The 2013 Trading Landscape
Remember the 2007 price manipulation case? There was an interesting clash between price publishers, alleged manipulative traders, and the CFTC. It kind of turned into a debacle where rogue traders were allegedly submitting false prices to the price publishers. The CFTC in trying to police the manipulation dropped a subpoena on the publisher. Publisher pushed back claiming reporter’s privilege. Queue the lawyers and away we go.
Along comes Dodd Frank and the framework is setup to never, never run into this problem again.
In the new framework, ALL OTC financial trades are sent to a Swaps Data Repository. Maybe your counterparty will send over the details on your behalf. Maybe you send them yourself. But at the end of the day EVERY OTC financial position is going to be in there.
Under Dodd Frank, each SDR is mandated to publish prices of received trades. This is full public dissemination. Generally in the first year prices are publicly available anywhere between 1 and 4 hours of submission to the SDR. If you want real time prices (i.e pre-public reporting data), you are going to have to pay the SDR for access to its real time feed.
This is a nice summary by Gibson, Dunn & Crutcher.
What does this mean? Well, a couple things.
Companies should be looking at revising their Master Agreements. Obviously Dodd Frank requires some revisions on OTC trading anyway. But the prices coming from the SDR are likely to be the default price source for settling transactions.
If you do not have an approach for the capture of time series storage of prices, you could be in for a surprise come 2013. Prices are going to be coming off of the SDR at least hourly. It’s a fundamental risk principle that we are going to have to capture these. Some ETRMs do this better than others. Many leverage a price warehouse such as LIM (Morningstar) and ZEMA (ZE). Contacts below. But we’d really suggest that companies start planning how they are going to make the pricing transition in 2013.
Morningstar (LIM): Rafael Hines: Rafael.Hines@morningstar.com
ZE (ZEMA): Fran Rolon: Fran@ze.com
