UPDATE: Regulators Look To Scrutinize Swaps Data

A group of regulators said Wednesday it wants to beef up surveillance of the $600 trillion swaps market via improved record-keeping and the reporting of additional information to data warehouses.

The Committee on Payment and Settlement Systems and a working group of the International Organization of Securities Commissions released their proposals in response to Financial Stability Board recommendations last October.

The FSB urged supervisors to consult with relevant market authorities to ensure a minimum level of transaction-level data is regularly made available to regulators and is aggregated for regulatory--and ultimately public--dissemination, while meeting confidentiality requirements.

The CPSS and Iosco technical committee set out in a report how they would achieve the timely collection, storage and distribution of data on swaps, or privately traded over-the-counter derivatives.

Regulators believe such trade repositories will help them crack down on market abuses and improve transparency in the market, which was widely blamed for deepening the financial crisis.

"The lack of adequate information on OTC derivatives exposures is widely seen as having exacerbated a number of corporate distress situations in the recent crisis, including the demise of Lehman Brothers [Holdings Inc.] (LEHMQ) and the near-default of AIG [American International Group Inc.] (AIG) and Bear Stearns [Cos.]," the report said.

In September 2009, the Group of 20 large industrialized and developing nations committed to seeing swaps reported to data warehouses.

The CPSS and Iosco report highlights certain areas where they believe current trade repository practice is insufficient, and discusses ways to make sure the information that isn't currently being supported is added to the system. That desired information includes data on netting arrangements between counterparties on bilateral swaps, market values of open positions, time stamps for trades and collateral agreements.

The report also recommends a system of unique legal entity tags, identifying parties to swap transactions, and an international classification system for identifying different types of OTC derivatives and their attributes.

"At a minimum, the notional value of each contract along with the product classification would be required," the report said.

Under new global regulations, swaps that are more exotic and that aren't eligible for central processing or traded regularly will be subject to higher capital charges.

The public is invited to comment on the CPSS and Iosco report through Sept. 23, after which the groups will work on a final set of recommendations by year end.

-By Katy Burne, Dow Jones Newswires; [e-mail]