FR Doc 2010-30905[Federal Register: December 9, 2010 (Volume 75, Number 236)]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
COMMODITY FUTURES TRADING COMMISSION
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63423; File No. 4-620]
Acceptance of Public Submissions on a Study Mandated by the Dodd-
Frank Wall Street Reform and Consumer Protection Act, Section 719(b)
AGENCY: Commodity Futures Trading Commission; Securities and Exchange
ACTION: Request for Comments.
SUMMARY: The Dodd-Frank Wall Street Reform and Consumer Protection Act
(``Dodd-Frank Act'') was enacted on July 21, 2010. The Dodd-Frank Act,
among other things, mandates that the Commodity Futures Trading
Commission (``CFTC'') and the Securities and Exchange Commission
(``SEC'') conduct a study on ``the feasibility of requiring the
derivatives industry to adopt standardized computer-readable
algorithmic descriptions which may be used to describe complex and
standardized financial derivatives.'' These algorithmic descriptions
should be designed to ``facilitate computerized analysis of individual
derivative contracts and to calculate net exposures to complex
derivatives.'' The study also must consider the extent to which the
algorithmic description, ``together with standardized and extensible
legal definitions, may serve as the binding legal definition of
derivative contracts.'' In connection with this study, the staff of the
CFTC and SEC seek responses of interested parties to the questions set
DATES: The CFTC will accept submissions on behalf of both agencies in
response to the questions through December 31, 2010.
ADDRESSES: You may submit responses to the CFTC, identified in the
subject line with ``algorithmic study'' by any of the following
CFTC Agency Web site: http://www.cftc.gov, via its
Comments Online process at http://comments.cftc.gov. Follow the
instructions for submitting comments through the Web site.
Mail: David A. Stawick, Secretary of the Commission,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581.
Hand Delivery/Courier: Same as mail above.
Please submit your comments using only one method.
All comments must be submitted in English, or if not, accompanied
by an English translation. Comments will be posted as received to
http://www.cftc.gov and http://www.sec.gov. You should submit only
information that you wish to make available publicly. If you wish the
CFTC to consider information that you believe is exempt from disclosure
under the Freedom of Information Act, a petition for confidential
treatment of the exempt information may be submitted according to the
procedures established in CFTC Regulation 145.9, 17 CFR 145.9.
The CFTC and the SEC reserve the right, but shall have no
obligation, to review, pre-screen, filter, redact, refuse or remove any
or all of your submission from http://www.cftc.gov and http://
www.sec.gov that they may deem to be inappropriate for publication,
such as obscene language. All submissions that have been redacted or
removed that contain comments may be accessible under the Freedom of
FOR FURTHER INFORMATION CONTACT: Nancy R. Doyle, Office of the General
Counsel, Commodity Futures Trading Commission, Three Lafayette Centre,
1155 21st Street, NW., Washington, DC 20581, telephone: (202) 418-5136,
or Matthew P. Reed, Division of Risk, Strategy, and Financial
Innovation, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-[mail stop], telephone (202) 551-2607.
SUPPLEMENTARY INFORMATION: On July 21, 2010, The Dodd-Frank Wall Street
Reform and Consumer Protection Act (``Dodd-Frank Act''), Public Law
111-203, was enacted.
Pursuant to Title VII, Sec. 719(b) of Dodd-Frank, the Commodity
Futures Trading Commission with the Securities and Exchange Commission,
jointly, must report to Congress by March of 2011 on ``the feasibility
of requiring the derivatives industry to adopt standardized computer-
readable algorithmic descriptions which may be
used to describe complex and standardized financial derivatives.''
These algorithmic descriptions should be designed to ``facilitate
computerized analysis of individual derivative contracts and to
calculate net exposures to complex derivatives.'' The study also must
consider whether a combination of these algorithmic descriptions and
``standardized and extensible legal definitions[ ] may serve as the
binding legal definition of derivative contracts.''
A copy of the text of the statute calling for this study may be
found here: http://www.dodd-frank-act.us/Dodd_Frank_Act_Text_
In furtherance of this report, we seek responses to the following
questions. Please note that responses may be made public, and may be
cited in this report. Questions relate to the current use of
standardized computer-readable descriptions for both data storage and
messaging, and to the usefulness and cost of any transition to a
universal standard for messaging and data storage. Responders are
encouraged to provide any additional relevant information beyond that
called for by these questions.
Calculation of ``Net Exposures to Complex Derivatives'' and other
1. How would your organization or community define ``net exposures
to complex derivatives?''
2. Do you calculate net exposures to complex derivatives?
3. What data do you require to calculate net exposures to complex
derivatives? Does it depend on the derivatives instrument type? How?
4. Are there any difficulties associated with your ability to
gather the data needed to calculate net exposures to complex
derivatives? What are they?
5. What other analyses do you currently perform on derivatives
agreements? What kinds of analyses would you like to perform, and how
could regulators and standards setters make those analyses possible?
6. How often do you perform net exposure calculations at the level
of your organization? Is it continuous and real time, only for periodic
external reporting, or some frequency in between?
Current practices concerning standardized computer descriptions of
7. Do you rely on a discrete set of computer-readable descriptions
(``ontologies'') to define and describe derivatives transactions and
positions? If yes, what computer language do you use?
8. If you use one or more ontologies to define derivatives
transactions and positions, are they proprietary or open to the public?
Are they used by your counterparties and others in the derivatives
9. How do you maintain and extend the ontologies that you use to
define derivatives data to cover new financial derivative products? How
frequently are new terms, concepts and definitions added?
10. What is the scope and variety of derivatives and their
positions covered by the ontologies that you use? What do they describe
well, and what are their limitations?
11. How do you think any limitations to the ontologies you use to
describe derivatives can be overcome?
12. Are these ontologies able to describe derivatives transactions
in sufficient detail to enable you to calculate net exposures to
13. Are these ontologies able to describe derivatives transactions
in sufficient detail to enable you to perform other analysis? What
types of analysis can you conduct with this data, and what additional
data must be captured to perform this analysis?
14. Which identifier regimes, if any, do you use to identify
counterparties, financial instruments, and other entities as part of
derivatives contract analysis?
Current use of standardized computer readable descriptions for
messaging of derivatives transactions:
15. Which computer language or message standard do you currently
use to create and communicate your messages for derivatives
16. Is there a difference between the created message and the
communicated message? For example, does your internally archived
version of the message contain proprietary fields or data that are
removed when it is communicated to counterparties or clearing houses?
17. Are different messaging standards used to describe different
contracts, counterparties, and transactions?
18. How and where are the messages stored, and do the messages
capture different information from that information stored in internal
19. What information is currently communicated, by and to whom, and
for what purposes?
20. For lifecycle event messages (e.g., credit events, changes of
party names or identifiers), are there extant messaging standards that
can update data relating to derivatives contracts that are stored in
21. What other standards (i.e., FpML, FIX, etc.) related to
derivatives transactions does your organization or community use, and
for what purposes? Has your implementation of these standards had any
effect on the way your business is conducted (e.g., does it reduce
misunderstanding of contract terms, has it increased the frequency or
ease of trades).
22. Is the data represented by this/these messaging standard(s)
complete enough to calculate net exposures to complex derivatives? What
additional information would need to be represented?
23. In general, to what extent are XML-based languages able to
describe a derivatives contract for further analysis? To what extent is
other technology needed to provide a full description?
24. What other analysis can be conducted with this data? What
additional information should be captured?
25. Do you have plans to change your messaging schemes/formats in
the near future?
26. Are there identifier regimes widely used in the derivatives
market for identifying counterparties, financial instruments, and other
entities in messaging?
The need for standardized computer descriptions of derivatives:
27. Would there be a benefit to standardizing computer readable
descriptions of financial derivatives? What about standardization for a
certain class/type of financial derivatives (i.e., CDS versus interest
rate, or plain vanilla versus complex)?
28. What would be the issues, costs and concerns associated with
standardizing computer readable descriptions of financial derivatives?
Are there existing standards that could or should be expanded (i.e.,
FpML, FIX, etc.)? Do the existing standards in this area have
materially different costs or issues?
29. What would be an ideal ontology for you in terms of design,
implementation, and maintenance of the data sets and applications
needed for your business?
30. How would a standardized computer readable description of
financial derivatives be developed and maintained (i.e., a government-
sponsored initiative, a public-private partnership, standard-setting by
a collaborative process, etc.)? Are there current models that should be
31. What is the importance of ontologies for the representation of
derivatives data now and in the future?
32. Have you ever implemented a transition to a new data ontology,
data messaging standard, or internal data standard?
33. If yes, how did the perceived and actual benefits compare to
estimated and actual costs over the short- and long-run?
34. What were the main difficulties that you experienced during a
transition/implementation of new data standards? What could the
organization developing and maintaining the standards do (or avoid) to
help alleviate these difficulties?
35. Would it be useful to use a standardized, computer readable
description for financial derivatives instruments? How would it be
useful? Would such a standard be useful for communicating transactions,
storing position information, both, or other purposes? What would be
the costs involved?
36. How should regulators and standard setters implement
description standards in the derivatives market?
Making computer descriptions legally binding:
37. Are there currently aspects of financial derivatives messaged
in a computer readable format that have a legally-binding effect?
38. What information, if any, is not captured that would be
required to make the computer descriptions themselves, without
reference to other materials, legally binding?
39. What information would need to be captured for a legally
binding contract that would not need to be captured for analyzing the
contract? Is there a substantial cost differential between the
processes needed to capture one set of information versus another?
40. Would there be a benefit to making the computer readable
descriptions of financial derivatives legally binding? Would there be
drawbacks? What are they?
41. Is there other information not called for by these questions
that we should consider?
Dated: December 2, 2010.
By the CFTC.
Secretary of the Commission.
By the Commission (SEC).
Elizabeth M. Murphy,
[FR Doc. 2010-30905 Filed 12-8-10; 8:45 am]
BILLING CODE 6351-01-8011-01-P
Last Updated: December 9, 2010