“Big data is the commission's biggest problem.”
That's how Scott O'Malia of the Commodity Futures Trading Commission, speaking at a Securities Industry and Financial Markets Association conference on Tuesday, described the data-crunching “nightmare” undermining swap reporting rules.
Among the policy reforms of the Dodd-Frank Act is the mandatory reporting of all OTC trades to a Swap Data Repository (SDR). The goal is to provide the Commission with the ability to identify large swap positions that could have a destabilizing effect on markets. Since the beginning of 2013, certain market participants have been required to report their interest rate and credit index swap trades to an SDR.
“The data submitted to SDRs and, in turn, to the Commission is not usable in its current form,” O'Malia, a CFTC commissioner, said. “The problem is so bad that staff have indicated that they currently cannot find the ‘London Whale' in the current data files.”
He claims that, in a rush to enact reporting rules, the Commission failed to specify the data format reporting parties must use when sending their swaps to SDRs.
“The Commission told the industry what information to report, but didn't specify which language to use,” he said, adding that data is also inconsistently reported from one dealer to another.
“For each category of swap identified by the 70-plus reporting swap dealers, those swaps will be reported in 70-plus different data formats, because each swap dealer has its own proprietary data format it uses in its internal systems,” O'Malia said.
To make matters worse, that's just the swap dealers and the same thing may happen when the CFTC adds major swap participants and end-users reporting. The permutations of data language are “staggering” and a “reporting nightmare,” he said.
Aside from the need to receive more uniform data, O'Malia said the Commission must significantly improve its IT capabilities. “[It] now receives data on thousands of swaps each day,” he said. “So far, however, none of our computer programs load this data without crashing.”
Until these issues are resolved, “nobody should be under the illusion that promulgation of the reporting rules will enhance the Commission's surveillance capabilities,” he said.