OTC Derivatives Reform (When U.S. regulators issued their long-anticipated swap definition rules, the clock began ticking for financial institutions to get ready to comply with new regulations designed to increase transparency in the over-the-counter (OTC) derivatives market.
It is anticipated that by January, the lion’s share of the swap dealer community will be either reporting or preparing to enter their swaps transactions to swap data repositories -- essentially large databases designed to store comprehensive trade information on OTC derivatives transactions. These SDRs -- or trade repositories, as they are known outside the U.S. -- are a key tool for boosting market transparency.
The infrastructure is fully in place for the financial industry to meet this deadline. For example, The Depository Trust & Clearing Corporation’s SDRs are already testing for connectivity, and market participants are quickly learning how to report their trade data under the Dodd-Frank Act. Based on our six years of experience operating the global repository for credit default swaps, we expect compliance with the new trade reporting requirements to look similar to the existing voluntary reporting that has brought an unprecedented level of transparency to this market.
This experience reinforces the notion that the Dodd-Frank provisions related to post-trade swap reporting will yield a wealth of information for regulators and market participants. But while transparency is the first step in giving regulators the information needed to better understand systemic risk and more effectively perform market surveillance and oversight functions, it is not, in and of itself, the endgame.
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