The Depository Trust & Clearing Corporation (DTCC) called for legislative language mandating a trade repository for over-the-counter (OTC) credit derivatives contracts in testimony submitted to the House Financial Services Committee.
As the operator of the only global trade repository, we have a unique perspective on its value in helping regulators mitigate systemic risk during a crisis, says Larry E. Thompson, DTCC general counsel. We believe that all derivatives traded by U.S. financial institutions should be reported to a single trade repository for each asset class, which would serve regulators as a comprehensive source of information. From a public policy perspective and in the interests of ensuring the stability and transparency of financial markets, there must be a consolidated, comprehensive single entity that collects and maintains the underlying position data and makes it available to regulators in the most efficient, timely and usable manner.
In the testimony, Thompson expressed concern that current legislative proposals, which require only those trades that are not cleared through a central counterparty (CCP) to be reported to a repository, could undermine the goals of re-regulation and represent a step backward by reducing the level of transparency that now exists in the marketplace.
DTCC has publicly stated that it will support all efforts to create central counterparty (CCP) services planned in the U.S. and overseas on a non-discriminatory basis. Thompson stressed that when both the CCP and repository work in tandem to support each others functions, risk can be significantly mitigated — and transparency enhanced in the marketplace.
DTCC supports the goal of transparency and believes repository data should be shared with regulators in the U.S. and overseas. DTCC also supports the efforts of the OTC Derivatives Regulators Forum, a group of international regulators who announced plans this week to develop a global framework for regulatory cooperation and to share ideas and information on CCPs and trade repositories serving the OTC derivatives market.
The Trade Information Warehouse not only provides essential information on the underlying position data of CDS transactions, but it also mitigates risk by handling the calculation, netting, and central settlement of payment obligations between counterparties, and automates the processing of credit events situations where the protection against default provided by a credit default swap is activated.
Since last year, DTCC has seamlessly processed or is processing, through the Warehouse, more than 40 credit events, including the Lehman Brothers and Washington Mutual bankruptcies as well as the conservatorships for Freddie Mac and Fannie Mae. Because the industry had in place a robust, centralized infrastructure for the CDS market in the wake of last years financial turmoil, market participants were able to manage the multiple processing and operational challenges they faced with a greater degree of certainty and efficiency.
Following the Lehman bankruptcy last year, DTCC played a significant role in unwinding over $500 billion in open trading positions from trades in equities, mortgage-backed and U.S. government securities, without any loss to the industryand avoiding additional burden on taxpayers.
The Warehouse connects and services over 1,400 global dealers, asset managers, and other market participants.
D.C.