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November 18, 2009 2:32 pm
I’ve lost count of how often Gary Gensler has testified to various US congressional committees on over-the-counter derivatives reform and clearing. But it always pays to read what he has said, even if you can’t make it to the wood-panelled hearing rooms in Washington yourself.
On Wednesday, the chairman of the Commodity Futures Trading Commission will give testimony to the Senate agriculture committee. Wouldn’t be surprising if it were a standing room-only affair given that this is Gensler’s first testimony to the committee since chairman Tom Harkin was replaced by Blanche Lincoln of Arkansas.
What Gensler says on trade repositories is, I think, the first sign that the US might just be able to tolerate a world in which there are multiple repositories for OTC derivatives – not the one that US officials have privately hinted that they’d prefer to see.
Hitherto, US officials have been squeamish about the concept, arguing that European insistence that there be a trade repository in Europe to be little more than “me-too” turf protection.
The Europeans think it only reasonable for Europe to have its own trade repository – or repositories – to ensure that European regulators can see, in their jurisdiction, who has been trading what, when, and at what price should there be another blow-up like Lehman.
The US – and people like the Wholesale Market Brokers Association – argue that, given the global, homogenous nature of credit default swaps, or interest rate swaps and other contracts, why split the data on them into multiple trade repositories? Geography should not dictate matters.
The Depository Trust & Clearing Corporation, the US post-trade giant, points out a technical problem: how can you have multiple trade repositories – especially in the same asset class – given the standard practice of assigning one, unique “ID” to an OTC trade? It favours a single repository for each asset class, with information shared with all relevant regulators globally to avoid fragmentation of data.
Gensler re-iterates in his testimony the US administration’s desire to see all non-cleared derivatives transactions to be reported to a trade repository that makes the data available to regulators.
Here’s the new bit, which came next: “US regulators and foreign regulators should both have unfettered access to see all transactions, regardless of whether the physical locations of the trade repositories and clearing houses are in the United States or elsewhere.”
He doesn’t address whether this means multiple trade repositories for each asset class – and I doubt he would advocate that. But it’s interesting to see him come out publicly in favour of more than one repository. Period.
And for “unfettered” access by regulators, wherever they are.
I hear the European Central Bank for some months has been quietly working with the Federal Reserve on the possibility of getting “visibility” into a US trade repository – perhaps via a seat on the board of said repository. This would chime with the current Gensler world view.
Of course, all this assumes that US and European regulators are in lockstep on the OTC reform issue as they often claim. But it is an encouraging sign for proponents of transatlantic regulatory co-operation.
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