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The passive giant’s former super boss has found a new home at Bell Asset Management, and comes into the increasingly tough business of active management with his “eyes wide open”.
Frustrations with OTC transparency: how blockchain can help
J. Christopher Giancarlo told a US Government ‘House Committee’ hearing last year that the failure – of the whole world – to build a system of transparency for counterparty risk by big institutions was “certainly the most disappointing” of mandates which emerged from the global financial crisis. Now, DTCC has produced a new guide.
While significant progress has been made during the last eight years towards establishing a global reporting framework for over-the-counter (OTC) derivatives transactions, substantial work remains in the areas of data consistency, aggregation and access in order to be able to effectively monitor and reduce systemic risk, according to a white paper published by The Depository Trust & Clearing Corporation (DTCC), post-trade market infrastructure provider for the financial services industry globally. Giancarlo, by the way, is the chair of the US Commodities Trading Commission – not some blow-in.
In the paper, ‘A Progress Report on OTC Derivatives Trade Repositories: Many Miles Travelled, More Yet to Go’, DTCC calls for continued focus on the definition and adoption of data standards and the exploration of opportunities to leverage new and emerging technologies.
The paper acknowledges the collaborative work that has been undertaken across the derivatives industry to address data reporting challenges in the areas of data sharing as well as the development of proposed global standards, such as the CPMI-IOSCO’s work to establish guidelines for the consistent use and governance of the critical data elements (CDEs) needed to identify, process and report an OTC derivative transaction globally.
While these efforts have helped to lay the foundation for a global reporting framework, the paper suggests that further work remains to truly deliver upon the G20 goals of greater transparency and risk mitigation.
Val Wotton, managing director of DTCC’s ‘Deriv/SERV unit, said last week: “The industry has made significant strides in launching a global derivatives trade reporting framework following the global financial crisis, providing derivatives market transparency never
before seen. However, we still have work to do to fully deliver upon G20 objectives.”
The paper also assesses the potential for new technologies, such as distributed ledger technology (DLT, sometimes referred to as ‘blockchain’), to advance reporting practices and proposes how the industry can continue to move toward an integrated reporting framework for the global OTC derivatives market.
Further, the paper says that, while the industry is assessing whether DLT may enable a shift to searchable databases and full regulatory access, in order to harness DLT and other technologies to advance derivatives operations and reporting, standards must be in place to enable consistent data capture, processing and reporting.
The paper highlights initiatives such as the Hyperledger Project (of which DTCC is a founding member) and the International Swaps and Derivatives Association’s (ISDA) Common Data Model (CDM), which aims to ensure use of standard terms for common events in the OTC derivatives transaction chain as examples of initiatives that can help address standards concerns.
To address these challenges, DTCC recommends the industry examine opportunities to expand the use of data that is captured through the global reporting framework. For example, the credit default swap (CDS) market is a proven model for establishing a single trade record warehouse to collect and maintain data for all global CDS transactions and to hold a “golden source” record which serves the public good.
– G.B.
