Part One: On the path to global regulatory harmonisation in trade reporting

The Depository Trust & Clearing Corporation [DTCC] has played a leading role in the implementation of post-2008 financial crisis reforms and is currently hitting the headlines for its advocacy of shorter settlement cycle in the US.

The global post-trade firm, that lists the world’s largest banks, institutional investors, investment managers, custodians and many others as clients, is focused on delivering solutions that address the lack of harmonisation across different regulatory regimes in the Americas, the UK and Europe, and across the vast Asia Pacific region.

For Chris Childs, Managing Director, Repository & Derivatives Services, DTCC and CEO & President, DTCC Deriv/SERV LLC, regulation has come a long way from the 2009 Pittsburgh-based G20 summit that vowed to introduce reforms to avoid a repeat of the preceding year’s banking crisis.

Regulators in the key trading centres are now collecting and collating reports on firms’ exposure to all manner of listed and over-the-counter derivatives while much more of these instruments are now being cleared through central counterparties.

Yet, the global “patchwork-quilt” implementation of regulation, where different authorities have adopted their own interpretations of generic laws and at different times, has created a unique set of challenges for this global market.

Childs said: “Clearly, there's been a huge amount of effort, and a lot of data is now being collected, although the data differs in each jurisdiction. If you look at the connectivity between the derivatives market participants, the trade repositories and the regulators, and the sheer amount of data that is being collected, you can view it through a positive lens and say that it has increased the transparency and the availability of data for the regulatory community.

“That said, when you look at the flip side, the issue is, and we've been saying this from the outset with others in the industry including the Financial Stability Board [FSB], the implementation of the commitments made at the 2009 Pittsburgh summit was left to each individual jurisdiction without a global oversight structure.

As a result, regulatory requirements have been fragmented, and the datasets being collected do not provide a global view of risk despite the cross-border nature of the derivatives markets,” Childs concluded.

DTCC feels that being able to create a single global view of a firms’ exposure or a potentially dangerous build-up of positions in a particular asset class is complicated by a lack of standardisation, making harder the work of prudential regulators charged with tracking these risks.

Childs said: “We've been lobbying for more harmonisation of data, including fewer data fields, so the ability to take data from various jurisdictions and piece it together can be better facilitated to achieve a holistic view of the data. That is where we think the regulators need to focus their attention going forward.”

The DTCC MD said the FSB has rightly flagged the issue but the problem again is in the implementation of these standards.

“Based on recommendations from the FSB, CPMI and IOSCO provided recommendations on the definition and adoption of global standards. We’re now seeing the implementation of these recommendations as each of the regulators work through a rewrite of their initial rules. You're going to see over the next 12 to 24 months an awful lot of change for reporting firms, the trade repositories and for the regulators that receive this data.

“We see a desire from the regulators to harmonize and standardize a bit more but it's still very much being administered on a local basis. Looking at recent regulatory proposals from ASIC, CFTC and ESMA, our analysis indicates that out of the 110 critical data elements identified by CPMI and IOSCO, only about 50% of the elements will be implemented in a consistent manner by all regulators. The other 50% are either not being adopted or are being adopted but not consistently in terms of the same definitions, format and allowable values.”

Childs said the direction of travel is towards harmonisation and this is to be encouraged.

“It's true to say in this round of rewrites we'll be more harmonised than the prior set of rules. And based on those 50% of elements that are consistently adopted, we will be able to start to amalgamate data if required from the various jurisdictional data sets.”

Tomorrow: Part Two of the series looks at issues around the implementation of the Regulatory Oversight Committee