The CFTC is quietly acknowledging that its swaps transaction data reporting system is broken. Mark P. Wetjen, the acting chairman for the CFTC, and his fellow commissioners formed an interdivisional staff working group last month to reassess the regulator’s swaps data-gathering processes. The new group is likely to serve as a catalyst for a much-needed overhaul.
Complicating matters, each reporting party then decided to have its own internal nomenclature to compile its swap data, O’Malia said. This has resulted in a mix of proprietary data formats recorded inconsistently from dealer to dealer.
Last year, O’Malia urged that the commission move to a system to receive more uniform data and to significantly upgrade its IT capability to handle data on thousands of swaps per day. He also noted the good news is that the regulator’s IT systems have been loading Big Data flows of this garden variety of swaps data without crashing.
Ultimately, the inconsistent recording of data has been preventing the CFTC from doing the analysis needed to prevent future derivative failures.
Fast-forward to the present and O’Malia said that he is pleased that Wetjen is implementing his recommendation to establish a cross-divisional data team.
“By seeking public comment on part 45 and related reporting rules, the staff will develop a better understanding of specific changes that can be made to enhance regulatory compliance and data harmonization and reduce misreporting of data that has undermined the Commission’s ability to use its regulatory data,” O’Malia said in a statement.
The new group will build upon the harmonization efforts underway by the TAC, O’Malia added. “This team should carefully evaluate internal solutions that will enhance the commission’s data utilization,” he said.
The new working group, overseen by the director of the CFTC division of market oversight, is tasked with crafting the questions for public comment about compliance with reporting rules, related provisions and consistency in regulatory reporting among market participants.
The main goal of the working group’s review is to “actually have the correct, concise, and useful processes in place and functioning for these reform efforts to have teeth,” said Bart Chilton, a CFTC commissioner, in a statement on Jan. 21. “Just repeating ‘transparency, transparency, transparency,’ as a meaningless mantra won’t cut it.”
The working group will:
- Identify and make recommendations to resolve reporting challenges;
- Review industry compliance with reporting obligations;
- Consider data field standardization and consistency in reporting among market participants;
- Recommend additional reporting guidance or requirements;
- And explore whether the agency should seek additional regulatory and technology improvements and data analysis expertise.
The CFTC has further underscored the seriousness of this issue by slating swap data reporting issues for discussion at the CFTC TAC public meeting on Monday, Feb. 10, at the CFTC’s headquarters in Washington, D.C. The Panel I segment of the TAC meeting will feature CFTC’s division directors discussing data successes and challenges, and plans to fix the data problems.
Underlying the CFTC’s necessary actions is the disturbing possibility that another London Whale or two has snuck by the regulator because it initially fumbled the creation of it swaps data-gathering system.
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