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2010-30905

  • FR Doc 2010-30905[Federal Register: December 9, 2010 (Volume 75, Number 236)]

    [Notices]

    [Page 76706-76708]

    From the Federal Register Online via GPO Access [wais.access.gpo.gov]

    [DOCID:fr09de10-38]

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    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

    Commission.

    ACTION: Request for Comments.

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    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

    forth below.

    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

    methods:

    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

    Information Act.

    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

    [[Page 76707]]

    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_

    Section_719.html.

    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

    ``Computerized Analysis'':

    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

    derivatives:

    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

    industry?

    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

    complex derivatives?

    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

    transactions?

    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

    systems?

    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

    data repositories?

    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

    considered?

    31. What is the importance of ontologies for the representation of

    derivatives data now and in the future?

    Implementation:

    32. Have you ever implemented a transition to a new data ontology,

    data messaging standard, or internal data standard?

    [[Page 76708]]

    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?

    Other:

    41. Is there other information not called for by these questions

    that we should consider?

    Dated: December 2, 2010.

    By the CFTC.

    David Stawick,

    Secretary of the Commission.

    By the Commission (SEC).

    Elizabeth M. Murphy,

    Secretary.

    [FR Doc. 2010-30905 Filed 12-8-10; 8:45 am]

    BILLING CODE 6351-01-8011-01-P

    Last Updated: December 9, 2010



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