While the industry has embraced derivatives reporting requirements around the world, the data collected is not yet providing regulators with the transparency they need to monitor and respond to systemic risk.
Following the 2008 financial crisis, G20 nations called for increased visibility into the opaque OTC derivatives market to limit the potential for future systemic risk. While the industry has embraced the derivatives reporting requirements of the U.S. Dodd-Frank Act, the European Market Infrastructure Regulation (EMIR) and other similar reporting regulations around the world, data collected to date is not yet providing regulators globally with the transparency they need to monitor and respond to systemic risk.
Why? There are several reasons, but the general lack of data standardisation and harmonisation across markets rise to the top of the list, creating an inability to aggregate data holistically across markets.
It is important to note that data is being collected as prescribed by each jurisdiction’s legislation and local regulators have access to more data than ever before. While there is enhanced transparency into local markets, the ability to aggregate data and turn it into information useful in monitoring potential systemic risk remains a critical challenge.
This is partly due to the fact that this important data is housed in multiple trade repositories around the world, with each repository set up along local mandates and regulations, with no clear guidance around standardising datasets globally.
Any discussion about global transparency must take into consideration the importance of consistent data standards across jurisdictions and repository providers. Standards are critical to data aggregation efforts. Through the global adoption and use of identifiers and consistent standards, the quality of data will improve and data can be effectively aggregated.