Amid concerns its data collection and analysis abilities lag far behind an ambitious regulatory agenda, the Commodity Futures Trading Commission will embark on a comprehensive review of how it monitors swap market recordkeeping and reporting. CFTC Acting Chairman Mark Wetjen announced the creation of an interdivisional staff working group to review its handling of swaps transaction data.

In December 2011, the CFTC adopted the Dodd-Frank Act's statutory framework for swap data recordkeeping and reporting requirements.Among the reforms was mandatory reporting of all OTC trades to a Swap Data Repository (SDR). The goal is to give the Commission 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. To ensure that complete swap transaction data is available to them, the CFTC requires reporting counterparties and entities to electronically submit swap creation and continuation data to SDRs.

The working group, led by the director of the CFTC's Division of Market Oversight, will develop questions for public comment regarding compliance with those reporting rules and consistency in reporting among market participants. Wetjen directed the working group to publish the request for public comment in the Federal Register by March 15, 2014. The working group will review the comments and make recommendations in June.

“In order for the Commission to enforce the significant Dodd-Frank reforms, the agency must have accurate data and a clear picture of activity in the marketplace,” Wetjen said. “We've seen an incredible shift to a transparent, regulated swaps marketplace, and this is an appropriate review to ensure the data we are receiving is of the best possible quality so the Commission can effectively oversee the marketplace.”

“Just repeating ‘transparency, transparency, transparency,' as a meaningless mantra won't cut it, we have to actually have the correct, concise, and useful processes in place and functioning for these reform efforts to have teeth,” Commissioner Bart Chilton said in a statement.

Concerns raised by Commissioner Scott O'Malia in March were, in large part, a catalyst for the review. “Big data is the commission's biggest problem,” he said, speaking at a Securities Industry and Financial Markets Association conference. “The data submitted to SDRs and, in turn, to the Commission is not usable in its current form. The problem is so bad that staff have indicated that they currently cannot find the ‘London Whale' in the current data files.”

He claimed 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. “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 added that the CFTC's computer programs perpetually crash amid the influx of daily data they receive and, until these issues are resolved, “nobody should be under the illusion that promulgation of the reporting rules will enhance [our] surveillance capabilities.”

As part of the CFTC's efforts to improve swap transaction data quality, the working group has been asked to: identify and make recommendations to resolve reporting challenges; review industry compliance with reporting obligations; consider data field standardization and consistency in reporting among market participants; recommend additional reporting guidance or requirements; and explore whether the agency should seek additional regulatory and technology improvements and data analysis expertise.