The Commodities Futures Trading Commission indicated due to technical errors, the size of the swaps market has been under-counted.
According to a Reuters report, the reporting error in the swaps data highlights the challenges confronting the CFTC.
Technical errors at two swap data repositories
CFTC indicated that the size of the overall swaps markets was understated in the weekly reports it began publishing last month.
Depository Trust & Clearing Corp, the largest repository and the repository managed by the CME Group Inc (NASDAQ:CME) are the two repositories responsible for maintain market data.
The DTCC informed CFTC that the notional values in the interest rate asset class have been understated due to technical coding issues. CFTC also reported a processing error by the repository managed by the CME Group Inc (NASDAQ:CME) whose figures were not included in the table for interest rate swaps published on December 18th.
CFTC has been put in charge of the swaps markets
CFTC has been put in charge of the swaps markets and is trying to usher in transparency into what was once an opaque market. CFTC published the swap reports by aggregating swap transaction data from the two repositories. The data published by CFTC reflects pricing information as well as the notional value of the contracts, to bring transparency to a market that was the center of a financial crisis five years ago.
According to Andrew Ackerman of The Wall Street Journal, the lack of clarity over the size of the swaps market may undermine a key plank of the 2010 Dodd-Frank law aimed at bringing transparency to the opaque derivatives market. Swaps are complex financial contracts that allow financial firms and their clients to hedge against risks or bet on an asset’s value.
Under-counting could be between $10 trillion to $55 trillion
In its weekly swaps report, the CFTC disclosed through a footnote that DTCC informed the regulator that due to a technical coding issue, the notional values in the interest rate asset class have been understated. The CFTC also reported a processing error at the other repository operated by CME Group Inc (NASDAQ:CME).
The Wall Street Journal report highlights that the regulators are not sure about the extent of the under-counting. While one CFTC official indicated the discrepancy could be as high as $55 trillion, another official projected a smaller $10 trillion error when regulators cancel out certain transactions to prevent double counting.
Using a more conservative method, the CFTC estimates the size of the notional value of swaps market at about $390 trillion.