CFTC Chairman Massad speaks at the FIA Futures and Options Expo
Making Sure the Data is Complete. First, we must work towards obtaining complete data. There are several challenges here. Some required fields are not reported by participants. SDRs don’t believe they have the authority to reject data if it is incomplete. Shortly after I began as Chairman, I met with one SDR to discuss this issue. They showed me a chart called a “heat map.” It listed the top swap dealers, and contained columns for each of several reporting fields. And it indicated the frequency with which each swap dealer provided data for each field. Green indicated higher completion rates; red indicated low completion rates. There was a lot of red.
So I asked them to start doing this regularly, and to share it with both us and the swap dealers, so that those who were deficient would know that the SDR was keeping track. They did so. And completion rates have gone up significantly. A lot of red turned to green.
Overall, completeness has made a dramatic improvement across a number of data fields.
I encourage the SDRs to continue using heat maps and similar tools to improve the quality of the reporting. In addition, I believe we should change our rules so that SDRs have a greater ability to improve the quality of data before it arrives at the CFTC. We should empower the SDRs to validate not only the completeness, but also the accuracy of data before it comes to us. If the SDR rejects a participant’s submission, then I believe the participant should be considered out of compliance with our requirements. We will also hold the SDRs accountable for the manner in which they collect, compile and report the data they receive.
I expect we may propose these changes next year.
Making Sure the Data is Consistent and High Quality. In addition, the data we collect must be more consistent. It must be good quality data. It must be reliable and usable, without us having to check or clean it. But currently, that is not the case. For example, there is a lack of standardization in how many fields are reported. There is considerable variation in how the same information is reported to the SDRs, and in how the SDRs themselves transmit the same information to us. And this occurs even with relatively simple pieces of information. Here’s an example of the different ways that the WM Reuters foreign exchange benchmark is reported. Here’s an example of the different ways a specific CDS index is reported. In other cases, the differences may reflect legal distinctions, but if they aren’t critical to a particular analysis, we need to be able to treat them as identical.
In our original rules, we purposely didn’t prescribe exactly how each field should be reported – for a number of reasons. First, when the agency issued the reporting rules, we didn’t yet have any data to inform our views. And second, we expected the industry to develop standardized terms. That, unfortunately, did not happen.
So we are currently developing proposals to refine what it is we want and how we think it should be reported. The CFTC staff has made a dedicated effort to identify high priority fields where we believe standardization or clarification is needed. We are considering in particular what fields are critical to our uses of the data as well as where there have been reporting challenges.
The proposals will specify the form, manner and the allowable values that each data element can have. We will publish proposals on about 100 fields before the end of the year, and invite public comment. And we encourage market participants to get together and come up with common suggestions and other ideas.
We are also tackling this issue internationally. The CFTC co-chairs an international task force that is leading the effort to harmonize data reporting standards. This has been formed under the auspices of Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions or IOSCO, and it involves many representatives from regulators in the G-20 countries.
One of its projects is to standardize the reporting of data fields by proposing definitions and formats for each. They recently published their first consultative document containing a batch of data fields. We are coordinating the in-house standardization efforts I just described with this international work.
Proposing standardized fields may require market participants to make changes in the way they report. However, we believe that this will ultimately reduce reporting burdens and enhance quality of data for everyone.
Refining Swap Identifiers. We are also working to develop effective means to identify swaps and swap activity by participant, transaction and product type throughout the swap life cycle. These include the Legal Entity Identifier – or LEI – as well as the Unique Transaction Identifier and Unique Product Identifier—the UTI and UPI. The LEI is the most advanced. It is a critical way to identify a specific entity and its activities. There are more than 400,000 LEIs today.
We need to expand the usefulness of the LEI so that it can be used to identify related entities – and aggregate positions or transactions among them, something that cannot be done today.
Aggregation is particularly important given that many market participants have a number of affiliates. We can aggregate entities manually by name, but that is time consuming and not always accurate. We are working closely with the LEI Regulatory Oversight Committee and other regulators to develop solutions that will address this challenge.
In addition, the international task force on data that I described earlier is developing a standardized unique transaction identifier, which is similar to our unique swap identifier. This will enable regulators to track a particular swap through its life cycle.
They are also developing a standardized unique product identifier, which will enable regulators to classify swaps by product type. They expect to issue guidance on both the UTI and UPI in 2016.
This work will enable us to track swaps and aggregate data much more effectively. I encourage you to comment on these international consultations.
I also want to take a moment here to thank the Office of Financial Research for leading the LEI effort. In addition, OFR has provided us with significant assistance on a number of data issues, such as the standardization and harmonization of swap data. And we are very grateful for their help.