Who Watches? Not the Watchers, Apparently

From my understanding of very, very basic data principles, you can boil the entire process down ─ practical or holistic ─ to one essential action-reaction. That is, you request information, and then you do something with it. That can be as simple as querying a database to find out the password you've forgotten, or it can be something as complex as a freedom-of-information request from a journalist to a government body, asking for reams of data to assist their reporting. But the net result is the same, in that information is requested, and then something is done with it.

Not so much for the US Commodity Futures Trading Commission (CFTC), which admitted through a speech by Commissioner Scott O'Malia this week that it isn't capable of performing meaningful analysis of the data it receives from swap-market participants.

You can read our coverage of that speech here, which contains some rather frank admissions from O'Malia. The regulator essentially doesn't have the technology or the personnel to adequately use the data it receives, and perhaps more tellingly, it doesn't have linked databases between the futures and swap markets, making cross-market analytics impossible. Okay, so the CFTC not being able to use the data isn't exactly fresh news, in that O'Malia's been telling reporters that for months now, but the extent to which it can't perform anything in an automated fashion ─ each swap record has to be accessed manually, and it takes two full-time economists to produce the weekly swap report ─ is truly abysmal.

Complex Mess
Not that the CFTC is helped in any way by a lack of standardization, of course. It relies on the swap data repositories to perform first-order analysis on the data, but with no set guidelines for format or distribution, the regulator has allowed this mess to occur. As Virginie O'Shea, senior analyst at Aite Group told me when I spoke to her about the speech, the CFTC may have to just forget about the data it's already collected and focus on getting a standardized regime in.

None of this is particularly encouraging, not even O'Malia's stated hope that the regulator will bring in big data technology to help it, and the announcement that the Treasury is going to be assisting with some of the heavy lifting. It's not just a case of rolling out a complex-events processing engine to crunch in the data and spew out red flags, it takes time and patience to calibrate and set it up, not to mention, usually, deep pockets. Something the CFTC certainly does not have.

We talk a lot about regulatory harmonization, and the need for cross-border standards, mutual recognition and all the rest in order for a global derivatives market to function appropriately. But if the CFTC is the fuel gauge, it apparently can't tell what's in the tank.

If the regulator tasked with overseeing the market and responsible for driving the global agenda through its rapid reform program can't see what's going on, that is not a good thing. Not good for them, not good for market participants, and not good, ultimately, for the end investor. We talk a lot about regulatory harmonization, and the need for cross-border standards, mutual recognition and all the rest in order for a global derivatives market to function appropriately. But if the CFTC is the fuel gauge, it apparently can't tell what's in the tank. It has to get its house in order, and soon.

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If you have a view on regulatory data demands, and the ability of regulators to use the information it demands effectively and appropriately, please do get in touch. My e-mail address is james.rundle@incisivemedia.com, and my number is +44 (0)207 316 9811.