down the rabbit hole: an allusion to Lewis Carroll's Alice in Wonderland. To go "down the rabbit hole" is to enter a period of chaos or confusion. Can also be said when taking a hallucinogenic, as some suspect Carroll's novel was really about a drug trip."
- Urban Dictionary
One of my favorite exercises is to start with a press release or a speech of one or another high-level regulator and drill down (via the helpful links provided by their transparent if convoluted references) to the underlying truth. The truth being, in this context, what was actually discussed by the folks who are trying to address whatever the problem is that the high-level person is lamenting about.
Hence the latest exercise, featuring the Commodity Futures Trading Commission (CFTC). I was intrigued by a Reuters article that indicated a disagreement between Vincent McGonagle, the CFTC's head of the Division of Market Oversight, who claims the industry needs to get over the "handholding" and get on with the data reporting and Scott O'Malia, chair of the CFTC's Technical Advisory Committee (TAC), who instead blames lack of clarity in the agency's rules.
According to an article in Energy Risk, O'Malia has stated that the situation is finally getting sorted out but as of now "the data on over-the-counter derivatives being collected by the US Commodity Futures Trading Commission (CFTC) is in a sorry state and riddled with inconsistencies that make it difficult for the agency to fulfil its oversight mission."
So which is it? Luckily, both of these articles were inspired by the TAC meeting held earlier this week and the complete documentation of the TAC meeting is available (even videos are posted eventually). O'Malia in his opening statement wastes no time in telling us that his new boss is leaning hard on the data topic, having announced the formation of a new cross-divisional data team that will own the problem:
…On January 21, the Commission announced the formation of a cross-divisional data team that will focus on identifying problems faced by each division and developing solutions to resolve problems with the Commission's regulatory data. The data team will also solicit comments from market participants on recommended rule changes to the Commission's data rules. Based on this input, the data team will make written recommendations on a corrective path forward. Until now, no one in the Commission has taken ownership to fix the problems. This has now changed."
In addition, O'Malia notes that of the five high level objectives for data utilization that the CFTC has (Assessing systemic risk and financial stability; Conducting market surveillance and enforcement; Supervising market participants; Conducting resolution activities; Bringing greater transparency to OTC markets) only the latter has been achieved "with a partially complete swaps data report and a real-time swaps data ticker" and that he believes there is "a long way to go" on the rest. He places this responsibility during the meeting on the TAC Panel described in the Press Release as "Data: Where Does the Commission Stand and How Do We Fix What's Broken?" So what does this TAC Panel actually discuss?
Tellingly, they call themselves "Update on Swaps Data Reporting" thereby removing the requirement to identify all of the necessary fixes. The opening slides on priorities and plan focus on harmonization of data from the Swap Data Repositories (SDRs) and seem to be going in the right direction - who can argue with a stated goal like "improve data quality"? The staged action plan seems well thought out, but the effort is expected to be "both complex and time intensive." Perhaps there is "a long way to go" on this one as well.
The rest of the deck is an update on various activities which is worthwhile reading if only to chuckle at the CFTC's discovery that taking in someone else's dirty data is never a good idea, i.e."DCR believes this effort is improving data quality, but is not a practical solution… DCR is actively working with ODT to draft requirements for SDRs to run a weekly report themselves."
My favorite part of the deck is the final section, which is a list of technology challenges of the Dodd-Frank compliance-monitoring part of the CFTC, the Swap Dealer and Intermediary Oversight (DSIO- why that and not SDIO?). Included are such laments as "Adding a new line item to a financial report takes months" and "Is there a more efficient DB management tool? " I feel for these guys, I really do. How can they be expected to meet O'Malia's goal to assess systemic risk under these conditions?