EXTERNAL MEETINGS: DATA MEETING WITH DARRELL DUFFIE

On December 15, 2010 Darrell Duffie, Professor Stanford University, spoke by phone with CFTC staff.  The purpose of the call was to offer informal advisory assistance regarding the implementation of data rulemakings.  Professor Duffie communicated to staff his view that the most effective way to organize data reporting was at the level of the master swap agreement between two counterparties.  He advised that the basic entity of a hierarchical data structure for systemic risk analysis ought to be the master swaps agreement and that it was important to get the data structure correct from the beginning of the implementation of the rule. Dr. Duffie contended that the master swap agreement is an important data focal point for systemic risk assessment because it specifies how positions are collateralized. Professor Duffie recommended that one, data be query based allowing regulators to determine the size of dealer positions, frequency of trading partners and which party initiated trades and two, allow for research and market monitoring in order to assess the cross distribution of trade systems and to answer systemic risk related questions.  Dr. Duffie also stated that transaction-level data should be kept in a swap repository for a minimum of 30 years because that is the timeline most consistent with major swap agreements.  He recommended that the agency outsource the design and operations of the data collection to third parties with experience and expertise in this area. ~ ~Professor Duffie also discussed the potential effect of real time reporting requirements on market participants.  Based on industry discussion, Dr. Duffie stated that large swap dealers were concerned about real time reporting because it would make it more difficult to off-load leading positions.  He asserted that 15 minutes was not enough time to report transactions that are relatively large in scale. Dr. Duffie also pointed out that smaller dealers may have a different view, and that real time public reporting, by increasing transparency, may allow smaller dealers to shop around for the best opportunities.  Professor Duffie stated that block trade calculations must balance price competition with a potentially adverse impact on market liquidity.  He stated that price competition is a good reason for allowing block trade definitions to vary by venue.  Additionally, Professor Duffie warned that market participants may try to avoid block trading reporting requirements by agreeing on swap terms at one point in time and affirming terms of trade details later in time.