O’Malia: Dodd-Frank derivatives rules fail to provide broader view of swaps market

Scott O'Malia

Scott O’Malia

CFTC Commissioner Scott O’Malia said recently that Dodd-Frank derivatives rules have not provided regulators with a broad picture of the swaps market and would not help detect a loss similar to JPMorgan Chase’s “London Whale” trades.

O’Malia said that swap-trade data received since the end of the year from swap data repositories cannot accurately identify large positions but have instead overwhelmed the government’s systems, SFGate reports.

“The problem is so bad that staff have indicated that they currently cannot find the London Whale in the current data files,” O’Malia said, according to SFGate.

Last year, JPMorgan lost more than $6 billion in a number of bad credit derivatives trades that totaled $157 billion, which were later known as “London Whale” trades.

Under Dodd-Frank, the CFTC and SEC were authorized to write rules that require swaps trade information to be reported to centralized databases known as swap data repositories. The rules, which were among the first to be completed, began to take effect last year, when swap dealers like JPMorgan Chase and Goldman Sachs had to begin reporting their data.

O’Malia said that because the government did not establish consistent standards, different swap dealers began using their own reporting formats.

“It means that for each category of swap identified by the 70-plus reporting swap dealers, those swaps will be reported in 70-plus different data formats because each swap dealer has its own proprietary data format it uses in its internal systems,” O’Malia said, SFGate reports. “The permutations of data language are staggering. Doesn’t that sound like a reporting nightmare? None of [the CFTC’s] computer programs load this data without crashing.”