On the face of it, the mandatory reporting of derivatives transaction data has seen most progress of all the market reform commitments made by the Group of 20 nations in Pittsburgh in 2009. As highlighted in a progress report published by the Financial Stability Board (FSB) last week, 19 out of the 24 FSB jurisdictions have trade reporting requirements in place, and a further three are expected to follow next year. That compares favorably with the 12 out of 24 that have clearing frameworks in place, and the eight that have made progress on electronic trading rules.
But while there has been plenty of progress, significant challenges remain. In particular, a lack of standardization and consistency in reporting requirements within and across jurisdictions has led to concerns about the quality of the data being reported. That’s not good for supervisory authorities, which may be hampered in their ability to fulfill their regulatory obligations. And it’s not good for market participants, who have to meet multiple, different reporting rules and formats, increasing complexity and costs and reducing efficiency. In this sense, progress has been slow, disappointing and frustrating.
We therefore welcome the comments made by Commodity Futures Trading Commission (CFTC) chairman Timothy Massad in a speech last week. He recognized the importance of common identifiers for entities, products and transactions to enable data to be aggregated, and highlighted the need to develop and expand their use. He pointed to an international effort by the Committee on Payments and Market Infrastructures (CPMI) and International Organization of Securities Commissions (IOSCO) to develop guidance on these identifiers – expected next year. In addition, he said the CFTC is looking at the legal issues that prevent the cross-border sharing of data – a point also picked up by the FSB in another report last week.
Importantly, he also stressed the need for standardization in what is reported in the various data fields. There are hundreds of different data fields that must be filled in by reporting institutions – the exact number differs across jurisdictions and regulatory regimes. Often, the format of this information differs from institution to institution and repository to repository. Chairman Massad noted that industry developed standardized terms had not emerged, so the CFTC would work to specify the “form, matter and the allowable values that each data element can have”. The agency plans to publish proposals on roughly 100 fields before the end of the year, he added.
This represents a big step forward, and tallies with principles published by ISDA earlier this year. One thing to stress, however: the industry has been working to develop standards, in terms of taxonomies, transaction identifiers and, most recently, an industry project to develop common product identifiers. One of the big challenges has been the differences in regulatory requirements across jurisdictions. In short, regulators in different countries have asked for different things, in different ways.
In this sense, we welcome the work being conducted by CPMI-IOSCO to develop harmonized principles for key derivatives data elements, as well as unique transaction and product identifiers. Chairman Massad stressed that the CFTC’s in-house standardization efforts would be coordinated with those of CPMI-IOSCO. That is welcome, and important. CPMI-IOSCO is still working on its data harmonization efforts and plans to publish two additional consultations on key derivatives data elements early next year – the second of which will take industry feedback from the proceeding consultations into account. It’s important the CFTC’s work is aligned with this global initiative. Global consistency in rules and requirements is paramount. From that point, industry participants can escalate their ongoing efforts to develop best practices and common standards.