The Chicago Mercantile Exchange (CME) has been granted a provisional licence to operate a swaps trade repository, adding fuel to the debate over fragmentation and competition in the data repository space, which could thwart regulatory changes.
The Commodity Futures Trading Commission (CFTC) approved the application of CME for provisional registration as a swap data repository (SDR), making it the third to register under the newly created category under the Dodd-Frank Act.
This means it will collect and maintain swaps transaction data for interest rate, credit, foreign exchange and other commodity asset classes.
The other swaps data repositories mandated by the CFTC are operated by the IntercontinentalExchange and the Depository Trust and Clearing Corporation (DTCC), the latter of which has been outspoken about data fragmentation caused by multiple repositories.
Marisol Collazo, managing director, head of trade information warehouse operations and repository services at the DTCC, speaking ahead of the Sibos banking conference, said the fragmentation of data across multiple repositories could lead to inaccuracies in determining systematic risk, in light of the interconnected nature of the swaps market.
“While in theory one could say interoperability of SDRs is a solution, from a technical perspective, the reconciliation of data in terms of global dealers trading in multiple jurisdictions would create a burden of reporting which would increase operational costs and challenge data inventory controls,” she said.
The DTCC, which would lose market share in the repository space with additional players, has sought to influence regulators in the US and Europe to concentrate the number of trade repositories, claiming multiple repositories could lead to fractious data. This, in turn, could result in difficulties in managing derivatives data, which would negate one of the core elements of Dodd-Frank reform, namely fostering clarity in the opaque over-the-counter derivatives market.
For the CME however, the CFTC green light lets the company expand its repository business, offering market participants more choice and competitive prices. Market participants will be able to direct swap trades to the CME repository using existing CME interfaces and third-party connectivity points.
“As market participants look for alternatives in the SDR space, our service offers them the ability to optimise their existing connections to CME Clearing for automatic SDR reporting, which delivers a lower-cost options for firms transitioning to the clearing mandate,” said Kim Taylor, president of CME Clearing and CME Repository Service.