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75–081 PDF 2012

H.R. ll, THE SWAP DATA REPOSITORY 

AND CLEARINGHOUSE INDEMNIFICATION 

CORRECTION ACT OF 2012 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CAPITAL MARKETS AND 

GOVERNMENT SPONSORED ENTERPRISES 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

MARCH 21, 2012 

Printed for the use of the Committee on Financial Services 

Serial No. 112–109 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

JAMES H. CLINGER, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON CAPITAL MARKETS AND GOVERNMENT SPONSORED ENTERPRISES

SCOTT GARRETT, New Jersey, Chairman 

DAVID SCHWEIKERT, Arizona, Vice 

Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

DONALD A. MANZULLO, Illinois 

JUDY BIGGERT, Illinois 

JEB HENSARLING, Texas 

RANDY NEUGEBAUER, Texas 

JOHN CAMPBELL, California 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

NAN A. S. HAYWORTH, New York 

ROBERT HURT, Virginia 

MICHAEL G. GRIMM, New York 

STEVE STIVERS, Ohio 

ROBERT J. DOLD, Illinois 

MAXINE WATERS, California, Ranking 

Member 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

RUBE ́ N HINOJOSA, Texas 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

CAROLYN B. MALONEY, New York 

GWEN MOORE, Wisconsin 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

AL GREEN, Texas 

KEITH ELLISON, Minnesota 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

March 21, 2012 ................................................................................................. 1 

Appendix: 

March 21, 2012 ................................................................................................. 23 

WITNESSES 

WEDNESDAY, MARCH 21, 2012 

Berkovitz, Daniel M., General Counsel, U.S. Commodity Futures Trading 

Commission (CFTC) ............................................................................................. 6 

Donahue, Donald F., Chief Executive Officer, The Depository Trust and Clearing Corporation (DTCC) ...................................................................................... 13 

Tafara, Ethiopis, Director, Office of International Affairs, U.S. Securities and 

Exchange Commission (SEC) .............................................................................. 4 

APPENDIX 

Prepared statements: 

Bachus, Hon. Spencer ...................................................................................... 24 

Berkovitz, Daniel M. ........................................................................................ 25 

Donahue, Donald F. .......................................................................................... 30 

Tafara, Ethiopis ................................................................................................ 54 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Dold, Hon. Robert: 

Text of the Swap Data Repository and Clearinghouse Indemnification 

Correction Act of 2012 .................................................................................. 58 

(1) 

H.R. ll, THE SWAP DATA REPOSITORY 

AND CLEARINGHOUSE INDEMNIFICATION 

CORRECTION ACT OF 2012 

Wednesday, March 21, 2012 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON CAPITAL MARKETS AND

GOVERNMENT SPONSORED ENTERPRISES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:07 a.m., in room 

2128, Rayburn House Office Building, Hon. Scott Garrett [chairman of the subcommittee] presiding. 

Members present: Representatives Garrett, Schweikert, Posey, 

Fitzpatrick, Hayworth, Hurt, Stivers; Waters, Maloney, Moore, 

Donnelly, Peters, and Green. 

Chairman GARRETT. Good morning, sorry to make you sit there 

and wait. Today’s Subcommittee on Capital Markets and Government Sponsored Enterprises hearing is called to order. 

The hearing will come to order. Today’s hearing is on the Swap 

Data Repository Clearinghouse Indemnification Correction Act of 

2012. 

We will be looking to our panel in a moment, but first, we will 

begin with opening statements from the folks up here, 10 minutes 

on each side. 

I will recognize myself for 4 minutes, and then see if there are 

any other Members on our side with an opening statement. 

Again, thank you gentlemen. 

So to begin, I think, hopefully, one thing we might be able to 

agree on is that the Dodd-Frank Act is not totally perfect in every 

aspect. And therefore, it does require at least some degree of scrutiny, especially what we are looking at now with Title VII. 

We have held numerous hearings here in this committee, and I 

sponsored and cosponsored a number of bills, many of which, as 

you know, have been done in a bipartisan manner. 

And what were they for? They would try to address some of the 

problems and try to clarify some of the congressional intent in 

Dodd-Frank, and specifically again in Title VII. 

So today, we are here to discuss another issue with Dodd-Frank 

that may not be as high profile as some of the other hearings that 

we have had. It does require correction, nonetheless. The issue that 

we are talking about today is indemnification. 

Thankfully, the CFTC and the SEC, as well as many of my colleagues on both sides of the aisle, do recognize that a repeal of the 

2 

indemnification provisions in Title VII is required in order to avoid 

fragmentation in the collection of swap data, and to bring about 

regulatory transparency to the overall swaps marketplace. 

While it is important for the U.S. regulators to collect and also 

then to analyze swap data, it is equally important for U.S. regulators to share data with foreign regulators in order to thoroughly 

understand and monitor where the risk is concentrated actually in 

the entirety of the global swaps market. 

And so, while today’s indemnification issue is really a little more 

technical in nature than some of the other issues that we talk 

about, the issue of extraterritoriality in global swap markets regulations certainly is not that technical in the same respect. 

Today, neither the CFTC nor the SEC has proposed rules that 

will define the scope of the Dodd-Frank extraterritorial reach, and 

so in essence, the failure to define the reach of clearing, of execution, of capital, of margin, of Volcker, and of other reporting obligations. What that is all doing is preventing market participants from 

taking the steps necessary to ensure their operations will comply 

with Dodd-Frank. 

So to correct this problem, I have cosponsored a bipartisan piece 

of legislation with Mr. Himes from Connecticut. And what this does 

is bring certainty then to this one area, to this issue, that will then 

be marked up hopefully in the full committee next week. 

I cannot be clear enough on this issue. Consistent regulation is 

fundamental across all lines actually, but especially to the efficient 

functioning and successful regulation of the derivatives U.S. marketplace. 

And in order to reduce systemic risk and to limit the opportunities for regulatory arbitrage, as well as the loss of jobs to going 

overseas, we cannot afford an inconsistent approach on issues of 

extraterritoriality among international regulators. 

So I am hopeful that we can move this bill through the House 

pretty quickly. I am also hopeful that the Senate will finally realize 

that Dodd-Frank is not completely perfect, and that they are willing to take up some of these issues. Maybe it does require some 

changes for our markets to function properly, and for regulators to 

understand where and how the risk is concentrated in the overall 

global system. 

I will look forward to hearing the testimony from our witnesses 

from the SEC, the CFTC, and the DTCC in a moment. 

And with that, I yield back. 

I recognize the gentlelady from California for her opening statement for— 

Ms. WATERS. Thank you very much, Mr. Chairman— 

Chairman GARRETT. —4 minutes? 

Ms. WATERS. Fine— 

Chairman GARRETT. Fine. 

Ms. WATERS. I probably don’t need that much. 

Chairman GARRETT. Okay. 

Ms. WATERS. I thank you for holding the hearing this morning. 

One of the most important reforms included in Dodd-Frank is 

our comprehensive regulation of over-the-counter derivatives. 

When swaps and security-based swaps are transparent and data 

is readily available, regulators are able to monitor the exposure of 

3 

counterparties, identify risk concentrations, and limit the possibility of another systemic crisis like the one we experienced in 

2008. 

Swap data repositories are the entities that are responsible for 

collecting and storing this data on the over-the-counter derivatives. 

And global regulators have recognized the importance of requiring—reporting to these types of entities as a part of derivatives reform. 

Now, I understand that certain provisions in Title VII of DoddFrank would require that any U.S. or foreign authority that agreed 

to provide indemnification to a swap data repository, and the SEC 

or CFTC for any expenses arising from litigation as a precondition 

for receiving swaps data. 

Foreign regulators have raised a concern that this actually creates a barrier to them gaining access to critical swap data, particularly since they may lack the legal authority to enter into the required indemnification. 

These provisions may also have the unintended consequence of 

fragmenting global swaps reporting in order to circumvent this requirement. One possible consequence is that global regulators could 

advance their reciprocal provision, thereby harming the ability of 

U.S. regulators to access data from foreign trade repositories. 

So with that said, I am interested to hear more about this issue 

from the regulators here today as well as the Depository Trust and 

Clearing Corporation. 

I am also eager to hear from Representatives Dold and Moore 

about the bill that would strike the underlying indemnification provision in Dodd-Frank which many believe is problematic. 

I thank you, and I yield back the balance of my time. 

Chairman GARRETT. I thank you. 

The gentlelady yields back. 

And I see no other speakers on our side. 

Ms. Moore is recognized for 2 minutes. 

Ms. MOORE. Thank you so much, Mr. Chairman, and Madam 

Ranking Member. I want to thank the witnesses for their appearance today. 

I am so pleased to be a sponsor of this bipartisan legislation, the 

Swap Data Repository and Clearinghouse Indemnification Correction Act of 2012. 

This bill is the result of a tremendous collaboration among Republicans and Democrats on this committee, industry, and the regulators, and I might add that there has also been international collaboration and support for this bill. 

I am a strong supporter of the new transparency regime for the 

over-the-counter swaps market enacted in Dodd-Frank, and I am 

very proud of our work there. 

And I firmly believe that this bill will enhance the viability and 

functioning of the swap data repositories. 

By removing the indemnification provision, we do not compromise. I repeat, we do not compromise the legal framework or 

erode any market protections for market participants on either side 

of the water. 

The bill is consistent with the important goals regarding clearing 

and reporting of over-the-counter swaps agreed to at the 2009 

4 

International G-20 Meeting and that were eventually enshrined in 

Dodd-Frank. 

This bill promotes both better market pricing information and 

better regulatory oversight of the OTC market, including the tracking and management of systemic risk globally. 

This bill represents a small but a highly technical fix which is 

desperately needed. And it is vital to maintaining the integrity of 

domestic and global OTC market regulations. 

In plain language, the bill strikes the requirement that non-U.S. 

regulators ‘‘indemnify U.S. regulators and private U.S. markets.’’ 

It is a requirement that a significant number of non-U.S. regulators would be unable to, and quite frankly, unwilling to comply 

with for various legal and other reasons. 

Accordingly and unfortunately, we have already seen foreign jurisdictions thinking to establish their own SDRs, if only to get 

around the indemnification issue. 

The proliferation of SDRs would have the unwanted effect of undermining global transparency and oversight by promoting the 

fragmentation of market information, and discouraging data sharing across global markets. 

Republicans, Democrats, industry, and regulators agree that 

striking the indemnification provision would encourage global OTC 

swap market function and oversight. 

I am so pleased that there is such a remarkable concensus on the 

indemnification issue. And therefore, I now look forward to hearing 

from today’s witnesses, especially the regulators, regarding their 

views on the related issue of U.S. regulators having plenary access 

to all information warehouse and U.S.-based SDRs, even trade information that the U.S. regulator does not have a nexus to. 

It is my sense that while we are dealing with the indemnification 

issue, it may also make sense to learn a lot more about, and possibly deal with, the plenary access issue. 

So therefore, I thank you, and I look forward to hearing your testimony. 

And with that, I yield back. 

Chairman GARRETT. Thanks. 

The gentlelady yields back. 

And now seeing no other requests for time, we welcome our panel 

this morning from both the SEC and the CFTC. 

As always, your complete written statements will be made a part 

of the record. We look forward now to hearing from you for the next 

5 minutes. 

Mr. Tafara, from the SEC, welcome and good morning. 

STATEMENT OF ETHIOPIS TAFARA, DIRECTOR, OFFICE OF 

INTERNATIONAL AFFAIRS, U.S. SECURITIES AND EXCHANGE 

COMMISSION (SEC) 

Mr. TAFARA. Thank you, Chairman Garrett, Ranking Member 

Waters, and members of the subcommittee. 

Thank you very much for the opportunity to testify on behalf of 

the Securities and Exchange Commission on the topic of indemnification of security-based swap data repositories. 

As you know, Section 763(i) of the Dodd-Frank Act added a new 

provision to the Securities Exchange Act that requires any U.S. or 

5 

foreign authority, other than the SEC, to indemnify both the SEC 

and security-based swap data repositories for any expenses arising 

from the litigation relating to the information provided by the repository. 

The indemnification requirement presents a barrier to U.S. and 

foreign governmental agencies’ ability to obtain data from a security-based swap data repository. This is because generally speaking, U.S. and most other foreign governmental entities lack the 

legal authority to enter into such an indemnification agreement. 

One of the lessons of the 2008 financial crisis is the importance 

of ensuring that regulators have timely and comprehensive data 

about over-the-counter derivatives transactions. Improved transparency of swaps and security-based swaps enables the regulators 

to monitor the derivative exposure of counterparties to identify risk 

concentrations and to monitor systemic risks. 

Trade repositories can be thought of as electronic filing cabinets 

for information about derivative transactions, and serve as centralized locations where regulators can obtain data on open OTC derivative contracts. 

The establishment of trade repositories and reporting of data to 

them is a particularly important element of derivatives regulation, 

because trade repositories offer a venue for regulators from different jurisdictions, to obtain information about cross-border OTC 

derivative transactions. 

Without trade repositories and the ability to access them in a 

timely and reliable fashion, regulators, including U.S. regulators, 

would be challenged in carrying out their responsibility to oversee 

the OTC derivatives markets; a responsibility necessary to reduce 

threats to financial stability, to increase transparency, and to improve the integrity of the OTC derivatives marketplace. 

Given the limitation that the Section 763(i) indemnification requirement would place on regulators’ access to data held by an 

SEC-registered data repository, foreign regulators, through formal 

and informal contact, have voiced strong concerns about the requirements to SEC Commissioners and to SEC staff. 

U.S. and foreign regulators share a common need to have access 

to data about OTC derivatives transactions, especially those transactions that take place across borders. 

In order to protect their access to security-based swap data, some 

foreign regulators have indicated to SEC staff that they plan to respond to the U.S. indemnification requirement by setting up, or encouraging the establishment of, local trade repositories. These local 

trade repositories would not be registered with the SEC and would 

not be subject to the indemnification requirement. 

And given these concerns, U.S.-based global trade repositories 

may seek to shift the bulk of their business to foreign jurisdictions 

to avoid the indemnification requirement, maintaining only a minimal presence in the United States necessary to service the U.S. 

market. 

The establishment of separate local trade repositories in the 

United States and in foreign jurisdictions would likely produce inefficiencies and fragmentation of information. 

Inefficiency may result from having multiple trade repositories 

collecting the same data. Fragmentation will result if data regardVerDate Nov 24 2008 16:10 Aug 06, 2012 Jkt 075081 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 K:\DOCS\75081.TXT TERRIE
6 

ing the OTC derivatives market is scattered across different trade 

repositories, and regulators do not have access to all the relevant 

trade repositories. 

If this occurs, regulators will have an incomplete picture of the 

OTC derivatives market that may threaten the effectiveness of 

their oversight of the financial markets, and would harm U.S. and 

foreign regulators alike. 

In addition, the SEC is seriously troubled by statements by certain foreign regulators about their intention to adopt reciprocal indemnification requirements. Such requirements would require that 

the SEC provide written indemnification agreements to foreign 

SEC-registered trade repositories as a precondition for accessing 

data. 

Currently, the SEC is not able to provide such written indemnification, and therefore would be blocked from accessing data from 

these foreign trade repositories. 

The SEC recommends that Congress consider removing the indemnification requirement of Section 763(i). In removing the indemnification requirement, Congress would assist the SEC, as well 

as other U.S. regulators, in securing the access it needs to data 

held in global trade repositories. 

Removing the indemnification requirement would address the 

significant issue of contention with our foreign counterparts while 

leaving intact confidentiality protections for the information provided. 

Thank you for the opportunity to testify. And I would be happy 

to address any questions later. 

[The prepared statement of Mr. Tafara can be found on page 54 

of the appendix.] 

Chairman GARRETT. And I thank you for your testimony. 

From the CFTC, Mr. Berkovitz, thank you for being with us. You 

are also recognized for 5 minutes. 

STATEMENT OF DANIEL M. BERKOVITZ, GENERAL COUNSEL, 

U.S. COMMODITY FUTURES TRADING COMMISSION (CFTC) 

Mr. BERKOVITZ. Thank you, Mr. Chairman. 

Good morning, Chairman Garrett, Ranking Member Waters, and 

members of the subcommittee. Thank you for the opportunity to 

testify today. 

The CFTC is working to ensure that both domestic and international regulators have access to swap data to support their regulatory mandates. 

The CFTC participated in the 2010 report of the Financial Stability Board which recommended that market regulators, central 

banks, and prudential supervisors have effective and practical access to trade repository data. 

As has been noted, the Commodity Exchange Act, as amended by 

the Dodd-Frank Act, contains provisions that would require a foreign or domestic regulator seeking data from a swap data repository to execute an indemnification agreement with the Commission 

prior to the sharing of any confidential data. 

These requirements have caused concern among foreign regulators, some of which have expressed to the Commission an unwillVerDate Nov 24 2008 16:10 Aug 06, 2012 Jkt 075081 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\75081.TXT TERRIE
7 

ingness to register or to recognize an SDR unless they have access 

to necessary information. 

Some foreign jurisdictions are also considering the imposition of 

similar conditions on the CFTC’s access to swap information of 

data repositories located abroad. 

Last September, the Commission specifically addressed access to 

SDR data issues in its final rulemaking on SDRs. The CFTC noted 

that the Dodd-Frank Act requires a registered SDR to make data 

available on a confidential basis to appropriate domestic regulators 

and appropriate foreign regulators. 

With respect to indemnification, the CFTC’s final rule release 

noted that the Commission is, ‘‘mindful that the confidentiality and 

indemnification agreement requirement may be difficult for certain 

domestic and foreign regulators to execute with an SDR due to various home country laws and regulations.’’ 

Accordingly, the Commission stated that an appropriate domestic 

regulator may be provided access to swap data reported and maintained by SDRs without being subject to the notice and indemnification provisions of the CEA, if the SDR is subject to the regulatory jurisdiction of and registers with the appropriate domestic 

regulator. 

In addition, pursuant to a separate provision of the CEA, the 

SDR may be permitted to provide direct electronic access to such 

regulator designee of the Commission. 

With respect to foreign regulatory authorities, the final rule provides that data in an SDR may be accessed by an appropriate foreign regulator without the execution of a confidentiality and indemnification agreement in appropriate circumstances. 

Such access may be granted when the regulator is acting with respect to an SDR that is also registered with that regulator, or when 

the foreign regulator receives SDR information from the Commission. 

Recently, in response to further comments and concerns on this 

issue, the Chairman directed Commission staff to draft, for the 

Commission’s consideration, proposed interpretive guidance stating 

that access to swap data reported to a trade repository that is registered with the CFTC will not be subject to the indemnification 

provisions of the Act if such trade repository is regulated pursuant 

to foreign law, and the applicable requested data is reported to the 

trade repositories pursuant to foreign law. 

Subject to the Commission’s approval, this proposed interpretive 

guidance would be published for public comment. 

The CFTC is engaged in a wide range of international projects 

related to the reporting, trading, and risk management of swaps. 

We look forward to continuing to work with our domestic and international regulatory counterparts on access to swap data repositories and these other important issues. 

Thank you for the opportunity to address this important issue 

before the subcommittee. 

I would be happy to answer any questions that you may have. 

[The prepared statement of Mr. Berkovitz can be found on page 

25 of the appendix.] 

Mr. SCHWEIKERT [presiding] Thank you, Mr. Berkovitz. 

The Chair will yield himself a few minutes here. 

8 

Help me understand. And as we go through this, one of the 

things I am most concerned about is sort of the law of unintended 

consequences. If we make this adjustment, and the bill goes 

through the process, do we cause another issue? 

Part of the mechanic I want to ask is if you and I were a regulator in Europe or Asia, is this whole concept of—as we would do 

an indemnification, the way our tort laws and mechanics work 

here, is it just because this is a concept that doesn’t weave through 

their jurisdictions and their laws, or their tradition? 

Where do you find most of the conflict? 

Mr. BERKOVITZ. That has been one concern that has been reported to us in our communications with the foreign regulators, the 

concern about being subject to U.S. tort law. And that is one of the 

motivations for our addressing this issue in the manner that we 

have. 

Mr. SCHWEIKERT. Mr. Tafara? And I have to tell you, if you 

weren’t at the SEC, I would suggest a career as a radio announcer. 

You have a great voice. 

[laughter] 

Mr. TAFARA. I think the concern from the standpoint of the foreign regulators is that—and domestic regulators as well, and by 

the way, given that the indemnification requirement applies to 

them as well, is that there is data that will be held by the trade 

repositories to which they do need access to do their jobs. 

Yet, they are not in a position, as a matter of law, to actually 

provide the indemnification required as a prerequisite to getting 

that data. 

So it is the legal impossibility, or the legal impracticality from 

their standpoint, that makes this indemnification requirement 

problematic. 

Mr. SCHWEIKERT. Gentlemen, during the drafting of this section 

of Dodd-Frank—and I was not here—I understand parts of this 

moved very, very quickly. 

Did any of this discussion from your understandings come to the 

forefront? 

Mr. BERKOVITZ. In my personal knowledge, I don’t recall specifically that we had examined this, and specifically commented on 

this provision. How it was discussed between the committees on 

the Hill, I wouldn’t have knowledge of. 

Mr. SCHWEIKERT. Mr. Tafara? 

Mr. TAFARA. My answer would be pretty much the same. 

I am not aware of the discussions that took place around this 

particular requirement between the committees. I suspect had it 

been raised with us, and it possibly was, we would have indicated 

the difficulty that this indemnification requirement presented. 

Mr. SCHWEIKERT. And this is a little more conceptual and—okay, 

the legislation moves forward. We fix this—have we created any 

type of vacuum, or as I was saying before, unintended consequences, where we may have provided an opportunity now that 

the private tort bars, some other vacuum now, created some of the 

types of exposures that also might become a barrier for organizations wishing to accurately or fully report? 

Mr. Berkovitz? 

9 

Mr. BERKOVITZ. We have specifically heard the concern from the 

foreign regulators about the potential consequences of being subject 

to this liability, and from their perspective, the various issues that 

it may create. 

And so we have attempted to address that concern while maintaining the confidentiality of those as well. 

Mr. SCHWEIKERT. Okay. 

And on this—particularly speak to the confidentiality side? 

Mr. TAFARA. I think the concern only arises to the extent that 

the information gets used inappropriately by the regulator that is 

seeking that information. And I believe this is being sought, and 

will be sought, for legitimate purposes. 

It is in connection with whatever your mandate is: regulating 

and supervising the trade repository itself; regulating or being prudentially responsible for the dealers who are reporting to the trade 

repository; or in connection with pursuing an investigation into potential wrongdoing. 

Those would be the purposes for which a regulator would be 

seeking the information. And to that end, I don’t know that they 

run much risk in terms of liability. 

Of course, as Dan has indicated, it is important that the information be maintained confidentially by the authorities and used appropriately and not disclosed inappropriately. 

So yes, we do think confidentiality is an important aspect of this. 

But this is something that regulators deal with all the time. We 

are in possession of nonpublic information as part of our regulatory 

responsibilities and we use that information appropriately to meet 

our mandate. 

Mr. SCHWEIKERT. All right. 

Thank you, gentlemen, and I yield back my time. 

I recognize Ranking Member Waters for 5 minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. 

I am wondering, to what extent does the SEC or the CFTC have 

the authority to exempt a foreign jurisdiction from indemnifying a 

swap data repository registered with either Commission, or to take 

other actions to limit the impact of this underlying provision in 

Dodd-Frank? 

In other words, I guess my question is to what extent does a 

change on this issue really require legislative action? 

Either one of you may answer. 

Mr. BERKOVITZ. We believe we have authority to address this 

issue. 

We addressed the issue in the rule that we published on our 

swap data repository—we call the core principles which the statue 

established and the regulation and the licensing of the swap data 

repository. In that rule, we provided several conditions under 

which a regulator could get access to the data without an indemnification agreement. 

Subsequently, subsequent to the publication and the enactment 

of that rule, we received comments in particular from the foreign 

regulators that the rule doesn’t address a number of their concerns. 

And there are a number of instances in which foreign regulators 

would seek access that may not be covered by the rule that we 

have already published. 

10 

And for this reason, the Chairman has directed the staff, and my 

office is drafting that additional interpretive guidance, to further 

address the issue and cover some of these additional situations 

where we could still provide access to the data without the indemnification agreement, and yet preserve confidentiality. 

So we believe we have extensive authority to address this issue 

already. 

Ms. WATERS. Do you share that opinion Mr. Tafara? 

Mr. TAFARA. We, like the CFTC, have explored the authority we 

may have either through exemption or interpretation to preclude 

the need for indemnification by foreign authorities. 

And it is possible that we could identify a way in which to address it. 

However, there is always a measure of uncertainty by virtue of 

going that route. And our sense from our counterparts is that they 

would prefer for there to be certainty with respect to whether or 

not they need to provide indemnification. 

Ms. WATERS. If this bill doesn’t make it through the Senate and 

to the President’s desk, what would you do? 

Mr. TAFARA. We would have to continue to explore the authority 

as—actually address the concerns that have been expressed by our 

counterparts. 

Ms. WATERS. Mr. Berkovitz? 

Mr. BERKOVITZ. The Chairman has directed that we draft this 

additional guidance for the Commission’s consideration very shortly. And it is our goal that the Commission should consider putting 

out this guidance for public comment within the next several 

weeks. 

So that is our goal, to do this very expeditiously. 

Ms. WATERS. Thank you very much. 

I yield back. 

Mr. SCHWEIKERT. Thank you, Ranking Member Waters. 

Mr. Posey? No? Okay. 

Mr. Hurt, do you have any questions? 

Mr. HURT. Just a couple of questions, Mr. Chairman, thank you. 

I was wondering in terms of the—I want to make sure I understand the proposal. What we are talking about is a breach of confidentiality, and Dodd-Frank’s requirement that there be indemnification agreed to by the foreign regulators. 

If this is adopted, the legislative proposal before us, there will 

still be a remedy available to someone who is aggrieved by a breach 

in confidentiality, will there not? If there is a breach in confidentiality, there will be a remedy for the persons who—or for the entity that is hurt by that. 

Mr. BERKOVITZ. That would depend upon the particular law of 

this jurisdiction. 

So I don’t know whether the answer would be yes or no. And I 

will certainly— 

Mr. HURT. And that would depend on the laws of the foreign regulator? 

Mr. BERKOVITZ. It would, I guess, depend on the particular circumstance, the parties involved, where the breach occurred, and 

the actual circumstances. 

Mr. HURT. Okay. 

11 

Let me ask this. Have the SEC and the CFTC—are your organizations able to actively support this legislation? Is this something 

that you will go on the record as actively supporting? 

Mr. BERKOVITZ. The CFTC has not taken a position on the legislation. 

Mr. HURT. Is that just by protocol or do you really not have a 

position on this? 

Mr. BERKOVITZ. It does not have a position. 

Mr. TAFARA. We, at the SEC, support elimination of the indemnification requirement, and think that the draft in its current form 

seems to achieve that objective. 

Mr. HURT. Okay. 

Thank you, Mr. Chairman. 

I yield back my time. 

Mr. SCHWEIKERT. Thank you, Mr. Hurt. 

Ms. Moore? 

Ms. MOORE. Thank you, Mr. Chairman. 

I guess I want to make a comment and I want to ask the panel 

a question. And by the way, the CFTC and the SEC have been 

very, very helpful to us in drafting this legislation. 

There seems to be a lot of concern with regard to breach of confidentiality. And I guess I want to sort of reiterate the fact that 

there is a regulatory framework on both sides of the water to which 

entities have to comply. 

I guess I want the panel to have the opportunity to provide some 

details regarding the arrangements that the CFTC and the SEC already engage in with international counterparties for access to information and cooperative oversight, including the memoranda of 

understanding. 

So that if there were a breach of confidentiality, there is a regulatory framework that on this side of the water, the CFTC and the 

SEC would have authority over and Spain, London, or Asia or in 

the emerging markets, can you describe for us, without knowing 

the specifics, what those memoranda of understanding are, and 

how this is already handled? 

Mr. BERKOVITZ. That is correct, Congresswoman. 

We have under our existing authority in Section 8 of the Commodity Exchange Act, confidentiality provisions. We are required to 

keep business information regarding persons and their trading 

data confidential. 

However, the statute also allows us to share this information 

with domestic regulators and foreign regulators provided that we 

appropriate assurances of confidentiality. 

So it is already in the Commodity Exchange Act, that we are permitted to share information if the Commission is satisfied that the 

data will be adequately protected by the foreign regulator. 

So typically we do enter into a memorandum of understanding 

(MOU) with the commitment of the foreign regulator that they will 

keep the data appropriately confidential as required by the statute. 

And that system has worked. That system has worked very well. 

Mr. TAFARA. Along those lines, we have entered into some 40 or 

more arrangements with counterparts from around the world for 

purposes of assisting in enforcement matters as well in the supervision of global actors. 

12 

Those arrangements call for the sharing of nonpublic information 

with one another to those ends. And the MOUs make clear the conditions under which the information is provided and how that information can be used. 

And much of the information being nonpublic, it must be maintained confidentially by the recipient and only used for the regulatory purposes for which it sought. 

One of the things we do in entering into these memoranda of understanding is come to an understanding of the legal protections 

that foreign counterpart can provide to the information. So we seek 

a measure of reassurance that as a matter of law, they can keep 

that information confidential and it is on that basis that we finalize 

the MOU. 

Ms. MOORE. Thank you. I would like to follow up with a concern 

that still was on the table with regard to plenary access. 

Since U.S. regulators already have access to all trades on any 

SDR registered as a U.S. SDR, even if that SDR is physically located on foreign soil, what would be the benefit or the liability of 

pursuing plenary access? 

Would we find that foreign entities would have the same resistance to plenary access, find themselves establishing their own 

SDRs and fragmenting those data in the same way? 

What are the benefits or liabilities of continuing to pursue a plenary access playing field? 

And would it create the same sort of legal—the problems as we 

have seen in this indemnification issue play out? 

Mr. BERKOVITZ. This is another issue that we have begun to discuss with our international counterparts. And there is actually a 

working group on this issue in which the CFTC believes—my colleague here is also participating in on this issue. 

So we are already participating. And to trust some of these 

issues as the U.S. and the international counterparts are establishing swap data repositories, and the potential structures, and 

potential regulatory framework, who will have the licenses, what 

data will go in which license? 

These issues have arisen. 

And we are committed to working through them with our foreign 

regulators to ensure that, for example, the CFTC’s main objective 

is to ensure we have access and the statute mandates data that is 

required to be reported under the Commodity Exchange Act. 

That is our primary objective. 

And to the extent that there is other data in the repository that 

might come from other regulatory requirements, who would have 

access to that or who might not have access to that, I think this 

is something that we need to reach a mutual understanding or 

working to reach a mutual understanding on with our international 

counterparts. 

So we are participating in those discussions to address that 

issue. 

Ms. MOORE. [Off-mike.] 

Mr. TAFARA. Absolutely, Ms. Moore. 

Different regulators will need different depth and breadth of access to the information that is held with the trade repository. 

13 

When you think about it, the access that will be sought—it will 

be sought by different types of regulators. 

You will have regulators responsible for the trade repository 

itself given that it is registered with it. And who will have responsibility also for market surveillance. They will need a certain depth 

and breadth of access to information. 

Prudential supervisors or the dealers that are reporting to the 

trade repositories will need access to information. The breadth and 

access of information they need may differ from what you may 

need as a supervisor of the trade repository. 

Law enforcement authorities will need access to the information 

to the extent they are investigating potential wrongdoing. And the 

depth and breadth of access they will need will be dictated by the 

investigation that is being conducted. 

And then you will have authorities that will need access for monitoring systemic risk that have been charged. 

As Dan has indicated, there is a conversation that has taken 

place internationally now to understand what depth and breadth 

these different regulators may need, and to reach an understanding 

of that and some will need more access than others might, I think. 

But coming to agreement on that is something that is actually 

a work in process right now, and the subject of some debate 

amongst ourselves as an international regulatory community. 

Ms. MOORE. Thank you so much. 

Mr. SCHWEIKERT. Thank you, Ms. Moore. Those were terrific 

questions. 

Gentlemen, thank you for your participation. I don’t believe we 

have any more questions for this panel. 

So we will now move on to panel number two, Mr. Donahue. 

And to the young people who are visiting, where are you visiting 

from? 

I want you to know all hearings are exactly this exciting. 

[laughter] 

This room has fairly tough acoustics. 

I recognize Mr. Donald Donahue, chief executive officer of The 

Depository Trust & Clearing Corporation is recognized for 5 minutes. 

STATEMENT OF DONALD F. DONAHUE, CHIEF EXECUTIVE OFFICER, THE DEPOSITORY TRUST AND CLEARING CORPORATION (DTCC) 

Mr. DONAHUE. Chairman Schweikert, Ranking Member Waters, 

thank you very much for holding today’s hearing. 

We support the leadership of this subcommittee in introducing 

legislation to ensure effective swap transaction reporting for monitoring systemic risk in global financial markets. 

DTCC and regulators have worked diligently to address these 

issues. However, it has become clear that a legislative fix is needed. 

Today, I address two technical provisions in the Dodd-Frank Act 

that make it more difficult for regulators around the world to share 

information. They are generally referred to as indemnification and 

plenary access. And both promote the risk of data fragmentation 

14 

that Congresswoman Moore very eloquently described in her opening remarks. 

The first issue, indemnification, is an immediate problem. Many 

regulators worldwide are unable or unwilling to provide an indemnity agreement. The concept of indemnification is unfamiliar to 

them, and inconsistent with their traditions and legal structures. 

More plainly, though, foreign government agencies will not indemnify private third-party entities such as SDRs. The indemnification provision is also not needed in light of current international data-sharing guidelines developed through the cooperative 

efforts of more than 50 regulators worldwide including the CFTC, 

the SEC, and the Federal Reserve. 

Without an indemnity agreement, U.S.-based repositories would 

be legally prohibited from providing regulators outside the United 

States with market data on transactions under their jurisdiction. 

The clear risk is that global supervisors will have no viable option other than to fragment data globally by creating local repositories precisely to avoid indemnification. 

DTCC strongly supports the Swap Data Information Sharing Act 

of 2012 which would remove the indemnification provisions from 

the Dodd-Frank Act, and make U.S. law consistent with existing 

international protocols. 

This legislation will go a long way to ensuring global regulators 

can effectively monitor systemic risk. However, resolving indemnification without addressing the second issue, plenary access, still 

makes it likely that global swap data will be fragmented by jurisdiction. 

Addressing both issues now can preempt a future crisis for swap 

data information sharing. 

Plenary access requires U.S.-registered SDRs, even those who 

might be based outside the United States, to provide U.S. regulators with direct electronic access to data held by the SDR. 

While this provision was intended to ensure a thorough examination of the SDR’s operations, non-U.S. regulators are very concerned that it may give U.S. agencies access to all swap data retained by the SDR, even data for transactions with no identifiable 

nexus to U.S. regulation. 

A broad interpretation by U.S. regulators of the plenary access 

provision would likely lead to fragmented swap data across SDRs 

in multiple jurisdictions, frustrating regulators’ ability to monitor 

systemic risk. 

If a regulator can only see a limited slice of data from its own 

jurisdiction, then that regulator cannot see risk building up in the 

whole system, or provide adequate market surveillance and oversight. 

To illustrate the combined impact of these provisions, let us examine the case of two British banks executing your credit default 

swap involving a British underlying entity. 

Under the plenary access provision, if the trade was reported to 

a U.K.-based but U.S.-registered SDR, U.S. regulators could claim 

a legal right to view data on this transaction, even though the U.S. 

regulator has no material interest in it. 

Even worse, the indemnification provision would require the 

British regulator to indemnify the U.S.-registered SDR to access 

15 

the same data, despite the fact that the entirety of the trade falls 

within the British regulator’s jurisdiction. 

The issues of indemnification and plenary access must be dealt 

with in a tougher manner to prevent data fragmentation from occurring. 

Congress needs to address plenary access by clarifying the intent 

of the statute and reinforcing that regulators have access to the 

data in which the regulator has a material interest by amending 

and passing the Swap Data Information Sharing Act to ensure that 

technical corrections to both indemnification and plenary access are 

addressed. 

Congress will create the proper environment for the development 

of a global trade repository system to support systemic risk management and oversight. 

Thank you for your time this morning. 

[The prepared statement of Mr. Donahue can be found on page 

30 of the appendix.] 

Mr. SCHWEIKERT. Thank you, Mr. Donahue. 

A quick question—as we are going through the indemnification 

process of this piece of legislation moving forward, right now is it 

acting as a barrier for the United States to be the hub of suppository information? 

Are you getting much pushback? What is happening at this moment? 

Mr. DONAHUE. I think at this moment, Mr. Chairman, as I believe you are aware, we do actually operate a global swap data repository for credits—default swap data. And we are in the early 

stages of operating such a repository for interest rate swap data. 

We have a global data set to which under the agreement of the 

OTC derivatives regulators forum, under work being done by the 

International Organization of Securities Commissions, all regulators have equal access to that data, data they have a material interest in, on common terms, on the same terms. And they are in 

fact routinely accessing that data, routinely making use of that 

data. 

And when the indemnification provision comes in and comes into 

effect, it is very clear that will shut down the ability of regulators 

outside the United States to have access to that data, and to use 

that data the way they have become accustomed to doing that, 

until they cross the indemnification bridge and deal with the issues 

that indemnification presents to them. 

Our belief, and I think you heard it from the earlier panel, is 

that they will not be able to provide the indemnification agreements. And therefore, they will not have access to the data. And 

therefore, they will say, we have to start creating our own trade 

repositories. We have to start fragmenting the data to be able to 

keep access to this information that is so critical for us to have access to. 

Mr. SCHWEIKERT. Thank you, Mr. Donahue. 

So far, this seems actually somewhat simple. 

But from your viewpoint and from us doing the policy, one of my 

constant concerns is the law of unintended consequence. 

Do you see anything that might pop up, sneak up on us, cause 

an issue, cause a mechanic—or is this really truly that simple? 

16 

Mr. DONAHUE. I believe this is really truly that simple. I think 

we have a regime today crafted by the work that the OTC derivatives regulators, foreign and other international groups of regulators, have crafted to create the ground rules under which they all 

have access on a common set of rules. They are all using that access, and all proceeding under those common rules. 

That has proven to be an enormously effective way of giving 

them access to the data they need for their regulatory purposes to 

monitor systemic risk. Preserving that is, I think, a very straightforward public policy good that this removal of the indemnification 

and the plenary access issues would continue to foster. 

Mr. SCHWEIKERT. All right. Thank you, Mr. Donahue. 

I yield back, and recognize Ranking Member Waters for 5 minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. 

Let me just say that Dodd-Frank is a most important piece of reform legislation that we spent an awful lot of time on. And we 

think that we have created a piece of legislation that will provide 

transparency and consumer protection and a lot of other things. 

So I am very careful as we review all aspects of this legislation. 

But it is very apparent that there are some pieces of the legislation 

that need to be revisited. 

And as we talk about these certain provisions of Title VII today 

in Dodd-Frank, that would require that any U.S. or foreign authority agree to provide this indemnification to a swap data repository, 

and the SEC or the CFTC for any expenses arising from litigation 

as a precondition for receiving swap data; that the information that 

we have received both from our regulators and from you, Mr. 

Donahue, it is quite clear that not only must we correct this legislatively to eliminate any questions or uncertainty about what the 

intentions are or were, but this is absolutely necessary. 

And so I want to thank you for your testimony here today. I have 

no further questions. Thank you very much. 

Mr. SCHWEIKERT. Thank you, Ms. Waters. 

Mr. Hurt? 

Mr. HURT. Thank you, Mr. Chairman. 

Thank you for your testimony, Mr. Donahue. 

I guess my question is one I was trying to explore earlier with 

the earlier witnesses. And I guess I just was hoping to kind of better understand what happens if there is a breach of confidentiality. 

First, it does seem that under the current proposal, confidentiality still must be a part of the release of the information. And 

information cannot be released unless the foreign regulators agree 

that there will be confidentiality. 

Is that true? 

Mr. DONAHUE. The information—the guidelines that were adopted by the OTC derivatives regulators forum, and the similar work 

that is being done by the International Organization of Securities 

Commissions, is intended to give all regulators access to this information consistent with the rules that pertain—as I think, Mr. 

Berkovitz was indicating—in their particular regulatory jurisdiction. 

Mr. HURT. From—I am sorry. Go ahead. 

17 

Mr. DONAHUE. They have access. In our access methodology, we 

provide all of the regulators an electronic means to access the data 

in the repository, right. That electronic means limits them to the 

data that they have a material interest in. 

So an Italian regulator for example can see data that has an 

Italian counterparty, can see data that has an Italian reference entity. They only see what they are entitled to see in terms of what 

their regulatory jurisdiction is. 

And obviously, the retention of that data by them would be subject to whatever rules apply to them in their own jurisdiction— 

Mr. HURT. And are they sufficient. 

Mr. DONAHUE. I am sorry? 

Mr. HURT. Are they sufficient, those existing rules? 

Mr. DONAHUE. Obviously, that would be dependent on the jurisdiction of the particular regulator— 

Mr. HURT. Are there some that are and are there some that are 

not? 

Mr. DONAHUE. I don’t have any—I am not implying that there 

may be some that are not. I don’t have any reason to think that 

there are not appropriate confidentiality restrictions for their jurisdiction. 

But as you well appreciate, they vary— 

Mr. HURT. By jurisdiction. Okay. 

So because in your testimony you said that there are—that many 

of these groups, foreign groups, are not familiar—or indemnification is not part of their jurisprudence, so to speak. 

Mr. DONAHUE. Yes. 

Mr. HURT. But it sounds like, to me, that confidentiality is. 

Mr. DONAHUE. I think confidentiality—I think pretty much every 

regulatory jurisdiction around the globe recognizes that regulators 

get from their regulatees highly confidential information 

Mr. HURT. Right— 

Mr. DONAHUE. —about their business— 

Mr. HURT. —that is what I am concerned about— 

Mr. DONAHUE. —that kind of thing and ergo each of them must 

have their own expression of how that gets retained. 

Mr. HURT. And then can you walk through for me an example 

or talk to me about in the event that there is a breach of confidentiality by a foreign regulator who misuses this information, what 

are the remedies available? 

What are the remedies available if there is not an indemnification agreement? 

What are the remedies available to that person, or to that entity, 

that has suffered the consequence of misuse of this information? 

That is sort of what I was trying to get at. 

Mr. DONAHUE. Okay. I again would suggest to you that the information a particular regulator has is information first and foremost 

that his regulatees already could be obligated to provide to him, 

right. 

So an Italian regulator who receives information from the repository about Italian counterparties activities, obviously part of the 

nexus here is that he could say to those counterparties, you have 

to report this to us. And we are trying to make it a more efficient 

and effective process. 

18 

So they would have, to the extent he disclosed that inappropriately as highly unlikely, as hypothetical as that is, those entities 

would have the remedies against the regulator that they would 

have under Italian law in my example. 

And they would be able to go against the regulator to enforce 

whatever remedy they would have against that kind of a breach. 

Mr. HURT. Okay. 

Thank you, sir. 

I yield back my time. 

Mr. SCHWEIKERT. Thank you, Mr. Hurt. 

Ms. Moore? 

Ms. MOORE. Thank you so much, Mr. Chairman, and Madam 

Ranking Member. And I want to thank Mr. Donahue for appearing. 

Mr. Donahue, I do know that the DTCC was very, very instrumental in this last financial crisis that we had, because of its repository responsibility was very, very helpful in responding and cooperating with regulators in our crisis. 

And so, I want to just follow up on some of the questions that 

other members have already asked with regard to if there is another financial crisis, and it is a global financial crisis, I want you 

to sort of walk us through how plenary access, in particular, would 

have an adverse impact on your ability to respond to these financial crises. 

I guess my understanding of your testimony is number one, you 

think that plenary access is just as contentious as indemnification 

with regard to preventing data fragmentation of the market, and 

that this legislation before us really needs to be amended to include 

plenary access. 

Can you just sort of walk us through an example of how plenary 

access might add to this market fragmentation? 

Mr. DONAHUE. Thank you, Congresswoman Moore. 

Yes, perhaps a way of doing that is to describe what specifically 

happened in the fall of 2008 after the failure of Lehman Brothers. 

Ms. MOORE. Exactly. 

Mr. DONAHUE. We had, as I believe you know, a fully mature 

trade repository for credit default swap data at that time. And during the weeks following the failure of Lehman Brothers, there was 

a market firestorm essentially in terms of rumors about the magnitude of the liability counterparties on credit default swaps using 

Lehman as a reference entity had. There were rumors that the liability was north of $400 billion. 

And clearly, there was a panic in the market that it was going to 

sink the markets— 

Ms. MOORE. Right. 

Mr. DONAHUE. —if that kind of exposure was present. 

We were able from data in the repository to say the total liability 

is in fact not going to exceed $6 billion. We did say that publicly. 

In any event, it was $5.3 billion. 

Ms. MOORE. Right. 

Mr. DONAHUE. So we were able, because we had all of that information together, to tell people this is how bad it looks. It is clearly 

not anything like the— 

Ms. MOORE. $400 billion— 

Mr. DONAHUE. —the problem you think that you have— 

19 

Ms. MOORE. Yes— 

Mr. DONAHUE. —number one, right. 

But in a plenary access world, right, if plenary access motivates 

non-U.S regulators to say we need to create our own trade repositories. We need to fragment the data into our own jurisdiction. We 

need to preclude our own regulated firms from putting data anywhere else other than in our own repository. 

We would not have known what the picture was with respect to 

Lehman. 

We might have known, gee, we know $10 billion of the contracts 

are outstanding, but they are spread out in all other kinds of repositories, all around the world. 

No one could have put all of the pieces together and said this is 

what it would look like. This in fact is what the exposure is. No 

one could have put out that firestorm. 

And that firestorm could have had obviously very severe effects 

in terms of what was a very sensitive market environment at the 

time. 

Ms. MOORE. Mr. Donahue? 

The CFTC thinks that there is a workaround for plenary access. 

Can you explain to us here today why you think that there is a legislative fix that needs to be done? 

Mr. DONAHUE. I certainly am not familiar with what specifically 

the CFTC has in mind. 

But I think the regulators outside of the United States in our 

discussions with them, in our contacts with them in the context of 

the credit default swap repository that we already have, had been 

very clear about their sensitivity about the confidentiality of the 

data actually. 

They are concerned that they see the same data that everyone 

else sees. And that no one is given the authority to see more data 

than the generally agreed international rules regarding data access 

would enable all regulators to be able to see. 

When they hear that there is a possibility that certain regulators 

might be able to see data that they view as confidential with respect to their own regulatees, that is something they view very, 

very negatively. 

And that is something where they think, wait a minute. That 

means I may need to pull my data back so that I control who is 

able to see it. 

Ms. MOORE. Unanimous consent to just have more follow-up or 

no? 

Thank you so much. 

So with regard to your seeing a need for a legislative fix, we 

heard testimony earlier today that the SEC and the CFTC say that 

those conversations are happening already with regard to the 

depth and breadth of information that needs to be done. 

Do you think right now that given the integrity of the relationships that already occur, if there needs to be some sort of datasharing without plenary access, that literally we could go to other 

regulators in Asian markets or Latin American markets or other 

markets and say, we need to see this data through an MOU versus 

having plenary access? 

20 

Do you think the integrity of those relationships already exist 

without our having plenary access? 

Mr. DONAHUE. Our impression from our dialogue with regulators 

outside the United States suggests that that relationship is of the 

nature you described. 

I think I would add that having a conversation about the ground 

rules for sharing data among all regulators, where all regulators 

understand that they are approaching that discussion on a level 

platform can be a fruitful discussion. 

Having that dialogue when some of the regulators believe that 

some other regulators, namely the U.S. regulators, are privileged 

because of the plenary access provisions, that skews the way that 

dialogue is going to happen right from the beginning. 

And I think they will be less amenable to coming up with a global ground set because they are just going to say, wait a minute, 

some of us here are playing by different rules. We are not sure that 

we are willing to go down that road. 

So I think the removal of plenary access is precisely important 

to foster the kind of cooperative dialogue that you are describing. 

Ms. MOORE. Thank you so much. 

And I thank the Chair for his indulgence. 

And thank you, Mr. Donahue. 

I yield back. 

Mr. SCHWEIKERT. Mr. Stivers? 

Mr. STIVERS. Thank you, Mr. Chairman. I would like to first recognize the Ohio State University Mount Scholars in the second row 

for being here, and go Buckeyes. 

Mr. SCHWEIKERT. Mr. Stivers, do we owe them an apology for an 

exciting hearing? 

Mr. STIVERS. It is pretty exciting. And I am sorry if we are getting your adrenaline pumping too much. So I would like to apologize for that. 

I do want to thank Mr. Donahue for your testimony. I have had 

a chance to see a working model of your credit default swap repository, and it is an impressive amount of data. I think you explained 

very well its value in the wake of the Lehman Brothers crisis. 

And I would like to ask you a question about if plenary access 

and the indemnification were required before that, and it resulted 

in the data fragmentation that you explained that is logical, what 

happened with those two requirements, would you have been able 

to give regulators enough access to data to calculate the exposure 

to focus on the Lehman Brothers problem? 

Mr. DONAHUE. If indemnification had existed, if plenary access 

had existed at the time we created the credit default swap repository, we would never have accumulated all of the data. 

So by definition, we would have known one piece. We would have 

had the tail of the elephant. We wouldn’t have had the elephant. 

And we could not have told people, this is what the total picture 

is. We could have only reported on one slice of that picture. 

Mr. STIVERS. And looking forward to potential future issues, data 

fragmentation and the risk of it, because of plenary access and indemnification, could risk the ability of regulators, not only in the 

United States but globally, to understand the exposure that their 

firms face on a worldwide basis. 

21 

Is that correct? 

Mr. DONAHUE. There is no question if you fragment the data because of those factors, you are enormously handicapped in being 

able to do that. 

Mr. STIVERS. And Ms. Moore already alluded to it. But I want 

to hear you say it from your own mouth. 

The bill that is in draft form here does deal with the indemnification issue, but does not deal with the plenary access issue. Would 

you recommend that we include that in this bill? 

Mr. DONAHUE. We believe that the two issues are crucially 

joined, and must both be addressed to be able to eliminate the risk 

of data fragmentation that we are very concerned about, so plenary 

access definitely needs to be addressed. 

Mr. STIVERS. Great, thank you. I appreciate your testimony, and 

being involved in these issues is very important. 

I think there seems to be unanimity among the subcommittee 

here that this is an issue that is really important and needs to be 

dealt with in a very thoughtful way. 

And that the two issues here, while they may have worked in 

some circumstances, don’t fit where we are in this point in time, 

and need to be corrected so that we can get better access to data, 

not only for American regulators, but global regulators. 

Mr. DONAHUE. We would agree with that completely. 

Mr. STIVERS. Thank you for your time. 

I yield back the balance of my time, Mr. Chairman. 

Mr. SCHWEIKERT. Thank you, Mr. Stivers. 

And Mr. Donahue, thank you for your time. 

Without objection, the written statements of both panels will be 

made a part of the record. 

The Chair notes that some Members may have additional questions for the panels, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for Members to submit written questions to these witnesses and to 

place their responses in the record. 

And with that, this hearing is adjourned. 

[Whereupon, at 11:14 a.m., the hearing was adjourned.] 

(23) 

A P P E N D I X 

March 21, 2012 

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75081.036
60 


75081.037