The Dodd-Frank Act Title VII as implemented by the CFTC in late 2012 requires regulatory reporting by all registered swap dealers (SDs) and major swap participants (MSPs) trading in eligible product types. These eligible trades are reported to a designated global trade repository (GTR) maintained by one of several industry bodies such as the Depository Trust & Clearing Corporation (DTCC). Because of the scope and difficulty of reporting both new and historical trading activity—often referred to in the industry as back-loaded trades—the information sent to a GTR may fail at meeting quality benchmarks established by the regulators along with a firm’s internal compliance stakeholders. Compounding the challenge of reporting can be the ambiguity in the technical requirements published by a GTR for successful acknowledgement (ACK) of real-time reported eligible trades.
For over three years, Monticello Consulting has been actively engaged in the industry, partnering with our swap dealer clients to remediate data quality issues and to improve the ACK rates for the trades associated with real-time reporting. Challenges posed in these projects have included:
- Very large sets of data containing millions of trades and message types, combined with a dearth of robust tools for managing this data.
- Ambiguity of the GTR’s requirements for sending a correctly formatted message to receive an ACK.
- Multiple front office systems supplying raw trade data in varying formats.
- Overworked IT staff being stretched to support development for non-U.S. jurisdictions which went into effect around the same time periods.
For one particular engagement, a swap dealer client was experiencing several data quality issues resulting from the original back-loading of the dealer’s trades and the ongoing reporting of new trades. Issues included:
- Reporting Logic: Incorrect processing logic in the front office systems and the client’s reporting engine.
- Data Completeness: Trade messages were sent to the GTR missing values in multiple fields that were required for receiving an ACK.
- Data Quality: Some trade messages were sent to the GTR with incorrect values in their fields.
- Inaccurate Static Data: For specific trade populations, static data such as a client’s legal entity identifier (LEI) was incorrect or missing.
- Orphan Positions: Subsequent to the initial transmission of trades to the GTR, a subset of these trades were exited (a type of CANCEL event) improperly. Because of this failed exit scenario, a number of orphaned positions remained in an open and active state in the GTR.
- Reconciliation Issues: Reconciling internal trade data versus client data.
- Back-loading Challenges: Identifying and managing populations of live trades versus historic trades for back-loading to the GTR.
The Monticello team solved for these data quality issues by designing a suite of custom-built tactical tools, including:
- An MS-Access tactical tool to analyze the different data fields and determine target populations for cleanup.
- A custom SQL Server database for initial trade analysis of large populations of trades, feeding down to several smaller databases for trade back-load queueing.
- Several bespoke utilities written in C# for data analysis, population culling, XML parsing, and FTP processing.
- A transformation tool written in C# for mapping raw CSV trade files to create properly formatted input files required for back-loading.
The benefits of Monticello’s work in this area to the client’s regulatory reporting platform have included:
- Pinpointing incorrect logic for rules processing within the front office systems and the client’s regulatory reporting engine.
- Cleaning up multiple data fields for trades in both the front office systems and our client’s reporting engine.
- Removing a substantial population of orphaned positions.
- Cleaning up static data issues in the reported trade population.
The direct impact of our work in this area has aided our clients in significantly improving their data quality ranking in the industry vis-à-vis other large swap dealers on the Street.