The Securities and Exchange Commission is no longer going to be a wholesaler of publicly reported data, according to an assistant chief counsel (speaking on his own at SIBOS 2011). There will now be an ‘enormous focus’ on data on derivatives and other products that until now has not been otherwise available.
Data on derivatives, such as credit-default swaps, is the immediate objective, said Matt Reed, Assistant Chief Counsel of the Securities and Exchange Commission. This has been set out in its proposed rules set out in November 2010 on information to be placed into swap data repositories, as new electronic markets for such financial instruments emerge.
Generally speaking, this will include basic detail on the economic terms of credit-default, interest-rate and other risk swaps, the counterparties involved, and the notional amounts involved.
And the amount of detail “will depend precisely on what terms needed to be reported,’’ Reed said.
The reporting will have to be in computer-readable form, to make it effective, he suggested. And there will have to be means to tie together disparate sets of data on financial instruments, to make analysis of risk conditions and market abuse feasible.
In fact, it was regulators’ attempt to find a way to link together different sets of data on different securities that led to the current campaign to come up with a standard means of numerically naming each organization involved in a transaction. This is known now as the Legal Entity Identifier.
The drive for more transparency also led to the early 2010 proposal by the SEC for a “consolidated audit trail,” of details of transactions in stock markets. These details, in the original proposal, would be delivered by self-regulating organizations (aka, stock exchanges) to the SEC in real time.
Such efforts at supplying copious, detailed and prompt data on stocks and derivatives would give regulators a “fighting chance at least in making sense of the markets we are to oversee,” he said.
“This does create an enormous change in the way that we’re asking the market to provide data,’’ he said, but how much information will be needed will “depend precisely on what terms needed to be reported.’’
In late 2009, the SEC asked Congress today to grant regulators “direct access to real-time data” on credit default swaps (CDS) and other derivatives.
The request comes, the agency said, because the lack of such information hampered its efforts to investigate potential fraud and market manipulation in the over-the-counter (OTC) derivatives markets during last fall’s financial crisis.
The main collector of information on CDS contracts has been the Depository Trust and Clearing Corporation (DTCC), which could be required to supply it in real-time to the SEC. DTCC chief spokesman Stuart Goldstein at the time said the clearing corporation has provided the SEC with derivatives data when asked, and “will continue to look for ways to be responsive to their requests as they ask for information.”
The DTCC collects data on swaps contracts and places in its Trade Information Warehouse (TIW).
-- This article first appeared on Securities Technology Monitor.