The Depository Trust & Clearing Corp. recently said that Congress’ decision to increase transparency in over-the-counter derivatives trading through the 2010 Dodd-Frank Act would “compromise” their efforts to establish a global swap data repository.
The DTCC, which provides clearing and settlement data to a number of financial markets, said that the last-minute Dodd-Frank provision, which requires non-U.S. regulators to adhere to confidentiality and indemnification requirements under American law, is unworkable, TradersMagazine.com reports.
“Global regulators, based on their status as a regulator, can go into a web portal on their desktop, and they can get the detailed trading information on any contract that comes under their regulatory jurisdiction,” Dan Cohen, the DTCC’s managing director and head of government relations, said, according to TradersMagazine.com.
The DTCC added that, due to the legal differences between the U.S. and Europe, the ability to gather information could be damaged by the provision.
“[The provision] is unworkable as currently drafted and threatens to undo the existing system for data sharing,” the DTCC said, TradersMagazine.com reports.
DTCC officials also warned that most non-U.S. legal systems don’t have the same confidentiality and indemnification requirements and that many global regulators would be “unable or unwilling” to adhere to an indemnity agreement required under Dodd-Frank.
The provision would also push other nations to establish their own SDRs and discourage them from information-sharing, ultimately leading to the fragmentation of swaps data, according to TradersMagazine.com.
Regulators, as well as several other government agencies, are working with the DTCC to make changes to the rule. The DTCC is also trying to pass legislation in Congress to prevent data fragmentation from occurring.
The controversial provision was added to Dodd-Frank during the last hours of the conference committee on the legislation and the rule was not subject to a congressional hearing, where it may have been challenged, TradersMagazine.com reports.
Cohen said that the provision could cause Dodd-Frank to have an opposite effect than intended.
“The irony of this Dodd-Frank provision is that, if we don’t reform it, we end up with less market transparency than we have today,” Cohen said, according to TradersMagazine.com.