Guest Contributor: James Wells III, Marketing Communications Manager at Imagine Software
Just as Form PF transformed the alternative investment segment by adding a massive operational burden and forcing firms to reassess their risk management practices, new CFTC regulations are reshaping the clearing industry. By adding a slew of rules intended to increase customer access to clearing, facilitate processing of trades, and strengthen risk management at the clearing member level, the CFTC has introduced a major technological hurdle which even its own systems may be incapable of handling, particularly in light of the well documented problems the commission’s computers recently encountered when they crashed repeatedly while attempting load heavy volumes of swaps data.
So is this a high stakes case of cure the disease and kill the patient? Are these attempts to mitigate systemic risk only creating a new element of operational risk?
While there’s no shortage of opinions regarding whether more or less regulation is needed, the one thing we can all agree on is that any new rules and requirements should be well thought out beforehand. However, despite this bit of common sense, the SEC continues to compile mountains of data from hedge funds, liquidity funds, and private equity funds with no clear indication of how it will use that information to monitor risks to the U.S. financial system. Similarly, the CFTC is asking clearers to institutionalize a series of poorly defined sanity checks without determining if those requirements were realistic in the first place. Although the Commission has twice postponed implementation of the new rules, it does not seem as though a major rethink will occur. Instead, we just have to hope that the next attempt to protect the financial system won’t do more harm than good.