The Depository Trust & Clearing Corporation (DTCC) has expressed support for legislation that would resolve issues surrounding the indemnification provisions and confidentiality requirements of the Dodd-Frank Act to ensure regulators continue to have access to a global set of over-the-counter (OTC) derivatives data for systemic risk oversight and mitigation purposes.
During a hearing of the House Committee on Agriculture, entitled “Examining Legislative Improvements to Title VII of the Dodd-Frank Act,” Larry Thompson, DTCC general counsel, told the Committee that the Swap Data Repository and Clearinghouse Indemnification Correction Act of 2013 (H.R. 742) represents the only viable solution to the unintended consequences of indemnification. The legislation would remove the indemnification provisions from sections 728 and 763 of the law.
“The indemnification provision has the potential to reduce transparency into OTC derivatives markets and undo the existing data sharing system that was developed through the cooperative efforts of more than 50 regulators worldwide,” Thompson said. “H.R. 742 would send a clear message to the international community that the United States is strongly committed to global data sharing and determined to avoid fragmenting the current global data set for OTC derivatives. We urge Congress to pass this legislation to avoid further unintended consequences and to ensure market transparency and risk mitigation of global financial markets.”
The indemnification provision of Dodd-Frank requires a registered SDR, as a condition to sharing information with an entity – like a foreign regulator – to first receive a written agreement that the entity will abide by certain confidentiality requirements and indemnify the SDR for any expenses arising from litigation relating to the information provided. In practice, these provisions are complicated and unworkable.
Thompson explained that indemnification would likely force non-US regulators to establish national or regional repositories in order to avoid indemnification. This would fragment the current global data and undermine the ability of regulators and the public to obtain a timely, consolidated, and accurate view of the global marketplace.
DTCC’s Global Trade Repository (GTR) is the industry’s preferred provider for global OTC derivatives reporting and holds data on more than 98 per cent of credit default swaps, 70 per cent of interest rate derivatives and 60 per cent of equities derivatives traded globally. The GTR’s Regulators Portal is leveraged on a regular basis by more than 40 supervisors globally and is the first global service of its kind in the financial marketplace to provide regulators with granular data on transactions that occur within their jurisdictions.
In 2012, DTCC applied for and received provisional registration from the Commodity Futures Trading Commission (CFTC) to operate a multi-asset-class SDR for OTC credit, equity, interest rate, foreign exchange (FX) and commodity derivatives in the U.S. It is the only repository to offer reporting across all asset classes. In addition, the repository began accepting trade data from market participants on 12 October 2012 – the first day that financial institutions began trade reporting – and was the first and only registered SDR to publish real-time price information.
DTCC received approval this month from the Financial Services Agency of Japan to establish the first trade repository to serve the Japanese market. It will support trade reporting across credit, equities, interest rates, and FX derivatives.