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    Depository Trust and Clearing Corp

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    The document is a letter from the General Counsel of DTCC to the Chairmen of the SEC and CFTC commenting on proposed rules relating to swap data repositories. It recommends that regulators designate a single SDR as a centralized source of data and that SDRs maintain legally binding records of transactions. It also expresses concerns that indemnification requirements may restrict regulators' access to necessary market information.

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    Depository Trust and Clearing Corp

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    The document is a letter from the General Counsel of DTCC to the Chairmen of the SEC and CFTC commenting on proposed rules relating to swap data repositories. It recommends that regulators designate a single SDR as a centralized source of data and that SDRs maintain legally binding records of transactions. It also expresses concerns that indemnification requirements may restrict regulators' access to necessary market information.

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    The document is a letter from the General Counsel of DTCC to the Chairmen of the SEC and CFTC commenting on proposed rules relating to swap data repositories. It recommends that regulators designate a single SDR as a centralized source of data and that SDRs maintain legally binding records of transactions. It also expresses concerns that indemnification requirements may restrict regulators' access to necessary market information.

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    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    91 views3 pages

    Depository Trust and Clearing Corp

    Uploaded by

    MarketsWiki
    The document is a letter from the General Counsel of DTCC to the Chairmen of the SEC and CFTC commenting on proposed rules relating to swap data repositories. It recommends that regulators designate a single SDR as a centralized source of data and that SDRs maintain legally binding records of transactions. It also expresses concerns that indemnification requirements may restrict regulators' access to necessary market information.

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    You are on page 1of 3

    The Depooi tory Treat th

    Larry E. Thompson Tel: 212-855-3240 Cleariop Carparati on


    General Counsel Fax:212-855-3279 55 Water Street
    lthompson @dtcc.com New York, NY 19941-5599

    November 15, 2010

    The Honorable Mary Schapiro The Honorable Gary Gensler


    Chairman Chairman
    U.S. Securities and Exchange Commission U.S. Commodity Futures Trading Commission
    100 F Street, N.E. 1155 21 Street, N.W.
    Washington, D.C. 20549 Washington, D.C. 20581

    Dear Chairmen Schapiro and Gensler,

    The Depository Trust & Clearing Corporation (“DTCC”) appreciates the opportunity to
    submit to the U.S. Securities and Exchange Commission (“SEC”) and to the U.S.
    Commodity Futures Trading Commission (the “CFTC” and, collectively with the SEC,
    the “Commissions”) comments for your consideration as you begin to finalize the drafts
    of proposed rules relating to swap data repositories and security-based swap data
    repositories (collectively, “SDRs”). We appreciate the efforts of both Commissions to
    implement regulations under Title VII of the Dodd-Frank Wall Street Reform and
    Consumer Protection Act (the “Dodd-Frank Act”), and we are supportive of steps taken
    to ensure that regulators have the necessary tools to provide oversight of over-the-
    counter (“OTC”) derivatives markets.

    As you and your fellow Commissioners begin to discuss staff proposals for rules
    governing SDRs, DTCC offers the following comments for your consideration:

    • Swap Data Repository as Single Source for Regulators’ Market Data. DTCC
    supports a regulatory framework that allows an SDR to provide regulators with a
    centralized vantage point in this global market to view accurate and complete
    information for each swap or security-based swap asset class in a timely manner. A
    registered SDR should be able to provide (i) enforcement agents with necessary
    information on trading activity; (ii) regulatory agencies with counterparty-specific
    information about systemic risk based on trading activity; (iii) aggregate trade
    information for publication on market-wide activity; and (iv) a framework for real-
    time reporting from swap execution facilities and derivatives clearinghouses.

    • Dodd-Frank Act Provides a Process for the Aggregation of Swap Data to


    Counter the Risks of Data Fragmentation - Including the Designation of a
    Particular Swap Data Repository to Serve in Such a Capacity. The SDR sections
    in the Dodd-Frank Act include parallel provisions for swap data repositories and
    security-based swap data repositories that an SDR shall “provide direct electronic
    access to the Commission (or any designee of the Commission, including another
    Chairman Mary Schapiro
    Chairman Gary Gensler
    November 15, 2010
    Page 2 of 3

    registered entity).”1 DTCC believes that this language permits both Commissions to
    designate one SDR as the recipient of the information of other SDRs to ensure the
    efficient consolidation of data. In order for this arrangement to exist under the
    forthcoming regulations, the rules should permit each Commission to recognize a
    single SDR (or one SDR per asset class) (the “Recognized SDR”) to receive and
    aggregate market information and provide regulators with one unified source for real-
    time electronic data. A Recognized SDR will provide complete and streamlined
    information to the regulators, reducing the strain on these agencies’ limited
    resources. The Recognized SDR must meet certain threshold requirements that
    ensure it has the necessary technological and substantive capabilities to perform its
    responsibilities as a Recognized SDR, as well as the organization and governance
    structure that is consistent with being a financial market utility serving a vital
    function to the entire marketplace.

    • Binding, Legal Electronic Records and Asset Servicing Vital for Market
    Oversight. In order to maximize the value of an SDR and the vast data stored within
    it, it must maintain a legally binding electronic record which has been confirmed for
    accuracy by both counterparties. After each recorded transaction is consummated,
    the SDR can maintain the validity of the data for that transaction by offering an asset
    servicing function. This structure would allows the SDR to assist in systemic risk
    monitoring by providing regulators with regular reports analyzing the data (such as
    position limit violations or certain identified manipulative trading practices).

    • Conflicts of Interest Can Be Best Addressed through Governance


    Requirements. DTCC strongly advocates that ownership and voting limitations for
    derivatives clearing organizations, security-based swap clearing agencies, designated
    contract markets, national securities exchanges, swap execution facilities and
    security-based swap execution facilities be eliminated in their entirety because
    proposed structural governance requirements sufficiently address the conflicts of
    interest identified by the Commissions. DTCC further urges the adoption of
    definitions of “parent” and “subsidiary” that align with proposed structural
    governance requirements and are consistent between both Commissions. If the
    Commissions were to reject this approach to defining the parent and subsidiary
    relationships, DTCC would request the approval of a waiver and general exemption
    by both Commissions, as contemplated by the CFTC’s proposed rule, from the
    ownership or voting limitations for itself and other user-owned and governed
    financial market utilities.

    • Indemnification Provisions Threaten Regulators’ Ability to Identify and


    Mitigate Systemic Risk. Certain provisions of the Dodd-Frank Act require SDRs to
    make data available to federal and international regulatory agencies on a confidential
    basis. However, before the SDR is permitted to share the information with such
    regulators (the “Requesting Entity”), the SDR must receive a written agreement from
    the Requesting Entity, including any with which the SDR currently shares

    1Commodity Exchange Act Section 21(c)(4)(A), as created by Dodd-Frank Act Sections 728, and Securities
    Exchange Act of 1934 Section 13(n)(5)(D)(i), as created by Dodd-Frank Act Section 763(i).
    Chairman Mary Schapiro
    Chairman Gary Gensler
    November 15, 2010
    Page 3 of 3

    information, that: (i) the Requesting Entity will abide by confidentiality requirements
    regarding the provided information; and (ii) the Requesting Entity agrees to
    indemnify the SDR and regulating Commission for any expenses arising from
    litigation relating to the information. DTCC remains concerned that regulators are
    not likely to grant SDRs indemnification in exchange for access to the information
    and, accordingly, regulators may actually receive less aggregated market data. Such
    an outcome would result in a reduction of information accessible to regulators on a
    timely basis both domestically and internationally, which contravenes the purpose of
    SDRs and jeopardizes market stability. Without an alternative, upon implementation
    of these provisions, SDRs will be restricted from providing necessary market
    information to regulators. Until government agencies reach indemnification and
    confidentiality agreements with SDRs, a regulator’s ability to carry out oversight
    functions will be greatly diminished.

    We would like to thank both of you, your fellow Commissioners and the staffs at both
    agencies for being so willing to consider our opinions and for conducting an open and
    transparent rulemaking process.

    We appreciate the opportunity to share these comments with you and are available to
    discuss with you and your staffs at any time. Should you wish to discuss these
    comments further, please contact me at 212-855-3240 or lthompson@dtcc.com.

    Sincerely,

    Larry E. Thompson
    General Counsel

    cc: Luis Aguilar, Commissioner, SEC


    Kathleen Casey, Commissioner, SEC
    Troy Paredes, Commissioner, SEC
    Elisse Walter, Commissioner, SEC

    Bart Chilton, Commissioner, CFTC


    Michael Dunn, Commissioner, CFTC
    Scott O’Malia, Commissioner, CFTC
    Jill Sommers, Commissioner, CFTC

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