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U.S. Securities and Exchange Commission

Speech by SEC Commissioner:
Combating the Lack of Transparency in the Security-Based Swaps Market


Commissioner Luis A. Aguilar

U.S. Securities and Exchange Commission

SEC Open Meeting
Washington, D.C.
November 19, 2010

One of the defining characteristics of the market for OTC derivatives has been its lack of transparency. As trillions of dollars in gross market value were traded, there was no mechanism for regulators to obtain data about the potential exposure of individual financial institutions, let alone to gain a view of the market as a whole. This lack of transparency also affected market participants, many of whom lacked meaningful information about prices and were consequently at a disadvantage in negotiating transactions.

Today’s two proposals relating to security-based swaps are designed to combat this lack of transparency.

The first proposal establishes regulations for security-based swap data repositories (SDRs). SDRs are entities that receive and maintain data about transactions and can then provide information to regulators and the public. The proposal lays the foundation for regulatory oversight of SDRs by requiring them to register with the Commission and to implement the core principles for SDRs laid out in the Dodd-Frank Act.1

While there are many issues I could discuss — in particular, I am interested in the regulatory requirements for SDRs to prevent conflicts of interest, ensure fair and open access, and preserve the confidentiality of trade information. As the release asks, does accomplishing these goals require governance and ownership arrangements like those the SEC previously proposed for security-based swap execution facilities and clearing agencies? I am also concerned about potential conflicts of interest that arise when SDRs seek to use data they receive for their own commercial purposes. What are the ramifications of SDRs using this data for their own commercial purposes? Should this commercial usage be banned or restricted?

The second proposal would create a regime for reporting transactions in security-based swaps to SDRs and for real-time dissemination of transaction data by SDRs to the public. The proposal is also designed to provide regulators with unfettered access to transaction and position data. I am interested to know if the Commission has done all it can to ensure that it is receiving real-time reporting. Events such as the May 6th “Flash Crash” have more than demonstrated the need for the Commission to have real-time data. I will also be especially interested in comments directed to how the Commission ought to define and treat “block trades” in order to promote transparency and liquidity in the market for security-based swaps.

I support these proposals, and I look forward to considering the comments that we will receive. I join my colleagues in thanking the many staff who worked on these two proposals.

1 The core principles identified in Section 13(n)(7) of the Exchange Act (added to the Exchange Act by Sec. 763(i) of the Dodd-Frank Act) are that SDRs shall (a) not act in a way that results in an unreasonable restraint of trade or imposes any materially anticompetitive burden on trading, clearing, or reporting of security-based swap transactions; (b) establish governance arrangements that are transparent to fulfill public interest requirements and to support the objectives of the Federal Government and of owners and participants of an SDR; and (c) establish and enforce rules to minimize conflicts of interest and establish a process for resolving such conflicts. Additionally, the Commission is authorized to develop additional duties for SDRs.



Modified: 11/19/2010