SDR/TR | Standardi (Z or S) ation

StandardiZation, StandardiSation.  Why can’t we all just agree???

With the Dodd-Frank SDR reporting inching slow ahead to full steam in the US, how have we fared thus far? Truthfully?  Not so well!FAIL

Why?  Well one does not need to go any further than to take a peek at what’s on the CFTC’s mind.  And what is on their mind right now is this:


Begs the question, “Why did we do all of this in the first place?”

Here’s the CFTC’s problem:

Data Quality:  Data that is sent over to the SDRs from the market participants lives in an assortment of, well let’s call it diversity.  One shop refers to a trade type as a FF Swap, another just calls it Swap.  You get my point.  Well, when trades are sent to an SDR, some SDRs force participants into a STANDARDIZED MODEL and others…well just let you use whatever.

The problem is when the CFTC looks at the data for just one non-standardized SDR they can’t make heads or tails of the data.  Similar trades submitted by different companies are represented entirely differently, making analysis impossible.

Data Harmonization:  Data between the SDRs, similarly has no common thread.  One SDR may have 95 different terms for a Fixed Float Swap; whereas, another may have 10.  Forget it.  If a company really wanted to “hide” a position from a regulator, all they would have to do is send trades to separate SDRs knowing that the CFTC would never be able to harmonize the trades between SDRs to know what they are doing.

UPI Savior?   Not even close yet.  Don’t get me wrong, I am 100% behind ISDA’s attempt to come up with a Universal Product Identifier.  It’s a BRILLIANT start.  But the problem is that in its current state the proposed UPI schedule barely scratches the surface of trade types.  Likewise, there are a number of other key data elements that need to be standardized.

You can get full details of the current technology challenges facing the CFTC here.

Takeaways:  Know your SDR.  If you are reporting to an SDR that is highly un-standardized, (or un-standardised) prepare for some pain.  Standardization is going to be forced, like it or not.  Second, EMIR, take notice.  Standardization should be a requirement right out of the gate.


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