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Capital market data harmonisation and sharing - Key vulnerabilities in the EU financial system

Three Steps to removing barriers to market transparency

By Thompson Larry - Vice Chairman & General Counsel, The Depository Trust & Clearing Corporation

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The financial reform measures stemming from the 2009 G20 Pittsburgh accords have produced tangible evidence that market transparency is improving. Trade reporting regimes are now in place across all major derivatives markets and authorities within those jurisdictions have access to unprecedented amounts of data critical to market surveillance and the identification of counterparty risk.

But to obtain the level of transparency envisaged by the G20, regulators must be able to access and share standardized and aggregated data on a global scale. This is critical if a regulator is to transform the data being collected into meaningful analytical information that can be used for the identification and mitigation of systemic risk. To put it differently, you can have data without information, but you cannot have information without data.

Achieving this depth of transparency has proved elusive, however, and leveraging the data for the purposes of systemic risk oversight continues to be inhibited by differences in reporting requirements across jurisdictions. These differences have significantly degraded data quality, while complicating data aggregation and limiting access to and the sharing of reported data.

There are three primary steps policymakers must take to overcome these obstacles to fully realize the G20 goal of enhanced transparency.

First, it is critical the industry stakeholders accelerate efforts to enhance data standardization to improve data quality. Without harmonized regulatory reporting requirements – both domestically and internationally – efforts to improve the completeness, validity and accuracy of reported data will be impaired. Based on DTCC’s experience supporting derivatives data reporting across nine jurisdictions, we have seen firsthand how policymakers and regulators have implemented different reporting requirements, fields and definitions. We believe it would be pertinent for regulators and public authorities to coalesce around a common core set of necessary data elements, which would simplify the process of aggregating and sharing data.

Second, a data access and governance framework is urgently needed to effectuate global data harmonization. This will help ensure that data standards are maintained and updated as markets and regulatory requirement evolve, while also providing a formal structure for the appropriate sharing of and access to data across the globe.

Regulators must be able to access and share standardized and aggregated data on a global scale

And finally, once guidance on data standards is agreed upon and a governance framework is established, it is imperative that these commitments are implemented globally. Ideally, a single, global standard-setting authority should be responsible for monitoring the adoption of standards in domestic rulemaking and compliance with those rules as well as outcomes.

DTCC is encouraged by ongoing international efforts – spearheaded by CPMI-IOSCO and the FSB – to establish consistent data standards and improve access to data across jurisdictions and repositories.

While these are steps in the right direction, increased dialogue is critical to resolve the myriad differences that exist across jurisdictions. This will require ongoing global coordination and collaboration in addition to a dedicated commitment by the policymaking, regulatory and corporate communities.