ISDA recently issued a paper: Improving Regulatory Transparency of Global Derivatives Markets: Key Principles. Those of you who know me from my days at the Commodity Futures Trading Commission won’t be surprised: derivatives data and reporting issues have been a topic of special interest to me for some time. Trade reporting is the key to improving regulatory transparency, which is one of the key Group-of-20 commitments. If we had the reporting back in 2007 that we have now, then it’s fair to say that a lot of uncertainty and fear that permeated the financial system during the crisis could have been avoided.
Trade reporting is also, of course, of special interest to ISDA and our members. Over the years, ISDA has played an important role in this area. Some examples include: helping to establish trade repositories for different asset classes; developing taxonomies for standardizing trade data; compiling sources of reference data; and codifying reference data in FpML. In addition, ISDA’s work in standardizing transaction terms and processes facilitates regulatory reporting and transparency.
Clearly, there has been progress in improving regulatory transparency over the past few years. But just as clearly, progress has stalled. Data requirements differ across jurisdictions. Some data requirements are not clearly defined. Standardized reporting formats have been not adopted quickly or broadly enough. The list of issues goes on and on.
In sum, the current trade reporting process is costly, inefficient and unproductive – and it makes meaningful data monitoring, analysis and aggregation on a global and a national basis more difficult than it should be. The end result is that regulators continue to lack a true picture of risk in individual jurisdictions because of incomplete and inconsistent trade data, and face impossible challenges on a global basis. Market participants, meanwhile, face costly, duplicative and conflicting trade reporting rules, and trade repositories have the unenviable task of collecting and standardizing data from multiple sources for multiple jurisdictions.
Solutions are at hand for each of these problems. We’ve outlined those we believe are most effective in the ISDA paper. It’s time to implement them, and we’re committing to doing our fair share.