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C H R I S
We know that the CFTC is in the
process of incorporating guidance
from CPMI-IOSCO in its rewrite of
the rules, and we are hopeful that
other jurisdictions will align with
evolving global consensus. This
increase in standardisation, in turn,
will open new possibilities for users
of trade repository data to extract
increasingly greater value from this
information.
HM: Tell me about the role DTCC’s
Trade Information Warehouse
(TIW) played at the time of the
financial crisis in 2008.
CC: At the height of the Lehman
crisis there was a lot of uncertain-
ty in the industry around market
participants’ exposures in the credit
defaults swaps (CDS) market. It was
the transparency demonstrated by
the credit derivatives TIW, operated
by DTCC, which played a key role
in alleviating market concerns at the
time of the Lehman bankruptcy and
provided the impetus to the G20’s
introduction of trade reporting
requirements. The G20, however,
recognised that replicating that
same transparency across the vast
OTC derivatives market would not
be achieved on a voluntary basis, as
was the case in the credit deriva-
tives market, where reporting was
a by-product of credit event and
settlement automated processing
delivered by the TIW.
At the time of the crisis, there was
"The industry could
leverage the data
collected to deliver
new value-added
services, further reduce
costs and mitigate
both operational and
systemic risks."
62 // TheTrade // Spring 2019
C H I L D S ]
speculation that CDS exposures
could have been as high as $400
billion, but the TIW was able to
demonstrate that net exposure was
significantly lower than that, at $6
billion, producing a calming impact
on the market and allowing regu-
lators to understand what the total
exposure in fact was. This type of
standardised information across the
credit derivatives market is what
the industry is trying to replicate
through mandatory trade reporting
to registered trade repositories.
HM: What’s the latest on the
re-platforming of TIW to a DLT
system?
CC: In just over two years since the
inception of this project, we’ve suc-
cessfully completed development
of the platform and are now in the
process of conducting user accep-
tance testing with the market, with
plans to go live later this year. Until
now, a large number of distributed
ledger projects have only been proof
of concepts, but this is one of the
first projects to enter into produc-
tion and is truly a ground-breaking
effort pushing the boundaries of
technology use in the industry.
Where this goes in the future, and
the role it could have in process-
ing and trade reporting, is largely
dependent on a number of factors.
Firstly, there needs to be appetite
and interest from the industry to
invest and change to put more asset
classes and functions onto distrib-
uted ledgers. Secondly, regulators
need to have the ability to access the
data and gain full transparency into
the market. However, data stan-
dards must be in place for reporting
requirements, data quality, formats,
codes and fields. Concerns have
already been raised across the in-
dustry that the proliferation of DLT-
based initiatives utilising multiple
protocols, programming languages,
data fields and dictionaries could
result in fragmentation, inefficiency
and cost. One of the reasons why
we were able to start this project is
that the TIW had already defined
standardised process flows and
data models. This helped to make
credit derivatives an ideal test case
and provide an opportunity to test
the technology with appropriate
and meaningful scale. Bolstered
by common data standards and
governance, a DLT-based TIW can
enable the industry to process and
report to regulators from the same
data record.
From there, the industry could
leverage the data collected to deliv-
er new value-added services, fur-
ther reduce costs and mitigate both
operational and systemic risks.
HM: What are your predictions in
terms of regulatory change as it
relates to derivatives reporting?
CC: I am hopeful that regulators
across the world will continue to
work with the industry and look at
ways to harmonise their data re-
porting regulations. If you look five
years out, I hope that regulatory
change will have been transforma-
tional and that regulators will have
been able to agree on standards and
subsequently the broad adoption
of a common global framework for
derivatives trade reporting.
We must ensure we are able to
move forward from where we are
at the moment, so that greater val-
ue can be gained from the data and
the infrastructure that has been
built to support derivatives trade
reporting. This is what regulators
and industry participants need
to focus on in the years ahead. If
jurisdictions choose to mandate
reporting according to different
standards compliance costs will
simply increase and the ability to
aggregate data, and hence monitor
and mitigate systemic risk will be
severely hampered.