Data collection and sharing could be a stumbling block as a transatlantic army of regulators harmonize derivatives reform rules.
First, there was the enormous Dodd-Frank and now new rules on swaps from Europe. So far it looks like the two sets of regulations are very similar in their treatment of derivatives (particularly as they relate to corporate exemptions), with a few minor differences here and there. Regulators on both sides of the Atlantic seem confident the two sets of rules will mesh. Still, one of the bigger issues is how all the data will be collected, shared and stored.
According to Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission, both the CFTC and the SEC are going to throw a lot of people at making sure that it all goes smoothly. In a speech to an ISDA regional conference, Mr. Gensler outlined who was doing what and how. He said that between the CFTC and the SEC, there are 30 teams of regulators working on the US end of the project. Gensler went on to say that US regulators have been coordinating on “harmonizing” the two sets of rules for some time. He said much of the focus of discussions between Europe and the US was on clearing requirements, clearinghouses, and OTC trade repositories.
But it’s those repositories that have many people concerned. As it stands, both US and European regulators are proposing separate entities to hold all the data. The worry is that the separate facilities could possibly miss trades, or trades could be somehow double reported to both repositories or left unreported altogether.
The other issue is the standard jurisdictional and red tape issues that would plague any agencies basically doing the same thing or gathering the same data; problems can exist even within borders. Cross-border sharing could be something entirely different. In this there is fear among the various national supervisors that each side might not allow full access to trading data, particularly if there’s another panic. The challenge then will be to make sure regulators from US and Europe have access to all the data they each have. Also, how will either repository successfully gather all of the trade information from across the derivatives market? Given the huge number of participants and the low levels of automation, this could prove very difficult.
Mr. Gensler is hoping that won’t be the case. In referring to the cross-Atlantic outreach, he said, “I’m confident that we will bring strong and consistent regulation to the two largest swaps markets. Each of our rule-writing teams will be referring to these new proposals as we seek consistency in our regulatory approaches.” Good luck!