Contributor: Stephen Nimmo
As the final rule for market classification definition of the Dodd-Frank Act (DFA) was entered in the Federal Register on May 23, 2012, the triggers for many of the 60-90 day compliance periods are active. This publication has set many DFA initiatives into motion at many different swap market participants, most notably those with new swap data repository (SDR) offerings.
There is some standout language in the rules regarding SDR reporting in particular. As documented in Rule 17 CFR Part 45 Swap Data Recordkeeping and Reporting Requirements:
The NOPR would require SDRs to maintain data and transmit it to the Commission in the format required by the Commission. It would permit an SDR to allow those reporting data to it to use any data standard acceptable to the SDR, so long as the SDR remains able to provide data to the Commission in the Commission’s required format. (p 2139)
Here, the CFTC essentially gives permission to individual SDRs to collect the necessary data using any format they choose, so long as they would be able to provide the data the Commission needs. This means there will be no common protocol, formatting or key data values for transmitting trade data to SDRs, so key information, such as buyer, seller and even the product, may be different across all SDRs.
Many companies with SDR offerings have been publicizing the details of their services for quite some time; however, questions still remain about the entrance of new, potentially very influential players into the market.
What does this mean?
For those companies planning to use SDR extended services through existing client relationships, the changes may be limited to the addition of new DFA-related fields and some refinement of existing data types. Many end users and swap participants may choose to select a single SDR to route all their reporting data. By choosing a single SDR, they are essentially choosing a single protocol, transmission type and format, as well as a single map from their internal data representations of key fields to those values recognized by the specific SDR. These companies will choose the best SDR to fit their current practices, but it is important to note that they will be choosing from an incomplete list, since new SDRs are expected to debut soon.
However, there are companies that will be unable to isolate their SDR to a single vendor. For example, if a company is executing swaps on behalf of clients, its clients may request that the trade be sent to a specific SDR. For these types of companies, implementation now becomes a complicated transformation process based on the destination SDR. These companies will need to map their internal trade representations into what could be four to five different formats (XML, FIXML, FpML, etc.) and have the capabilities to transmit that data using many different ways (Web Services, FTP, sockets, etc.).
Combine this formatting and transmission issue with the possibility of having multiple internal trade capture systems, each with their own internal data representations, across multiple, independent divisions all pushing data to the SDRs, and you could end up with a mapping and translation nightmare.
In addition to the structure and data value mapping requirements, each SDR may also have their own workflow for how data is transmitted. These workflows will differ particularly due to the proliferation of combination messaging – sending a single message to handle both Real Time (RT) and Primary Economic Term (PET) requirements – which would also be SDR-dependent, both in format and workflow.
The world of Dodd-Frank is continually evolving, and companies must be ready to handle the changes fluidly. New SDRs mean new workflows, new data and new systems to maintain. This also means having both business and technical personnel well versed in not only the DFA rules, but also the slough of protocols, trade lifecycle changes and technologies required to implement effectively. As time goes on, we may see a smoothing of this information volatility as implementations go live and everyone involved begins to adjust to the new rules. It is clear that all swap market participants will face new challenges with multiple SDR interfaces and data protocols.
- Access the Global Services Dodd-Frank Webcast Series, which covers regulatory changes and proactive steps to prepare for the impact of implementation.
- Contact the Global Services Dodd-Frank experts directly to talk more about Rule 17 CFR Part 45 Swap Data Recordkeeping and Reporting Requirements.