Dodd Frank OTC swaps rules create real-time pressure
As the deadline for compliance with Dodd-Frank’s OTC swaps transparency requirements looms, market participants are feeling the pressure of real-time reporting obligations contained in the new legislation.
In line with G20 mandates, Title VII of the Dodd-Frank Act aims to bring transparency and accountability to the regulation of the OTC swaps markets. To this end, the new rules require reporting swap data throughout the lifecycle of the trade, providing real-time dissemination of price and volume for public consumption and to help regulators conduct market oversight. The deadline for credit default swaps and interest rate swaps is July 2012, while equities, commodities and FX swaps will follow later this year.
“The regulators are demanding all information reported ‘as soon as technologically practicable’ and there is significant focus on real-time, which may cause real issues for firms with silos of data,” said Nick Davies, chief technology officer of collateral management and reporting solutions provider Lombard Risk.
The firm said it had been working closely with several large global banks in the US and Europe to analyse the impact of the regulation. As a result, the provider has launched what it dubs the Dodd-Frank Act Engine solution, designed to help firms meet the reporting requirements of Title VII.
“The Lombard Risk Dodd-Frank Act Engine is a rules-based, workflow technology and software solution that meets both real-time and event-driven reporting to the regulators, automatically collating and mapping reportable data from different source systems, keeping firms that use the solution compliant with Securities and Exchange Commission and Commodity Futures Trading Commission rules and giving added benefits for internal management information and reporting,” said Davies.
John Wisbey, chief executive officer of Lombard Risk, said he did not see real-time reporting of OTC derivatives as purely a US problem.
“European regulators are on the same track, with the European market infrastructure regulation (EMIR) and MiFID II,” said Wisbey. “The Dodd-Frank Act regulations also affect European and other foreign banks in the US that are active in derivatives.”
EMIR will require OTC derivatives to be standardised so that they can be centrally cleared, traded on exchange-like trading platforms and reported to newly-created data repositories
The European Commission has until the end of December to approve the rules for use from the start of 2013, as per guidelines by the G20.
Accompanying regulation to MiFID II introduces in Europe an obligation to trade clearing-eligible and “sufficiently liquid” derivatives contracts on exchanges, multilateral trading facilities (MTFs), or the newly-created category of organised trading facilities.
MiFID II is currently under review by the European Parliament. Implementation of the legislation is expected in 2014.