The US Commodity Futures Trading Commission (CFTC) moved to encourage international harmonisation of swaps data recordkeeping earlier this month. But the real fix to the swaps data repository (SDR) indemnification provision of the Dodd-Frank Act is expected to come out of Congress.
The CFTC policy clarification released May 1 allows foreign regulators and their registrant SDRs to access information from US SDRs. The swap data is to be delivered by the CFTC, however.
SDRs were created by Dodd-Frank to collect and maintain data in the over-the-counter swaps market. In times of crisis, it is important for regulators to have that information as quickly as possible.
“If I’m a foreign regulator and I need to get access to this information, I need to assure myself I am getting it quickly,” Donald Lamson, counsel at Shearman & Sterling, said. “I do not want to trust a third party to decide what I see and what I don’t see.”
Despite time constraints and third party problems, the CFTC’s clarifications were welcomed.
Their requirement that foreign regulators indemnify information providing SDRs and US regulators, including the SEC which has jurisdiction in interest rate swaps, from all confidentiality related liabilities was particularly lauded. Confidentiality remains an issue because swaps market participants do not want their positions leaked to the market.
Foreign regulators, reluctant to take on the risk of confidentially-related litigation but still keen for timely information on swaps trades, could develop their own local repositories. However, regulators would then have fragmented information to assess systemic risk, as IFLR reported last July.
Dan Cohen, Managing Director and Head of Government Relations at the US-based global SDR for credit default swaps, the Depository Trust & Clearing Corporation (DTCC), said the DTCC saw an effort by commissioners to do as much as they could within the boundaries of the law.
“Because of the strict letter of the law, the only real fix at the end of the day is Congress removing the provision from the law,” he said.
Legislation
The DTCC testified in support of bipartisan legislation introduced with unanimous support of the House Financial Services Committee on March 21.
The bill, HR 4235, is not expected to pass until after this year’s elections. But there does not appear to be any opposition to 4235. A key determinant of when it is passed is whether it stays clean.
Cohen said the bill has a good shot of making it to the House floor for a vote this year assuming it is not amended by the House Agricultural Committee or other House leadership.
“It’s moving much faster than any other piece of legislation on Dodd-Frank, and it’s certainly the only one to receive unanimous support by the Financial Services Committee,” he said.
“Both the CFTC and the SEC have said if a third party regulator required them to provide indemnification, they would not be able to offer it. That is reasonably telling.”
Regulator support
The CFTC and the SEC have both vocalised support for legislative action to repeal the indemnification provision from Dodd-Frank, which has yet to have any provision overturned by legislation.
“Ultimately, Congress should repeal the confidentiality and indemnification provisions of Section 21(d) of the Commodity Exchange Act and the Commission should publicly support that repeal,” CFTC Commissioner Scott O’Malia said in a statement.
Commissioner Jill Sommers agreed saying a legislative fix is the only real solution to providing foreign and domestic regulators with timely access to swaps data.