CFTC Commissioner Scott O’Malia says regulators remain undermanned when it comes to data. Whale missing in the data.
The buzz phrase “Big Data” is everywhere. It’s certainly been on the leading edge of many a marketing pitch to corporations over at least the last 18 months. But perhaps where vendors should really be focusing their Big Date solutions marketing is at the federal government.
Big data is the Commodity Futures Trading Commission biggest problem, according to CFTC Commissioner Scott O’Malia. “The goal of data reporting is to provide the Commission with the ability to look into the market and identify large swap positions that could have a destabilizing effect on our markets,” Mr. O’Malia said in a speech on Tuesday at the SIFMA Compliance and Legal Society Annual Seminar. “Unfortunately, I must report that the Commission’s progress in understanding and utilizing the data in its current form and with its current technology is not going well.”
Whale hunt.
This isn’t good, Mr. O’Malia lamented, particularly when big banks are involved in large, complex and very risk transactions to this day. “The problem is so bad that [CFTC] staff have indicated that they currently cannot find the London Whale in the current data files,” Mr. O’Malia said. “Why is that?”
He said that data submitted to swap data repositories and then to the CFTC “is not usable in its current form.” And that’s because “in a rush to promulgate the reporting rules, the Commission failed to specify the data format reporting parties must use when sending their swaps to SDRs. In other words, the Commission told the industry what information to report, but didn’t specify which language to use.”
“The end result is that even when market participants submit the correct data to SDRs, the language received from each reporting party is different. In addition, data is being recorded inconsistently from one dealer to another. It means that for each category of swap identified by the 70+ reporting swap dealers, those swaps will be reported in 70+ different data formats because each swap dealer has its own proprietary data format it uses in its internal systems. Now multiply that number by the number of different fields the rules require market participants to report.”
Companies feel their pain.
Banks and corporations might feel a bit of schadenfreude seeing regulators facing the task of making their own regulations work. However, they face the same problems. Pricing and risk management activities require ever-more market data, which is forcing corporates to address the same big data challenges their financial institutions face.
And currently corporations have a year before they must comply with SEPA (single euro payments area, deadline February 2014), which makes it mandatory for banks to switch existing payments applications and databases to new payment programs; as a result it will require companies to send larger amounts of data to their banks. Unfortunately the data being used is riddled with significant errors (about one out of every eight records), according global information services company Experian. Beyond that, Experian says:
- More than one in four records have additional conditions which could further prevent straight-through-processing.
- Failed transactions pose significant costs of around €6 for every account number held: €600,000 for businesses with 100,000 customers.
- Vast differences in data quality still exist between countries and industry sectors despite SEPA’s looming adoption deadline.
So while new financial regulations start kicking in this year and for many years to come, the data tsunami might just make implementation that much more complex and expensive – certainly for the rule makers, but likely mainly for compliers.