Oversight of OTC derivatives market hampered by poor data: CSA

Regulators’ reviews of derivatives data reporting have uncovered a variety of compliance issues, hampering regulators’ efforts to enhance oversight of the over-the-counter (OTC) derivatives markets.

In a staff notice published on Thursday, the Canadian Securities Administrators (CSA) reported that compliance reviews of derivatives data reporting carried out by the Ontario Securities Commission (OSC) and the Autorité des marchés financiers (AMF) over the past couple of years have found that, while the majority of data reporting is accurate, regulators also encountered a variety of deficiencies.

The issues included trades not being reported, over-reporting and trades that lacked the required identifiers. These shortcomings create data quality problems that undermine the ability of regulators to properly oversee the markets.

Trade reporting requirements were adopted in the wake of the financial crisis to improve transparency in the over-the-counter (OTC) derivatives markets, to help regulators identify systemic risk and to combat the risk of market abuse. Poor-quality data reporting can impair these efforts.

The CSA notice indicated that data reporting quality has improved since the regulators’ reviews, due primarily to ongoing dialogue between the regulators, trade repositories and reporting counterparties — but there’s still work to be done.

“Continued co-ordination is necessary to improve the data quality even further,” the CSA said.

“Working with trade repositories to improve their data vetting and validation systems will reduce the amount of poor-quality data entering their systems and in turn ours,” it noted.

Additionally, the OSC and the AMF will continue to carry out compliance reviews, the CSA said, “including focusing on foreign based reporting counterparties, to better understand the issues that these entities face when complying with our rule.”

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.