Like the dehydrated Ancient Mariner adrift in the ocean, regulators are surrounded by data, but are unable to use it. Mandatory trade reporting under Dodd-Frank and EMIR has been painful, expensive and problematic. Even in the context of lacklustre LEI uptake, the EMIR February 2014 reporting explosion saw trade repositories overwhelmed. Regulators recognise that overall compliance is not yet sufficient to allow for explicit enforcement; nevertheless, on both sides of the Atlantic, the trade reporting mandate is functioning, smoothly or otherwise.
However, for all the light being shed by the data, it might as well be delivered to a black hole. Data aggregation and interpretation was always set to be a challenge, if only due to the size of the dataset and lack of precedent. Nationally distinct monitoring of international markets was never going to be easy ; however, these predictable problems have been magnified and multiplied by fundamental dissonance between the US and Europe. Data formats, information requirements, reporting parties and reporting deadlines, are all specific to particular regulatory regimes. The laudable regulatory aim of promoting competition has resulted in (to date) 18 trade repositories worldwide, without a single common standard for dissemination of the data they exist to hold and distribute. Andrew Green, a senior executive at DTCC, has openly said that the number of matching trades between different TRs is “very, very low”. Even if analysis is confined to a single TR, storage and submission inconsistencies are so prevalent that conforming the data to a single format can take the CFTC up to three days. The confusion continues from the macro to micro-level; at the basic detail of trade identifiers mutual incomprehension rules- UTIs and USIs are distant cousins at best. Lack of concord is compounded by lack of planning, the CFTC is a no-action letter printing press and ESMA’s RTS updates have frequently been published scant days before their application. These difficult problems have been rendered near-insoluble by lack of investment in suitable systems and personnel1 . The only light in the data darkness is the dawning realisation among regulators that there is a problem:
“The commission now receives data on thousands of swaps each day. So far, however, none of our computer programs loads this data without crashing,” CFTC Commissioner Scott O’Malia, 19 March 2014
“Right now, the US and European Union are working separately to resolve data quality issues that should instead be resolved together. And, so far we are not taking the necessary steps to set the groundwork for an agreement that would allow our jurisdictions to share this swaps data” – Scott O’Malia, 22 May 2014.
“Quality is always an issue with data and – when you’re asking for so much new info at the same time – then the odds are that the quality is not all it might be. Secondly, can we connect the data we’re getting? Can we make sense of it, add it up and compare information from one set of financial firms, or one set of markets, to another? Right now this is a huge issue with all the new derivatives data,” – Deputy Director of the OFR (research arm of the US Treasury) Patricia Mosser, 06 June 2014
Since ESMA has no published plan of what data to collate and evaluate, or if, when and how they will publish the results, it is difficult to assess their progress. “Analytics is a shared exercise with national regulators,” said an ESMA spokesman. This equates to 29 chefs in the data analysis kitchen- what could possibly go wrong?
Market participants have been quick to (pre-)judge, “We find no less than mind-boggling the prospect of supervisors drawing any meaningful conclusions from the mountains of irrelevant or barely relevant data” Chairman of the European Treasurer’s Association Richard Raeburn, 12 March 2014
The CFTC has taken nearly four years to conclude that Big Data means massive data checking, cleaning and standardisation before the analysis can even begin; it is to be hoped that ESMA’s learning curve is somewhat steeper. The increasing intelligence and falling costs of data analysis systems promises a virtually omniscient (if not prescient) future for regulators; the promised land is currently a mirage.
1 ESMA budgeted EUR 5.15m. for “Information Collection” in 2014. The famously-under-resourced CFTC has allocated USD 71m. to IT for 2015. ESMA employed full-time 121 staff in 2013, the CFTC had 680.