Oddly enough, regulations meant to bring clarity to voice-based over-the-counter derivatives could inadvertently create new data silos for many firms, says Marc Carletti, executive vice president, global banking and financial markets, BT Global Services. I spoke to Carletti for a magazine story that will be featured in the Fall 2014 edition of FTF News magazine due out later this month.
The Fall edition will focus on new areas of compliance that firms are likely to encounter.
Lest we forget, the scope of OTC reform via the U.S. and European regulators encompasses voice trading, which is more popular than the media might have been portraying. There are many OTC instruments, especially structured, extremely complex and bespoke instruments that may never be fully automated.
The CFTC, in particular, is requiring OTC market participants engaged in voice-based transactions via trading turrets and dealerboards to not only maintain the books, related to their transactions, but also the monitoring, recording and archiving of fixed-line, mobile, IP-based and electronic communication. The regulator also requires firms to keep a complete audit trail for each transaction placed for execution.
These requirements are far reaching as they cover officers, employees and agents of firms working in the OTC markets.
When firms start to implement new compliance operations for voice trading, the roles of compliance, risk, IT and operations staff could overlap because of the reach of voice and electronic communication for this type of trading, Carletti says.
As Carletti and others point out, the problem is that voice trading is more complex than past iterations, when transactions occurred strictly within the realm of secure trading turrets. “As you know, a trade can be initiated by a chat,” Carletti says. “Pre-trade models can be further developed via email and executed via a mobile phone conversation. So that’s really the challenge.”
The data silo problem may crop up when firms take the first step to implement voice recorders as they risk falling into the trap of setting up separate databases for fixed-line calls, IP-based voice recordings, and instant-messaging and email communication, Carletti says.
“But when you are asked by the regulators to come back in 72 hours … to reconstruct the deal, you can imagine that if you have three silos, it becomes a very delicate exercise,” Carletti says.
Given the complexity of voice-and-digital trade-related communication, trading firms will be busy as they strive to achieve a centralized system that features Carletti’s “six R’s” for compliance: reporting, recording, recovering, replaying, reconstructing and receiving voice-based and electronic communications.
Looking ahead, firms engaged in voice-based trading should brace themselves as this process could take from three to five years to integrate with incumbent systems, Carletti adds.
Need a Reprint?
Leave a Reply