[Federal Register Volume 75, Number 236 (Thursday, December 9, 2010)]
[Notices]
[Pages 76706-76708]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-30905]


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COMMODITY FUTURES TRADING COMMISSION

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63423; File No. 4-620]


Acceptance of Public Submissions on a Study Mandated by the Dodd-
Frank Wall Street Reform and Consumer Protection Act, Section 719(b)

AGENCY: Commodity Futures Trading Commission; Securities and Exchange 
Commission.

ACTION: Request for Comments.

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SUMMARY: The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(``Dodd-Frank Act'') was enacted on July 21, 2010. The Dodd-Frank Act, 
among other things, mandates that the Commodity Futures Trading 
Commission (``CFTC'') and the Securities and Exchange Commission 
(``SEC'') conduct a study on ``the feasibility of requiring the 
derivatives industry to adopt standardized computer-readable 
algorithmic descriptions which may be used to describe complex and 
standardized financial derivatives.'' These algorithmic descriptions 
should be designed to ``facilitate computerized analysis of individual 
derivative contracts and to calculate net exposures to complex 
derivatives.'' The study also must consider the extent to which the 
algorithmic description, ``together with standardized and extensible 
legal definitions, may serve as the binding legal definition of 
derivative contracts.'' In connection with this study, the staff of the 
CFTC and SEC seek responses of interested parties to the questions set 
forth below.

DATES: The CFTC will accept submissions on behalf of both agencies in 
response to the questions through December 31, 2010.

ADDRESSES: You may submit responses to the CFTC, identified in the 
subject line with ``algorithmic study'' by any of the following 
methods:
    <bullet> CFTC Agency Web site: http://www.cftc.gov, via its 
Comments Online process at http://comments.cftc.gov. Follow the 
instructions for submitting comments through the Web site.
    <bullet> Mail: David A. Stawick, Secretary of the Commission, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581.
    <bullet> Hand Delivery/Courier: Same as mail above.
    Please submit your comments using only one method.
    All comments must be submitted in English, or if not, accompanied 
by an English translation. Comments will be posted as received to 
http://www.cftc.gov and http://www.sec.gov. You should submit only 
information that you wish to make available publicly. If you wish the 
CFTC to consider information that you believe is exempt from disclosure 
under the Freedom of Information Act, a petition for confidential 
treatment of the exempt information may be submitted according to the 
procedures established in CFTC Regulation 145.9, 17 CFR 145.9.
    The CFTC and the SEC reserve the right, but shall have no 
obligation, to review, pre-screen, filter, redact, refuse or remove any 
or all of your submission from http://www.cftc.gov and http://www.sec.gov that they may deem to be inappropriate for publication, 
such as obscene language. All submissions that have been redacted or 
removed that contain comments may be accessible under the Freedom of 
Information Act.

FOR FURTHER INFORMATION CONTACT: Nancy R. Doyle, Office of the General 
Counsel, Commodity Futures Trading Commission, Three Lafayette Centre, 
1155 21st Street, NW., Washington, DC 20581, telephone: (202) 418-5136, 
or Matthew P. Reed, Division of Risk, Strategy, and Financial 
Innovation, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-[mail stop], telephone (202) 551-2607.

SUPPLEMENTARY INFORMATION: On July 21, 2010, The Dodd-Frank Wall Street 
Reform and Consumer Protection Act (``Dodd-Frank Act''), Public Law 
111-203, was enacted.
    Pursuant to Title VII, Sec. 719(b) of Dodd-Frank, the Commodity 
Futures Trading Commission with the Securities and Exchange Commission, 
jointly, must report to Congress by March of 2011 on ``the feasibility 
of requiring the derivatives industry to adopt standardized computer-
readable algorithmic descriptions which may be

[[Page 76707]]

used to describe complex and standardized financial derivatives.'' 
These algorithmic descriptions should be designed to ``facilitate 
computerized analysis of individual derivative contracts and to 
calculate net exposures to complex derivatives.'' The study also must 
consider whether a combination of these algorithmic descriptions and 
``standardized and extensible legal definitions[ ] may serve as the 
binding legal definition of derivative contracts.''
    A copy of the text of the statute calling for this study may be 
found here: http://www.dodd-frank-act.us/Dodd_Frank_Act_Text_Section_719.html.
    In furtherance of this report, we seek responses to the following 
questions. Please note that responses may be made public, and may be 
cited in this report. Questions relate to the current use of 
standardized computer-readable descriptions for both data storage and 
messaging, and to the usefulness and cost of any transition to a 
universal standard for messaging and data storage. Responders are 
encouraged to provide any additional relevant information beyond that 
called for by these questions.
    Calculation of ``Net Exposures to Complex Derivatives'' and other 
``Computerized Analysis'':
    1. How would your organization or community define ``net exposures 
to complex derivatives?''
    2. Do you calculate net exposures to complex derivatives?
    3. What data do you require to calculate net exposures to complex 
derivatives? Does it depend on the derivatives instrument type? How?
    4. Are there any difficulties associated with your ability to 
gather the data needed to calculate net exposures to complex 
derivatives? What are they?
    5. What other analyses do you currently perform on derivatives 
agreements? What kinds of analyses would you like to perform, and how 
could regulators and standards setters make those analyses possible?
    6. How often do you perform net exposure calculations at the level 
of your organization? Is it continuous and real time, only for periodic 
external reporting, or some frequency in between?
    Current practices concerning standardized computer descriptions of 
derivatives:
    7. Do you rely on a discrete set of computer-readable descriptions 
(``ontologies'') to define and describe derivatives transactions and 
positions? If yes, what computer language do you use?
    8. If you use one or more ontologies to define derivatives 
transactions and positions, are they proprietary or open to the public? 
Are they used by your counterparties and others in the derivatives 
industry?
    9. How do you maintain and extend the ontologies that you use to 
define derivatives data to cover new financial derivative products? How 
frequently are new terms, concepts and definitions added?
    10. What is the scope and variety of derivatives and their 
positions covered by the ontologies that you use? What do they describe 
well, and what are their limitations?
    11. How do you think any limitations to the ontologies you use to 
describe derivatives can be overcome?
    12. Are these ontologies able to describe derivatives transactions 
in sufficient detail to enable you to calculate net exposures to 
complex derivatives?
    13. Are these ontologies able to describe derivatives transactions 
in sufficient detail to enable you to perform other analysis? What 
types of analysis can you conduct with this data, and what additional 
data must be captured to perform this analysis?
    14. Which identifier regimes, if any, do you use to identify 
counterparties, financial instruments, and other entities as part of 
derivatives contract analysis?
    Current use of standardized computer readable descriptions for 
messaging of derivatives transactions:
    15. Which computer language or message standard do you currently 
use to create and communicate your messages for derivatives 
transactions?
    16. Is there a difference between the created message and the 
communicated message? For example, does your internally archived 
version of the message contain proprietary fields or data that are 
removed when it is communicated to counterparties or clearing houses?
    17. Are different messaging standards used to describe different 
contracts, counterparties, and transactions?
    18. How and where are the messages stored, and do the messages 
capture different information from that information stored in internal 
systems?
    19. What information is currently communicated, by and to whom, and 
for what purposes?
    20. For lifecycle event messages (e.g., credit events, changes of 
party names or identifiers), are there extant messaging standards that 
can update data relating to derivatives contracts that are stored in 
data repositories?
    21. What other standards (i.e., FpML, FIX, etc.) related to 
derivatives transactions does your organization or community use, and 
for what purposes? Has your implementation of these standards had any 
effect on the way your business is conducted (e.g., does it reduce 
misunderstanding of contract terms, has it increased the frequency or 
ease of trades).
    22. Is the data represented by this/these messaging standard(s) 
complete enough to calculate net exposures to complex derivatives? What 
additional information would need to be represented?
    23. In general, to what extent are XML-based languages able to 
describe a derivatives contract for further analysis? To what extent is 
other technology needed to provide a full description?
    24. What other analysis can be conducted with this data? What 
additional information should be captured?
    25. Do you have plans to change your messaging schemes/formats in 
the near future?
    26. Are there identifier regimes widely used in the derivatives 
market for identifying counterparties, financial instruments, and other 
entities in messaging?
    The need for standardized computer descriptions of derivatives:
    27. Would there be a benefit to standardizing computer readable 
descriptions of financial derivatives? What about standardization for a 
certain class/type of financial derivatives (i.e., CDS versus interest 
rate, or plain vanilla versus complex)?
    28. What would be the issues, costs and concerns associated with 
standardizing computer readable descriptions of financial derivatives? 
Are there existing standards that could or should be expanded (i.e., 
FpML, FIX, etc.)? Do the existing standards in this area have 
materially different costs or issues?
    29. What would be an ideal ontology for you in terms of design, 
implementation, and maintenance of the data sets and applications 
needed for your business?
    30. How would a standardized computer readable description of 
financial derivatives be developed and maintained (i.e., a government-
sponsored initiative, a public-private partnership, standard-setting by 
a collaborative process, etc.)? Are there current models that should be 
considered?
    31. What is the importance of ontologies for the representation of 
derivatives data now and in the future?
    Implementation:
    32. Have you ever implemented a transition to a new data ontology, 
data messaging standard, or internal data standard?

[[Page 76708]]

    33. If yes, how did the perceived and actual benefits compare to 
estimated and actual costs over the short- and long-run?
    34. What were the main difficulties that you experienced during a 
transition/implementation of new data standards? What could the 
organization developing and maintaining the standards do (or avoid) to 
help alleviate these difficulties?
    35. Would it be useful to use a standardized, computer readable 
description for financial derivatives instruments? How would it be 
useful? Would such a standard be useful for communicating transactions, 
storing position information, both, or other purposes? What would be 
the costs involved?
    36. How should regulators and standard setters implement 
description standards in the derivatives market?
    Making computer descriptions legally binding:
    37. Are there currently aspects of financial derivatives messaged 
in a computer readable format that have a legally-binding effect?
    38. What information, if any, is not captured that would be 
required to make the computer descriptions themselves, without 
reference to other materials, legally binding?
    39. What information would need to be captured for a legally 
binding contract that would not need to be captured for analyzing the 
contract? Is there a substantial cost differential between the 
processes needed to capture one set of information versus another?
    40. Would there be a benefit to making the computer readable 
descriptions of financial derivatives legally binding? Would there be 
drawbacks? What are they?
    Other:
    41. Is there other information not called for by these questions 
that we should consider?


    Dated: December 2, 2010.

    By the CFTC.
David Stawick,
Secretary of the Commission.
    By the Commission (SEC).
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-30905 Filed 12-8-10; 8:45 am]
BILLING CODE 6351-01-8011-01-P