Dodd-Frank derivatives rules have failed to give regulators a complete perspective of the swaps market, which includes the recent loss similar to the JPMorgan Chase & Co.’s London Whale trades.
JPMorgan’s London Whale
CFTC’s Commission member, Scott O’Malia told Bloomberg that the data “is not useable in its current form,” adding how the swap-trade data the agency has received since late last year from repositories, including the Depository Trust and Clearing Corp., is inadequate to identify large positions, which have in turn overwhelmed government computer systems. O’Malia also said that, “The problem is so bad that staff have indicated that they currently cannot find the London Whale in the current data files.”
Last year, JPMorgan lost more than $6.2 billion in a derivatives bet on companies’ creditworthiness that reached a net notional value of $157 billion. Dodd-Frank was enacted to give regulators better oversight of the global swaps market after the 2008 financial credit crisis.
At the end of 2012, swap dealers, which included JPMorgan Goldman Sachs Group Inc. began reporting price and other data on interest rate and credit swaps by the end of last year. The London Whale trades were discovered after steep losses in the first quarter of 2012.
O’Malia indicated to Bloomberg, that different swap dealers and trading counter-parties are using their own reporting formats because the government failed to specify standards. O’Malia noted how the CFTC’s failing computer systems have played a part in handling swap data:
It means that for each category of swap identified by the 70-plus different data formats because each swap dealer has its own proprietary data format it uses in its internal systems…None of our computer programs load this data without crashing.