The Commodity Futures Trading Commission (CFTC) is to lay out its plans to bolster the stability of US derivatives markets with the publication of a concept release before the end of June.
Speaking ahead of yesterday’s meeting of the CFTC’s technology advisory committee – convened to discuss the swap data repositories (SDRs) to which US market participants must report all swaps trades, under the Dodd-Frank Act – CFTC chairman Gary Gensler said the US derivatives regulator had been working on a concept release “for many moons”.
“My hope is that we could put out a concept release that I’ve referred to as testing and supervision, which is about risk controls and system safeguards for automatic trading environments,” he said.
Gensler said last week’s ‘hash crash’, precipitated by the hacking of a Twitter account belonging to Associated Press, had helped to bring the topic of the structural robustness of the financial markets to the top of the CFTC’s agenda. He said the document would be issued for public consultation “in the next month to two months”.
The US securities market regulator, the Securities and Exchange Commission, is widely expected to publish its own concept release, updating the document it produced in January 2010 on market structure issues arising from the introduction of Reg NMS in 2007.
Gensler also admitted that the Group of 20’s requirements for increased transparency and regulatory oversight of the OTC derivatives markets had not yet been met, despite the start of swaps reporting in the US and other jurisdictions, and recommended “a guidebook” to accelerate the process.
He said that “growing pains” were inevitable in achieving the end-goal of letting regulators and finance ministers worldwide “sort and search data”.
“Congress put into the statute that it be directly, electronically accessible to the regulators. That means it’s not a report or a summary, but a regulator can go in and see trade by trade. We need to be able to aggregate it by counterparty, by reference rate, by trade date and use modern technology to do that. We’re not there yet,” said Gensler.
CFTC commissioner Scott O’Malia said a guidebook could provide market participants and SDRs with guidelines to increase the consistency and efficiency of the data reporting process. O’Malia said that efforts to implement large trader swaps reporting had benefitted from a similar approach.
“It is one thing for swap data reporting to be mandated by Dodd-Frank and Commission regulations, and quite another for it to be flowing properly from reporting entities to SDRs, and from there for the Commission to efficiently access and utilise it,” he said.