with market participants. It requires collaboration across borders. We cannot do this alone. For one thing, we cannot do any analysis unless market participants provide us with data that is clean, consistent, accurate and timely in the first place. But we recognize that also requires working with market participants to refine exactly what data should be reported, how it should be reported, by whom and when. Only in this way can we create an efficient and effective process.

Improving Data Reporting

So let me talk about some of the challenges we face. I’d like to discuss a few areas where improvements are necessary – and what needs to be done.