UNITED STATES OF AMERICA 

 COMMODITY FUTURES TRADING COMMISSION 

 PUBLIC ROUNDTABLE TO DISCUSS 

 SWAP DATA RECORDKEEPING AND REPORTING REQUIREMENTS 

 Washington, D.C. 

 Friday, January 28, 2011 
 2 

 1 A G E N D A 

 2 Welcome Remarks and Overview of Current landscape 

 for UCI 

 3 

 4 For CFTC: 

 5 GARY GENSLER 

 Chairman 

 6 

 DAVID TAYLOR 

 7 Special Counsel, Division of Market Oversight 

 8 IRINA LEONOVA 

 Financial Economist, Division of Market Oversight 

 9 

 ANDREW HINZ 

 10 Deputy Director Policy and Planning 

 11 

 12 Panel 1: Technical Considerations Concerning 

 Unique Counterparty Identifiers (UCIs) 

 13 

 14 KEN TRAU 

 GS1 

 15 

 MARK BOLGIANO 

 16 XBRL 

 17 KEN HAASE 

 NFA 

 18 

 PAUL JANSSENS 

 19 SWIFT 

 20 FRANCIS GROSS 

 Central European Bank 

 21 

 JOHN MULHOLLAND 

 22 EDM/Fannie Mae 
 3 

 1 A G E N D A 

 2 Panel 2: Operational Considerations Concerning 

 Unique Counterparty Identifiers 

 3 

 RONALD JORDAN 

 4 Avox/DTCC 

 5 SCOTT PREISS 

 CUSIP 

 6 

 PETER MARNEY 

 7 Thomson Reuters 

 8 GEORGET HARRINGTON 

 Bloomberg 

 9 

 BRAD BARTON 

 10 swift 

 11 ED CHIDSEY 

 Markit 

 12 

 OLA PERSSON 

 13 FINRA 

 14 Panel 3: Implementation Considerations Concerning 

 Unique Identifiers 

 15 

 PAUL PUSKULDJIAN 

 16 Citi 

 17 ARTHUR MAGNUS 

 JP Morgan 

 18 

 MELISSA GOLDMAN 

 19 Goldman Sachs 

 20 TODD SULLIVAN 

 Morgan Stanley 

 21 

 STUART McCLYMONT 

 22 Deutsche Bank 
 4 

 1 A G E N D A 

 2 LINDSAY YEE 

 NYW Mellon 

 3 

 ALLAN GRODY 

 4 Financial InterGroup Holdings 

 5 BRIAN HOLT 

 Bank of America 

 6 

 RAYMOND TUBRIDY 

 7 State Street 

 8 

 Panel 4: Unique Product Identification (UPI) 

 9 

 10 KULBIR ARORA 

 Goldman Sachs 

 11 

 BRUCE TUPPER 

 12 ICE 

 13 SUNIL CUTINHO 

 CME 

 14 

 ADAM LITKE 

 15 Bloomberg 

 16 KEN HAASE 

 NFA 

 17 

 ELEANOR DREW 

 18 Citi 

 19 ED CHIDSEY 

 Markit 

 20 

 OLA PERSSON 

 21 FINRA 

 22 
 5 

 1 A G E N D A 

 2 Panel 5: Unique Swap Identification (USI) 

 3 SUNIL CUTINHO 

 CME 

 4 

 JONATHAN WILLIAMS 

 5 Tradeweb 

 6 BRUCE TUPPER 

 ICE 

 7 

 RAF PRITCHARD 

 8 TriOptima 

 9 ARTHUR MAGNUS 

 JP Morgan 

 10 

 PETER AXILRODE 

 11 DTCC 

 12 

 Panel 6: Master Agreement Library and Portfolio 

 13 Data Warehouse: 

 14 

 MICHAEL WILL 

 15 docGenix 

 16 ROBERT PICKEL 

 ISDA 

 17 

 ARTHUR MAGNUS 

 18 JP Morgan 

 19 PAT TROZZO 

 Reval 

 20 

 RAF PRITCHARD 

 21 TriOptima 

 22 
 6 

 1 A G E N D A 

 2 PETER AXILROD 

 DTCC 

 3 

 MELISSA GOLDMAN 

 4 Goldman Sachs 

 5 

 6 * * * * * 

 7 

 8 

 9 

 10 

 11 

 12 

 13 

 14 

 15 

 16 

 17 

 18 

 19 

 20 

 21 

 22 
 7 

 1 P R O C E E D I N G S 

 2 CHAIRMAN GENSLER: I'm doing a little 

 3 stand-in here for Rick Shilts, who is going to do 

 4 the intro. Rick is the head of our Division of 

 5 Market Oversight. Let me first just greet 

 6 everybody. Thank you and the CFTC staff for 

 7 arranging this roundtable on these critical 

 8 issues. Rick would have been here, but given the 

 9 ice and shoveling and everything, yesterday he 

 10 broke his wrist. So, he's fine. He's home. He's 

 11 alright. But I'm the stand-in. 

 12 More than that -- thank you all for 

 13 doing this. I think we have six panels today on 

 14 very important issues to a proposed rule that 

 15 we've put forward. I think some of our colleagues 

 16 and friends from the SEC are tying in by phone and 

 17 listening. I know this will be very helpful for 

 18 the SEC. We are hopeful, I think, that some of 

 19 the folks from the OFR over at Treasury, which has 

 20 been so helpful with this on data collection, too, 

 21 is also tying in either here directly or 

 22 listening. 
 8 

 1 But the effort really is to move forward 

 2 with the proposal. I think a comment period 

 3 closes February 7th, so everything that goes on 

 4 here will be put in a transcript and be part of 

 5 the comment period as well -- and comment file. 

 6 But more than that, it's about unique 

 7 identifiers for three areas, as you know. For 

 8 counterparties. For products. And what we call 

 9 "swaps" or what I call "transactions." But I know 

 10 they are swap IDs. And somehow, as the whole 

 11 financial industry would be relying on these 

 12 unique IDs for counterparties, products, and swaps 

 13 to get the best advice on implementation -- on how 

 14 to bring this all together. 

 15 So with that I think I've probably 

 16 exhausted my role here and turn it over to David, 

 17 Irina, and the team -- and thanking everybody who 

 18 is going to participate today. 

 19 MR. TAYLOR: Thank you very much, Gary. 

 20 I need to ask the court reporter. Are you set 

 21 with names? 

 22 COURT REPORTER: [Inaudible.] 
 9 

 1 MR. TAYLOR: Okay, good. Well, we will 

 2 dive right in. Thank you all for being here 

 3 today. It's going to be very helpful for us to be 

 4 sure that we get the technical aspects of these 

 5 issues that we're going to talk about today right 

 6 in the final rule. 

 7 I thought I would begin by giving a 

 8 brief overview of the current landscape regarding 

 9 unique counterparty identifiers, and then we'll 

 10 jump right in to the first panel. 

 11 Over the last decade virtually all 

 12 financial sector stakeholders have come to 

 13 recognize the need for universal, accurate, 

 14 trusted methods of identifying legal entities that 

 15 are parties to financial transactions. A unique 

 16 counterparty identifier, sometimes known as a 

 17 "legal entity identifier," will be a crucial 

 18 regulatory tool for enabling data aggregation 

 19 across counterparties, asset classes, and 

 20 transactions. That will enhance regulators' 

 21 ability to monitor and mitigate systemic risk, 

 22 prevent market manipulation, enforce position 
 10 

 1 limits, and exercise resolution authority. 

 2 Full realization of systemic risk 

 3 mitigation and transparency, which are fundamental 

 4 purposes of the Dodd- Frank Act, cannot be fully 

 5 achieved without mandatory use of entity 

 6 identifiers in swap data reporting. And the 

 7 identifiers would also have great benefits for 

 8 financial entities in terms of transaction 

 9 processing, internal recordkeeping, compliance, 

 10 margin calculation, due diligence, and risk 

 11 management. 

 12 At present no industry-wide entity 

 13 identifier that is sufficiently unique, 

 14 persistent, comprehensive, and open is available 

 15 to serve as an industry-wide standard. In the 

 16 absence of a universal entity identifier, vendors 

 17 and firms and regulators have created a variety of 

 18 identifiers. One of my colleagues at the Fed 

 19 sometimes refers to these as "little silos of 

 20 excellence." But they are separate from each 

 21 other. This creates inefficiencies and expense 

 22 for firms and can result in costly errors. And it 
 11 

 1 also presents obstacles to regulators' ability to 

 2 see a comprehensive picture of the market. Such 

 3 partial solutions are often proprietary, 

 4 restricted in use and redistribution, limited in 

 5 scope. 

 6 We believe that at present we have a 

 7 window of opportunity to create an open entity 

 8 identifier that solves these problems. As noted 

 9 in the proposed rule, the Commission believes that 

 10 optimum effectiveness for a legal entity 

 11 identifier would come from creation of entity 

 12 identifier system on an international basis 

 13 through a voluntary consensus standards body. The 

 14 proposed rule sets out principles that the 

 15 Commission believes must govern such a system. It 

 16 also calls for reporting of information concerning 

 17 affiliations of entities that receive a legal 

 18 entity identifier. 

 19 The purpose of our first three panels 

 20 today is to explore the technical, operational, 

 21 and implementation considerations that the 

 22 Commission should address concerning unique 
 12 

 1 counterparty identifiers in its final data 

 2 reporting rule. 

 3 And with that, let's jump into the first 

 4 panel. I would remind you all, these microphones 

 5 are "push to talk" so when you would like to talk, 

 6 push the button -- the little red light will come 

 7 on. When you are done, push again to turn it off. 

 8 And if you can, don't let your BlackBerry or phone 

 9 be on the table because they do feedback. 

 10 We do have, in a way, an extra panelist 

 11 with us by phone this morning who is going to 

 12 speak to us now as we begin. Francis Gross from 

 13 the European Central Bank. 

 14 MR. GROSS: Hello. Good morning. I'm 

 15 very pleased to be with you and I look forward to 

 16 hearing the debate and contributing where I can. 

 17 MR. TAYLOR: We appreciate your being 

 18 here. 

 19 MR. GROSS: Thank you. 

 20 MS. LEONOVA: Okay. I guess we are 

 21 ready for our first panel. Before we start I want 

 22 to thank CRTC staff for making it happen. Anna 
 13 

 1 Schubert and J.P. Rothenberg. Our administrative 

 2 staff Margie Yates, Veda Allen and Joshua Griffin 

 3 and Mike Johnson. 

 4 The first panel has more of a technical 

 5 aspect for unique entity identifiers, or commonly 

 6 known as "legal entity identifiers." I believe 

 7 most of you have a list of question that we would 

 8 like to discuss, but it is mostly for guidance 

 9 rather than "let's make it happen." 

 10 So, I guess let's start at the first 

 11 one: Are there any existing identifiers viable 

 12 for use as UCIs or LEIs? What is the opinion, and 

 13 what are the solutions? 

 14 MR. TRAUB: I would be happy to speak 

 15 first to that one. I represent GS1 US, which is 

 16 part of the GS1 organization. GS1 is a global 

 17 voluntary standards consensus body. We've been in 

 18 the business of developing standards for supply 

 19 chains across a number of different sectors for 

 20 nearly 40 years. Those of you who have seen 

 21 barcodes on consumer products have seen the most 

 22 visible aspect of what the GS1 system is, but 
 14 

 1 that's just one type of identifier in a whole 

 2 system of identifiers that we have. 

 3 And in fact, one of the existing, widely 

 4 adopted standards within the GS1 system is an 

 5 identifier for legal entities. It's an identifier 

 6 that we call the "GLN" and it is a 13-digit 

 7 identifier, which can be used to identify a legal 

 8 entity, whether that be the parent of a 

 9 corporation or a subsidiary or any other legal 

 10 entity that requires identification. 

 11 The GS1 system is fully international. 

 12 It's supported through a network of 108 member 

 13 organizations, which is GS1's term for what are 

 14 effectively operating arms of the GS1 standards 

 15 body in 108 different countries around the globe. 

 16 There's also a global office in Brussels that 

 17 supports smaller countries that don't have a local 

 18 office of their own. 

 19 The GS1 system is designed to allow 

 20 identifiers to be globally unique and persistent 

 21 throughout the world, and that's done through 

 22 allocation of the numbering space to the different 
 15 

 1 member organizations so that they can be 

 2 distributed locally. And we can talk more about 

 3 the technical details, but I'll just stop there 

 4 and say that we believe that we believe that that 

 5 identifier would be eminently suited as a UCI, and 

 6 we believe it meets all of the requirements that 

 7 have been set forth. 

 8 MR. BOLGIANO: I'll be glad to go next. 

 9 My name is Mark Bolgiano. I'm here actually with 

 10 three hats on -- as a member of XBRL US Board of 

 11 Directors, as a member of the ANCI-X9 Board of 

 12 Directors, which is the U.S. jurisdiction of ISO 

 13 for financial standards -- particularly ISO 2022, 

 14 and as the chair of ISO Working Group 5, which is 

 15 looking at semantic technologies to get 

 16 harmonization across standards. 

 17 I should also add that up until December 

 18 I served as the Founding CEO of XBRL US, which 

 19 came out of leadership from the SEC and FDIC and 

 20 the use of standards for regulatory reporting, and 

 21 is now being led in industry by DTCC, SWIFT, the 

 22 accounting profession, and the technology 
 16 

 1 profession. 

 2 We've obviously -- now that the SEC has 

 3 implemented data standards for the origination and 

 4 the issuance of reporting -- we've encountered the 

 5 identifier many times as a limiting factor in the 

 6 effectiveness of effective reporting and intake of 

 7 data into various systems. And we have really 

 8 addressed this by very aggressively pursuing the 

 9 ISO standards that apply, because they met the 

 10 criteria that we found were important. One is 

 11 maturity of technology and the maturity of its 

 12 use. The other is the system of governance -- a 

 13 stable and strong global system of governance. 

 14 The other was the economic model involved, 

 15 particularly where it applies to the intellectual 

 16 property in any identifier. And really the 

 17 aggregate effect of all these, which is access, 

 18 really. Access by regulators, access by the 

 19 public, access by the partners who rely on an 

 20 identifier for confidence in the information. 

 21 So, therefore, we are strongly 

 22 recommending that the BIC standard, not only as it 
 17 

 1 exists but as it will evolve under the governance 

 2 that I've referred to, represents the best legal 

 3 entity identify option. 

 4 MR. JANSSENS: I would just follow on to 

 5 what Mark was just saying. So, we also believe 

 6 from a SWIFT perspective we are the registration 

 7 authority for BIC. BIC is in use in the financial 

 8 industry for more than 30 years -- is already 

 9 identifying entities in transactions and 

 10 counterparties in transactions for a long time. 

 11 So yes, we believe that an existing identifier can 

 12 fulfill the role of legal entity identification. 

 13 We are bringing changes to the ISO 

 14 standard. We are in the process of making a 

 15 revision of the standard so that it even better 

 16 fits the needs and the requirements as they have 

 17 been described in the requirement from the CFTC. 

 18 So that there will be a BIC only for legal entity 

 19 identification, so that there will be a 

 20 distinction between the BICs that have been used 

 21 so far and the BICs that will be used for legal 

 22 entity identification. No confusion between the 
 18 

 1 two. Therefore we think that can serve the 

 2 purpose. 

 3 MR. HAASE: I'm Ken Haase. I'm with the 

 4 NFA. Those at the Commission I'm sure you know 

 5 what NFA is and how long we've been working with 

 6 an NFA ID. Over 25 years we have been assigning 

 7 these through out registration system. And to 

 8 date we have handed out approximately 450,000. 

 9 Currently there are about 55,000 in use that are 

 10 current at the moment. And we have had this 

 11 system in place. We feel that it is a fairly 

 12 strong system. We have given the firms the 

 13 ability to go in and electronically assign these 

 14 for the individuals that work for these firms. 

 15 And I guess the one think I would add on there, 

 16 from our point of view, is also the ability to go 

 17 in an ensure that it is unique to the individual 

 18 and the underlying functions that you need in that 

 19 system to go through and make sure that you are 

 20 not duplicating these IDs, either for firms or for 

 21 individuals. 

 22 MS. LEONOVA: Going forward, you know 
 19 

 1 what a great job you do individually. Now let's 

 2 try to get together and define what you can see 

 3 that to be in theory -- desired and optimal 

 4 structure of the identifier -- without referencing 

 5 your particular system. 

 6 MR. BOGLIANO: I'll be glad to start. I 

 7 think that my input would be on the question of 

 8 centralization -- on the assignment and validation 

 9 that I think that a lot of the questions we've 

 10 heard asked on this subject presume a certain 

 11 level of centralization. And speaking as a CIO 

 12 for 25 years, and someone who is now just returned 

 13 back to that type of role, I can tell you that 

 14 today's technology environment probably will not 

 15 tolerate what has historically been the optimum 

 16 choice, which is absolute centralization of 

 17 validation, storage, registration. 

 18 If you look at the models that are 

 19 working today, whether it's for IP addresses or 

 20 for web URLs, while there certainly has to be a 

 21 central authority -- there has to be an 

 22 authoritative source -- I would say that 
 20 

 1 "federation" is a concept that should be 

 2 considered in any solution. Everyone at the table 

 3 here has provided a certain level of trust and 

 4 confidence through the numbers that are being 

 5 assigned and validated, ensuring that they are 

 6 unique going across supply chains. 

 7 My input would be that, while we do need 

 8 a central authoritative source, that the 

 9 federation of the assignment of numbers -- and 

 10 again with the objective of access being central 

 11 to the thinking -- is very important. The other 

 12 concept, and then I'll conclude, is that we not 

 13 try to give the numbers any payload of 

 14 information. The numbers should be abstract and 

 15 unique. I think most models today that try to 

 16 include location codes, branch numbers -- I don't 

 17 think in the long term those are as sustainable. 

 18 And this is what I'm referring to in the evolution 

 19 of the BIC number, not to mention the specific. 

 20 But I think all of the options being examined, 

 21 that's a general trend. So that's my input. 

 22 MR. TRAUB: I'd like to amplify some of 
 21 

 1 the comments that Mark made. I think we're in 

 2 complete agreement as to the principles there, and 

 3 I'll just support that through some experience 

 4 that our organization has had in assigning unique 

 5 identification in an international environment in 

 6 particular. 

 7 I think decentralization is absolutely 

 8 essential for success in an international 

 9 environment simply because -- particularly when 

 10 we're talking about legal entity identification in 

 11 the financial industry -- for many nations this is 

 12 an issue of national sovereignty. And there are 

 13 different laws and regulations that apply in each 

 14 jurisdiction, and it's only through a federated 

 15 model that one can accommodate all those, while 

 16 still creating a framework in which there is 

 17 standardization worldwide and therefore the 

 18 ability to have that single unique identification. 

 19 Typically the way this is achieved is by 

 20 having a global numbering space that is then 

 21 divided in some way across regulatory regimes, to 

 22 preserve uniqueness worldwide, and then within 
 22 

 1 each of those divisions, allowing the local 

 2 regulators or authorities or issuing agencies to 

 3 work within that space and then apply any local 

 4 considerations that apply there. 

 5 We also believe there is merit in taking 

 6 the decentralization concept one step further and 

 7 allowing individual counterparties to ultimately 

 8 be the issuers of individual identifiers by 

 9 allocating a range of numbers to companies that 

 10 need it. Then they can issue their own 

 11 identifiers and then register them in a separate 

 12 operation. 

 13 And the decoupling between the issuance 

 14 of the number itself and the registration of 

 15 associated reference data we think is also a very 

 16 important technical ingredient because it helps 

 17 facilitate different types of expertise. One 

 18 organization responsible for maintaining the 

 19 numbering space and being very neutral -- letting 

 20 other organizations that have deep expertise in 

 21 the data and in financial services handle the 

 22 registration of the accompanying reference data. 
 23 

 1 And that's a feature of the GS1 system as well. 

 2 I think I would also just amplify the 

 3 points that Mark made about what we call the 

 4 "non-significance of the number," Meaning no 

 5 information or intelligence embedded in the 

 6 number. I think we can point to many examples 

 7 from experience that show that any attempt to 

 8 embed intelligence in the number usually runs into 

 9 pitfalls further down the road. And so we would 

 10 also support that as a technical characteristic 

 11 that's important. Thank you. 

 12 MR. TAYLOR: Let me ask a question to 

 13 follow up. If you have a system that 

 14 decentralizes the issuance of the identifiers 

 15 themselves, can you elaborate a bit on how you 

 16 would ensure that they all stay unique? 

 17 MR. TRAUB: Yes, it's actually a pretty 

 18 simple principle. In the case of the GS1 system, 

 19 the way that works is that when the numbering 

 20 space is divided among the various national and 

 21 regional authorities, we use the first few digits 

 22 of the number to ensure uniqueness. So, numbers 
 24 

 1 issues in the United States begin with a "0". 

 2 Numbers in the U.K. begin with a "5", and so 

 3 forth. Very similar to what you see with 

 4 International Dialing Codes for telephones. 

 5 That principle extends downward as you 

 6 decentralize through to individual companies 

 7 issuing identifiers. The key there is not to try 

 8 and associate any intelligence with that. You use 

 9 that as a means to divide up the issuance of the 

 10 numbers, but what you do not do is say that once a 

 11 number is issued you can then parse out those 

 12 components and try to learn who owns it. That has 

 13 to be done through associated reference data. 

 14 What all that dividing up the number is, 

 15 is a means for decentralizing the issuance of it. 

 16 And in the GS1 system, that's done actually with a 

 17 variable-length system, so the division lines 

 18 between the different parts are somewhat flexible, 

 19 which allows capacity to be tuned as you 

 20 distribute the codes through the world. 

 21 MR. HAASE: I guess I would just echo 

 22 both what Mark and Ken said in regards to keeping 
 25 

 1 the intelligence out of the number. Just about 

 2 any time you've gone and built a system and you 

 3 thought this is exactly -- we've figured out 

 4 everything that could possibly go in that number, 

 5 about a week after it goes live you find that one 

 6 item that is not included or something else comes 

 7 up. So yes, definitely keep that intelligence out 

 8 of it. 

 9 MR. JANSSENS: Yes. Same comment. 

 10 Getting out all the intelligence from a code is 

 11 essential, because what counts when a code has 

 12 been assigned, that the code does not change 

 13 because something is happening. And that's really 

 14 important and that's what should be considered is 

 15 that not only there is no intelligence in there, 

 16 but also that the code is perpetual and persists 

 17 whatever happens to the entity which has been 

 18 identified. When something is happening to the 

 19 identity, that must be processed through the 

 20 attributes, the reference data which is attached 

 21 to the number, not in the number itself. 

 22 MS. LEONOVA: Can we discuss what 
 26 

 1 reference data you consider to be important and 

 2 what characteristics it has to have? 

 3 MR. JANSSENS: Well the characteristics 

 4 are the attributes that we need to consider, and 

 5 in terms of attributes there are a certain number 

 6 of unique attributes that will enable 

 7 identification of the entity itself, which is its 

 8 legal name, which is its registered address in the 

 9 country of incorporation. Those is the basic 

 10 information that is needed. 

 11 Next to that you need to have data base 

 12 management attributes, which enable to sort out 

 13 when the code has been created, when the code has 

 14 been validated, when it has been updated, when it 

 15 eventually expires -- because a code can expire if 

 16 the entity disappears. But those elements will 

 17 help make sure that by looking across all the 

 18 entities you can identify them uniquely and that 

 19 there is no duplication of entities so that the 

 20 code is unique. 

 21 MR. BOLGIANO: What Paul is describing 

 22 is a discipline that's been awhile for a while, 
 27 

 1 called "master data management." This is marked 

 2 by identity, provenance of the data -- as Paul has 

 3 pointed out about the chain of custody, and then 

 4 the security and privacy of that data that results 

 5 from good management of master data and reference 

 6 data. 

 7 And I think that the challenge of course 

 8 comes, first, when the reference data changes, 

 9 because generally the reference data is not a 

 10 transaction, it's an entity. So changes to that, 

 11 such as -- we're actually involved in work right 

 12 now with corporate actions. Corporate actions are 

 13 changes to the securities master. And also when 

 14 these are referenced across large networks. 

 15 And so a huge network like SWIFT, this 

 16 is why, if you'll forgive me, I think one of the 

 17 big reasons why SWIFT is in the standards 

 18 business, because the standards applied to that 

 19 reference data is so key to the integrity of the 

 20 movement of information across networks. And when 

 21 I say "networks" I don't mean the cables, 

 22 necessarily. I mean the network of business 
 28 

 1 actors, investors, general public -- for 

 2 transparency here in the United States, and 

 3 regulators. 

 4 MR. TRAUB: I would just add to that 

 5 that obviously we need to understand exactly what 

 6 reference data we wish to associate with 

 7 identifies. I think equally important is 

 8 attention to the process by which those 

 9 determinations are made. And you can understand 

 10 that by considering that the answer to the 

 11 question "What is an appropriate legal entity 

 12 identifier?" -- the answer to that question is one 

 13 that we hope is very stable over time. The 

 14 question of "What reference data do we need 

 15 associated with an identifier?" is an answer that 

 16 evolves over time, as business conditions change, 

 17 as new requirements emerge for understanding what 

 18 that data means. 

 19 And so therefore we believe it's very 

 20 important to have a very robust global standards 

 21 process for establishing the definitions of what 

 22 reference data is to be associated with 
 29 

 1 identifiers. In GS1 we have experience developing 

 2 reference data for consumer products and other 

 3 types of supply chain entities. And we have a 

 4 global network that allows that data to be 

 5 synchronized worldwide through a federation of 

 6 different databases. And we bring end users 

 7 together to develop the standards for exactly what 

 8 that data is. 

 9 One of the things we've learned in that 

 10 is that one has to balance core needs for 

 11 reference data that are shared among all 

 12 participants for virtually all applications. And 

 13 for legal entity identification those are basic 

 14 things such as name, location, contact 

 15 information, relationship to other legal entities. 

 16 But then beyond that you have more and 

 17 more specialized data that is maybe application 

 18 specific. So perhaps there's reference data that 

 19 applies to legal entities who are broker-dealers 

 20 as opposed to different information that would 

 21 apply to a different type of entity. It's 

 22 important to have a very extensible and manageable 
 30 

 1 modular structure there, because in order to 

 2 actually get good reference data -- data that is 

 3 actually supplied accurately by the participants 

 4 -- one has to keep it as simple as possible, but 

 5 not too simple that it fails to meet business 

 6 requirements. 

 7 MS. LEONOVA: May I ask follow up 

 8 questions? How do you ensure extensibility of an 

 9 identifier? 

 10 MR. TRAUB: Well, for the identifier 

 11 itself -- and that's a separate question from 

 12 extensibility of the reference data -- but for 

 13 extensibility of the identifier the basic 

 14 principle we believe is to reserve a part of the 

 15 structure for future expansion. So that may mean 

 16 that there's a first digit that has an unassigned 

 17 value that can be used to indicate an extension in 

 18 the future. There are a number of techniques for 

 19 doing that that are fairly well established. 

 20 To give an example of our experience 

 21 doing that, the UPC code that you see on products 

 22 began as a 12-digit number in North America, and 
 31 

 1 then when it expanded to worldwide use, the 

 2 capacity was too limiting, and so a 13th digit was 

 3 added. And the way the extensibility worked was 

 4 that digit was implicitly zero in North America 

 5 where it didn't exist. And so zero was not 

 6 allowed to be the first digit anywhere else in the 

 7 world, and that way the 12-digit and 13-digit code 

 8 could co-exist for a period of time. And then 

 9 there was a period of controlled migration and a 

 10 sunrise date at which information systems around 

 11 the world were required to accept both forms. And 

 12 that's actually happened twice with the product 

 13 code. Our legal entity identifier has not 

 14 required that extension because as of now it has 

 15 pretty large capacity compared with anticipated 

 16 requirements. But that's the basic principle. 

 17 MR. JANSSENS: From an extensibility 

 18 point of view of the code I think you need to make 

 19 sure that the code from the start is large enough 

 20 to cover the whole scope, because otherwise you 

 21 start to have intelligence in the code itself. So 

 22 I think that the code must cater for what is 
 32 

 1 needed from the beginning. Later on you have the 

 2 extensibility in the attributes. If the market 

 3 evolves -- if the industry requirements are 

 4 changing, then you can manage that with the 

 5 attributes which are attached to the code, and you 

 6 don't have to work with changes in the code 

 7 itself, which from a data base point of view -- 

 8 from a data base management point of view -- if 

 9 you have built your data model based on a certain 

 10 structure of the code itself, you have to change 

 11 it because that is your root key. 

 12 So we think that the code should no 

 13 longer change once it has been defined. But the 

 14 attribute, you have all the flexibility that you 

 15 want -- to add attributes, to remove attributes, 

 16 or change them as you see fit going forward. 

 17 MR. BOLGIANO: I'm just going to add a 

 18 very brief remark, which is general although 

 19 relevant to this, and relate the experience of the 

 20 XBRL introduction to issuers in the corporate, 

 21 publicly traded world -- mutual funds -- that what 

 22 you're hearing discussed here reflects a 
 33 

 1 combination of mandate and market acceptance. And 

 2 in fact we found that one without the other has a 

 3 very reduced chance of success. 

 4 And so I would urge the CFTC, in 

 5 considering the plans to -- while it's possible to 

 6 mandate a system once a system is determined, that 

 7 more than half the battle is in thinking about 

 8 what contributes to market acceptance -- to the 

 9 user acceptance here. And your use of the word 

 10 "stability" -- even a perceived lack of stability 

 11 will have a drastic impact on market acceptance. 

 12 MR. HAASE: Let me just touch on two 

 13 things. In whatever system the Commission ends up 

 14 going with, you have to understand and appreciate 

 15 the amount of time it will take the other systems 

 16 to accept this new number and what has to be 

 17 modified in those systems to allow everyone to 

 18 adjust to it. That's number one. 

 19 And number two, the other thing, is the 

 20 security behind it. For people to accept the 

 21 system, there are going to have to know that the 

 22 data they are putting into it is secure. They're 
 34 

 1 going to want to feel very comfortable before they 

 2 start giving out all this information. What 

 3 information varies on which country you are 

 4 dealing with. But the security, and then once 

 5 gain the time to modify other systems to accept 

 6 this number. 

 7 MR. TAYLOR: Let me ask you a follow up 

 8 question. Talk a bit about the time you think 

 9 would be needed. 

 10 MR. HAASE: The time needed. And that's 

 11 going to depend on the system you are dealing 

 12 with, so I surely can't speak for anyone else 

 13 sitting around this table. But the time needed 

 14 depends on the number. You're going to have to 

 15 have the ability to -- if you take one system and 

 16 try to impose it on a second system, there's going 

 17 to be a big matching process. Now it depends on 

 18 how many people and entities you're dealing with 

 19 -- to understand that all the Ken Haases over here 

 20 and the Ken Haases over here are actually the same 

 21 person, and make that match. 

 22 So the time is going to be dependent on 
 35 

 1 the size of the system and also the resources 

 2 behind going through and doing that match. So 

 3 it's very hard to put a specific timeframe on it. 

 4 MS. LEONOVA: But going back to this 

 5 implementation plan, what characteristics do you 

 6 believe a mandated code has to have in order to be 

 7 accepted comparable to -- adjustable to current 

 8 systems? 

 9 MR. TRAUB: I think it's critically 

 10 important that the timelines and the procedures 

 11 for that period of migration have to be developed 

 12 with consultation from the stakeholders. And 

 13 really, you have to get a lot of input from the 

 14 stakeholders involved to ensure that what is 

 15 actually mandated is ultimately doable, and doable 

 16 in an effective manner. 

 17 Our experience in doing various sunrises 

 18 of new codes and other things of that nature has 

 19 borne this out time and again. 

 20 MR. JANSSENS: I would build on what has 

 21 been said, and also referring to some of the other 

 22 questions that you have in there -- do we use an 
 36 

 1 existing code or not? Or should we start with a 

 2 totally new code? If you start building from an 

 3 existing standard, from an existing scheme, you 

 4 get adoption faster. And the processes are in 

 5 place, so the timeline will be shorter if you 

 6 start with something that exists already. 

 7 MS. LEONOVA: How much shorter? 

 8 MR. JANSSENS: That depends on the 

 9 quantity, and probably what Ken has said as well. 

 10 Depending on how many entities you need to 

 11 identity, if you talk about 10,000 or 100,000 this 

 12 is business as usual. If you talk about millions, 

 13 that needs to be a different perspective. 

 14 So if we talk about in the 50 to 

 15 100,000, it can be done in a couple of months -- a 

 16 handful of months, I mean, 5, 6 months, whatever. 

 17 If you talk about millions, I think we need to 

 18 have some more time to make sure that the process 

 19 is robust. The time is one thing. I think the 

 20 important element is quality. Because if you 

 21 launch something, it must be bulletproof from the 

 22 start, because as Mark was saying, adoption is 
 37 

 1 important as well. If you have leaks in there, 

 2 you will have resistance to usage of it, and you 

 3 have the risk that it's not global, that it's not 

 4 unique. And then you need to start to cleaning up 

 5 what has been done. 

 6 So I think it's more important to look 

 7 into making sure that starting small with good 

 8 quality -- I mean, 100 percent quality -- and then 

 9 build from there. So it's at the first stage and 

 10 the first building block, and then contribute to 

 11 that going forward. 

 12 MR. TRAUB: And I think in addition to 

 13 that there has to be a lot of support on the 

 14 ground from the agencies involved to support 

 15 end-users in understanding the new rules, 

 16 understanding how to adopt so that -- a forum for 

 17 sharing experience so that it gets easier and 

 18 easier as more and more companies join that 

 19 adoption process. 

 20 And if the goal is to create an 

 21 international standard -- an 

 22 internationally-accepted identifier -- then that 
 38 

 1 support network has to be available on a global 

 2 basis and available in a way that is tailored to 

 3 the local market conditions and cultural 

 4 conditions and language conditions that exist in 

 5 each of those places around the world. 

 6 MR. BOLGIANO: At the risk of 

 7 oversimplifying, I'm going to say it boils down to 

 8 usability and accessibility. Five hundred million 

 9 Facebook users have created a unique identity in 

 10 the last three years. Five hundred million. You 

 11 know, that's a reflection of a certain level of 

 12 usability and access. Again, I know I'm 

 13 oversimplifying here. 

 14 You can impose a mandate and it could 

 15 take forever. Or you can consult with 

 16 stakeholders, build on an existing standard that 

 17 already has global reach, and you could find the 

 18 timeline much shorter. This is a really difficult 

 19 question, and actually I was looking forward to 

 20 watching the operational and implementation panels 

 21 squirm over this question. I'm disappointed that 

 22 we got it first. [Laughter.] 
 39 

 1 MS. LEONOVA: Maybe a naïve question, 

 2 but where do you see more problems? On the 

 3 hardware side or software side? 

 4 MR. HAASE: Software. 

 5 MR. BOLGIANO: I'm going to point out 

 6 the obvious. 

 7 MR. TRAUB: Yeah. 

 8 MR. BOLGIANO: Hardware is trivial. 

 9 This is not a hardware problem. 

 10 MR. HAASE: I agree. 

 11 MR. JANSSENS: Yeah. 

 12 MR. TRAUB: You know, the quantity of 

 13 legal identifiers -- legal entity identifiers -- 

 14 is miniscule compared to the quantity of trades, 

 15 for example, that happen every day. So the volume 

 16 of data that we're talking about here, from the 

 17 financial industry's perspective, is not a stretch 

 18 at all. The difficulty here is in the business 

 19 processes around adoption of something new, 

 20 migration of systems, all of those things. And 

 21 that's really a software problem and a people 

 22 problem, and not so much a hardware problem. 
 40 

 1 MR. JANSSENS: Yeah, I would concur. 

 2 MR. GROSS: If I may come in. Francis 

 3 Gross from the ECB. Just a short remark. I think 

 4 that observing the industry you see that they just 

 5 know where to converge, in terms of standards. 

 6 And once a standard is backed by international 

 7 institutions and by law in several countries for 

 8 mandatory use in reporting, the industry will know 

 9 where to converge and then it's just about the 

 10 normal update of processes and system over time. 

 11 It will take time to migrate, but once it's there, 

 12 they will go to it. 

 13 MR. JANSSENS: Yes, I confirm. It's not 

 14 a software or hardware, it's a process. It's the 

 15 analysis of the data on the one side, as I 

 16 mentioned, that the quality is there, so you need 

 17 to have robust processes to analyze and make sure 

 18 that you don't duplicate entities or codes for 

 19 entities. That's the most important on the 

 20 allocation of codes. And then on the usage of the 

 21 codes, it's to make sure that the processes and 

 22 the systems have been adapted to in-take that code 
 41 

 1 and to transport it so that it can fill the 

 2 requirements of reporting. 

 3 MR. BOLGIANO: First, I want to say 

 4 hello to my friend Francis, whose speaking to us 

 5 from Frankfurt, and to recognize that two years 

 6 ago he was a block away from here in my office 

 7 talking about the concept of a "data utility." 

 8 And I really think that's a very good description 

 9 that captures a lot of these characteristics that 

 10 you're trying to determine in this roundtable. 

 11 Francis, correct me if I'm wrong, but I 

 12 think one of the first things that we discussed as 

 13 a limiting factor to an effective data utility is 

 14 identity management. 

 15 MR. GROSS: Yes. 

 16 MR. BOLGIANO: And the identity of 

 17 entities. Now we're talking about a utility 

 18 that's much like the electrical grid in the U.S., 

 19 in that there won't be -- whether because of 

 20 national boundaries or for just practical 

 21 operational purposes -- it is going to be a 

 22 network. It is going to be distributed. 
 42 

 1 The things that are built into networks 

 2 that are resilient now, I think, are worth 

 3 examining to apply -- even if they are translated 

 4 from other contexts -- whether it's power or phone 

 5 or telecommunications -- into this. It's the same 

 6 kind of replication, validation, authentication. 

 7 But also the ability to decentralize and federate 

 8 as part of that decentralization. 

 9 The Internet was created to survive a 

 10 devastating attack on infrastructure, and it 

 11 evolved into something that's now serving a huge 

 12 public good. I think there's just as much 

 13 potential for the SEC and the CFTC and Treasury 

 14 with OFR to create just as big of a utility that 

 15 will have just as much of a profound effect on our 

 16 economy. 

 17 MR. JANSSENS: I link to that also the 

 18 Europeans. Because you mentioned the U.S. 

 19 regulators, but also together this is a global 

 20 solution. It's globally adopted. It is to be 

 21 combined and converged, because the firms which 

 22 will have to comply with this, they are also in 
 43 

 1 all areas. So it needs to be one system mandated 

 2 globally by the regulators so that the firms can 

 3 adapt. And that they only have one system to 

 4 adopt. 

 5 MR. GROSS: Perhaps to that point, in 

 6 his speech on 19 October 2010 at the ECB 

 7 Statistics Conference, Jean-Claude Trichet, the 

 8 President of the ECB, called for a reference data 

 9 utility that would be operated on the basis of an 

 10 international agreement. That could be something 

 11 now in reach if we take the OFR as the first step, 

 12 and similar efforts in Europe in the legislative 

 13 sphere -- if that can come to fruition, others 

 14 will join as well. It can grow in a modular 

 15 fashion. 

 16 And then the technical structure of the 

 17 data bases, whether they will be structured as a 

 18 network or whether there will be a central 

 19 repository somewhere, that matters less, as long 

 20 as there is the assurance that the data is 

 21 strictly standardized -- not just harmonized -- 

 22 but strictly standardized across the board. 
 44 

 1 MS. LEONOVA: And I want to follow up on 

 2 John Mulholland. Are you still on? John? Okay I 

 3 guess we lost somebody in the process. He got 

 4 excited. 

 5 Okay do we have any other issues you 

 6 think we should discuss to the interests of our 

 7 panel? 

 8 MR. BOLGIANO: No questions. Thank you. 

 9 MR. TRAUB: Thank you. 

 10 MR. HAASE: Thank you. 

 11 MR. JANSSENS: Thank you. 

 12 MR. TAYLOR: We're a bit ahead of 

 13 schedule, but I guess that's better than the 

 14 alternative. Let's switch to panel two. Would 

 15 the panel two people come up. 

 16 All right. This is our second panel. 

 17 We're moving to Operational Considerations 

 18 Concerning Unique Counterparty Identifiers. Some 

 19 of this was touched on by the first panel, but 

 20 that's nature. Let's move first of all to the 

 21 question of what utility or registration authority 

 22 can assign and maintain UCI in compliance with the 
 45 

 1 principles in the proposed rule and on the 

 2 timeline of our final rule. 

 3 MR. CHIDSEY: I guess I'll start. This 

 4 is Ed Chidsey from Markit Group. I'm responsible 

 5 for our pricing and reference data businesses. So 

 6 just to start off, I'd like to just thank the 

 7 Commission for the invitation to participate in 

 8 the panel today. 

 9 As many of you may or may not know, 

 10 Market has deep experience in the entity and 

 11 reference data identification space and has played 

 12 a critical role in providing identification 

 13 reference data for risk management trade 

 14 processing settlement purposes throughout the 

 15 financial markets and primarily in the OTC 

 16 markets. And we're looking forward to 

 17 participating in today's discussion and learning 

 18 from the other panelists and hopefully 

 19 contributing based on our experience. 

 20 So with respect to this particular 

 21 question, with proper governance and oversight, 

 22 our view is that really any third party service 
 46 

 1 provider, whether it be a data vendor or a utility 

 2 that has experience in the entity identification 

 3 space, could play this role. Again, the key here 

 4 would be adhering to whatever standards are set, 

 5 having some sort of an industry and regulatory 

 6 oversight committee that would be able to 

 7 participate and monitor the operation of such 

 8 entity and see that it adheres to the guidelines 

 9 that are agreed. 

 10 MR. HARRINGTON: George Harrington from 

 11 Bloomberg. Also thank you very much to the 

 12 Commission for the invitation to appear here. 

 13 We work as a provider of execution 

 14 services and more likely than a swap execution 

 15 facility. It is very attuned to the needs as far 

 16 as the unique universe of users that are out 

 17 there, not just from a data standpoint but from an 

 18 actual execution standpoint as far as identifying 

 19 who the counterparties are to a trade. 

 20 When you move to an execution mode in 

 21 today's world, obviously in OTCs derivatives and 

 22 other asset classes, it's a very bespoke market, 
 47 

 1 and I think the move towards a unique identifier 

 2 system is something that will increase efficiency 

 3 and certainly assist with vendors like ourselves 

 4 and our competitive being able to track and 

 5 certainly to identify from whatever our reporting 

 6 needs are also required, put information out to 

 7 the market as required by the legislation. 

 8 MR. MARNEY: Maybe I'll finish out this 

 9 side of the table. Pete Marney from Thomson 

 10 Reuters. Again, thank you very much. 

 11 So I don't think any of the existing 

 12 identifiers are fit for purpose in the guidelines 

 13 that have been laid out. They would require a 

 14 fair bit of change, which is possible, but I would 

 15 like to raise the point though that achieving the 

 16 guidelines of no intelligence, extensible 

 17 permanent, which means that you never delete and 

 18 so forth, is relatively straightforward to 

 19 achieve; and I think that can be done, but as soon 

 20 as you do that, then you're putting all the burden 

 21 on the reference data that sits behind it, the 

 22 data model, the business rules, the presentation 
 48 

 1 of the data, the relationships that come with the 

 2 data. In effect then, the unique identifier 

 3 really just become the tip of the iceberg, and so 

 4 much more of it has to happen below the line. I 

 5 think that's what really merits the most focus and 

 6 the most attention in this because that's what is 

 7 going to drive the value. 

 8 Doing that in a federated way I think 

 9 would be extremely difficult, and it's very 

 10 difficult to manage if you have all the individual 

 11 participants who are responsible for managing that 

 12 content. Not to say that necessarily centralized 

 13 is the way to go, but having it all federated 

 14 makes it very, very difficult to do. 

 15 MR. GROSS: Francis Gross. Just very 

 16 briefly, I tend to agree with the last statement. 

 17 However, the process is organized, it would be 

 18 much better if every data set went through an 

 19 obliquity point of passage, a unique one, wherever 

 20 it comes from, wherever it goes after. 

 21 MR. PREISS: Thank you. I'm Scott 

 22 Preiss. I'm vice president for CUISP Global 
 49 

 1 Services, and I'll follow suit with my colleagues 

 2 and thank you for the opportunity to be heard 

 3 today. 

 4 I'm really here to share our experience 

 5 as being a numbering agency in the U.S. and Canada 

 6 and 35 other countries for the past 40 years to 

 7 provide unique identification for issuers, 

 8 obligors, and underlying instruments. So that is 

 9 quite broader in the public markets than today's 

 10 specific discussion, but nonetheless, it seems to 

 11 us that there are existing frameworks, including 

 12 the international standards bodies as well as 

 13 industry subject matter experts, including 

 14 information providers, that have already existing 

 15 structures, know how to perform the duties and 

 16 obligations of a registration authority, and have 

 17 existing infrastructure and expertise. 

 18 So we very much see this progression as 

 19 a collaborative model and really one of the key 

 20 challenges, of course, is putting one's arms 

 21 around who the key stakeholders are, who the 

 22 subject matter experts are, and in the end only 
 50 

 1 execution and sustained investment and commitment 

 2 over a long period of time will meet the industry 

 3 requirements. 

 4 MR. JORDAN: Hi. I'm Ron Jordan. I'm 

 5 wearing two hats here today, Avox and DTCC. 

 6 Briefly, DTCC is a participant on ad cost utility 

 7 that is based in New York but is certainly global 

 8 in reach. And Avox, which is a wholly owned 

 9 subsidiary of DTCC, is one of the world's leaders 

 10 in the maintenance and validation of legal entity 

 11 identification. It has been around for about 10 

 12 years. It is UK-based and was purchased by DTCC 

 13 back in July. 

 14 We believe that, obviously, this is not 

 15 just a CFTC issue. Whatever happens here, the SCC 

 16 is watching and in particular the OFR, and 

 17 whatever solution comes out of here needs to be a 

 18 single solution that can apply to all plus 

 19 eventually European regulators. 

 20 We believe there are two functions here, 

 21 and I think Peter touched upon this briefly. 

 22 There is the assignment of the number or the 
 51 

 1 registration authority, but then there is the 

 2 activity to validate and maintain the database, 

 3 the attributes of the database, and make that 

 4 available to the public or to whomever else, which 

 5 is, we think, a lot more challenging than simply 

 6 the number assignment. 

 7 And then finally, we believe that the 

 8 characteristics that a utility or registration 

 9 authority need to have is several, really three. 

 10 Number one, there needs to be proven capabilities, 

 11 we think, to get to market quickly. Second, we 

 12 believe that this needs to be a global solution, 

 13 and there needs to be global acceptance to 

 14 whatever solution is undertaken. Third, there 

 15 does need to be proper governance because the 

 16 facility will change over time, and those who are 

 17 most affected by it, those who are paying the 

 18 cost, need to have a place at the table in 

 19 governing the utility on an ongoing basis. 

 20 MR. PERSSON: Complementing on that is 

 21 that you asked which utility. So first, what is a 

 22 utility? I mean, we are serving the financial 
 52 

 1 industry, governed by the financial industry now 

 2 for more than 30 years and considered as a utility 

 3 by the largest firms. 

 4 I think to come to a solution for legal 

 5 entity identification, it must work through 

 6 collaborative models because it is too important 

 7 for the industry at large to look only at it from 

 8 a unique perspective. It has to be between 

 9 partners this can work, and I think that's how it 

 10 will be utility; and the governance beyond these 

 11 utilities is important as well. 

 12 MR. TAYLOR: Let me ask you all a 

 13 followup question. I think I heard, but tell me 

 14 if I'm right, a general view here that you all 

 15 believe there ought to be a single 

 16 utility/registration authority for the issuance 

 17 rather than multiples; is that correct? 

 18 MR. PERSSON: I would say what's 

 19 important is the responsibility. It can be 

 20 distributed, but somebody must have the 

 21 responsibility to make sure that the criteria that 

 22 must be defined about quality and adoption and 
 53 

 1 distribution of the data are met; and that is one 

 2 responsibility. All that is distributed is the 

 3 responsibility of that registration authority or 

 4 the partners in this picture. 

 5 MR. GROSS: Francis Gross. Perhaps we 

 6 could differentiate the debates by considering 

 7 that the process will have several stages, and 

 8 that each stage could be subject to different 

 9 organizational settings. Some stages data 

 10 production, for instance, might be decentralized, 

 11 but this obliquity point of passage could be 

 12 central. 

 13 MR. CHIDSEY: I would argue that what's 

 14 most critical is a global standard and global 

 15 agreement on how the utility or utilities or firms 

 16 that are running this would operate. 

 17 Theoretically, you could divide responsibility 

 18 amongst jurisdictions, but the most important 

 19 thing is to ensure that there is a global set of 

 20 standards and guidelines. 

 21 MR. JORDAN: I would second that, but I 

 22 would also say we do believe there is a 
 54 

 1 distinction again between the registration 

 2 authority and the utility which is managing this. 

 3 So while you don't need the same entity to perform 

 4 both functions, we do believe it's probably most 

 5 effective if you have a single organization 

 6 responsible for each. 

 7 MS. LEONOVA: Again, let us catch up our 

 8 new participant, Ola Persson from FINRA. We 

 9 already started 15 minutes, so if you want to make 

 10 a quick introduction. 

 11 MR. PERSSON: Sorry. Yes. I'm Ola 

 12 Persson from FINRA. I'm the director of trace and 

 13 fixed income strategy within transparency 

 14 services. So to the extent I can help by shedding 

 15 light on transparency services. 

 16 MR. TAYLOR: We started a bit early, but 

 17 we've begun just with the first question about 

 18 what utility or registration authority can assign 

 19 and maintain a unique counterparty identifier. Do 

 20 you want to jump into that discussion? 

 21 MR. PERSSON: No. If you don't mind, 

 22 I'll listen for a little bit since I just walked 
 55 

 1 in. 

 2 MR. TAYLOR: Sure. That's all right. 

 3 Thank you. Another followup question. Our first 

 4 panel, if I understood properly, was saying they 

 5 thought the time to implementation for a unique 

 6 counterparty identifier would be quicker if we can 

 7 find a way to use an existing identifier and 

 8 elevate and adapt it as needed but not to go down 

 9 the road of creating something new from scratch. 

 10 I think I hear you all saying something similar 

 11 here that we might move more quickly to 

 12 implementation if the utility registration 

 13 authority is an existing organization adapted for 

 14 the purposes. Am I hearing that right? 

 15 MR. PREISS: I would like to react to 

 16 that. To the extent that any collaborative model 

 17 already exists in the industry and is at least 

 18 satisfying some of the requirements that have been 

 19 set forth, I wholeheartedly agree that existing 

 20 infrastructure and subject matter expertise should 

 21 be used. 

 22 And if I can just add on a comment to 
 56 

 1 your prior question in terms of is a single 

 2 utility the best model. Now I agree with several 

 3 of my colleagues around the table that there seems 

 4 to be a difference between a registration 

 5 authority and the underlying utility function. 

 6 Ultimately, there needs to be a single accountable 

 7 source, and being in the unique ID business for as 

 8 long as CUISP has, we know firsthand whenever that 

 9 cannot be tolerated is duplication. And so if we 

 10 have multiple parties generating multiple 

 11 identifiers simultaneously in any sort of shared 

 12 pool model, that sort of defeats the very purpose. 

 13 So there is room for collaboration, but in the end 

 14 there needs to be a single accountable party. 

 15 MR. JANSSENS: That confirms what we 

 16 said, and I don't think there is anything to add. 

 17 MR. MARNEY: So to the prior question, 

 18 we agree. I think it could be a hybrid solution, 

 19 and it could work very well. 

 20 To the current question on the table, I 

 21 think using the existing is a good bias for 

 22 entering into the decision or entering into the 
 57 

 1 analysis, but I don't think it necessarily is a 

 2 foregone conclusion. Again, to tell you for sure, 

 3 for us internally, we decided to go new rather 

 4 than adopt something that was existing. It made a 

 5 lot more sense for us. I think it just requires 

 6 thorough analysis. 

 7 MR. TAYLOR: Now when you say "going 

 8 new," you're talking in terms of a utility 

 9 registration authority? 

 10 MR. MARNEY: Right. Rather than 

 11 adopting an existing standards. 

 12 MR. TAYLOR: Right. 

 13 MR. MARNEY: But I think going in with 

 14 the bias at the outset to look to extend an 

 15 existing because there is infrastructure in place; 

 16 there is networks in place; there's processes, and 

 17 there's software that can be extended and so forth 

 18 is probably a good place to start but not 

 19 necessarily the obvious answer or the foregone 

 20 conclusion. 

 21 MR. HARRINGTON: I think from the 

 22 perspective of Bloomberg, our firm connects to 
 58 

 1 everyone around the table in one format or 

 2 another, and I think we're all experienced with 

 3 the matching tables that we have, which is our 

 4 identifier to another identifier to another 

 5 identifier. Therefore, the move to use some 

 6 existing infrastructure I think is definitely a 

 7 good idea, but it is the question of how do you 

 8 start that process because, you know, there are so 

 9 many standards that are out there right now. And 

 10 they're mainly disparate obviously. You know, 

 11 DTCC in this space has done a lot of excellent 

 12 work as far as at the legal counterparty 

 13 identifier level. So I think, you know, that's 

 14 someplace where you can certainly look to start, 

 15 but I think that because there are so many 

 16 standards out there that it's going to be 

 17 something that has to be evaluated carefully as 

 18 far as a system that everyone can use. 

 19 Then the next question, and I think 

 20 there will probably be a separate roundtable on 

 21 this, will be the interconnectivity standards as 

 22 far as how those are going to be communicated. 
 59 

 1 MR. MARNEY: One further thought too is 

 2 scale, right. Depending upon exactly what you're 

 3 trying to address, and some parts of the 

 4 documentation talks about extending this to all 

 5 financial instruments in all jurisdictions. And 

 6 then that just explodes it expedientially, and I 

 7 think that makes it a very, very different game 

 8 than if you're talking about a relatively finite 

 9 universe. 

 10 MR. JANSSENS: This ties back to what we 

 11 said in the first panel, is adoption by the 

 12 industry and the cross- referencing is a key 

 13 element because all the industry, as constructed 

 14 one way or another, it's internal system for 

 15 identification of entities. And this is bespoke. 

 16 This is legacy, but it is embedded in all the 

 17 systems in any large firm. 

 18 What is important if we want adoption 

 19 and global view so that what needs to be 

 20 consolidated can get consolidated based on one 

 21 foundation block, which is this unique legal 

 22 entity identification, in order to make that 
 60 

 1 adoption, it need to cross-reference to all the 

 2 existing codes which are out there, which each 

 3 firm has already cross- referenced to its internal 

 4 legacy system. And that is where this will gain 

 5 traction and adoption. 

 6 MR. CHIDSEY: I think the next panel 

 7 will clearly be interesting to get a perspective 

 8 on the implementation challenges and what we need 

 9 to consider because ultimately whoever the 

 10 authority is really needs to ensure that it's 

 11 something that is going to work and be easily 

 12 integrated, or as easily integrated as possible 

 13 into the various processes and systems. 

 14 But, again, you know, similar to some of 

 15 the earlier points, the relevant thing here is for 

 16 whatever authority and whatever firms are involved 

 17 in this should have experience, should have the 

 18 infrastructure in place. 

 19 I think the identifier itself is 

 20 something that, you know, collectively will come 

 21 to what that ultimately should look like, and 

 22 there's probably not a specific solution out there 
 61 

 1 today that's perfectly fit for purpose or will 

 2 adhere to those standards. So the identifier 

 3 itself will need to change, but ultimately having, 

 4 you know, the infrastructure, the capability, and 

 5 the knowhow within the organization in this space 

 6 is going to be critical to make it successful. 

 7 MR. TAYLOR: You actually started on the 

 8 very next question I was going to put to everyone. 

 9 Let's do that. 

 10 Can we sort of collectively list here 

 11 what you think the characteristics are that it's 

 12 essentially for the utility or registration 

 13 authority to have? 

 14 MR. JANSSENS: Let me start. I think 

 15 the first characteristic is experience and 

 16 infrastructure in place, and that is also adoption 

 17 already of the code by the financial industry is 

 18 also a key to start because that will help making 

 19 the whole thing glued together and going forward. 

 20 MR. PREISS: I can add to -- 

 21 MR. GROSS: Such a utility should 

 22 certainly be nonprofit, be placed under 
 62 

 1 irreproachable internationally accepted governance 

 2 with technical competency, neutrality, and 

 3 permanence. 

 4 MR. TAYLOR: All right. Scott, I think 

 5 you were next. 

 6 MR. PREISS: Thank you. Getting back to 

 7 the characteristics of a UCI and ensuring that 

 8 there is uniqueness. You know, in addition to 

 9 Paul's comments, certainly there needs to be 

 10 assurance upfront that records of legal entitles 

 11 are vetted, both from a system perspective, and 

 12 although I know there are different viewpoints on 

 13 this, you know, probably in a manual or personal 

 14 fashion as well, the key attribute of any unique 

 15 identification system is exactly that. We need to 

 16 guarantee uniqueness, and so whatever utility is 

 17 ultimately arrived at needs to be confronted day 

 18 in and day out with simple examples, ABC, 

 19 Incorporated, ABC Limited, ABC LLC, and that 

 20 decision needs to be made in real time to the 

 21 earlier point about time to market and 

 22 effectiveness. 
 63 

 1 So one of the key characteristics 

 2 perhaps should be guaranteeing that there is 

 3 primary source documentation to back that up. An 

 4 analogy in the public markets would be having a 

 5 draft perspicuous in the pre-trade space to ensure 

 6 unique identification of an issuer, an underlying 

 7 instrument, perhaps an obligor. The same sort of 

 8 construct, we think, would be essential to a 

 9 characteristic of a system here. 

 10 MR. JORDAN: Yeah. I think we agree 

 11 that the characteristics outlined in the release 

 12 are all valid, and many of those have been 

 13 discussed here, proven capabilities, global 

 14 acceptance, governance, et cetera. 

 15 I would say though that if you look at 

 16 -- you know, Scott just mentioned some of the 

 17 registration components. If you look at the 

 18 utility components, I do think the expertise piece 

 19 in maintaining and validating legal entities is 

 20 very important. That really does mean how is the 

 21 database populated? How do you go from 0 to 

 22 40,000 or 0 to 2,500,000 if you go to the full 
 64 

 1 extent of OFR? How do you do that, and how do you 

 2 do that quickly and accurately? 

 3 I also think the maintenance component 

 4 about how do you continually validate things that 

 5 change and how do you have a process to do that is 

 6 a key characteristic of what needs to happen as we 

 7 move forward. 

 8 MR. MARNEY: So I completely agree with 

 9 Ron's comments. I think there are challenges with 

 10 the uniqueness and the assignment of the codes, 

 11 but I really think the real challenge here is in 

 12 the management of the data in the background. 

 13 And going back to the previous panel, I 

 14 think it was Mark's comment about Master Data 

 15 Management, and you need some real proven 

 16 capability there. Absent that, you know, right 

 17 now you have very little transparency and insight 

 18 because there isn't the standard. If you create a 

 19 standard for the unique identifier but not what 

 20 flows below it, all you've done is push the 

 21 problem one step downstream and you're back in the 

 22 same place. 
 65 

 1 MS. LEONOVA: May I ask a followup 

 2 question. Sorry to interrupt you. It looks like 

 3 we're talking about assignment of ideas by 

 4 centralized (inaudible) and self- certification of 

 5 an ID of guidance number. Do I understand you 

 6 correctly? 

 7 MR. MARNEY: I think for me, my view 

 8 would be that the assignment of the number can be 

 9 very distributed or federated. I don't think 

 10 that's really where the challenge is. There are 

 11 plenty of examples of telephone numbers, IP 

 12 addresses, and so forth, Facebook -- not Facebook. 

 13 I'm sorry. It's not a good one, but IP addresses 

 14 or phone numbers that work very well. I think 

 15 it's what follows on from the data that supports 

 16 those IDs is where the challenge is. 

 17 MS. LEONOVA: Yeah. But that's what I'm 

 18 trying to get. So if you go with an assignment 

 19 process, it's going to be centralized by the 

 20 function to validate the accuracy of this data. 

 21 If it is self-certification, we would assume that 

 22 the party who self-certifies provides us data, and 
 66 

 1 somebody has to scrub it for accuracy. 

 2 What is the benefit and drawback for 

 3 each model, or do you have references? 

 4 MR. CHIDSEY: So I think both models 

 5 probably need to be explored. Self-registration 

 6 is something that certainly could add a lot of 

 7 benefit and efficiency to the process in terms of 

 8 legal entities coming forward, registering 

 9 themselves, potentially providing documentation. 

 10 That documentation would ultimately need to be 

 11 validated, but that could go a long way in terms 

 12 of improving the efficiency and timeliness of 

 13 these entities that need to be created and 

 14 maintained. 

 15 And just one brief point to the prior 

 16 question. One thing that shouldn't be 

 17 underestimated is the amount of effort required 

 18 to, you know, not only maintain but distribute and 

 19 support the information that is going to be put 

 20 into the marketplace, support the clients, the 

 21 consumers of this information. 

 22 Whoever the authority is will be a core 
 67 

 1 part of the market infrastructure and really needs 

 2 to have experience in those sort of support 

 3 processes and addressing issues and concerns, and 

 4 many of us around the table do, but it's just 

 5 something that should not be, you know, looked 

 6 over because it will be a very important part of 

 7 the overall process. 

 8 MS. LEONOVA: I'm sorry to be one-trick 

 9 pony, but what is the most efficient, both from 

 10 technological standpoint and from cost standpoint, 

 11 the way it validates the data? Is the reference 

 12 data for (inaudible) you're talking about? 

 13 MR. JORDAN: So I think there's two 

 14 primary methods that keeps getting bunted around. 

 15 One is a self-registration model, and one is a 

 16 contributing model. Our opinion is that you need 

 17 both, that one is not sufficient. A self- 

 18 certification model or having the entity register 

 19 themselves, the information would still need to be 

 20 validated. You need to validate, did the person 

 21 who is submitting it have authority to do that? 

 22 Was the information accurate, et cetera? And then 
 68 

 1 there needs to be some type of change management 

 2 process, even with self-validation. If something 

 3 changes is that entity now required to submit 

 4 that? We believe that some of that, if not all of 

 5 that, may require some rulemaking to enable people 

 6 to do that. 

 7 If you look at the other model, which is 

 8 contribution, this is really the model that the 

 9 Avox is based upon today, although the Avox does 

 10 incorporate self- registration as well. But 

 11 that's where a systemically important firm or any 

 12 entity submits their information on their 

 13 counterparties, and that could be 10s or 100s of 

 14 thousands of them to a database. And that gets 

 15 scrubbed by a group of analysts, including being 

 16 able to be self-certified. It goes to public 

 17 reference sources, registration authorities in the 

 18 jurisdictions as well as other sources. 

 19 This is a very important component as 

 20 well because what happens is, as we know, if you 

 21 look at the top dozen broker dealers or banks in 

 22 the world, they have a large overlap of clients 
 69 

 1 that they deal with, counterparties. So what 

 2 happens is you start to develop a network science. 

 3 Now I know Wiki is a bad word, but if 

 4 you look at it in the best sense where you get a 

 5 network contribution where seven firms or eight 

 6 firms are dealing with the same entity, and 

 7 they're all submitting information. They help 

 8 cleanse that information themselves, so you do get 

 9 a network effect. And what we have found in 

 10 experience is if you have seven firms saying that 

 11 an entity is defined with certain characteristics 

 12 and then you have an eight firm who says it is 

 13 different, it is usually the eighth firm who is 

 14 right because they have some new information. 

 15 They've been doing business with the client, and 

 16 there are some updates. So those events will 

 17 trigger scrubbing, additional scrubbing. 

 18 So there is a place for 

 19 self-registration or self- validation, and there 

 20 is a place for the contribution model. And we 

 21 believe that the right solution should combine 

 22 both, and, again, that's what Avox is based upon 
 70 

 1 today. 

 2 MR. JANSSENS: Yeah. Confirming that we 

 3 should not make a selection between one or the 

 4 other. The two are important, and the two will 

 5 build upon each other. Also you had a question 

 6 before about timing. If you look at self- 

 7 registration only, your time lap will be much 

 8 longer before everybody comes voluntarily to 

 9 register itself. Whereas if you work by 

 10 combination of both, the contribution model will 

 11 help you gain the first layer of the data faster. 

 12 MR. MARNEY: So I understand the 

 13 distinction in the question you're trying to ask. 

 14 I guess in practical application of that I 

 15 struggle to see where it's very different, but, 

 16 again, I come from the bias of a vendor I suppose 

 17 and the certain ways that we operate. One quick 

 18 example would be corporate actions. So if you're 

 19 going to allow the self-registration and the self 

 20 update of that data and you're going to scrub it 

 21 centrally, the person that's central still has to 

 22 go collect corporate actions to be able to 
 71 

 1 validate. There is no source to go get it. 

 2 Corporate actions is one of the biggest 

 3 things that plagues the finance industry in 

 4 keeping that accurate and keeping that up to date. 

 5 It is still very, very difficult today even with 

 6 standards out there that are really growing and 

 7 getting adoption. So I think it helps it and 

 8 having the combination is good, but you certainly 

 9 can't have the self- scrubbing and not the 

 10 self-registration. You're still going to end up 

 11 having just as large an effort in the central to 

 12 make sure that you got it right. 

 13 MR. PREISS: I'd like to build upon some 

 14 of the issues that Peter just raised. We're very 

 15 intrigued by the notion of self-registration since 

 16 we have so much experience in the contributed 

 17 model. It seems to us that there's a bit of 

 18 moving the burden of applying in a standardized 

 19 fashion from a central utility to the entities 

 20 themselves, and we wonder out loud what the 

 21 motivation would be for entities to not only 

 22 self-register but, to Peter's point, track the 
 72 

 1 life of that entity over time and contribute 

 2 corporate action information, which is critical to 

 3 efficient financial markets. 

 4 So your original question was about 

 5 benefits and drawbacks. I wouldn't call that a 

 6 drawback but really an open question. How does 

 7 that model work in practice? 

 8 And so that leads directly to the second 

 9 part of your question related to cost. In the 

 10 end, if we don't end up with a single unique 

 11 identifier, then what seems to be very cost 

 12 efficient upfront in the end is not. So we wonder 

 13 out loud as well. 

 14 MR. CHIDSEY: And just one final 

 15 comment. I think we're probably all in agreement 

 16 in general, but, you know, it is a combination 

 17 because ultimately if I look at personally what we 

 18 have today in market red, which is reference 

 19 entity information for the CES market or a market 

 20 entity identifiers, which are used to identify 

 21 counterparties transacting in the loan market, it 

 22 has to rely on a combination of a contributed 
 73 

 1 model, a self-registration model, and a proactive 

 2 model where we're actively going out and looking 

 3 for events or actions that have happened on those 

 4 entities. 

 5 So it's a combination of all those 

 6 things which will make a successful and robust set 

 7 of information that can be relied on within the 

 8 financial markets, but ultimately the validation 

 9 of that information, the confirmation of the legal 

 10 entity named the jurisdiction has to come from 

 11 source documents to what Scott was saying. And 

 12 the utility itself is going to have to be 

 13 responsible for that to ensure the integrity of 

 14 that data. 

 15 MR. TAYLOR: Before we move further down 

 16 the question list, there is a question on here 

 17 that I would sort of like to get an answer to. I 

 18 was thinking how to put it. This used to come up 

 19 in school elections for student government, if you 

 20 remember. I should say, in terms of this 

 21 question, it is perfectly permissible to vote for 

 22 yourself, but the question is are there existing 
 74 

 1 candidates for this role and who are they? And I 

 2 guess I should flush that out a bit by saying, if 

 3 you look at the proposed role, it is assuming that 

 4 at least as a first step we want a UCI for swap 

 5 counterparties. That's in a sense a finite 

 6 universe. It's not yet the entire financial 

 7 sector. Although we want something that can 

 8 broaden out to the whole financial sector, the 

 9 immediate goal is an identifier for swap 

 10 counterparties, and the rule contemplates we would 

 11 like to have that in place by the time that swap 

 12 data reporting begins. 

 13 With that in mind, are there existing 

 14 candidates to play this utility registration 

 15 authority role and who are they? 

 16 MR. JANSSENS: Yes. We are a candidate. 

 17 So I vote for myself, but not on our own. I mean, 

 18 we can certainly be the registration authority 

 19 because we are playing that role already, but we 

 20 also want to work in collaboration. As Francis 

 21 said before, the characteristics that are out 

 22 there for the registration authority that are 
 75 

 1 neutral, that are governed by the industry, that 

 2 are not for profit, we fit those, and we have been 

 3 working with the DTCC, who also is utility to see 

 4 how we could corporate and come to a common 

 5 solution. So, yes, the answer is -- 

 6 MR. JORDAN: I will put on my DTCC hat 

 7 and vote for Avox so I don't have to vote for 

 8 myself. 

 9 No. We do think that Avox has some core 

 10 capabilities here. Avox today has about 800,000 

 11 legal entities in its database, which it has 

 12 scrubbed on behalf of its commercial clients, and 

 13 we believe that the swap data repository is about 

 14 a universe of about 40,000 legal entities. We 

 15 don't know the overlap of how many of the 

 16 counterparties or parties in those repositories 

 17 are part of the current database, but we would 

 18 imagine there's a large overlap so that we could 

 19 utilize what we already have to get this going 

 20 very quickly. 

 21 We also believe, when it goes back to 

 22 governance, that, again, the cost-based utility 
 76 

 1 governed by its participants who are largely the 

 2 financial firms that we're talking about as being 

 3 the SIFIs and the other participants to the 

 4 markets really fit well. 

 5 When it comes to a registration 

 6 authority, we have been talking with all of them 

 7 potentially, and we think there is pros and cons. 

 8 As Paul just mentioned, we've had some extended 

 9 conversations with SWIFT as well. 

 10 MR. PREISS: I'm very grateful to my two 

 11 colleagues to my left for jumping on this question 

 12 first and setting the tone. I'm not going to 

 13 specifically vote for myself or my institution, 

 14 but it has seemed to us, you know, similar to my 

 15 opening comments, about existing international 

 16 standard framework. 

 17 There is an organization, a Belgium 

 18 corporation, known as ANNA, the Association of 

 19 National Numbering Agencies. It was created in 

 20 1991 with 22 founding members but today represents 

 21 over 200 countries in terms of issuer and 

 22 instrument unique identification. The membership 
 77 

 1 is more than 100 countries but, more importantly, 

 2 those members are truly international in nature. 

 3 These are international exchanges, securities, 

 4 depositories, and some vendor participation as 

 5 well depending on the market. So this is truly a 

 6 global approach with an existing infrastructure 

 7 and a very, very large database of issuers and 

 8 guarantors already. 

 9 There has been talk in recent months 

 10 about expanding what is known as the IGI, the 

 11 issuer and guarantor identifier, which is a draft 

 12 ISO standard, to expand that to cover 

 13 counterparties, and a lot of the major market 

 14 participants within ANNA, you know, think that's a 

 15 very viable model. And CUISP is just one of those 

 16 100 plus members of ANNA, but we do think that's 

 17 one viable model that should be examined. 

 18 MR. MARNEY: As a not for profit 

 19 endeavor, I think I vote for my colleague from 

 20 Bloomberg. Now on a serious note -- but I do 

 21 really vote for George. Can we strike that from 

 22 the record? 
 78 

 1 MR. HARRINGTON: I think it's on. 

 2 MR. MARNEY: We do have something like 

 3 Thomson Reuters or any of the other vendors I 

 4 think have quite a lot of capability to bring to 

 5 bear for this, but clearly there would be 

 6 considerations for how and why and what and so 

 7 forth; but it's what we do. 

 8 MR. HARRINGTON: So I guess I need to 

 9 comment now. Obviously Bloomberg does play a role 

 10 in this space, and I think we've been very public 

 11 with our Beason Strategy as far as publically 

 12 disclosing, you know, our identifiers for use of 

 13 market participants. 

 14 At the end of the day, I know that the 

 15 regulators try and avoid picking winners for 

 16 obvious reasons, but I do think that this is a 

 17 space where -- and I want to credit the CFTC for 

 18 taking this up, taking this particular issue up 

 19 because it's a bold move because it really is 

 20 going to be the first step in not just U.S. 

 21 regulatory policy but international regulatory 

 22 policy as far as, you know, the move towards a 
 79 

 1 centralized identifier, which will, you know, 

 2 really affect the entire global system. 

 3 And also I want to add one more point, 

 4 which is we need to make sure that we're also 

 5 thinking about not just identifiers from a legal 

 6 counterparty standpoint but also from a trade 

 7 counterparty standpoint because there are two 

 8 different components of that as far as the 

 9 counterparties who actually execute the trade and 

 10 the actual legal counterparts that underlie that 

 11 trade. Therefore, that needs to be brought in as 

 12 well. 

 13 You know, from an overall perspective, I 

 14 think there is certainly, you know, a space for, 

 15 you know, a provider, a not for profit provider to 

 16 put something into the market that all 

 17 counterparties can use. And we're all going to 

 18 have mapping tables at the end of the day that 

 19 will identify our own customer relationships, but 

 20 I really think it will increase the efficiency of 

 21 the market and, you know, lead to overall more 

 22 effectiveness of the proposed legislation. 
 80 

 1 MR. CHIDSEY: So just to throw our hat 

 2 in the ring and make sure people are aware, Markit 

 3 has implemented a somewhat similar system for the 

 4 loan market where we've rolled out market entity 

 5 identifiers as part of the automation efforts that 

 6 are happening today within the primary and 

 7 secondary loan market to automate the processing 

 8 or settlement processing of trades happening in 

 9 that market. And we've identified over the past 

 10 18 months 30,000 entities ranging from borrowers, 

 11 administrative agents, fund managers to the fund 

 12 themselves. So that identifier, although it 

 13 doesn't meet the standard but the underlying 

 14 process in concept could certainly be applied more 

 15 broadly to the swap counterparties and the model 

 16 that we've rolled out is really an open access 

 17 model where those identifiers can be used broadly 

 18 by market participants for the purpose of 

 19 facilitating automation of the settlement 

 20 processing in that market. 

 21 MS. LEONOVA: Can I go back to George's 

 22 comment? Let's define terms. So I assume we are 
 81 

 1 talking about LEI as a legal entity that is 

 2 incorporated and registered as part of a corporate 

 3 structure. That's where we are right now. If we 

 4 are going to execution trade branch, whatever 

 5 level, it doesn't mean it has to have been 

 6 incorporated in the system from the beginning or 

 7 it is one of the expendable functions of LEI can 

 8 be taken care of later? 

 9 MR. HARRINGTON: That's a great 

 10 question. It almost opens up a broader question 

 11 in this new, you know, swap world that we're 

 12 moving towards. You know, there are a number of 

 13 identifiers where you're going to want to have 

 14 some sort of identification. 

 15 For example, for our swap execution 

 16 facility that we're building and listening to the 

 17 regulators, there is relationships that we need to 

 18 understand with the central counterparties. So 

 19 that's sort of like the first step as far as, you 

 20 know, where is this trade going to clear. 

 21 Therefore, that's a level of identification as far 

 22 as who is using the system from an acuity taker 
 82 

 1 standpoint. Who is their DCM, how their 

 2 accessing, and then obviously what is the actual 

 3 CCP? So there is a string of identification 

 4 there. There is a string of identification as far 

 5 as the actual executor as far as who is actually 

 6 seeking liquidity, which is often times an 

 7 entirely different level where an advisor is 

 8 executing on a group of legal counterparties. 

 9 So I think that there are levels of 

 10 identification. I don't think we can finish this 

 11 job and say, okay, you know, one, two, three, four 

 12 is this firm, and, therefore, we're done. There 

 13 really is a string of identification that needs to 

 14 be done. 

 15 So the complexity of this effort is very 

 16 high, you know, and I think that around the table 

 17 we all have experience, you know, in providing 

 18 levels of that. I think to push this off on a 

 19 regulator and say, you know, come back to us and 

 20 give us an answer is not fair. I do think that 

 21 this kind of collaboration around the table is the 

 22 only way that we're going to come up with a 
 83 

 1 successful strategy. 

 2 MR. MARNEY: So I don't think you can 

 3 stop at just a legal entity identifier or just 

 4 legal entities. In managing a counterparty 

 5 database you need to get down to subsidiaries, 

 6 branches, divisions, affiliates, all that stuff, 

 7 and that gets -- you know, I'm getting some nods 

 8 around the table -- that gets very, very messy and 

 9 complicated; but it's essential if it's going to 

 10 work. 

 11 MR. GROSS: Francis Gross, just short 

 12 remark. I think that we are trying to tackle a 

 13 problem that we have patiently been building over 

 14 the last 30, 40 years of globalization and IT 

 15 intensification. So we might as well sort it in 

 16 stages over the next few years, learning along the 

 17 way. Let's be patient but start with things we 

 18 can do now. 

 19 MR. JORDAN: I think there's a phase 

 20 implementation that we have to look at here, and I 

 21 agree with Francis. And I think there's really 

 22 two distinct conversations that I see here and the 
 84 

 1 first panel started to get in. What is the core 

 2 information that is required to identify a legal 

 3 entity? And I would even add to that, that would 

 4 be publically available or could be validated from 

 5 publically available sources. And the core of the 

 6 utility that we're talking about to me is 

 7 narrowing defined that way, at least for the first 

 8 phase, but there's a whole series of information 

 9 after that, some of which was just discussed. We 

 10 also have to talk about hierarchies of information 

 11 and how you create hierarchies, et cetera. 

 12 Once you open it up, the complexity 

 13 becomes much more difficult, number one. The 

 14 costs go up. Because a lot of this information is 

 15 not based upon publically available sources, the 

 16 ability to validate this becomes not only more 

 17 difficult, but the reliability may go down as to 

 18 accuracy. 

 19 And I think while all of these 

 20 components are over time important, I think this 

 21 is a question about if we can establish a core set 

 22 of publically available information on which all 
 85 

 1 vendors, users, et cetera can build on and start 

 2 building these other types of functions, that's 

 3 the right way to start. 

 4 A facility could certainly collection 

 5 information and make it available, and whether 

 6 that's available publically or not publically is 

 7 going to be determined by regulators and by the 

 8 industry themselves. But I do think this is case 

 9 where if we can walk before we run and get a core 

 10 set of information that the whole industry can use 

 11 in the appropriate ways, that is the right way to 

 12 approach this. 

 13 MS. LEONOVA: Just to make sure I 

 14 understand to you correctly, so you are saying 

 15 that (inaudible) or starting from LEI and going 

 16 down is technological feasible way to do it? 

 17 MR. MARNEY: Absolutely. Definitely 

 18 feasible, but it's a matter of having the 

 19 extensibility within the system, the ability to 

 20 handle it and adapt to it and take it on. But 

 21 it's true for any database that you're building, 

 22 certainly for a counterparty database. No one has 
 86 

 1 got one that's absolutely completely. They're 

 2 always constantly building. 

 3 MR. JANSSENS: Maybe one comment, I 

 4 would say it's bottom up because let's first have 

 5 the first building block stable, and there we can 

 6 build upon. And the base has to be solid, and 

 7 then we can start to add to it and build stages 

 8 upon it in phases with all the expertise, which is 

 9 in the market, which is around the table today. 

 10 We can work and come up to solutions easily, but 

 11 the first element has to be clear from the start. 

 12 MR. HARRINGTON: I agree with you, Paul. 

 13 I think that if you look at where the market is 

 14 today, it is absolutely bottom up. So obviously, 

 15 Ronald with DTCC, you know, that is the bottom, 

 16 right. So in other words, that is just the pure 

 17 counterparties who face one another. They are 

 18 identified against one another. 

 19 It works, obviously, very well globally, 

 20 but now we really need to start from that building 

 21 block and start moving up the chain. You know, 

 22 obviously, if you look at the goal of a swap data 
 87 

 1 repository where you have reporting and all those 

 2 things around that, we're very much at the bottom, 

 3 and there's, you know, a succession that needs to 

 4 be built up from there. 

 5 MR. JORDAN: So I just want to chime in 

 6 and agree that the LEI is a logical starting 

 7 place, but now I'm confused whether that's top 

 8 down or bottom up. I'll call that sideways. 

 9 But I do want to agree with some earlier 

 10 comments made by Ed. I think there's a tendency 

 11 in the industry to underestimate the amount of not 

 12 only sustained investment but heavy lifting that 

 13 goes into maintaining that database overtime, and 

 14 that should be repeated at every possible moment. 

 15 I would also say there are some 

 16 conflicts in the various proposals out there 

 17 speaking about legal entity identifiers, and so 

 18 simultaneously I hear phrases thrown around like 

 19 utility, and cost recovery, and entirely free, and 

 20 then just now I heard about hierarchies. And 

 21 anyone that's been engaged in the business of 

 22 building hierarchies and who owns whom and to what 
 88 

 1 percentage, and I'm sure most of my colleagues 

 2 have been in that business and still are, that's 

 3 not something that's done cheaply, especially if 

 4 you need something that's done particularly well. 

 5 MR. TAYLOR: We've done these questions 

 6 a bit out of order but that always happens, and 

 7 it's perfectly all right. 

 8 You all have emphasized that quality 

 9 assurance is a key to making this work. Let's 

 10 talk a bit in detail, if we can, about what 

 11 quality assurance purposes are going to be needed 

 12 to be used by the utility registration authority, 

 13 whoever it is, and what data is going to be needed 

 14 to ensure that we have a trusted auditable method 

 15 of verifying identities. 

 16 MR. CHIDSEY: And we've touched on some 

 17 of this but, again, it comes back to robust 

 18 operational process. You know, as new requests 

 19 come in, however, they come in, the initial step 

 20 is to make sure that the entity doesn't exist and 

 21 that you're not creating any duplication in the 

 22 system. 
 89 

 1 And then importantly is ensuring that 

 2 the scrubbing that takes place and access to the 

 3 source documentation, review of the source 

 4 documentation has to be from whatever the accepted 

 5 sources are in a particular jurisdiction or, you 

 6 know, what is agreed ultimately by some sort of a 

 7 governance committee. But it really comes back 

 8 to, you know, the source documentation and 

 9 ensuring that a consistent process is followed 

 10 before the entity is ultimately committed to the 

 11 database or at least flagged in some way as 

 12 validated. 

 13 And that speaks to a timeliness element, 

 14 which we haven't addressed, but around the service 

 15 levels that will need to be agreed. And a request 

 16 comes in; there's an amount of verification that 

 17 needs to happen before you would consider it 

 18 validated and really want to use it in earnest 

 19 throughout the financial system. So that's 

 20 something we'll need to consider is, you know, 

 21 what is that stage process for an entity to go 

 22 through so that it gets into the system and people 
 90 

 1 can begin using it; but at some point it becomes 

 2 validated based on source documentation that's 

 3 been reviewed. 

 4 MR. MARNEY: So I would entirely agree 

 5 with that. I think the entire process from end to 

 6 end, all from the initial business analysis, and 

 7 the rules, and what's acceptable sources that can 

 8 be used, how it gets populated, how you make 

 9 editorial decisions around that, through to inline 

 10 quality control, quality assurance at the end, 

 11 independent auditing, secondary sources to look 

 12 at, multi- sourcing content, especially something 

 13 like corporate actions that go back to something 

 14 we referenced before. Everybody has to have 

 15 multiple sources for corporate actions. No one 

 16 has got it complete. 

 17 And then as Ed just mentioned, having 

 18 the transparency to be able to go back to source 

 19 document and have that available to end users so 

 20 that they can validate themselves I think is very 

 21 important. Everybody likes to be able to get back 

 22 to the registration documents or whatever it might 
 91 

 1 be that was determined, and having that available 

 2 in the system I think is very key. 

 3 MS. LEONOVA: Since you mentioned 

 4 primary source documents and registration 

 5 documents, what is currently being used to verify 

 6 the entity or organization you're interested in, 

 7 in the organizations right now? 

 8 MR. PREISS: It sort of dovetails with 

 9 my comments. Beyond my colleagues' initial 

 10 comments, there's a multitude of official legal 

 11 documents that are used broadly today, tax 

 12 filings, financial statements, clearly in the 

 13 public markets, prospectuses, but there's also an 

 14 element of timing. When is that information 

 15 available and to whom? What's the earliest 

 16 possible view of the truth that we can, as an 

 17 industry, coalesce around. 

 18 And I would add that there needs to be a 

 19 greater understanding of the global rule set. So 

 20 in certain jurisdictions perhaps tax documents are 

 21 not readily available on public and/or private 

 22 institutions. The same holds true for 
 92 

 1 prospectuses, and so I agree with my colleague, 

 2 Peter, I believe made the statement earlier. It's 

 3 this type of forum, this collaborative spirit 

 4 that's really going to bring these issues to the 

 5 surface, and so I applaud CFTC for bringing us 

 6 together. 

 7 MR. JORDAN: In each jurisdiction there 

 8 are also some authorities, which in the United 

 9 States is usually the secretaries of each state, 

 10 where you're required to register. In the United 

 11 Kingdom it's something called the Company's House, 

 12 et cetera. But, you know, we caution there 

 13 because there are update requirements in each one 

 14 of those jurisdictions which may not meet the 

 15 requirements of a database. For instance, 

 16 Company's House I think you have to publish once 

 17 every six months, so information can be outdated 

 18 by six months. 

 19 So I do think, you know, beside the 

 20 challenge capability that we talked about, and the 

 21 self-validation, and the corporate action feed 

 22 reading, and even periodic scrubbing of 
 93 

 1 information against these sources, I think there's 

 2 a few other things. Each jurisdiction there is, 

 3 we'll call it the meta-data layer here, where 

 4 there is a series of documents and a way in each 

 5 jurisdiction that you can go and validate those. 

 6 We have developed, over the period of the last 10 

 7 years, a very elaborate meta-data layer on a 

 8 country by country basis. 

 9 It's also against publically available 

 10 sources, and that needs to be transparent. That's 

 11 the other thing. The database needs to articulate 

 12 where the information is coming from and how it 

 13 was derived so that any user of the database can 

 14 see the sources, and we think those are some of 

 15 the ways that you ensure the quality. 

 16 MR. HARRINGTON: I would sort of credit 

 17 some of the work that Ed's firm Markit has done in 

 18 the space as far as looking at the credit default 

 19 market where you have obviously defaulting events. 

 20 You have a process of sort of a lead up to the 

 21 actual auction. Then you actually have the 

 22 auction settlement. I think that, that type of 
 94 

 1 format of disclosure is something that can be 

 2 looked at as a potential model. 

 3 Now obviously we're talking about, you 

 4 know, the actual. That's sort of a small window 

 5 into a much larger world when you're talking about 

 6 the legal entities. So obviously there's a lot 

 7 more information that would go through there, but, 

 8 you know, if we could move that type of a model, 

 9 you know, into the public forum with some sort of 

 10 regulatory oversight, I think that would benefit 

 11 all market participants. 

 12 MS. LEONOVA: Ola, I feel like you're 

 13 left out. Do you want to say something? 

 14 MR. PERSSON: No. I mean, certainly the 

 15 problems we face just maintaining our very limited 

 16 universe is echoed, and this is going to be 

 17 plentiful. I mean, one thing that comes to data 

 18 maintenance that I think is regulated we want to 

 19 consider is how do you ensure a proper audit trail 

 20 so you for regulatory purposes can go back on an 

 21 audit trail. 

 22 We know this universe moves very quickly 
 95 

 1 over time. For us, it is obviously a key 

 2 component. How do you ensure that you can go back 

 3 and look at events that have taken place over time 

 4 and then link them together? That is a key 

 5 component of a regulator. 

 6 MR. TAYLOR: A couple of you touched on 

 7 a question we were going to do a little later, but 

 8 let me ask it now. What turnaround time frame is 

 9 needed for assignment of a UCI to an entity that 

 10 seems one? 

 11 MR. JANSSENS: Well, in the turnaround 

 12 time there is -- first of all, we need to make 

 13 sure that the data has been vetted and is of 

 14 quality. So I, again, think that's more important 

 15 than the time. But then the processes that need 

 16 to be in place can probably be in phases as well, 

 17 that the data is made available in less than 24 

 18 hours but validated in maybe 24 hours as well, 

 19 depending on the jurisdiction, if the public 

 20 sources are available. It can be done in 24 

 21 hours. If not, they should be marked as not 

 22 validated yet and distributed because if an entity 
 96 

 1 needs a code in order to trade or to enter into a 

 2 transaction with a party, you cannot hold it from 

 3 doing a transaction because a code has not yet 

 4 been identified. 

 5 MR. CHIDSEY: The only comment I guess 

 6 to add to that would be that, you know, we're 

 7 talking about identifying parties to financial 

 8 transactions. So in order for that financial 

 9 transaction to happen between two institutions, 

 10 there normally is, you know, some sort know your 

 11 client and upfront due diligence that happens 

 12 between those two counterparties. 

 13 So it speaks to at what point do you 

 14 insert the creation of the legal entity into the 

 15 overall financial process. And, you know, the 

 16 further upstream that you go in interacting with 

 17 market participants and, again, coming back to 

 18 some sort of self-registration to alert the 

 19 authority that a new entity needs to be created 

 20 will be critical because, you know, I think the 

 21 timeliness, once the request hits, you know, 

 22 ideally it would have to be created in the same 
 97 

 1 day. 

 2 MR. MARNEY: So I think -- I'm sorry, 

 3 George. 

 4 MR. HARRINGTON: Go ahead. 

 5 MR. MARNEY: I think it depends on the 

 6 use case and what you're trying to solve for. So 

 7 on the creation, is it to enable workflow, or is 

 8 it for reporting purposes? I think that gives you 

 9 very different answers. And then for the utility 

 10 or the reference data that we're talking about, I 

 11 think that's also a very different thing where 

 12 there could be timeliness requirements for keeping 

 13 it up to date maybe different than timeliness 

 14 requirements for the availability of the service. 

 15 Because if you want to look to see if an entity 

 16 already exists, you have to have a live credible 

 17 service that's available all the time. If a new 

 18 entity is going to be created and it's for 

 19 reporting purposes, then maybe the timeliness 

 20 requirement is a lot different. So I think it 

 21 really depends upon the use case that you're 

 22 looking at. 
 98 

 1 MR. TAYLOR: We are -- go ahead. 

 2 MR. GROSS: A very brief one on the use 

 3 cases. I think that if we want to have an 

 4 identifier that's accepted everywhere, we should 

 5 create an identifier that's really useful for 

 6 everyone and that ultimately perhaps after a 

 7 longer phase will be used also for all business 

 8 processes, therefore, the registration and the 

 9 utility too. It should serve the fastest needs of 

 10 all the using business processes. 

 11 MR. TAYLOR: We are actually out of 

 12 time, even though we had 15 extra minutes. I'm 

 13 pleased that this topic was so interesting. There 

 14 are a couple questions I hoped to get to that we 

 15 just didn't, which were to talk in more detail 

 16 about how and by whom the system should be 

 17 governed and what level of fees are sufficient to 

 18 make it work. If any of you have thoughts about 

 19 that and would like to send us them in writing, 

 20 we'd be happy to put them in the comment file as 

 21 well, but I don't -- 

 22 
 99 

 1 MR. TAYLOR: So, if people on Panel 3 

 2 could come up to the table. Bring your name tent. 

 3 Start filling from down by us if you will, but 

 4 you're going to need all of both sides, I think, 

 5 because this is a large panel. 

 6 (Pause) 

 7 MR. TAYLOR: All right, we are back. 

 8 This is Panel 3 of the roundtable, Implementation 

 9 Considerations Concerning Unique Counterparty 

 10 Identifiers. 

 11 I think the first two panels thought 

 12 this panel was the one that was really on the hot 

 13 seat. We will see. And I think maybe the 

 14 participants did, too, because we had more 

 15 requests to be on this panel than maybe any of the 

 16 others. 

 17 So, let's start with the first question 

 18 we had posed, which is: What are the technical 

 19 challenges for timely implementation of a UCI? 

 20 Anybody want to go first? 

 21 MR. PUSKULDJIAN: I guess I'll start. 

 22 I'm Paul Puskuldjian from Citi. I've been 
 100 

 1 involved in infrastructure operations in the 

 2 financial services industry for over 20 years, so 

 3 I've seen many identifiers created whether it be 

 4 by an industry participant, a vendor, an industry 

 5 utility -- many different identifiers created. We 

 6 view this certainly as something that is very much 

 7 needed in the financial services industry and, 

 8 quite frankly, I think a really good idea. 

 9 It should be noted, though, when you 

 10 think about the technical considerations that most 

 11 of the financial services firms have a lot of 

 12 technology that has adopted to all of these other 

 13 identifiers in the past, and, you know, to bring 

 14 that all together and create some harmony across 

 15 all of those internal applications is going to be 

 16 a huge mapping task. 

 17 But that being said, I think it's 

 18 certainly a good idea. We certainly support the 

 19 fact that there be one identifier globally, if 

 20 possible, and that if that identifier could be 

 21 developed by an industry utility, that would make 

 22 much more sense than having it done by a vendor or 
 101 

 1 a for-profit institution. 

 2 MR. GRODY: Yes, my name is Allan Grody. 

 3 I'm President of Financial InterGroup Holdings. 

 4 We basically develop joint ventures in the 

 5 financial services industry. And my partner is, 

 6 in this joint venture, a GS1, who if you were here 

 7 in the earlier panel you heard -- Mr. Traub -- 

 8 describe the GS1. 

 9 I'm here both in representing my company 

 10 and representing that joint venture. We call it 

 11 the Global Financial Services Data and Standards 

 12 Alliance. And in the last month we have opened up 

 13 what was private deliberations among 16 global 

 14 financial institutions and global standard setting 

 15 bodies and a few other interested parties to broad 

 16 discussion across the entire globe. We invited 

 17 500 people of which 100 were on the call, and then 

 18 we had another call in inviting that subsegment to 

 19 our discussions. 

 20 Basically I'm here to tell you that 

 21 there is a global numbering system that exists in 

 22 the world that is used by companies. It's called 
 102 

 1 the GS1 system of standards. It's basically 

 2 developed for the trade supply chain; and the 

 3 members of that organization, 1.5 million who are 

 4 basically collected around 108 registration 

 5 authorities, would like to take the same 

 6 methodology and offer it to the financial industry 

 7 in cooperation with the folks here today and the 

 8 people around our table so that we can begin to 

 9 quickly identify all the legal entities that they 

 10 have already identified and the others that need 

 11 to be identified. 

 12 The identification systems endured for 

 13 40 years. Its manifestation for most of you is in 

 14 the 40 million product codes that you see on 

 15 commercial products -- basically, the bar code. 

 16 In that bar code is unique, universal, and 

 17 unambiguous numbers. Those numbers represent the 

 18 companies, the locations, transportation 

 19 intermediaries, and, obviously, products. 

 20 We think the implementation could be 

 21 accelerated if we simply look at an existing 

 22 system that basically came about not because of 
 103 

 1 regulatory compulsion but because there was a 

 2 business need 40 years ago. The most interesting 

 3 thing about the solution is that none of the 

 4 commercial interests then nor now in the trade 

 5 supply chain were disenfranchised, and none of the 

 6 commercial interests and business users of the 

 7 existing systems would be disenfranchised. We're 

 8 basically presenting a global mapping system that 

 9 everyone can use and a universal numbering system. 

 10 Thank you. 

 11 MS. GOLDMAN: I'd like to introduce 

 12 myself, Melissa Goldman from Goldman Sachs, and 

 13 also I'd like to thank you for inviting us to 

 14 participate at the panel. 

 15 I'd also like to reiterate the point in 

 16 terms of being supportive of a single UCI and 

 17 encourage the implementation of that across the 

 18 markets, across the globe. We estimate that there 

 19 are approximately 40,000 entities participating in 

 20 the OTC markets and that the complexity around a 

 21 rollout of that would need strong support from the 

 22 regulators in a unified way. We believe that the 
 104 

 1 firms, including the broker-dealers, would need to 

 2 engage in what would be a complex mapping 

 3 exercise, as referenced earlier, and that the 

 4 challenges around being able to do that is very 

 5 much dependent on the complexity of the 

 6 implementation within the firms impacted. 

 7 And we also would just like to note that 

 8 we believe that the identification of a registrar 

 9 should involve an open call to the market where an 

 10 RFI can be put forth and an evaluation of the 

 11 response to that RFI should be evaluated by the 

 12 marketplace. 

 13 MR. MAGNUS: Hello. My name is Arthur 

 14 Magnus, and I'm with JPMorgan Chase, and I also 

 15 would like to thank you for the opportunity to 

 16 speak here today. 

 17 Like my colleagues, we strongly support 

 18 the creation of a legal entity identifier within 

 19 the financial services industry. One of the 

 20 things that I think we need to be very clear on, 

 21 though, is exactly what is the purpose -- and we 

 22 touched on it in the last panel slightly, but the 
 105 

 1 question is what are we trying to identify, and 

 2 what are the risks we're trying to manage? 

 3 If we're looking at the type of 

 4 reporting I understand if there's marketing 

 5 manipulation, which is one of the things this 

 6 Commission is supposed to be looking at, then you 

 7 need to understand who are the counterparties 

 8 executing the trade. If you're looking at credit 

 9 and understanding where there's concentration of 

 10 risk, you need to understand who the beneficial 

 11 owners are. The legal counterparty to a trade is 

 12 frequently a combination of the two of those. And 

 13 that is not a legal entity, by the way; some 

 14 people call them an account. 

 15 So, we need to understand what we are 

 16 identifying so we can understand the universe of 

 17 what we are trying to do. I do believe that the 

 18 technical challenges are we're going to have to 

 19 get in a room with the supervisors, the 

 20 regulators, the financial industry, and the 

 21 vendors; understand what we are trying to 

 22 identify; and then we can come up together with a 
 106 

 1 way of solving this problem. This problem is one 

 2 that we've been talking about in the industry for 

 3 a while. We have multiple solutions out there. 

 4 And it's not something that's going to be easily 

 5 solved through regulation but through working 

 6 together and understanding how corporate actions 

 7 and other things will affect those identifiers 

 8 over the life of transactions that are going to be 

 9 in the data repositories. 

 10 MR. SULLIVAN: This is Todd Sullivan 

 11 from Morgan Stanley. I also thank you -- 

 12 MR. TAYLOR: Excuse me one second. 

 13 It'll help if people push again to turn their mike 

 14 off when they're done. I'll try to do it, too. 

 15 MR. SULLIVAN: Thank you for the 

 16 opportunity to speak today. Like, all of my 

 17 colleagues here, we strongly support the use of a 

 18 unique kind of party identifier. Specifically, 

 19 the technical challenges raised by this issue -- 

 20 I'll make two comments. I'm sure there will be 

 21 additional that I'll no doubt agree with, but 

 22 first and foremost is a definition of what is a 
 107 

 1 legal entity, because I think there certainly is 

 2 an acute need under the proposed rules to talk 

 3 about counterparties to a swaps transaction. 

 4 However, without understanding or at least taking 

 5 into account other uses for LEI, whether it be 

 6 under OFR or other systemic risk supervision 

 7 analogies or, frankly, things outside of the OTC 

 8 derivatives market. So, certainly the requirement 

 9 to make filings as public corporations resides at 

 10 different levels within the corporate structure, 

 11 and those entities, when they make those filings, 

 12 are identified. To the extent we can anticipate 

 13 or at least plan for a contingency where there 

 14 might be unique levels of reporting requirements 

 15 or unique levels of relationship between those 

 16 entities, the more we think about that before we 

 17 implement a process, the easier it is to make that 

 18 extendable to cover those same requirements. 

 19 The second is, following on from the 

 20 previous panels that discussed the extension of 

 21 current existing platforms and potentially 

 22 extending the use of one of those current 
 108 

 1 identification systems to cover this requirement, 

 2 while the frameworks they've used certainly should 

 3 be considered as we build something, the challenge 

 4 for us as users -- and most of us sitting around 

 5 this table are the parties responsible for 

 6 reporting -- their numbering 

 7 systems/identification systems are fully embedded 

 8 in the hundreds or thousands of systems and 

 9 processes across the industry already. 

 10 You know, simply examples of a couple 

 11 things that have come up: DTCC participant IDs in 

 12 the OTC derivatives market-read identification 

 13 numbers under the market service are so fully 

 14 embedded in other processes that to change the use 

 15 there to extend it to cover UCI runs the risk of 

 16 significantly affecting the use for other 

 17 purposes. So, I think we should certainly look at 

 18 the frameworks they've used to build the systems 

 19 as certainly a starting point, but simply taking 

 20 one of those and extending it and saying it now 

 21 qualifies as a UCI runs a significant knock-on 

 22 effect risk to the other uses of those numbers. 
 109 

 1 MR. TUBRIDY: Hi. My name is Ray 

 2 Tubridy. I'm with State Street, but today I'm 

 3 here representing the FIA. We kind of came into 

 4 this discussion a little bit late, so I apologize 

 5 if I misstate or mischaracterize anything. 

 6 I'm part of a subcommittee for the OCR 

 7 rules that were published by the CFTC, and we 

 8 spent some time looking at the requirements and 

 9 comparing them to the existing requirements that 

 10 exist in futures. And within the futures 

 11 industry, we do various levels of reporting, and 

 12 we use unique identifiers today, mainly three: 

 13 One, the executor ID, the one who places the order 

 14 to the market; the controller, the one who makes 

 15 the trading decisions; and the beneficial owner. 

 16 And so, you know, I echo Arthur and 

 17 Todd's comments about we really need to define 

 18 what this counterparty definition is, and the 

 19 recommendations coming out of the subcommittee are 

 20 that we try to leverage existing data where we 

 21 can, minimize the amount of development in systems 

 22 impacted, but, most importantly, be consistent 
 110 

 1 across the products. 

 2 And now with the swap market come in to 

 3 clearing, we have markets that are already 

 4 clearing and that are struggling with some of the 

 5 same requirements, and so we want to make sure 

 6 that we are looking across these products and 

 7 developing these new reporting requirements so 

 8 that they will be useful across products when that 

 9 time arises. So, consistency, keeping in mind 

 10 straight-through processing, leveraging systems 

 11 and technology where we can, and reasonable data 

 12 requirements. 

 13 And so, you know, we have a lot of work 

 14 to do between now and July, and we need to be 

 15 reasonable about what we're asking for and knowing 

 16 that maybe we can't get everything we want in by 

 17 July but having a plan for where we're going to 

 18 get that data. 

 19 MR. McCLYMONT: Hi. I'm Stuart 

 20 McClymont with Deutsche Bank. Again, thank you 

 21 for also to participate in this roundtable. 

 22 I certainly think that we definitely 
 111 

 1 agree with the mutual standards. I think we need 

 2 to be careful, though, in terms of really 

 3 understanding the process, the functions within 

 4 the process, and making sure that we don't try and 

 5 retrofit existing solutions into that process. I 

 6 think we need a period of design amongst the 

 7 industry both in terms of vendor supplies, users 

 8 using our prior experiences getting industry 

 9 together to work hard. Whatever we need. What 

 10 should it look like? What are the current 

 11 incumbents, and how do they need to be modified, 

 12 and relegating that design, that understanding out 

 13 first to redraw through what are the requirements 

 14 of it. Let's get more clarity around why do we 

 15 need these standard identifiers, and what is the 

 16 report of (inaudible) to be able to support those 

 17 standard identifiers and as a group of 

 18 institutions, as users, as vendors agree that 

 19 design, that infrastructure. 

 20 I think what we've done in the past is 

 21 we kind of jumped into very specific areas like 

 22 resembled that registration authority or we jumped 
 112 

 1 into the distribution mechanism or we jumped into 

 2 the cleansing and process. I think we understand 

 3 the whole request for identifier, the generation, 

 4 the storage, the distribution, and the 

 5 consumption. Restart thinking about (inaudible) a 

 6 provider prospectus -- who's the provider of the 

 7 service and what is the service they're providing 

 8 and how do they fit within other providers of the 

 9 end-to-end service. And then ultimately what are 

 10 the consumers, what are they consuming, why are 

 11 they consuming, and what they need to then to 

 12 provide that downstream, and again consumers. I 

 13 think without that we will probably go down 

 14 certain routes, we will probably spend a little 

 15 money, and I think, given the time frames that 

 16 we've got to try and achieve some of this, we need 

 17 to get to the table very fast as a group to start 

 18 designing what the solution looks like and working 

 19 out where the deltas are today. 

 20 MR. TAYLOR: That's -- sorry. 

 21 MS. YEE: Hi. My name is Lindsay Yee. 

 22 I'm from the Bank of New York Mellon, and I 
 113 

 1 actually work on the Derivatives Trading Desk 

 2 itself where I manage the Trade Capture Support 

 3 Group, and I support the traders' products and 

 4 implementations. 

 5 I also agree that the unique 

 6 counterparty identifier should be agreed upon. We 

 7 need to figure out, first of all, what is the 

 8 universal standard, agree to it, and then publish 

 9 it. 

 10 Other things that we do need to also 

 11 think about are the operational deployment within 

 12 our existing systems, interface modification 

 13 between our company systems and anything that we 

 14 can leverage operationally within the 

 15 organization, what maintenance needs to be 

 16 maintained through the internal systems, and the 

 17 upkeep -- who's going to be responsible for that. 

 18 We're going to need extra funds for it and 

 19 resources with people as well. 

 20 MR. TAYLOR: Anyone else want to weight 

 21 in on technical challenges for implementing the 

 22 UCI? If not, we had a minute ago -- 
 114 

 1 MR. SULLIVAN: One more comment. 

 2 MR. TAYLOR: Sure. 

 3 MR. SULLIVAN: It's just that there was 

 4 discussion before about the timeliness and how 

 5 fast we get this back. The technical limitation I 

 6 think should be looked at in two different ways. 

 7 One is ongoing once it's running -- what is the 

 8 service level agreement expected by the users of 

 9 the service? The other one is obviously the day 

 10 you turn this on, right? -- how fast do we expect 

 11 to get data back? -- because, I think, you know, a 

 12 lot of the debate about a contributed versus a 

 13 self-registration model raises issues. If it's 

 14 contributed and you have the top 20 banks 

 15 contributing all the data at once, you're likely 

 16 to have at least 15 repeats of everything, all the 

 17 major participants in these markets. So, you 

 18 know, thinking about how we go through that 

 19 process and how long it takes to get through that 

 20 initial scrub. And then there's an ongoing new 

 21 entrance and maintenance exercise, which I would 

 22 expect to be looked at in different timelines. 
 115 

 1 MR. MAGNUS: I would also suggest that 

 2 the creation of data might take -- you might have 

 3 more time to create something once it's up and 

 4 running because of the time it takes to do all the 

 5 KYC as was mentioned earlier versus some change to 

 6 the data, which might need to be made rather 

 7 quickly if we want to be able to use the data in 

 8 the repositories in a timely manner. 

 9 MR. TAYLOR: Anyone else on technical 

 10 issues? Well, let's move to -- it's a big 

 11 question: How can industry consensus on a UCI be 

 12 achieved? I mean we've heard from all three 

 13 panels, I think, this morning a general agreement 

 14 that we need a UCI. It's heartening to hear, you 

 15 know, volunteers, people voting for themselves as 

 16 being the utility or the registration authority. 

 17 Obviously, there's a question about how do we pick 

 18 a solution, and I think it's clear from what we 

 19 said in the proposed rule the Commission, at any 

 20 rate, prefers not to pick, that the industry would 

 21 come together. You all are the ones who are going 

 22 to pay for it. You all are the ones who are going 
 116 

 1 to use it. You are all the ones who have the 

 2 technical expertise in it. So, the question is 

 3 how can an industry consensus be achieved. And 

 4 maybe let's start with -- we have to break that 

 5 into its components -- what institutions need to 

 6 be involved in that process? 

 7 MR. GRODY: I'd like to discuss that. 

 8 MR. TAYLOR: Go ahead. 

 9 MR. GRODY: First of all, let me just -- 

 10 besides announcing my affiliation and my company, 

 11 I would like to give you a little background, 

 12 because I've lived through six decades of the 

 13 financial services industry, and I've had 50 years 

 14 on Wall Street, and people say I can't be that old 

 15 but that was my first job out of school, working 

 16 in a luncheonette on Wall Street, so I like to 

 17 date my experience from that point. But I've had 

 18 45 years of business experience over six decades. 

 19 I was there when CUSIP was thought of, 

 20 and when DTCC was first invented I was there at a 

 21 bank when we installed SWIFT. And I've been 

 22 through a number of generations of this. In 1995, 
 117 

 1 I called the first cross-industry standards 

 2 conference where we had the world standards 

 3 organizations around our table to discuss the 

 4 problems. And the chairman of the standards, a 

 5 board that was called at that time, was the 

 6 chairman of the World Federation of Exchanges -- 

 7 then it was called something else -- and he had 

 8 worked for three years to try and build consensus. 

 9 And he concluded that the standards organizations 

 10 were in competitive businesses and they couldn't 

 11 be brought together as a group. 

 12 What's different today is very simple. 

 13 Unlike all of these other attempts, we have 

 14 regulatory compulsion. And you are the most 

 15 important part of getting us around a table to 

 16 solve this problem. Every one has a vested 

 17 interest, and they should. They have done a 

 18 Herculean job in supporting the industry. What's 

 19 different today in our world, in our global 

 20 financial services data and standards alliances, 

 21 we brought the corporate issuers to the table and 

 22 their auditors, people who heretofore have never 
 118 

 1 been involved in the thought process of solving 

 2 this problem, people who we want to give numbers 

 3 to: General Motors, IBM, Kroger, Walmart, all 

 4 right? They have given themselves numbers in 

 5 their other business, producing their commercial 

 6 trade products. They are now at our table in the 

 7 form of GS1 saying we believe straightening out 

 8 the financial supply chain is important. They 

 9 never knew what happened after the board met and 

 10 approved a corporate event. They never understood 

 11 what the investment bankers, the accountants, the 

 12 lawyers were doing with those pieces of paper. 

 13 We have a role for XBRL in translating 

 14 the success of financial statements translated 

 15 into XBRL. We all understand how successful that 

 16 project is. We want to move that project forward 

 17 to get the data from the prospectuses, the 

 18 memorandum, the ISD master agreements. Even the 

 19 financial announcements, the corporate events, 

 20 from paper documents into XBRL templates so we 

 21 could provide the data for the extensions of these 

 22 uniform codes that we wish to provide to the 
 119 

 1 financial industry and to databases and do it in a 

 2 straight-through processing way that we've always 

 3 wanted and never included the people who were at 

 4 the top of the financial supply chain. 

 5 MR. SULLIVAN: I might suggest perhaps a 

 6 different way of saying it and probably a very 

 7 similar message, but we have very active industry 

 8 groups formed across the financial service 

 9 industry, a number of which you have already met 

 10 with numerous times representing both buy-side and 

 11 sell-side institutions. They have to be at the 

 12 table. 

 13 You, your colleagues at the SEC, your 

 14 colleagues at Treasury, your colleagues around the 

 15 world, the FSA, the European regulators en masse, 

 16 Asia-Pacific regulators need to be at the table, 

 17 and I think obviously the service providers who 

 18 are vying to play different roles within this 

 19 process need to be there. And those are the three 

 20 major constituents that need to be represented -- 

 21 the participants in the market, the regulators 

 22 across that market, and the people providing the 
 120 

 1 services. The ideas are going to come 

 2 collectively probably from all three, but the 

 3 service providers are going to be there as a 

 4 sounding board for how to come up with a solution. 

 5 The participants in the market are going 

 6 to know how they're going to implement that, and 

 7 the regulators play the most key role in ensuring 

 8 that we have a single, global, consistent set of 

 9 rules that we're trying to comply with. Having 

 10 solutions that are different in North America from 

 11 what they are in Europe or what they are in Asia - 

 12 or that diverge over time will make this 

 13 unimplementable. But the three groups together 

 14 can come up with the mandate -- I think Stuart was 

 15 specifically addressing that -- defining what is 

 16 the problem set that we're trying to solve for. 

 17 And then we can derive consensus from that group. 

 18 And then, you know, I think Allan's 

 19 absolutely correct, the world is different than it 

 20 was 40 years ago. There is no passive sitting by 

 21 and just let things happen. Those options have 

 22 been taken off the table. So, I think that group 
 121 

 1 sounds daunting. It's huge. But, frankly, we've 

 2 proven over the last five years, certainly in 

 3 specific asset classes we've done this. You know, 

 4 that is the only model that's going to make an 

 5 effective answer. 

 6 MR. TAYLOR: Let me ask a quick 

 7 follow-up for that, because I thought I heard 

 8 this. From both of you are saying, you're talking 

 9 about getting those three classifications of 

 10 stakeholders, shall we call them, around the 

 11 table. Do you think there really needs to be a 

 12 table? Does someone need to convene a giant 

 13 meeting of all those folks? Or if it's not 

 14 literally around a table, how do you do it? 

 15 MR. GRODY: Well, there's a model in the 

 16 world today that did just that. That's the Basel 

 17 Committee under the G20. And they created a 

 18 capital standard for the world. It's modified. 

 19 It's Basel III now. But it's the best thing we 

 20 have, and they recognized of course that the 

 21 weakest link will bring down the whole system. 

 22 Systemic risk is what we're ultimately trying to 
 122 

 1 resolve. So, there is a table there, a bully 

 2 pulpit, all right? And we're suggesting that the 

 3 Financial Stability Board, while they have a 

 4 framework concept around systemic risk, also 

 5 create the framework concept around a global data 

 6 standard and then push it through to the 

 7 regulators across the world so that we can have a 

 8 table up there that will watch over this data 

 9 standard. 

 10 MR. PUSKULDJIAN: You know, just 

 11 listening to the few panels that have talked about 

 12 this, the fact that this hasn't been done before, 

 13 you know, doesn't mean that it's not a good idea. 

 14 Every single person that sat here said it's a good 

 15 idea. The problem that I think we've had is that 

 16 it there hasn't been some consensus -- global 

 17 consensus. So, I think working the regulators, 

 18 setting the framework, working with the industry 

 19 participants can help us set that framework, and 

 20 the industry participants working through what it 

 21 is that the regulators actually want to be able to 

 22 see I think will come up with a strong solution. 
 123 

 1 But I will say that it definitely has to be a 

 2 global solution that all the regulators are 

 3 supportive of and agreed to. 

 4 MR. McCLYMONT: Paul, I would just echo 

 5 that. I think we've been tremendously successful 

 6 in the last five years as an industry to deliver 

 7 solutions to improve our operation efficiency. 

 8 Our approaches to our control reduce the risk in 

 9 the market, and that's because we've had a group 

 10 -- the OTC Derivatives Regulators Forum -- where's 

 11 we've got a number of regulators around the world 

 12 coming together with the community (inaudible) buy 

 13 and sell sides to firstly set out what people's 

 14 requirements are, what their objectives are, and 

 15 there's some negotiation in that process but we 

 16 always end up every year -- and we have done 

 17 (inaudible) of the regulatory commitments letters 

 18 to agree what those commitments are going to be 

 19 both from a regulator perspective and also from a 

 20 delivery perspective and from buy side and sell 

 21 side. We then work with the vendors to identify 

 22 solutions to (inaudible) commitments. But 
 124 

 1 throughout we've been very clear what are those 

 2 commitments, what are the requirements? Do we 

 3 both agree, and are they going up against what we 

 4 both want? Yes. Okay. Now, what (inaudible) 

 5 providers actually deliver a solution within 

 6 appropriate time frames. So, I think it's that 

 7 collaboration between regulators globally, the 

 8 users globally, to identify the "what." Then we 

 9 work through with the vendors to identify the 

 10 "how." And then we work through again the time 

 11 frames built to deliver against it. But I think 

 12 we need to be very organized, very clear. And 

 13 again it goes back to my original point. I think 

 14 if we don't design the "what" as a community, we 

 15 will end up spinning our wheels and we will try 

 16 and retrofit infrastructure that exists and is 

 17 perfectly good, but I think we should learn the 

 18 lessons that we've experienced over the last five 

 19 years in terms of building out standards around 

 20 red IDs, around standard calculations, standard 

 21 documents, how we approached that in the past and 

 22 how successful we've been by that approach. 
 125 

 1 MR. MAGNUS: Yeah, I would like to 

 2 support what Stuart said, because that model has 

 3 worked incredibly well, and allowed us to bring 

 4 things to market very quickly. We've made 

 5 commitments on an annual basis and within a year 

 6 made significant progress against those. 

 7 You know, I was actually involved in the 

 8 Microform's Basel II program. That took probably 

 9 15 years before I even got involved, and it's now 

 10 many years later and it's still being implemented, 

 11 though it's not the time frame we're looking for 

 12 in this particular endeavor. (Laughter) So, you 

 13 know, I think if we can get around the table with 

 14 the right subset using one of the industry groups 

 15 -- and I would recommend to you SIFMA/ISDA to help 

 16 drive either one of those two forums -- to get 

 17 around the table and do what Stuart suggested, 

 18 which is to identify what the objectives are and 

 19 agree between the regulatory and supervisory 

 20 community and the players in the market what the 

 21 objectives are, we can then very quickly engage 

 22 the vendors and figure out what is the right 
 126 

 1 technical solution to that. And that would be 

 2 certainly my recommendation for a quick fix -- or, 

 3 not quick fix but a quick way to a solution. 

 4 MR. TAYLOR: You're talking about, you 

 5 know, once you've got the principles you can look 

 6 at the vendors and make a decision. One of the 

 7 questions here is who makes that decision and how 

 8 does it get made? 

 9 MR. MAGNUS: The industry through the 

 10 IIGC in the past has done this in several 

 11 different forums, and the process for creating the 

 12 credit repositories that exist -- the equity 

 13 repositories, the fixed income -- went through 

 14 similar processes where the industry picked the 

 15 vendors to meet the requirements at the cost that 

 16 they thought was competitive. It was an RFP 

 17 environment. In some cases they issued an RFI and 

 18 then an RFP. The community that was ultimately 

 19 going to pay for it decided which vendor they 

 20 going to go with, with the help of the supervisors 

 21 to make sure that all the participants that were 

 22 bidding on it were actually delivering on what 
 127 

 1 they were looking for. 

 2 So, I think you have roles to play for 

 3 different groups. The regulatory and supervisory 

 4 community can help make sure that the vendor that 

 5 is selected meets the requirements, and the people 

 6 who are going to pay for it, which are the market 

 7 participants, get to actually pick the vendor and 

 8 their governance structure's in place that can be 

 9 used to do that. 

 10 And we can also make as part of the 

 11 requirement that we need that international 

 12 threshold, because there are things that can be 

 13 divided up around the world. If you look again, 

 14 the internet model was a very good model. It 

 15 isn't consistent across the world. There is one 

 16 body that issues and maintains sort of consistency 

 17 but then each nationality in each country does 

 18 sort of their own thing. And so there are 

 19 definitely lots of models that can be leveraged, 

 20 but that would be the way I would recommend to 

 21 move forward quickly. 

 22 MR. GRODY: I would like to engage the 
 128 

 1 panel here in discussing what is in fact the 

 2 narrow focus that we are now discussing with 

 3 regard to a quick solution to an immediate need by 

 4 one regulator here in the United States versus the 

 5 broader goals that are articulated by the SEC, the 

 6 CFTC, and the Office of Financial Research with 

 7 regard to the U.S. Treasury; and, of course, the 

 8 signature on what they call the lynchpin report by 

 9 many organizations in the government as well as 

 10 FINRA. 

 11 It is a vision that is hoped for to be 

 12 implemented. What we're talking about here today 

 13 is the same, same-ol', same-ol', the silo 

 14 solutions to get a relief in a particular 

 15 jurisdiction, a particular market with particular 

 16 regulator, when in fact the goals are much 

 17 broader. And if we don't have a concept, like the 

 18 internet registry for example, around legal 

 19 entities that traverse every product within the 

 20 financial space across the globe, we'll never get 

 21 the permanent solution or reach the vision that 

 22 we're looking for. 
 129 

 1 So, I'm suggesting that we are 

 2 continuing to respond to the individual regulators 

 3 for their immediate needs with immediate solution 

 4 when in fact the vision is much broader and the 

 5 interest in solving this problem permanently has 

 6 always basically thwarted us. 

 7 MR. MAGNUS: With all due respect, that 

 8 is not what I suggested. The IIGC is an 

 9 international body of market participants. They 

 10 have delivered international solutions in the 

 11 financial market space, and they have worked with 

 12 the international regulatory bodies to solve what 

 13 are problems. While it would be a lovely thing to 

 14 try and create identifiers that solve absolutely 

 15 every problem in the financial services space, 

 16 across every single aspect of financial services, 

 17 I also believe that you need to walk before you 

 18 can run and you shouldn't try and boil the ocean. 

 19 And the space that we're talking about, the OTC 

 20 derivative market, the global OTC derivative 

 21 market, is a reasonably good proxy that if we 

 22 solve it here we will end up with a solution that 
 130 

 1 can probably be used in a much broader concept, 

 2 because the concept of who you're trading 

 3 counterparties with, the legal entities I am 

 4 trading with and the roles that they play in the 

 5 market, are not inconsistent in other parts of the 

 6 market. 

 7 And if we use the comments that Raymond 

 8 mentioned earlier about the futures market, those 

 9 same concepts, by different names, are used in 

 10 other parts of the market. So, I do think that 

 11 the solution that I suggested -- and I'll let my 

 12 colleagues in the other financial institutions -- 

 13 you know, they can contradict me if they like -- 

 14 but I do think that will be an approach that would 

 15 work and we can get a small number of people 

 16 around the table to actually get to a solution 

 17 quickly. 

 18 MR. SULLIVAN: I certainly would echo a 

 19 lot of what Arthur just said. I think the key 

 20 here is not that we're trying to get every 

 21 possible use ever for some concept called the 

 22 legal entity and find that solution right now. 
 131 

 1 But there are certainly a number of legislative 

 2 mandates already issued, certainly a lot of global 

 3 discussion currently underway about what the 

 4 expectation is in other jurisdictions. And we 

 5 know the vast majority of the participants on that 

 6 side of the table, and getting them together to at 

 7 least identify the places where although we don't 

 8 have the rules written yet or even drafted yet we 

 9 understand the concepts trying to be solved so 

 10 that when we do build a solution that very 

 11 narrowly focuses on solving the CFTC rules for a 

 12 specific set of instruments in a specific market, 

 13 it's an extendable solution that will fit the 

 14 SEC's requirements, the OFR's requirements, FSA's 

 15 requirements -- because those are being discussed 

 16 in a collaborative and cooperative framework 

 17 around the world. 

 18 The original question that started this 

 19 current debate is do they all need to be at the 

 20 table? I think the short answer is yes, to make 

 21 sure that we agree high level the "what" and if 

 22 there are still gaps we at least acknowledge where 
 132 

 1 we've got to build in contingency, because we've 

 2 yet to define some of the possible uses so we 

 3 don't build a framework that we end up throwing 

 4 away two years from now because we finally got to 

 5 understanding those other needs. 

 6 MR. McCLYMONT: I think, just to build 

 7 on that, I mean what was the statement we said 

 8 right at the start of today. It was we would like 

 9 a unique and counterpart ID to be able to deliver 

 10 effective, efficient transparency from a 

 11 regulatory reporting perspective in OTC 

 12 derivatives. That was our immediate open stance. 

 13 So, if that's our objective, we need to say okay, 

 14 what is the design? What is the process? What 

 15 are the solutions to go to immediate objective? 

 16 I absolutely agree with Allan. We need 

 17 to ensure it's not a silo solution. But I think 

 18 again we've demonstrated in the past that a lot of 

 19 the ways we've approached the derivatives 

 20 structure in OTC have actually been (inaudible) 

 21 cross into other products such as futures and cash 

 22 equity. And even though they may be the more 
 133 

 1 mature products in terms of mature derivative 

 2 structure, they've learned a lot of lessons from 

 3 the build-out in OTC over the last 5, 10, 15 years 

 4 and are now replicating in those asset classes. 

 5 So, I think we would be foolish to build an OTC 

 6 solution, and I don't think we would do that, but 

 7 I think we just need to be very clear on what's 

 8 our objective, what's our time frame, what our 

 9 design would look like, and how we can accommodate 

 10 that. 

 11 MS. GOLDMAN: Just to add on to those 

 12 points, I would echo, you know, those same 

 13 sentiments in terms of scope. I also think that 

 14 the scope applies to not only the coverage but in 

 15 terms of what data we're collecting and so to the 

 16 extent that we understand the uses of that data 

 17 and sort of plan our approach in a way that we 

 18 collect the most critical information up front, 

 19 and to some of the points discussed earlier 

 20 regarding entity hierarchies, that we really 

 21 identify a scope in the initial rollout that is 

 22 specific to, you know, core information but we 
 134 

 1 also include major legal ownership in that 

 2 information in order to accomplish the kind of 

 3 systemic risk management that we're trying to 

 4 achieve here. 

 5 MR. PUSKULDJIAN: When you think about 

 6 the identifiers, you know, one of the things that 

 7 struck me was that the regulators actually use 

 8 different nomenclature when they refer to them. 

 9 The OFR uses LEI; you guys use UCI. We should, I 

 10 think, harmonize that so that we're all using the 

 11 same nomenclature. 

 12 And, you know, I think it's a great 

 13 thing that the people around the table actually 

 14 are familiar with the different regulators and 

 15 what they want to do, and as an industry we don't 

 16 want to do the small pull times. We don't want to 

 17 do something for the CFTC, SEC, and OFR. We want 

 18 to do it one time and be able to service the needs 

 19 of all the regulators. So, you know, I don't 

 20 think it's a very silo-based approach at all, and, 

 21 you know, with the right cooperation of the 

 22 industry participants and all the regulators who 
 135 

 1 are involved, I think we'll come to a very good 

 2 solution. 

 3 MR. TAYLOR: I should maybe provide a 

 4 word of explanation on that last point, because 

 5 I'm the guy who wrote UCI in the rule. (Laughter) 

 6 We did it on purpose. What we intend agrees 

 7 exactly with what you say. We said "UCI" rather 

 8 than "LEI" trying to recognize -- I mean, to me 

 9 LEI is the term for the broad use of the 

 10 identifier across the entire financial sector. 

 11 That goes way beyond identifying swap 

 12 counterparties. And identifying swap 

 13 counterparties is sort of the job that was handed 

 14 to us. We were handed a situation. Somebody said 

 15 to me in the break, you know, the difference 

 16 between the situation we all face today and what's 

 17 existed for the last 40, 60 years when people have 

 18 been recognizing for a long time that this was 

 19 maybe useful is that you have regulatory 

 20 compulsion. I guess we do. And on the schedule, 

 21 the first thing that comes up is us coming up with 

 22 an identifier for swap counterparties and swaps 
 136 

 1 under the CFTC's jurisdiction. But it's 

 2 absolutely not our intent to be a separate silo. 

 3 We're trying to walk in lockstep with SEC, you 

 4 know, and to make a UCI, because maybe that's a 

 5 finite early achievable thing, but to do it in a 

 6 way that it can become the LEI -- if that makes 

 7 sense. 

 8 MR. GRODY: Well, I can only tell you 

 9 this. All right, as we have diverse interests 

 10 around our global financial services data and 

 11 standards alliance, the table that we would have 

 12 to draw would be huge, because while these people 

 13 represent domain knowledge in the over-the- 

 14 counter derivatives market and in the futures 

 15 market, there is a huge amount of siloed products, 

 16 markets, infrastructure entities that support it 

 17 with its own terminology in its own and within 

 18 different geographies. It is a huge undertaking. 

 19 It has defied solution to this point. It only 

 20 gets more complex. That's why the difference 

 21 being regulatory compliance to get us to do this. 

 22 It's not easy. It's not going to be quick. But 
 137 

 1 if we don't come up with a framework, all right, 

 2 we're going to wind up with siloed implementations 

 3 against silo regulators, and we're going to have 

 4 another level of complexity beyond what we already 

 5 have. 

 6 MS. LEONOVA: Okay, can I ground this 

 7 conversation? So, what is the first step? 

 8 MS. GROSS: Could I intervene? Francis 

 9 Gross, ECB. I think we have two different sets of 

 10 problems or challenges to overcome. The one is 

 11 design of a standard, which needs to be done and 

 12 agreed by the stakeholders. That means industry 

 13 and the authorities that will use the reporting 

 14 data. And the second one is to reach 

 15 international agreement among the lawmakers in the 

 16 various countries that will mandate that standard. 

 17 One aspect we have already repeated many times is 

 18 that we can't boil the ocean and serve all the 

 19 needs at once, so I think we need to start with 

 20 something feasible and where the need is immediate 

 21 and try to design as much as possible upward 

 22 compatible so that it can solve in service steps 
 138 

 1 the next generation of problems. 

 2 Now, under the design of standards, we 

 3 talk about the very large table. Well, we could 

 4 use an existing infrastructure. For instance, 

 5 there is ISO. ISO is an international 

 6 organization that has a lot of experience in 

 7 building standards that are accepted by industry 

 8 worldwide for the most successful ones. There 

 9 might be other such bodies where industry comes 

 10 together through these standards. Usually those 

 11 bodies do not get a lot of attention, because 

 12 people (inaudible) by firms are not very much 

 13 empowered to do anything, but perhaps this time 

 14 the attraction could be larger. So, that could be 

 15 for the design of standards. 

 16 For the adoption of standards and 

 17 mandating the standards (inaudible) I think we 

 18 will have two things - one, the powers that be 

 19 among the countries not come together. Now, I can 

 20 say from Europe that thee awareness in Europe for 

 21 this kind of issues is now growing. We are in 

 22 contact with the Office of Financial Research. 
 139 

 1 Louis Alexander has visited Europe last week and 

 2 talked to everyone whom I talk to here in Europe. 

 3 And therefore we have a process of building a 

 4 political will that's well on its way. 

 5 Now, in the U.S. legislation is in 

 6 place, and the U.S. is one country. It can go 

 7 very fast and won't wait. Certainly not. Europe 

 8 is a little bit more complicated, so what we need 

 9 is to have as well in the U.S. standards or a set 

 10 of standards adopted that will be acceptable to 

 11 all and here if we adopt the solutions that, one, 

 12 to go through a group like ISO, then it would be 

 13 acceptable in Europe more easily. 

 14 The next stage is to initiate 

 15 discussions, and here perhaps a forum like G20 

 16 could be the one. And also to include in the 

 17 discussion institutions with a global reach, such 

 18 as the Bank for International Settlements and the 

 19 IMF. That could then bring together the countries 

 20 that want to participate in the first round. And 

 21 then I count on settlement of development of 

 22 international pressure and through government and 
 140 

 1 through the industry as well for having further 

 2 gone to an end, and that way we could have a 

 3 mechanism that grows in a modular fashion. 

 4 MR. TAYLOR: All right, I thank everyone 

 5 on the panel. This has been very, very useful, 

 6 and there were some interesting suggestions on how 

 7 to answer these questions. 

 8 So that we don't run out of time, we 

 9 would like to move to our question-and- answer 

 10 session, and this is designed to let people who 

 11 are in the audience ask questions of the panel in 

 12 a sense over the whole discussion we've had all 

 13 morning about unique counterparty identifiers. 

 14 There is a microphone in the aisle over there and 

 15 a microphone over by the pillar over here so that 

 16 you can be heard asking a question. Please feel 

 17 free to chime in. 

 18 MS. LEONOVA: Arthur, I know you want to 

 19 do something. 

 20 MR. MAGNUS: Well, while we're waiting 

 21 to get the microphones, I was just going to answer 

 22 your question about how you can move very, very 
 141 

 1 quickly. 

 2 There is a SIFMA working group that is 

 3 already set up that is looking at this problem 

 4 that I believe the CFTC has already met with, and 

 5 that includes representatives from the industry. 

 6 The IIGC is ready to get involved also. I think 

 7 as supervisors you can set a deadline, which I 

 8 think you actually did in that forum, to come up 

 9 with a blueprint or straw man for what those 

 10 objectives are and get them on paper, and then we 

 11 can move to an RFP-type phase. So, I do think we 

 12 can move very quickly to get something that is 

 13 practical in place, and it may change over time 

 14 but let's get something in place that we can start 

 15 working with. 

 16 MR. TAYLOR: Really quickly, as audience 

 17 people come up to ask questions let me just ask 

 18 around the panel, is that SIFMA-led sort of 

 19 virtual consensus process, if I can call it that, 

 20 do you all see that as a viable way to run this 

 21 and is it inclusive enough? Are there others who 

 22 need to be added into it? 
 142 

 1 MR. McCLYMONT: I mean, I certainly 

 2 think in the past using is during CFMA we've very 

 3 effective at delivering solutions to market. So, 

 4 I think it's got a history that shows that that 

 5 consensus collaboration approach between 

 6 regulator, industry user, and also vendor and 

 7 solution provider is effective, is the right way 

 8 to go. 

 9 MR. SULLIVAN: Certainly given the 

 10 changes to the governance model across the 

 11 creation of the IIGC I think addresses a number of 

 12 the legacy concerns that have been about the scope 

 13 of representation. I would say that there is both 

 14 buy-side and sell-side full-market participation. 

 15 So, certainly for the industry participants and 

 16 users of this process, we are well represented. I 

 17 think ODRF is a great framework to look at for 

 18 coordinating the regulatory side of the equation. 

 19 I think both you and the SEC have been added to 

 20 that group, so, you know, that's certainly the 

 21 right foundation, and it needs to be expanded to 

 22 address this more globally. Certainly we'd be 
 143 

 1 open to that. But I think there is both a global 

 2 industry and global regulatory forum now in place. 

 3 So, that certainly gets the two mainstream holders 

 4 together. 

 5 MR. TAYLOR: Are there questions from 

 6 anyone listening in the audience for the panel? 

 7 There's always this moment of dead 

 8 silence. And unfortunately I'm not a law 

 9 professor. I can't call on you guys by name. But 

 10 I'm sure someone has a question. 

 11 MS. GOLDMAN: No, I was just going to 

 12 add to the question about -- to the message, and 

 13 that we would agree as well that SIFMA has been a 

 14 very productive way to sort of identify the items 

 15 and propose some solutions around that, and so 

 16 it's been a very productive forum. 

 17 MR. McCLYMONT: So, just also I think -- 

 18 again I've said it a couple times now -- I think 

 19 clearly defining the objectives and the 

 20 requirements with the various stakeholders is a 

 21 must, because we will do what we always do as I 

 22 said a couple of times. We'll spin our wheels and 
 144 

 1 go off in different directions. So, I think that 

 2 fall that we had with, for example, the ODRF, we 

 3 managed to discuss with them what their thoughts 

 4 and what their requirements are to actually 

 5 solidify (inaudible) requirements, because often 

 6 people think they know what they want, but when 

 7 you actually discuss and explain well, how can you 

 8 get it, it's actually not quite what they wanted. 

 9 So, I think that open dialog to really clarify and 

 10 crystallize the objective of the requirements will 

 11 allow us to move much faster than into a 

 12 identification or a review of the process or the 

 13 functions that could deliver that solution and 

 14 then actually then the vendors and the design of 

 15 what the solution is itself. 

 16 MR. GRODY: I would like to ask the 

 17 simplest of the questions. Do the auditors of the 

 18 public companies have a role at the table? And 

 19 the reason I ask that is because the auditors 

 20 basically are given the task with the legal entity 

 21 that we're trying to identify to actually lay out 

 22 the structures of their hierarchies every quarter 
 145 

 1 and sometimes the bigger companies have permanent 

 2 staffs to actually resolve the legal structures so 

 3 they could apply their attestation function and 

 4 sign off on the materiality of their audits. And 

 5 we have always considered them in our construct to 

 6 be important, because they in fact organize 

 7 themselves around a database of those legal 

 8 structures -- the big four at least -- and they 

 9 have shared that knowledge with us, and I pass 

 10 that on to you to be a consideration. 

 11 MR. MAGNUS: I would consider we have to 

 12 go back to what's Stuart said a moment ago: What 

 13 is the objective? If it's to identify swap 

 14 counterparties, which are specific entities and a 

 15 hierarchy, when the client is a corporate that's 

 16 fine, but if the client is a fund manager, 

 17 managing multiple funds, a fund may have multiple 

 18 fund managers, there are multiple hierarchies, one 

 19 needs to look at. And so the question goes back 

 20 to what Stuart said a moment ago: What is the 

 21 objective? Is our objective to understand 

 22 counterparty risk? Is it to look at systemic 
 146 

 1 risk? Does it look at market manipulation or look 

 2 for market manipulation? These are different 

 3 objectives, and they have different hierarchies. 

 4 And the financial auditors that you refer to are 

 5 only looking at the corporate hierarchy, not 

 6 necessarily all the other hierarchies. So, I 

 7 think that you need to understand what the problem 

 8 is and then you can bring the right people to the 

 9 table to help solve that problem. But you've got 

 10 to start with what is the problem we're trying to 

 11 solve? 

 12 MR. GRODY: Well, the auditors do audit 

 13 the investment managers, their structures, and 

 14 mutual funds, and what they own and don't own in 

 15 the same way that they audit corporations. 

 16 That's number two, we continue to have a 

 17 dialog about what I consider to be a narrow focus, 

 18 which of course is the focus of the CFTC but 

 19 always within the broad framework of the SEC's 

 20 rulemaking and the OFR's rulemaking and the 

 21 thought beyond that of a global solution. And so 

 22 that's why I continue to suggest that the solution 
 147 

 1 we have here has to be framed within the context 

 2 of the overall rulemaking. 

 3 MR. SULLIVAN: I think there is 

 4 definitely consideration for that and probably 

 5 hundreds of other uses for this data. The key is 

 6 identifying the "what," which is the framework for 

 7 writing a process to identify parties. And I use 

 8 "parties," not "legal entities" because as Arthur 

 9 has correctly said, there are multiple ways. A 

 10 database that creates an identifier for parties, 

 11 which then can be used as inputs to hierarchies of 

 12 different uses, whether it's supervisory or 

 13 accounting validation or, you know, counterparty 

 14 credit risk management or market risk management. 

 15 Those are all obvious extensions of this data, but 

 16 if we think about solving all of those in a single 

 17 implementation, we're back to boiling the ocean. 

 18 And the key here is to agree on the "what," which 

 19 I think we're saying let's not focus solely on the 

 20 term "UCI" but extend, look at the broader 

 21 Dodd-Frank legislation and the legislation being 

 22 discussed in other major jurisdictions and say is 
 148 

 1 there a way to come up with a common identifier 

 2 for parties that could be utilized to meet the 

 3 requirements of each of these rules such that 

 4 don't end up having to build a solution for UCI 

 5 and a database and a solution in LEI for another 

 6 database and a solution what the SEC needs and 

 7 another database -- and that's before we've left 

 8 the North American post. 

 9 So, I think, Allan, your point is valid. 

 10 I think the key is making sure that we don't try 

 11 to scope the solution to this project to be so 

 12 broad that we try to solve every one of those 

 13 implementations in a single solution. 

 14 MR. TAYLOR: I hope it's clear from the 

 15 proposed rule -- we want the UCI, which is, you 

 16 know, our sort of narrow mandate, to be designed 

 17 in a way that it can become the broader LEI and 

 18 that it can serve all of those regulatory purposes 

 19 that Arthur was talking about, not just the ones 

 20 that are the mandate of the CFTC but, for 

 21 instance, prudential and systemic risk 

 22 supervision. So, all of those purposes would need 
 149 

 1 to be taken into account, even as we design the 

 2 first step avoiding boiling the ocean by just the 

 3 UCI. We want it to be such that it doesn't create 

 4 what needs to come later -- if that makes sense. 

 5 MR. SULLIVAN: I think I agree. I think 

 6 the issue -- we might spend some time looking at 

 7 it from both directions -- which is identify the 

 8 legal entity, define that term, build a decision 

 9 where UCI could be a special-use case of that 

 10 data, right? And then other hierarchies are going 

 11 to use that in other ways. But I think it was 

 12 clear to me in reading in the proposal that that 

 13 was the goal, so. 

 14 MS. LEONOVA: It looks like everybody is 

 15 tired and undernourished and needs lunch. 

 16 (Recess) 

 17 MS. LEONOVA: Now we proceed to Panel 4, 

 18 Unique Product Identification, UPI, disclaimer. 

 19 All persons had the passionate desire to switch 

 20 from Panel 5 to Panel 4 and we are happy to 

 21 accommodate the switch. 

 22 Questions have been distributed prior to 
 150 

 1 that and I guess we need to give a small 

 2 background to begin with our marvelous rule about 

 3 what we are taking about. As a concept, we need 

 4 product identifiers is geared mostly to boards 

 5 specifying their underling nature of the swap. We 

 6 tend to think that it's going to be somewhat 

 7 different from equity credit type instruments and 

 8 commodity type instruments and we are willing to 

 9 differentiate those classifications as we feel 

 10 appropriate, but as we go forward, let's start 

 11 from the first question. What is the most 

 12 effective and efficient system for product 

 13 identification for the purpose of data aggregation 

 14 keeping in mind those underlying asset class 

 15 differences? 

 16 MR. ARORA: Let me start. I'm Kulbir 

 17 Arora from Goldman Sachs. First of all, thank you 

 18 to the Commission for having us here. I think, 

 19 Irina, you hit the heart of the problem in the 

 20 sense that if we are not clear about the purposes 

 21 and the usage of these identifiers, things are 

 22 going to become very complicated. Aggregation 
 151 

 1 across various dimensions is obviously one of the 

 2 use cases. I think price transparency is another 

 3 use case. The CFTC has started a very detailed 

 4 and prescriptive product topology, attributes such 

 5 as contract type, subcontract type, asset classes, 

 6 option types and so on, and I think those are very 

 7 necessary and critical attributes to distinguish. 

 8 But I think we need to understand that one of the 

 9 key features of this marketplace in the last 

 10 several decades is the very dynamic, evolutionary 

 11 nature of this market. There is a lot of product 

 12 innovation that happens. 

 13 One of our worries is that if this 

 14 product topology is over prescriptive and owned as 

 15 part of the rules, then constantly upgrading it or 

 16 changing it will be very burdensome and probably 

 17 would require rules rewriting. I think a better 

 18 way to own this would be to bring regulators and 

 19 industry participants to the table under the 

 20 auspices of organizations such as ISDA, more 

 21 appropriate here than SIFMA, because that way the 

 22 maintenance and constant evolution could be part 
 152 

 1 and parcel of -- there are a range of value sets 

 2 for each of these attributes that a good starting 

 3 point has already been achieved but the constant 

 4 evolution that's going to happen is one of the 

 5 issues. 

 6 Irina mentioned the distinction between 

 7 credit type instruments where some standardization 

 8 in the marketplace can happen and one could 

 9 conceive a CUSIP style identifier that references 

 10 a very standard FpML as an example description, 

 11 but for the large other part of the market, 

 12 interest rate products for example where every 

 13 deal arguably is a product unto itself, I think 

 14 referencing the product topology in the data 

 15 requirements is the unique identification part of 

 16 it. The question here is that when you regulators 

 17 talk about aggregation, along with dimensions are 

 18 you intending to aggregate based on the purposes 

 19 of the rules? And some of the attributes allow 

 20 for that aggregation to happen across asset 

 21 classes or underlying assets for example, but I 

 22 think that clarity is very necessary today. Thank 
 153 

 1 you. 

 2 MR. HAASE: I'm Ken Haase and I'm with 

 3 the NFA, and also we would like to thank the 

 4 Commission for inviting us here. I really will 

 5 agree with very much of what you have just said. 

 6 We do need some definition, but it can't be 

 7 terribly tight at this point. You have to allow 

 8 for the future of the unknown and that's always a 

 9 concern with any type of system data field or 

 10 anything you're trying to put out. In this area 

 11 in particular I think it's quite different than 

 12 futures simply due to the amount of underlyings 

 13 you could have and some of the very, very unique 

 14 types of products you could be trying to identify 

 15 and that may not just fit into a small defined 

 16 field. This may end up being almost descriptive 

 17 in some instances. 

 18 MR. CUTINHO: This is Sunil from the CME 

 19 Group or CME Clearinghouse. I don't want to 

 20 repeat what has been said before but I agree with 

 21 some and most of the comments made. Over-the- 

 22 counter derivatives are not as specific or 
 154 

 1 standard as some of the commodity derivatives that 

 2 are trading on exchanges. But one of the things 

 3 I'd like to add is it's very important that we 

 4 understand the need and the aggregation and based 

 5 on that we could come up with an algorithm. 

 6 Rather than have an entity designated to create 

 7 these identifiers, our preference would be to work 

 8 with industry and come up with an open, 

 9 transparency algorithm so that these identifiers 

 10 can be generated in a very deterministic manner. 

 11 I did hear the comment of descriptive. 

 12 We support that idea because unlike the 

 13 counterparty identifier where you cannot be 

 14 descriptive to maintain anonymity, here in this 

 15 case it's a product identifier so that based on 

 16 its need we presume it's reporting and real-time 

 17 price dissemination so that descriptive is of the 

 18 essence here and the more descriptive the better. 

 19 MS. DREW: This is Eleanor Drew from 

 20 Citi. I'm in charge of the Master Data Management 

 21 Program, both the technology implementation and 

 22 the operations space. We're very supportive of 
 155 

 1 industry standardization. In my particular role 

 2 in the firm I've been waiting for this for 10 

 3 years because my life is miserable trying to 

 4 string together all these different identifiers. 

 5 One point I wanted to bring up is when 

 6 you look at security data across cash and 

 7 derivatives, there is a life cycle associated to 

 8 it so that when we look at data management on this 

 9 there is entity, there is issuer, there is product 

 10 specific data and there are corporations actions. 

 11 In addition to that, there are hierarchies 

 12 associated with those domains so that it is very 

 13 important that we take a step back and model it so 

 14 that we could fully understand the life cycle of 

 15 the instruments through the different flows to 

 16 make sure when we design something we do it once 

 17 and not continue to go back and back and redesign 

 18 because we're very -- on our design so that that 

 19 is one of the points. I very appreciate you 

 20 inviting us to this panel. 

 21 MR. CHIDSEY: Since it seems like we're 

 22 going around, this is Ed Chidsey from Markit 
 156 

 1 Group. I think it comes back to what some of the 

 2 others were saying in terms of what problem are we 

 3 trying to solve, what use case are we trying to 

 4 solve, and if it comes as an example of 

 5 understanding what instrument is referenced for a 

 6 given price, there are going to be different data 

 7 fields that are required for a particular 

 8 instrument or asset class. So if you take credit 

 9 default swaps as an example, you really need 

 10 reference entity tier of debt which today is 

 11 typically derived from the reference obligation, 

 12 maturity date, clause and currency so that there 

 13 are five fields that are required to understand 

 14 what instrument you're reference in a credit 

 15 default swap transaction that would be attached to 

 16 a given price and each of those fields could 

 17 potentially be identified through some sort of an 

 18 alphanumeric identification scheme. Tying all of 

 19 those together is something that could be 

 20 considered, but then when you look at another 

 21 instrument whether it's interest rate swaps or 

 22 other derivatives, there are going to be a 
 157 

 1 different set of fields that are required in order 

 2 to understand that instrument you're describing. 

 3 So I think it's important to decompose it to a 

 4 point where you understand the fields that you 

 5 need to identify, the instrument that you want to 

 6 describe for a particular purpose and then think 

 7 about what standards can be applied to each of 

 8 those fields. Some of those are very common, 

 9 maturity date, currency, you can have standards 

 10 for that. Others may be very asset class specific 

 11 and we'll need to think about what those standards 

 12 could be. 

 13 MR. LITKE: Adam Litke from Bloomberg. 

 14 I'd like to thank you for having me here and I'd 

 15 like to echo what everyone else said, so I won't 

 16 repeat it. 

 17 I think from what I've read of the rule, 

 18 you've talked about using the identifiers to set 

 19 limits but you're not actually collecting any risk 

 20 information with that and derivatives aren't 

 21 really like futures contracts. It is possible 

 22 using other parts of the rule where you're 
 158 

 1 requiring the confirm data to then go and compute 

 2 risk information, but since an over-the-counter 

 3 derivative can have multiple legs and multiple 

 4 underlyings, I think the purpose in the rule the 

 5 way it's written now it's a little confusing. I 

 6 think if we're talking about having enough 

 7 identifiers so that the Commission and other 

 8 regulators are able to see the risk of the deal 

 9 and say there is so much risk in the market to 

 10 these products, then you're talking about within 

 11 the context of the confirms having for each field 

 12 a specified bit of information. In a swap it's 

 13 not even obvious. You might say I can do a plain 

 14 vanilla interest rate swap. It's cash. There's 

 15 cash and there's the fixing rate which may be 

 16 LIBOR. Do I identify that as a single asset or do 

 17 I identify that as each leg, one leg is cash in 

 18 dollars and the other leg is a series of LIBOR 

 19 fixings and dollars? I would argue you'd probably 

 20 want to go to the very atomic level of the second 

 21 of you'll end up extremely confused because cash 

 22 on a swap and cash on an interest rate swap would 
 159 

 1 no longer be the same thing just to give a simple 

 2 example. So I think the discussion in the rule is 

 3 in the wrong place, but if you moved it over to 

 4 the confirm descriptor then I think there's a very 

 5 good discussion to be had and the main thing is to 

 6 be as atomic as possible to say for each 

 7 individual think and then you get a lot of 

 8 consensus where everyone agrees on what all the 

 9 fixings are for example. 

 10 MR. TUPPER: My name is Bruce Tupper and 

 11 I work for the Intercontinental Exchange or ICE 

 12 and I manage the Commodities Confirmation and 

 13 Warehouse. To follow-up on some of the comments, 

 14 I think it's become clear that there are solutions 

 15 in the market by asset class. There are many 

 16 services, whether they be warehousing compression, 

 17 confirmations and each of them have to come up 

 18 with their own scheme in order to capture the 

 19 concept of a product or trade type. I do agree 

 20 with earlier comments to try and understand that's 

 21 the purpose because we, or at least I can speak 

 22 for Intercontinental, create products for a very 
 160 

 1 specific reason as an exchange and as a trade 

 2 warehouse but in order to trade the correct 

 3 products for the Commission, for example, if 

 4 you're trying to aggregate up exposure on a 

 5 particular index, that may be a different way than 

 6 in some of these products. We say at least in the 

 7 commodity space, when we were creating our product 

 8 schemes we looked toward our customers' trade 

 9 capture systems and the trade capture systems that 

 10 were offered by the vendors to come up a scheme 

 11 that people could collectively write to and adopt, 

 12 but we did that for a specific purpose. So I 

 13 think probably some clarity on what you're trying 

 14 to do with the products as far as from the 

 15 Commission's perspective would help us. 

 16 I do agree that once you have that and 

 17 there's a working group, that can be solved. I do 

 18 agree that we should probably look at this from 

 19 more of an asset class perspective because I think 

 20 each asset class has its own ways of doing it. 

 21 Like I mentioned earlier, CDS has a certain way 

 22 and commodities may be different and I'm sure it's 
 161 

 1 different in other asset classes so that that is 

 2 probably a consideration for the Commission. 

 3 MR. PERSSON: I'm Ola Persson from FINRA 

 4 TRACE. I'd like to echo what Sunil mentioned on 

 5 the dissemination side and the investor protection 

 6 issue in terms of -- either can understand what 

 7 they're looking at based on the identify that came 

 8 out or that sufficient descriptive information is 

 9 made available together with that record so that 

 10 they understand how to interpret that data. The 

 11 other thing I'd like to tie back to with what you 

 12 mentioned that we are obviously in the process of 

 13 expanding TRACE to cover securitized products at 

 14 this point and we're going through some of these 

 15 issues because there are a fair amount of 

 16 securities that trade assigned CUSIP and clearly a 

 17 joint industry regulatory solution is a very good 

 18 way to go because whatever as a regulator we come 

 19 up will have to work for everybody anyway so that 

 20 sitting down at the table is very, very helpful. 

 21 MR. ARORA: I think that the subset of 

 22 products that is highly standardized like the ones 
 162 

 1 that trace on ICE for example, an identifier that 

 2 if an canonical representation of standardized 

 3 products which is a subset of the broader market, 

 4 I think that probably is not a controversial topic 

 5 here. It's the rest. 

 6 I want to comment on the verbal 

 7 description comments that Sunil and Ken already 

 8 referenced. If you look at the C.F.R. Part 43 

 9 that CFTC has put up and I've gone through it in 

 10 gory detail, I think it's a very good starting 

 11 point. There is a very detailed set of attributes 

 12 with possible values for example as I said earlier 

 13 what a contract type is, what a subcontract type 

 14 is, what an asset class is, what the underlying 

 15 asset is, there is a topology or tree-based 

 16 topology that is a very good starting point for 

 17 this and I think that that would be a description 

 18 for the nonstandardized products part of the 

 19 market and it's almost descriptive because it 

 20 pretty much lays out the hierarchy. I'll 

 21 underscore that the main point I'm talking about 

 22 is that this topology is going to be an organic, 
 163 

 1 living topology that's going to innovate and 

 2 change so that the ownership of that and how you 

 3 delink it from the rules themselves is a key 

 4 point. 

 5 MS. LEONOVA: What is an efficient way 

 6 to accommodate the innovation of those 

 7 instruments? 

 8 MR. ARORA: I think make the industry as 

 9 a whole responsible to maintain that in 

 10 conjunction with the regulators because the 

 11 regulators will ultimately keep specifying 

 12 purposes. Purposes themselves may change over 

 13 time, but I think that way a consortium of 

 14 industry participants co-owning that topology 

 15 would probably make it easier to maintain that 

 16 prescriptive topology from just one of the players 

 17 in the marketplace. 

 18 MR. CHIDSEY: Again I think looking at 

 19 is then what's been done with FpML is a standard 

 20 way to describe financial transactions across a 

 21 variety of asset classes and instrument types is a 

 22 good example and when a new instrument needs to be 
 164 

 1 created or added there is a working group that 

 2 opines on that and ultimately it gets defined via 

 3 FpML and the necessary fields to describe that 

 4 particular transaction or instrument are utilized 

 5 so that a similar sort of model can be used going 

 6 forward to manage this topology. 

 7 MR. LITKE: I think I agree for the vast 

 8 majority of contracts that FpML is good. I think 

 9 for exotics you have to be a little more careful 

 10 and you need some sort of scripting language. 

 11 There are vendors that sell them. There is also 

 12 one of your fellow regulators. The SEC has 

 13 proposed for example for securitizations using 

 14 Python code that's made available. You'd still 

 15 have to have standards for it because this would 

 16 be a different than their use so you'd have to 

 17 standardize what the terms meant, but you need 

 18 something like that in order to accommodate 

 19 innovation. The vast majority of transactions 

 20 will still be done in the standardized format, 

 21 let's say something like FpML and you could have 

 22 some rule that said if some class got over a 
 165 

 1 certain size there would be a way to we recognize 

 2 these are all sort of the same, create an extra 

 3 FpML class and then to come back to the industry, 

 4 but without that you're going to standardize 

 5 everything which sort of goes against what the 

 6 whole OTC market is about. 

 7 MR. ARORA: May I comment on that? I 

 8 think on the highly exotic part of the market, the 

 9 one way as you said is to essentially have Python 

 10 code level standardization. The potential problem 

 11 there would be how much transparency to the 

 12 players in the market want to give each other to 

 13 what may be proprietary stuff and that speaks to 

 14 competitiveness. I think one of the approaches 

 15 that within the FpML groups, the various 

 16 participants have discussed for the highly exotic 

 17 market is again going back to what ultimately will 

 18 be the purpose of these descriptions for the 

 19 marketplace. It may be possible, I'm putting it 

 20 out there as an idea, to have the notion of a 

 21 generic description which essentially captures 

 22 just the bare minimum that may be sufficient for 
 166 

 1 the regulatory purposes and a full-blown 

 2 description is right at the outset taken as not a 

 3 possible thing to do in a highly dynamic way. 

 4 Internally we have attempted that and I think we 

 5 have succeeded with it pretty well and we're 

 6 pretty happy with having this subset and we call 

 7 it the generic exotic instrument. Just a thought. 

 8 MR. TUPPER: I'd like to follow-on on 

 9 that point. I do want to caution the Commission 

 10 against prescribing a particular messaging 

 11 protocol. For example, FpML has had a lot of 

 12 adoption in some asset classes but probably not so 

 13 much in energies. To follow-up though, I do agree 

 14 with the idea of having a more generic reference. 

 15 For example, within ISDA there is the Commodity 

 16 Definitions Working Group and their purpose is to 

 17 update these indexes that are used in the various 

 18 swap transactions. Ideally they can be very 

 19 complicated and exotic but many of them always tie 

 20 back to some kind of description or particular 

 21 index regardless of the asset class. 

 22 We spend a lot of time working with that 
 167 

 1 group in particular because by having those kind 

 2 of generic codes that are really the building 

 3 blocks of most swaps and having clarity with those 

 4 it allows you to process a lot more transactions. 

 5 I don't want us to confuse having those building 

 6 blocks versus a very robust messaging protocol in 

 7 order to communicate the trades. When you start 

 8 getting into exotics and processing them, it comes 

 9 back to what is the Commission's goal. Are you 

 10 trying to find a particular exposure for an index? 

 11 Even though it's an exotic trade, I'm sure that 

 12 this group could probably easily do that for you 

 13 so that it could come back to that. Specifically 

 14 for commodities, you could use the example of the 

 15 Commodity Reference Price Index Working Group. 

 16 They regularly update that and that's something 

 17 that you could look at for product definitions. 

 18 MR. CUTINHO: I don't often agree with 

 19 my colleague, but this time on the panel I do 

 20 agree with him that we cannot prescribe a specific 

 21 language. As an example, as a business we support 

 22 multiple standards. Some are prevalent in the 
 168 

 1 securities market, some are prevalent in the 

 2 standardized futures market, some are prevalent in 

 3 the over-the-counter markets and it's less 

 4 disruptive to market participants across the 

 5 board. If I were not a technologist I would have 

 6 thought you guys are talking about snakes. 

 7 Python? 

 8 To emphasize one point, I think we talk 

 9 about what is the desired use of this product 

 10 identifier? To put it another way, you can't 

 11 expect the product identifier to be everything. 

 12 You can't expect it to be very unique capturing 

 13 all the details of the trade. You can't expect it 

 14 to be at the same time very generic. So we have 

 15 to choose between the two. When the Commission 

 16 says specify the underlying nature of the swap, 

 17 what do we really mean by that? 

 18 MS. LEONOVA: I guess it's time to 

 19 narrow down what we are talking about. If we are 

 20 trying to achieve too big a goal of capturing the 

 21 exposure metrics and at the same time trying to 

 22 control the speculative position limit mechanism, 
 169 

 1 do we follow the same system of product 

 2 identification or do we have to go in different 

 3 ways? 

 4 MR. LITKE: I think unfortunately 

 5 they're different. I think as soon as you get to 

 6 the speculative position limit you need to capture 

 7 risk information. Let's say you knew it was 

 8 something like LIBORs or you're going to do it in 

 9 future equivalents, the mere fact that you have a 

 10 swap or various kinds of options, just in a simple 

 11 option the delta changes every day depending on 

 12 the time to maturity and the price. As you get 

 13 into more exotic instruments it can vary quite 

 14 wildly. You could capture that as a risk field, 

 15 but that's a computed number that would have to 

 16 get reported every day and what gets reported at 

 17 the time of trade is not particularly relevant. 

 18 You might want to specify all of the risk fields 

 19 that a transaction needs to be mapped to, but even 

 20 that depends on the underlying model you're using 

 21 so that you're asking for somebody to report 

 22 something that's really something unfortunately 
 170 

 1 the Commission is going to have to do for itself 

 2 which is decide how they want to measure the risk 

 3 on the transaction. 

 4 MR. CUTINHO: Since I asked the 

 5 question, I have to respond. I echo Adam's point. 

 6 It's not just the counterparty information, when 

 7 we talk about exposure we need to understand the 

 8 specifics. Exposure to what and position limits? 

 9 Let's say, I'll give you an example, if you're 

 10 looking at the very granular level and you say 

 11 that I want to just look at limits on 1-year -- 

 12 that means very little because you can have a 

 13 party trade very little on the short end of the 

 14 curve but take greater exposure to the middle part 

 15 of the curve or the end part of the curve. In 

 16 terms of exposure and position limits, what we are 

 17 trying to understand is what is the overall goal. 

 18 We are starting from the premise that it is 

 19 systemic risk to understand if that a single 

 20 entity has undue exposure or very large exposure 

 21 to a certain market or a certain part of the 

 22 market and the effect that the economy can have on 
 171 

 1 that single counterparty and then how it 

 2 translates to the rest of the market. If that's 

 3 the case, maybe we need to have a discussion as an 

 4 industry with our participants around here as to 

 5 what exactly is the Commission looking at and 

 6 perhaps we can come up with some of the principles 

 7 as far as creating the product identification 

 8 before we get into the details of how we should 

 9 generate one. 

 10 MS. LEONOVA: Going to levels of 

 11 aggregation of data based on the product 

 12 identifications and we don't know, where should at 

 13 least we cut the line off? What levels are there 

 14 and what is the appropriate level that we should 

 15 be targeting? 

 16 MR. ARORA: It would help if you would 

 17 articulate the purposes to which this aggregation 

 18 will be used. That will help because that's a 

 19 very multidimensional problem. 

 20 MS. LEONOVA: Thank you, Kulbir. Our 

 21 immediate market oversight goal again is 

 22 speculative position limits so that when we are 
 172 

 1 talking about that aspect of oversight, we are 

 2 going back to the futures equivalents and some 

 3 type of conversion. That's one problem for us, 

 4 how we convert something in futures equivalents. 

 5 The second question is systemic risk exposure. 

 6 When we are trying to capture the system and 

 7 decrease exposure, what should we be focusing in 

 8 on? Is it overall net asset value or whether we 

 9 should build in some kind of curve or what do you 

 10 think should be the focus? 

 11 MR. LITKE: I think for the position 

 12 limits which fortunately I guess primarily you're 

 13 changed with doing that on the agricultural 

 14 commodities to avoid people cornering the market. 

 15 MS. LEONOVA: We used to be. 

 16 MR. LITKE: But I don't think there's a 

 17 requirement to have position limits on for example 

 18 interest rates for a bank. I thought under 

 19 Dodd-Frank the banks were specifically exempt in 

 20 terms of proprietary trading, that interest rate 

 21 proprietary trading was still allowed. 

 22 MS. LEONOVA: Let's not go into the 
 173 

 1 exemptions but assume that we are trying to cover 

 2 everything. 

 3 MR. LITKE: If you're trying to cover 

 4 everything then you're going to have to for each 

 5 asset class define what you mean by risk. In 

 6 commodities it's fairly easy because you're in 

 7 some sense worried about how much can a speculator 

 8 corner the market. In interest rates, nobody is 

 9 going to corner the market and what you're really 

 10 concerned about therefore is how much can they 

 11 make or lose and it becomes more of a prudential 

 12 supervision issue than a market control issue. 

 13 For that you're back to defining how do I want to 

 14 measure risk. For systemic risk, you're 

 15 interested very much in stress tests in the sense 

 16 that you've got to have some series of stress 

 17 tests around people's portfolios and see how much 

 18 margin is going back and forth. But it's 

 19 ultimately it's model driven so capturing fields 

 20 is not the issue, it's capturing confirm data in a 

 21 standardized way so that you can apply models to 

 22 that confirm data and compute the risk. 
 174 

 1 Effectively what you're saying is you want to be a 

 2 super- clearinghouse. You want to do the same 

 3 thing that a clearinghouse does but you want to do 

 4 it across all the clearinghouses so you can watch 

 5 all the margins moving through the system and all 

 6 the clearinghouses have to have their systems for 

 7 modeling these things. 

 8 MR. CHIDSEY: One comment in thinking 

 9 about it from a systemic risk of exposure 

 10 perspective I think trying to tie it back to the 

 11 product identifier question is that probably 

 12 argues for a very segmented set of identifiers 

 13 across again the different fields to identify a 

 14 particular instrument because ultimately you may 

 15 want to look at risk from a number of different 

 16 angles so that an identifier that collates a 

 17 number of different fields across a number of 

 18 different variables I don't believe will actually 

 19 aid you in that goal. In fact, the more finite 

 20 the description is the better off you'll be to be 

 21 able to run scenarios and look at exposures across 

 22 a variety of different attributes. 
 175 

 1 MS. DREW: From the identifier aspect of 

 2 things, in us segregating the cash and derivative 

 3 product identification process and registration, 

 4 we should look at that and study of it across 

 5 industry. As to the overall net aggregate 

 6 exposure you're going to need across cash and 

 7 derivatives. Us looking at it segmented just in 

 8 the derivatives space and not being able to roll 

 9 up, probably we need to look as a unit to see if 

 10 that makes sense. If there is going to have to be 

 11 some single entity, there's going to be one 

 12 hierarchy tree. When you look at a company such 

 13 as Lehman you're going to have to be able to fold 

 14 all the positions into one, and not looking at it 

 15 like that I think across asset class and having 

 16 common asset categorizations, product 

 17 classifications across both markets, that's where 

 18 you're going to do your aggregation in the OFR and 

 19 in your organization. So I think bringing the 

 20 trade groups together across cash derivatives 

 21 having a common taxonomy, having a common set of 

 22 trade transaction specifications that go out all 
 176 

 1 the investment banks' doors is needed and that 

 2 common taxonomy is probably something not trivial 

 3 for us to put together. 

 4 Purely in the cash space, we don't have 

 5 a product identifier even though this is in the 

 6 most mature product. We look at ICE, we look at 

 7 CUSIP, we look at SEDOL, all fail providing for 

 8 the cash market how you look at a product. So 

 9 when we bring in the derivatives space we need to 

 10 know the underliers. We can't even tell you 

 11 should you put a SEDOL, should you put a CUSIP 

 12 depending on what asset you are so that this is a 

 13 real taxonomy modeling session that we have to 

 14 have everyone sit down as an industry and really 

 15 model this to talk about a life cycle and it's not 

 16 going to happen cheaply or quickly or else we'll 

 17 do it wrong and we'll have to be doing it again is 

 18 how I look at things. 

 19 MS. LEONOVA: How far is the industry in 

 20 developing the systems of classification or are 

 21 there any developments in the industry right now? 

 22 MS. DREW: Within my firm there are 
 177 

 1 different varieties of asset classification so 

 2 that each vendor or supplier supplies their own 

 3 taxonomy. As a community we need to have a 

 4 high-level matrix of what these categorizations 

 5 should be and that's going to be a lot of heated 

 6 debate and I'm sure others could add to that. 

 7 MR. ARORA: Arguably FpML is the first 

 8 serious attempt at standardization. Keeping aside 

 9 imposing a particular protocol, the fact that 

 10 instead of looking at FpML as a protocol, if you 

 11 look at it as an agreement on what set of 

 12 attributes describes a particular kind of 

 13 derivative, it's as far as I'm aware the first 

 14 serious attempt across players. You're right, 

 15 Eleanor, that each one of us has internal systems, 

 16 but the need to bring it all together is more 

 17 recent. 

 18 MR. TAYLOR: Let me ask, when I was 

 19 teaching I used to tell my students there is no 

 20 such thing as a dumb question. I might be about 

 21 to disprove the rule. I'm hearing people say lots 

 22 of things about the need for the important level 
 178 

 1 of granularity in this area and I feel moved to 

 2 ask you all, the concept here I guess is that each 

 3 swap that's reported to a swap data repository is 

 4 going to carry a single product identifier. Is 

 5 that the right way to do this? Is it possible? 

 6 Will it work given the multifarious nature of how 

 7 many products there are, millions if you want to 

 8 look at it that way in some asset classes? 

 9 MR. TUPPER: This is Bruce from ICE. 

 10 There's a subset that you could definitely achieve 

 11 what you're saying, but it's going to be difficult 

 12 and Kulbir has definitely touched upon this, we've 

 13 been taking to a lot of our customers about is how 

 14 do you capture exotics when that comes up? As to 

 15 your question, it's obviously your interest is 

 16 exposure and stress testing. With exotics by 

 17 nature there may not be a lot of trade records or 

 18 submissions to the future SDR, however, there is 

 19 usually very high notional value to those 

 20 transactions and that's what you're after. The 

 21 trick is going to be I think you can get the 

 22 common trades and I would say many of those will 
 179 

 1 be in process today, but with trying to get your 

 2 arms around how you're going to classify exotic 

 3 transactions and do that in a manner where you get 

 4 enough information so you can fall through on your 

 5 stress tests and exposures is going to be 

 6 difficult. That's the hard part. 

 7 MR. LITKE: One thing you might have for 

 8 things that have become standardized have 

 9 standardized terms and then I think you mentioned 

 10 in the rule having something called multiasset and 

 11 you could also have something called exotic and as 

 12 long as the exotics are below a certain percentage 

 13 of what gets traded, then you wouldn't worry too 

 14 much and if it gets above that percentage then you 

 15 have and go into a deep drive and ask is there a 

 16 new standardized name we have to add, but there 

 17 would have to be a process there. It won't give 

 18 you risk reporting, but it will give you 

 19 information about volumes in the marketplace which 

 20 I think is useful information. 

 21 MR. TAYLOR: Following right on from 

 22 that, if we're going to make a system that says we 
 180 

 1 have Buckets A, B, C and D and however many and 

 2 then we have a bucket called exotic where we 

 3 haven't classified it, where are the buckets that 

 4 we can classify and has somebody done the 

 5 classification system at least for them that we 

 6 ought to be looking to? 

 7 MR. LITKE: Everybody has done them and 

 8 they're all different. You even acknowledge that 

 9 in the rule where you talk about people talking 

 10 about whether cross-currency swaps should be 

 11 considered a foreign exchange product or a rate 

 12 product. In fact, in most concerns they're 

 13 considered both. The FX Desk considers them to be 

 14 a foreign exchange product and the Swap Desk 

 15 considers them to be an interest rate product and 

 16 every firm has a single maturity line usually that 

 17 they've fought over for many years where one 

 18 business gets to trade them as the market maker 

 19 and the other one gets to use it as a hedger so 

 20 that they're called different things once you get 

 21 inside that line. We all have them but there 

 22 isn't a standard. 
 181 

 1 MR. ARORA: David, isn't the heart of 

 2 your question if the exotic bucket has numbers 

 3 that worry regulators that that's when it becomes 

 4 standardization? I think one of the ways linking 

 5 it back to my point about generic, if volumes 

 6 however we define them because it's not just the 

 7 number of trades, it could be on a particular 

 8 dimension be it notional exposure or risk or 

 9 whatever, where the risk is "worrisome" then an 

 10 attempt should be made it define it into a 

 11 standardized product because the volumes have 

 12 reached that level of threshold. I think up until 

 13 that point -- you've alluded to there is no such 

 14 thing as a dumb question, I have an analogous 

 15 thing. Whenever you make a taxonomy or a 

 16 classification there always has to be what's 

 17 called the miscellaneous category or the garbage 

 18 category so you just can't figure it out. And I 

 19 think some kind of a process, I echo Adam's point, 

 20 has to be agreed upon to keep changing this 

 21 topology or this classification. 

 22 MR. TAYLOR: A follow-on question to 
 182 

 1 that as well, would it make sense to approach UPIs 

 2 separately by asset class or not? Are there asset 

 3 classes where it's easier to do this or where it 

 4 could be done more quickly? Are there asset 

 5 classes where we ought to allow more time for it? 

 6 Is distinguishing by asset class something we 

 7 ought to do? 

 8 MR. CHIDSEY: I think if the fundamental 

 9 premise is a requirement that's around the 

 10 taxonomy and defining that taxonomy, I think 

 11 logically to make any headway it's going to have 

 12 to be by asset class because again there are 

 13 distinguishing characteristics by asset class. So 

 14 I think that drives the need to divide the 

 15 discussions and decisions up by asset class and 

 16 then from there see if and how a UPI could then be 

 17 applied to each asset class. 

 18 MR. TUPPER: I agree. I think there is 

 19 probably some guidance or some commonality at a 

 20 very high level for the Commission's benefit you 

 21 could prescribe some type of way. I know in the 

 22 proposed rules you did where you were trying to 
 183 

 1 put in an asset class identifier as part of the 

 2 code and you could begin there, but there are 

 3 definitely a lot of unique attributes to each 

 4 asset class and I think in order to have people 

 5 accept potential unique product identifiers you're 

 6 going to want to look to the existing systems and 

 7 how they're doing and if you can work around that 

 8 you'll gain an adoption rate that participants are 

 9 going to be able to submit you the data and the 

 10 way data is arranged, it is different by asset 

 11 class. That's just the nature of it. 

 12 MS. DREW: I think the way that you roll 

 13 out could be by asset class, but as a system 

 14 designer when I look to build systems, what I like 

 15 to do is gather all artifacts and create 

 16 relationships in my modeling as well as my domain 

 17 values and my taxonomy and then once I have it 

 18 modeled then I would roll it out on an asset class 

 19 basis. Just the thought of the entity and how it 

 20 applies to the cash, how it applies to the 

 21 derivative and the action, we have to look at 

 22 solving that problem using that ecosystem. If we 
 184 

 1 segment it, we'll do it really good once for one 

 2 asset class and the model will completely fall 

 3 apart when we look at the next asset class. Based 

 4 on the experience of building a consolidated cash 

 5 and derivatives environment, I made a lot of 

 6 mistakes in my past by just doing it segment by 

 7 segment only to have to redo it. So I would 

 8 approach it that way as a system builder. 

 9 MR. HAASE: This is Ken from NFA. I 

 10 would agree exactly with Eleanor. You really have 

 11 to at the whole thing. You can roll them out 

 12 separately but they really have to work with each 

 13 other. Going back to one other point as far as 

 14 aggregation and things coming up and what the 

 15 regulator might want to use the data for. The 

 16 other question I guess I would ask the Commission 

 17 is do they view themselves then as the endpoint or 

 18 is this data being passed up even further to other 

 19 agencies where they may be doing combinations so 

 20 that any type of standards or anything that you're 

 21 setting up obviously has to work with them if 

 22 there's a place to bring it all up to one place on 
 185 

 1 top. 

 2 MR. TAYLOR: I'm thinking of a question 

 3 and I was trying to think how to put it and I may 

 4 put it badly. I think I've heard probably several 

 5 of you suggest that it would be a good idea for 

 6 the industry to be involved in defining this 

 7 taxonomy and that there be some mechanism for 

 8 allowing for future development in that and not 

 9 setting it in stone in the rule. It's always a 

 10 goal for a regulatory not to have to amend rules 

 11 and I'm sitting here thinking on February 7 we 

 12 have to go behind a curtain and we can't talk to 

 13 you guys anymore and we have to put something in 

 14 the rule. What sort of mechanism might it be 

 15 useful to establish for industry and regulator 

 16 cooperation on defining and maintaining and 

 17 evolving a taxonomy over time? In other words, 

 18 what could we say in the rule that isn't going to 

 19 have to be amended later that sets up a mechanism 

 20 that can do those things? Did I make sense with 

 21 that? 

 22 MR. ARORA: Very much. That goes to the 
 186 

 1 heart of one of my points. I'm not a lawyer and I 

 2 don't know how to say this, but I think a 

 3 professional industry organization whose purpose 

 4 is precisely cross-industry participant 

 5 standardization with I think the regulators being 

 6 at the table, if somehow the rules could reference 

 7 such an arrangement where the ownership of to be 

 8 specific the part of the topology is held and if 

 9 the rule could reference a mandate, or what should 

 10 I say, a demand to abide by that topology for 

 11 every person in the industry, that might be one 

 12 way. It's sort of a level of indirection if you 

 13 will, but it seems to me how that's wordsmithed is 

 14 your expertise, but I think that may be one 

 15 starting point. 

 16 MR. TAYLOR: I'm going to put Ken on the 

 17 spot. I know if people here are looking for a 

 18 body like that that could hold this thing, NFA 

 19 will cross people's minds. Does that sound 

 20 conceivable? 

 21 MR. HAASE: I'll give a good party 

 22 answer to that and say that just about anything is 
 187 

 1 conceivable, but it's up to the board of directors 

 2 at NFA to make that final decision. 

 3 MS. LEONOVA: I want to go back to 

 4 multiasset classes and mixed swaps. What is an 

 5 effective system to classify multilayered things? 

 6 Should it follow the same system for any product 

 7 ID or -- to have one identifier and break it down 

 8 by components? 

 9 MR. LITKE: I think if you move the 

 10 product identifier from the trade level to the leg 

 11 level you would carry the vast majority of 

 12 multiasset trades. That would just leave out 

 13 things like basket options. But if you put it 

 14 down at the leg level then you effectively say 

 15 this leg is this type of product, this leg is that 

 16 type of product and that would get you a long way 

 17 because then a trade is just a portfolio of those 

 18 legs. If I trade an option on three stocks or 

 19 even worse on one stock, one commodity and one 

 20 foreign exchange, there is no way to really handle 

 21 it because it's just going to come in as multi. 

 22 MS. LEONOVA: It doesn't really help us 
 188 

 1 in a way that if we accept the fact that we have 

 2 multiple underliers, what are you doing about 

 3 speculative limit position aggregation? Do we 

 4 double aggregate them or do we single aggregate 

 5 them? How do you handle it? 

 6 MR. LITKE: You can't aggregate that 

 7 way. That gets back to my earlier comment about 

 8 risk based. Ultimately for things that go through 

 9 a clearinghouse, the clearinghouse is not using a 

 10 standardized formula. I don't know if our friends 

 11 from DTCC are still here, but for example if you 

 12 look at SPAN margining, there's a formula but 

 13 behind it there are models and they change the 

 14 numbers when the models change and if you don't 

 15 have a risk-based system for those things there's 

 16 no way to do a standardized formula. In many of 

 17 those transactions for example there is something 

 18 called the gearing factor so that I can have an 

 19 option on 5 times X or I can have five options on 

 20 X and economically they're the same thing, but if 

 21 you did your speculative limit without a model you 

 22 would think they were two completely different 
 189 

 1 trades. So if you really want to have speculate 

 2 limits, you're going to have to build some sort of 

 3 risk-based system for all of those things and 

 4 whether that means requiring people to submit 

 5 models to you or having your own models, that's 

 6 going to be up to the Commission but you can't do 

 7 it in a simplified way and you can't just trust 

 8 firms to report their numbers because of course 

 9 every firm has its own models. 

 10 MR. CUTINHO: Adam, I'm going to 

 11 disappoint you. It's not the DTCC who is going to 

 12 help with this, but it will be the CME. So you're 

 13 right that when we look at risk we don't look at 

 14 product identifiers. It's across products so that 

 15 we look at it on a portfolio basis. 

 16 MR. TUPPER: Just to try to expand on 

 17 Adam's description, when we take in data, we try 

 18 to take in data and break it down into its 

 19 simplest parts and then those models are going to 

 20 do what they need to do. So from the Commission's 

 21 perspective, I think if you're going to try to 

 22 tackle this, what you're looking to do is create a 
 190 

 1 model for whatever purpose, you need those inputs 

 2 and you need them in their smallest parts and as 

 3 clean as possible and then you're going to develop 

 4 whatever models around those inputs to get the 

 5 reports that you need. I hope that makes sense. 

 6 To summarize, whenever we're taking in 

 7 data we always break things down to a leg level or 

 8 individual reference price level and customers 

 9 always report exposures based on those particular 

 10 legs on that reference in the amount of notional 

 11 dollars they have on that whether they're paying 

 12 and receiving and then we pass that trade data on 

 13 to various systems that do different things with 

 14 that trade record. 

 15 MS. LEONOVA: So it should be called not 

 16 unique product identifier but unique model 

 17 identifier? 

 18 MR. LITKE: No. The model is your 

 19 model. You could change your model. One day you 

 20 might decide that you have the best model in the 

 21 world for this product and a year later you've 

 22 come up with an improvement on the model so that 
 191 

 1 you would change that. So that's not a unique 

 2 identifier per se, it's whatever the Commission 

 3 decides to use. What you need is enough 

 4 information in the confirm record that is 

 5 submitted by the participants to be able to 

 6 reconstruct the trade so you can take that trade 

 7 and put it into your model. 

 8 MS. LEONOVA: This model is going to be 

 9 asset class specific and is going to identify all 

 10 the legs that will allow to capture the exposure 

 11 if you link it back to the confirm? 

 12 MR. LITKE: There is a data model and 

 13 there is an analytical model to price it and then 

 14 there's a risk model that has to run all the data 

 15 models so that there are three different models 

 16 there. Only one of them is the data which is the 

 17 data model for the confirm. The other two are 

 18 really analytical models. 

 19 MR. TUPPER: But there are sources out 

 20 there for you to get the individual pieces. With 

 21 CDS obviously there's Project RED, on commodities 

 22 there are commodity price definitions which are 
 192 

 1 done by ISDA so that there are places for you to 

 2 create those if you're thinking of these 

 3 individual inputs that are out there that are 

 4 listed. It's what you're going to do with them 

 5 afterwards that's really not a product. 

 6 MR. CHIDSEY: Another way to look at it 

 7 is there may be an opportunity for unique 

 8 identifiers almost at the field level and again 

 9 for certain fields within a taxonomy for a 

 10 particular instrument it may make sense to have 

 11 identifiers as a way to ensure that there is 

 12 consistency and standardization for that 

 13 particular field so that it could actually be 

 14 several different types of identifiers for 

 15 different types of fields, but to try to roll off 

 16 of that together into some sort of aggregate 

 17 product identifier I think is complicated and I'm 

 18 not sure serves the purpose of what you're looking 

 19 for around risk and speculative position limits. 

 20 MS. LEONOVA: I'm trying to process the 

 21 information. It sounds like what you're saying is 

 22 that we have to come up with a set of some kind of 
 193 

 1 data fields that will be sufficient in order to in 

 2 general terms describe whatever something is going 

 3 to be is reflective of this product notion. Do I 

 4 understand it correctly? 

 5 MR. CHIDSEY: I think the short answer 

 6 is yes. 

 7 SPEAKER: The long answer is maybe. 

 8 MR. TAYLOR: I have a question passed to 

 9 me from one of your Data Recording and Reporting 

 10 Team members who's listening on the phone from New 

 11 York. We were talking earlier about the exotic 

 12 bucket among the other buckets and he prompts me 

 13 to ask, and it's a good question, how big do you 

 14 think that bucket is? We have some information 

 15 that suggests that vanilla is probably some high 

 16 percentage, 80 to 90 percent of all swaps and we 

 17 shouldn't be all that scared about the exotic 

 18 bucket, but what's your sense? 

 19 MR. LITKE: What we see in our pricing 

 20 service, it's probably less than 1 percent, but if 

 21 you want to know what somebody's risk is and you 

 22 have a exotic hedged by a vanilla, that could be 
 194 

 1 the unbalanced part of their book so that it's 99 

 2 percent of the work and 1 percent of the product. 

 3 MR. ARORA: I'd echo that. 

 4 MS. LEONOVA: I want to go back to the 

 5 product identifier question that we were 

 6 discussing before. You probably saw that we came 

 7 up with some kind of proposed minimum list of data 

 8 fields that we tried to describe this particular 

 9 product by asset class. Is it a feasible 

 10 approach? I shouldn't say feasible. Everything 

 11 is feasible. Is it a reasonable way to try to 

 12 capture these risk metrics that we were mentioning 

 13 and product classification metrics that we were 

 14 discussing? 

 15 MR. CUTINHO: For risk purposes, you 

 16 can't just look at that minimum set of 

 17 information. I think Adam was pointing out to 

 18 this panel many times that all the information in 

 19 the confirm is essential. That's important for 

 20 the analytics and it's important for risk as well. 

 21 I think Kulbir mentioned this before that it's a 

 22 great start to have a taxonomy and a structural 
 195 

 1 hierarchy. What is important is it has to be 

 2 extendable and then I think we're going back to 

 3 what is the original purpose. I think if the 

 4 purpose is if you want to find out if a certain 

 5 derivative is traded across execution venues and 

 6 you want to see at what price it's traded across 

 7 these venues, that has one level of requirements. 

 8 If you are looking at a counterparty and you want 

 9 to find their total risk exposure and then that is 

 10 exactly your interest, then we are questioning I 

 11 think to some extent how a product identifier 

 12 would help you get there. 

 13 MS. LEONOVA: Are we talking about 

 14 transactional level reporting versus portfolio 

 15 level reporting here? It's not a question of 

 16 particular data, it's a question of level of 

 17 aggregation of data on the reporting entity level? 

 18 MR. CUTINHO: Yes. In essence embedded 

 19 in my question is what is the purpose of the level 

 20 of aggregation? If you're trying to find out 

 21 there is a certain type of derivative that's 

 22 traded across execution venues, if your objective 
 196 

 1 is to find out the price ranges where does it 

 2 trade. What is the market? Where is it trading? 

 3 Then that has a certain set of aggregation or a 

 4 certain set of fields you would use. If you're 

 5 looking at a portfolio basis, if you're looking at 

 6 risk and if you're trying to identify risk, then 

 7 when you look at a counterparty I think it was 

 8 mentioned before that you have to look at the 

 9 underlying positions, you have to look at the 

 10 derivative positions, you have to look at their 

 11 exotic positions, so we don't understand what a 

 12 product identifier will help in that respect. You 

 13 don't need to look at the product identifier. You 

 14 look at the risk using the data within the 

 15 transactions that is at your disposal. 

 16 MS. LEONOVA: It sounds like in your 

 17 world our notion of product identifier is 

 18 something like futures equivalents type measures 

 19 of swaps that we are trying to aggregate for the 

 20 speculative position limit but it's absolutely 

 21 useless for the risk measure? 

 22 MR. LITKE: I think a futures equivalent 
 197 

 1 is a potentially useful risk measure. The problem 

 2 is it's a calculated field that is based on a 

 3 number of things that are different than the 

 4 description of the transaction. You have to make 

 5 some additional assumptions and know something 

 6 else about the market. It's useful, it's 

 7 sometimes necessary but it's almost never 

 8 sufficient. 

 9 MS. LEONOVA: I guess we have 15 minutes 

 10 for questions and answers. I see that the 

 11 audience is impatient with asking questions. 

 12 MR. TAYLOR: We couldn't get any 

 13 questions out of the audience before lunch. 

 14 MS. LEONOVA: Here is a microphone. 

 15 Would you mind? 

 16 MR. AXILROD: I just wanted to throw 

 17 something out and see what the panel thinks of it. 

 18 MR. TAYLOR: Please identify yourself 

 19 for the reporter. 

 20 MR. AXILROD: Peter Axilrod from DTCC. 

 21 In diving deeper into using these sorts of 

 22 identifiers for risk-management purposes or 
 198 

 1 risk-oversight purposes, I tend to share the 

 2 skepticism. It's a little like trying today to 

 3 manage monetary policy through the money supply. 

 4 Ten years ago or twenty years ago people thought 

 5 they knew what money was. Today it's very, very 

 6 hard to define so that it's not going to be a good 

 7 instrument. I think what you're hearing is that 

 8 product types, and one way to think of them is 

 9 sort of how ISDA master confirms are there? There 

 10 are a lot of them, and systems tend to divide up 

 11 the world that way. I don't know how many there 

 12 are in equity derivatives, there might be 50 or 60 

 13 now, credit derivatives have about 30 or 40, 

 14 commodities, they're not only ISDA, there are 

 15 elite product types and other product types and it 

 16 goes on and on. They're very useful. They're 

 17 used for as a sort of shorthand and when people 

 18 see them they know what type of instrument it is. 

 19 But I guess I would urge for risk purposes or 

 20 position limit purposes, you're going to have to 

 21 use a blunter instrument. You're going to have to 

 22 look at exposure to underlyings, what direction it 
 199 

 1 is and whether it's linear or not and add it up 

 2 and you're going to have to not be afraid of false 

 3 positives. You're going to have a lot of data in 

 4 front of you and if some of it indicates that 

 5 there is a problem and you ignore it because 

 6 you're worried that the data is incomplete, you're 

 7 going to be in trouble. What's wrong with having 

 8 sort of a rough approach which looks at underlying 

 9 exposures that is structured in such a way as to 

 10 give you some false positives but that just means 

 11 you've got a phone call or two to make? 

 12 MR. TAYLOR: Are there any reactions 

 13 from the panel? 

 14 MR. LITKE: I think it's fine if you're 

 15 trying to use it as a first step to look at risk. 

 16 I think the dealers and the market participants 

 17 might find it somewhat problematic if it were used 

 18 for hard position limits. So I think it really 

 19 depends on whether you're using it for a limit or 

 20 you're using it as an early warning signal. 

 21 MR. AXILROD: Early warning. I don't 

 22 know that hard position limits is something that 
 200 

 1 actually works given that it's almost impossible 

 2 to find a good measure of this so that it was 

 3 something that would be an early warning and cause 

 4 somebody to drop a dime. 

 5 MR. ARORA: I had the same concerns. If 

 6 it's going to start affecting workflow on a daily 

 7 basis, that would worry me. If it is more about 

 8 an indicative kind of sense to the regulators, I 

 9 suspect, Peter, there are going to be a lot of 

 10 follow-up phone calls in your example, sir. 

 11 MR. TAYLOR: Are there any other 

 12 questions from the audience? Clearly they know 

 13 everything they want to know. I have one. A lot 

 14 of you were here for all the panels this morning 

 15 and obviously I was and I listened all the way 

 16 through the discussion of unique counterparty 

 17 identifiers and there seems to be universal 

 18 agreement that we need them and everybody has a 

 19 fairly good idea of what at least they think they 

 20 ought to be and how they ought to work and the 

 21 debate is in the details. I listened to this 

 22 discussion and I'm not quite hearing it. How 
 201 

 1 important do you think it is that we have these 

 2 identifiers? Am I wrong? Is the appetite for a 

 3 UPI somehow less than for a UCI? 

 4 MR. ARORA: I think it's because of the 

 5 complexity involved and that's why my initial 

 6 point was what purpose might help. Maybe one way 

 7 to look at it would be to do a volume analysis and 

 8 I hasten to add that what we mean by volume needs 

 9 to be defined. And maybe if we take it one step 

 10 at a time, the more standardized products do make 

 11 up the highest volume debt, it may not address one 

 12 of your concerns about risk hiding somewhere in 

 13 the system, but at the very least that's where 

 14 something can be done. I think the worry that you 

 15 hear if I can speak for all is around where the 

 16 definitions are much more complex and much harder 

 17 to come a consensus on. 

 18 MR. TAYLOR: You all are asking in a 

 19 sense what for about these. One sort of obvious 

 20 answer that occurs to me, and I thought maybe I 

 21 should this because the existing universe of 

 22 repositories and if I'm not overstepping to say 
 202 

 1 so, I think more the European concept about 

 2 repositories, tends to be that there might be one 

 3 repository in an asset class and so in this one 

 4 place you can see all at least for that universe 

 5 and that's not the Dodd-Frank concept. It 

 6 contemplates multiple repositories. The market 

 7 may end up dictating otherwise, but at least for 

 8 some period of time one of the purposes I guess of 

 9 a product identifier would be able simply to see 

 10 of this thing, what all is out there across all of 

 11 these repositories. That's kind of simple and 

 12 basic. 

 13 MR. CHIDSEY: Again I think what you're 

 14 hearing is the need for a common taxonomy or 

 15 common topology, there seems to be universal 

 16 agreement there. Then again within that there may 

 17 be an opportunity for identifiers, but the idea of 

 18 having a comprehensive product identifier at this 

 19 point, until you solve the common topology or 

 20 taxonomy, the common product identifier is 

 21 probably something that would need to be 

 22 considered later. 
 203 

 1 MS. LEONOVA: So that you're talking 

 2 about an aggregate system of product description 

 3 and now it's quasi-agreed is FpML a legal 

 4 confirmation type but it may be a good way of 

 5 doing it or maybe not a very good way of doing it 

 6 but that's a change of direction that you think we 

 7 should follow? 

 8 MR. LITKE: For capturing the 

 9 information for risk purposes, yes. For answering 

 10 the simpler question of what's here and what's 

 11 there for volume studies, you could use a broader 

 12 solution. And for price reporting where you want 

 13 to see if there is market abuse, for the 

 14 standardized trades you're going to get all of 

 15 your information out of standardized names. 

 16 MR. TAYLOR: One follow-up question on 

 17 the comment that we need the taxonomy first which 

 18 I think makes sense to me, do you all think there 

 19 is a way to come together in some consensus on a 

 20 taxonomy on the timeline that the rule has which 

 21 in rough terms at least would mean doing it this 

 22 year? 
 204 

 1 MS. LEONOVA: I can narrow down a 

 2 question. Is it possible to agree on a limited 

 3 set of confirmations that are going to describe 

 4 the whole universe of products? You can say 

 5 maybe. 

 6 MR. ARORA: They're both tough questions 

 7 and I'll be optimistic because the number of 

 8 players in this marketplace is small and I think 

 9 that's a positive, but the complexity is not and I 

 10 think that's the negative. It's an aggressive 

 11 timetable. 

 12 MR. TAYLOR: If more time than that were 

 13 needed, what do you think it is? Rules can be 

 14 structured for things out there further, but too 

 15 much further won't sit well. 

 16 MS. DREW: I think the working groups 

 17 that are participating in the LEI conversation, 

 18 some of those folks have been in discussion on the 

 19 on the common product ID for the last 10 years and 

 20 nothing happened. Realistically I think looking 

 21 at what's going on in those working groups and 

 22 evaluating after a month or so after they have 
 205 

 1 some straw man or hear the finite set of fields we 

 2 need to get agreement on and then readjusting the 

 3 July date accordingly, but you have to sit down 

 4 and model and you have to sit down and not rush 

 5 this because if we rush it we'll have to do it 

 6 again. The working group that's in place right 

 7 now I think is very effective. All the right 

 8 players are at the table. My advice would be give 

 9 it a month, come back and then set an appropriate 

 10 time limit once the modeling is done. 

 11 MS. LEONOVA: Does anybody have good 

 12 news? 

 13 MR. TUPPER: It's a rule of thumb 

 14 typically is a product is standardized enough that 

 15 a clearinghouse is going to accept it, then 

 16 there's the first set. If you're looking for a 

 17 set of trades, cleared swaps, you're at a point 

 18 where all the data values are pretty standardized, 

 19 people agree, clearinghouses are clearing on it, 

 20 there's your first set. Once you leave that 

 21 product set, each traunch of products depending on 

 22 how complicated they and you've heard a lot about 
 206 

 1 the exotics, it's how hard you want to work. The 

 2 last 1 percent is 99-percent of the work. I agree 

 3 with Adam wholeheartedly on that. You could spend 

 4 a lot of time on the exotics which we have 

 5 discussed at length. But if you're looking to put 

 6 timelines, there is a lot of mention of reporting 

 7 cleared swaps and that would be a great first 

 8 start. And then maybe adding a concept into the 

 9 rules with the exotics, and then you're going to 

 10 have some products that are kind of in the middle. 

 11 I do think when you prescribe rules you 

 12 do need to provision whatever standardization body 

 13 is going to be tasked by asset class to do this 

 14 work. The industry will invent products quickly. 

 15 I think everybody here has probably been told I 

 16 have the greatest project. You need to list it on 

 17 your system. You do that because you're a 

 18 provider of central services. And then you have 

 19 this miscellaneous bucket and out of that bucket 

 20 some things do make it but a lot of them don't, 

 21 but you do need to allow that innovation in the 

 22 market because there will be times where you're 
 207 

 1 going to have to amend and list new products as 

 2 they come up and I'd hate to see the rules be so 

 3 prescriptive that it wouldn't allow windows for 

 4 these updates. 

 5 MS. LEONOVA: I guess it's time to call 

 6 it a day. We are done with this panel. Thank you 

 7 very much for making the trip to Washington, D.C. 

 8 and talking to us and we will see you in 15 

 9 minutes. 

 10 (Recess) 

 11 MR. TAYLOR: So would the people for 

 12 Panel 5 come up and take their seats, and bring 

 13 your name tag with you, if you have it. Are the 

 14 rest of the Panel 5 folks here? We're going to go 

 15 ahead with that, and then we'll take our break 

 16 after that. It makes the afternoon too long if we 

 17 do it now. 

 18 (Pause) 

 19 MR. TAYLOR: We're missing a couple of 

 20 folks. Let's see -- Arthur and Ola. 

 21 MR. MAGNUS: Arthur's here. 

 22 MR. TAYLOR: Oh. Oh, hello. Right 
 208 

 1 under my nose. We're missing Ola. 

 2 MS. LEONOVA: No, no. Ola is going -- 

 3 Ola made a switch. 

 4 MR. TAYLOR: Okay. 

 5 MS. LEONOVA: Okay, sorry about that. 

 6 So now we are going into our next panel. 

 7 Hopefully it will be not as controversial as the 

 8 previous one. Now we are talking about Unique 

 9 Swap Identification, or Unique Transaction Type 

 10 Identification -- and to give a brief explanation 

 11 of why we use this terminology. We discovered 

 12 that industry has so many interpretations of what 

 13 a "transaction" or "deal" is, that we ended up 

 14 calling it just "swap." So there is no hidden 

 15 meaning here. The underlying notion of these 

 16 identifiers to keep track of a transaction, and we 

 17 understand that everybody does it one form or 

 18 another. When it comes to the unique ID for swaps 

 19 in our world, we understand that we're going to 

 20 have to deal with some system of compressions, 

 21 (inaudible) that is kind of dilute. So it's 

 22 unique. 
 209 

 1 So by this -- and it has to come up into 

 2 something else that brings a notion of what is the 

 3 most, again, efficient and effectiveness system of 

 4 tracking, and so it's individual transactions that 

 5 will accommodate regulatory needs and at the same 

 6 time will fit into the current systems of 

 7 counterparties. So, anyway, it has an (inaudible) 

 8 how it should be done, where it should start, and 

 9 how it should drip down into the SDR. 

 10 MR. TAYLOR: And -- 

 11 MR. CUTIHO: Sorry. 

 12 MR. TAYLOR: Go ahead. 

 13 MR. CUTIHO: I beat you to it. Very 

 14 quickly, I think I'm trying to understand the 

 15 purpose or if -- just to rephrase -- you want to 

 16 track the transaction and its life-cycle. We do 

 17 have a concept today, when we receive swaps for 

 18 clearing. It's called a "Platform Identifier," 

 19 because we don't have execution facilities yet. 

 20 We do think it will be helpful, but we think it 

 21 should be linked to the execution venue, and 

 22 should have some form of an intelligence to 
 210 

 1 prevent collisions. 

 2 If the purpose is just to track a 

 3 transaction and its life-cycle, one way to -- I 

 4 mean, it has to be unique, of course -- things to 

 5 keep in mind are not all transactions are executed 

 6 in execution venues. Some of them are 

 7 voice-confirmed, or affirmed, on platforms. So, 

 8 to the extent that these IDs are easily available, 

 9 they have a very transparent algorithm, I think it 

 10 will help -- and not just the clearinghouses, but 

 11 it will help the regulators, as well. 

 12 MS. LEONOVA: Okay, so to expand it -- 

 13 so, in case of centralized execution we are more 

 14 or less confident that staff for the CM will be 

 15 able to assign some kind of number. When we are 

 16 talking about non-centrally-executed transaction, 

 17 it goes to clearance, we would assume the 

 18 clearinghouse going to assign the number when it's 

 19 not going to clearance, or who is going to assign 

 20 the number, or how will the flow be (inaudible). 

 21 What are we talking about here. 

 22 MR. MAGNUS: So, if I may -- I'm Arthur 
 211 

 1 Magnus from JP Morgan -- I still think -- first, I 

 2 do think there's a big difference between cleared 

 3 and non-cleared, but even in the cleared 

 4 environment, I think we need to be very -- pardon 

 5 the pun -- clear on what we mean by "transaction." 

 6 Let me talk about the uncleared, and 

 7 then I'll come back to the cleared one in a 

 8 second. When we put on a position with a 

 9 counterparty -- I'm just going to make an example. 

 10 I do a trade with you, Irina, and it's $100 

 11 million transaction. I've now done it, it's an 

 12 event, a new transaction. 

 13 At some later date, something may happen 

 14 to that. It may move to a clearinghouse. Now, it 

 15 moves to a clearinghouse -- and we'll say David's 

 16 the clearinghouse -- is that a new transaction? 

 17 Or is it the same transaction? But now the 

 18 clearinghouse is sitting in the middle. 

 19 Now, if your expectation is -- and I saw 

 20 David shaking his head, "No, it's not a new 

 21 transaction" -- it does need a new identifier, 

 22 though. Because my transaction with David, and 
 212 

 1 Irina's transaction with David are gone, and we've 

 2 created a new transaction. And it has to be that 

 3 way, because I can't report, in any way, shape or 

 4 form, on my transaction with Irina any more, 

 5 because I don't have the relationship with her. 

 6 So we have a new transaction ID of some sort. 

 7 A different scenario is I have $100 

 8 million transaction with you that's bilateral, it 

 9 stays bilateral. And then at some point I want to 

 10 lower the risk to $75 million. I can do that two 

 11 ways. In some markets, I would do an offsetting 

 12 transaction -- a $25 million trade with you in the 

 13 other direction -- and we'd have two transactions 

 14 on the books. I have a $75 million position, but 

 15 two transactions. In other markets, I might do a 

 16 partial unwind -- unwind $25 million of that, 

 17 which is an event on the same transaction. 

 18 What I'm trying to get to here is to say 

 19 that we have to be very, very clear, and sit down 

 20 and figure out what are the different U cases 

 21 we're trying to solve for, so we can figure out 

 22 what we are identifying, and which identifiers 
 213 

 1 need to live throughout their life, and which 

 2 don't. 

 3 We clearly have a view at JP Morgan that 

 4 if you're doing a compression, we in effect are 

 5 unwinding all the trades that are being compressed 

 6 and replacing them with a smaller number of new 

 7 trades -- which is fine, and the compression 

 8 utility can actually provide those new identifies, 

 9 but not clear if that's actually what the CFTC is 

 10 looking for, in terms of what they're trying to 

 11 find traceability of. 

 12 In the cleared environment, we're not 

 13 sure the concept of "transaction" is meaningful 

 14 over a period of time. Because, again, there's 

 15 reporting requirements to the swap data 

 16 repositories of a transactional nature throughout 

 17 the entire -- quote -- "life of the transaction." 

 18 Now, while many markets, we believe, 

 19 that will never lend themselves to a standardized 

 20 product -- and each individual transaction, which 

 21 is perfectly clearable because we can think about 

 22 the risks holistically are usable -- we are going 
 214 

 1 to be able to, in other products, or instruments, 

 2 be able to identify them singularly by a contract. 

 3 So if you think of the CDS Index market, 

 4 that's a pretty standardized contract. We could 

 5 compress that to a position, very similar to the 

 6 way futures work today. And we would not want to 

 7 have to continue to carry around, every day, 

 8 information about the events associated with that 

 9 transaction. We'd want to associate it with the 

 10 position. In other markets, where we can't get 

 11 that level of standardization, we're going to have 

 12 to do it at a transaction level. 

 13 So I just think one of the things we 

 14 need to do here, very practically, is get, again, 

 15 the market practitioners together, who understand 

 16 the different markets, outline what the different 

 17 use cases are, and then come up with what is it 

 18 you're trying to identify. Are you trying to 

 19 identify for, again, trace-type purposes, to 

 20 understand the transactional life-cycle over its 

 21 life to look for market manipulation or things 

 22 like that? Are you trying to understand what is 
 215 

 1 the systemic risks presented by the trades that 

 2 are on the books at a moment in time? Are you 

 3 trying to do both? Are there other things you're 

 4 trying to accomplish with understanding what all 

 5 these things are. 

 6 And once we understand that, we can 

 7 probably come up with a nomenclature, an 

 8 identification that would work for this. And if 

 9 you have the answers to some of those questions, 

 10 we might be able to help you now. 

 11 MS. LEONOVA: Okay, then let's start 

 12 from the simple solution. If you are focusing on 

 13 how to trail a particular trade from the moment of 

 14 execution until the moment of time in the future, 

 15 do you follow the swap transaction idea that is 

 16 mutating through the life-cycle events? Or we try 

 17 to track the original swap transaction? 

 18 MR. AXILROD: Can I take a shot at that 

 19 one? We've been doing that for a while. As 

 20 Arthur said, in some cases it's virtually 

 21 impossible. No one wants to take a bunch of 

 22 trades that have been compressed -- there are lot 
 216 

 1 of one-to-many, and many-into-one clearing 

 2 give-ups, prime-brokerage give-ups -- you know, 

 3 block executions with splits. 

 4 If you want -- if the requirement is 

 5 just to keep an audit history, then, really, as 

 6 long as the system that's doing that can relate 

 7 the new trades to the old trade -- so, for 

 8 instance we know which terminations are 

 9 compressions. We know when the compressions were 

 10 done, because we get them from a compression 

 11 provider. And we're getting to the point where we 

 12 know which new trades also came as a result of 

 13 that compression. Those are reported by the firm, 

 14 so it's not quite so clear at the moment. But 

 15 it's getting there. 

 16 Or do you report us new trades? No, 

 17 just the terminations. Yes. But as long as you 

 18 have that information, and you know what the links 

 19 are -- and particularly, know that these new 

 20 trades that were coming on were as a result of a 

 21 compression rather than some economic activity -- 

 22 isn't that enough? You know, and as long as 
 217 

 1 there's the link somewhere -- these 10 trades link 

 2 back to these two, or these two link back to these 

 3 10 through a compression -- wouldn't that be 

 4 enough? 

 5 MR. PRITCHARD: I can say a few words 

 6 here. This is Raf Pritchard from TriOptima. I 

 7 think, you know, talking generally about these 

 8 universal IDs, there's no controversy about the 

 9 value or the justification or the motivation of 

 10 what is being described here. And the rule-making 

 11 goes into some lengths about the value of 

 12 aggregating across different entities, across 

 13 different transactions, and forcing limits, 

 14 surveillance, et cetera. So I don't think there 

 15 will be any controversy in these discussions about 

 16 the value or the motivation of what is being 

 17 described. 

 18 And also, in technical terms -- we've 

 19 seen at the prior panels today -- there's no real 

 20 controversy about the ability to create universal 

 21 unique IDs. We start off with venues that 

 22 generate these IDs, and we can combine those with, 
 218 

 1 you know, prefixes or suffixes for those venues, 

 2 and we can come to a universal scheme of unique 

 3 IDs. So that's not controversial, I think. 

 4 You know, what Peter and Arthur are 

 5 alluding to is the practicality and the 

 6 feasibility. I think Arthur made an excellent 

 7 point that, you know, what having these universal 

 8 swap identifiers implies is a certain uniformity 

 9 of behavior in the market that where a certain 

 10 scenarios arises -- and he very clearly enumerated 

 11 several good examples -- that everybody's going to 

 12 behave the same way. And that doesn't happen at 

 13 the moment. Participants in the OTC market do, by 

 14 and large, perform on their contracts, but they 

 15 don't necessarily record them in the same way. 

 16 And so somehow we're going to have to 

 17 come up with a rule book -- as Arthur said, a 

 18 prescription -- of what each scenario is, and how 

 19 to behave, in terms of do we create a new trade do 

 20 we retire an old trade and create a new one, like 

 21 Peter is talking about? Or do we create two? Or 

 22 what exactly happens? 
 219 

 1 And somebody has to write that rule book 

 2 and maintain that rule book so that everybody can 

 3 follow it. And that is where, I think, the 

 4 controversy around this is going to come in. 

 5 And secondly, an issue is that, you 

 6 know, there's a lot of infrastructure. Somebody 

 7 earlier was talking about these identifiers are 

 8 embedded in thousands of systems around the 

 9 industry. And they are. And often, those party 

 10 systems create records, you know, very early on, 

 11 when the trade is agreed to. And so we'd have to 

 12 feed back these unique trade identifiers into 

 13 those systems. And that's a significant amount of 

 14 rework. You know, when you design a software 

 15 solution -- and that's what our business is, 

 16 software solutions -- you design the data model 

 17 first. And when you design the data model, you 

 18 design the identifiers and keys first. And if you 

 19 try to change the keys to the data models of 

 20 thousands of systems, then that's, you know, 

 21 digging up every street and avenue in the city to 

 22 -- you know, nobody's arguing about the benefit 
 220 

 1 here. But it's really the amount of re-work 

 2 involved in universally applying them. 

 3 And so I think some of the solutions 

 4 Peter is talking about, about using what's there 

 5 at the moment and, you know, linking backwards and 

 6 forwards to identifiers, and using some of the, 

 7 you know, identification systems that are out 

 8 there and linking across them is going to give a 

 9 much more faster delivery of this benefit. 

 10 MR. TAYLOR: Does it help with that 

 11 particular issue -- you know, the re-working of 

 12 systems -- if the use of these USIs applies to new 

 13 swaps going forward after the implementation date, 

 14 but doesn't apply, in the same way, at least, to 

 15 what are going to get called "pre-enactment 

 16 swaps," or "transition swaps," the one between 

 17 July last year and the implementation date? 

 18 MR. PRITCHARD: I think that's -- just 

 19 quickly, it's going -- OTC swaps, one of the 

 20 things we've pointed out in our discussions here 

 21 is the rate of turnover in the market. We see 3.9 

 22 million live contracts in our rates repository, 
 221 

 1 but only 4,000 or 5,000 a day. And it's going to 

 2 take years and decades for that approach to get to 

 3 a place where everybody's got these unique swap 

 4 identifiers. 

 5 MR. TAYLOR: Okay. 

 6 MR. PRITCHARD: So this approach of 

 7 reusing and linking amongst the identifiers that 

 8 are there will deliver value. It may be a good 

 9 thing to do in the long term, but it's going to be 

 10 a long wait. 

 11 MR. MAGNUS: I would also just add to 

 12 that that the systems that, you know, the major 

 13 swap dealers use today, and other market 

 14 participants use today, whether you start using 

 15 these new identifiers on a particular date in the 

 16 future or say it applies retroactively is almost 

 17 immaterial. Because I have to make the changes to 

 18 the system in order to capture and record those 

 19 identifiers, and be able to pass them in every 

 20 single message that we have, among systems, in 

 21 order to fulfill the requirements that you're 

 22 trying to accomplish. 
 222 

 1 So once I can do that, we can probably 

 2 very quickly come up with a way, in a relatively 

 3 short amount of time -- it might take a year or 

 4 two, but relatively short compared to the term of 

 5 our derivatives book -- be able to go and get to 

 6 identifiers that are for the uncleared derivative 

 7 population. 

 8 MR. AXILROD: I guess I think you can't 

 9 solve this problem by trying to map to lots of 

 10 various different identifiers just because you 

 11 then have no way of enforcing -- I lose my grip on 

 12 how you do inventory control. In other words, 

 13 unique identifiers, especially under a system 

 14 where, you know, something's getting reported one 

 15 place for public dissemination, and another place 

 16 for regulatory reporting, you can have those out 

 17 of sync very quickly, and no check on whether 

 18 you're capturing everything, unless there are 

 19 unique identifiers. 

 20 I do think the technological problem, 

 21 though, is -- Raf is right, everybody -- these 

 22 identifiers are essentially the key to everybody's 
 223 

 1 system. And maybe just adding two digits requires 

 2 a rewrite of every single table in somebody's 

 3 system. 

 4 So I think if they are being created 

 5 from multiple sources -- say, for instance, the 

 6 execution venues -- they ought to be standardized 

 7 -- in other words, so that the people to whom 

 8 these things are reported can deal with them. 

 9 And, in a way, I would say that the SDRs, if they 

 10 don't create them, at least should say, "Here's 

 11 the format in which these identifiers have to be 

 12 provided." And maybe if there's a prefix for 

 13 other, for different execution venues, you know, 

 14 for sure that prefix should not be made public, or 

 15 the individual identifier should not be made 

 16 public, because there's just not enough trading to 

 17 -- if people know which platform it came from, 

 18 they'll know who did it. 

 19 So, as long as these identifiers are 

 20 private, or only for the regulators, that's okay. 

 21 But you really have to make sure that the SDRs can 

 22 handle all of this stuff once they're reported to 
 224 

 1 them. 

 2 MR. WILLIAMS: If I might -- Jon 

 3 Williams from Tradeweb. And, by the way, thank 

 4 you very much for the opportunity to participate. 

 5 You know, I think one of the things, you 

 6 know, as we look at our execution business 

 7 currently, across a number of different asset 

 8 classes, both cash and derivatives, you know, we 

 9 feel very strongly that from a unique swap, or a 

 10 unique transaction ID standpoint, there does need 

 11 to be kind of a point of initiation. And that 

 12 point of initiation is the point of execution. 

 13 Because I would think that, you know, 

 14 contained within the notion of a transactional 

 15 identifier is the concept of -- not to borrow from 

 16 earlier panels -- but the counterparties involved 

 17 in the transaction. And so the notion of trying 

 18 to report enough of the details that encompass the 

 19 physical transaction -- not just the details, the 

 20 mechanics of the swap -- to do that at the point 

 21 of the SDR, when actually the uniting of the 

 22 counterparties and the components of the swap 
 225 

 1 happens at the point of execution, would be 

 2 problematic from kind of a sequencing perspective. 

 3 One of the things that, you know, that 

 4 we certainly do now -- again because, you know, we 

 5 traffic across a number of different asset 

 6 classes, with a large number of counterparties, 

 7 and interact with a lot of, you know, other 

 8 participants in the trade, like TTCC, like 

 9 MarkitSERV -- is we certainly create a new 

 10 transaction identifier. And it varies. There's a 

 11 fair amount of, you know, homogeneity, in terms of 

 12 the logic behind the construction of the 

 13 identifiers, but each asset class has an 

 14 appropriate number of characteristics that 

 15 describe it. We then transmit those identifiers 

 16 -- for example, to TTCC, and they respond in kind 

 17 with whatever identifier they have created for 

 18 that particular transaction, and we associate the 

 19 two together, and are able to track them in 

 20 lockstep with each other throughout the life-cycle 

 21 of the trade. 

 22 You know, I guess one of the other 
 226 

 1 things, you know, from listening to some of the 

 2 other panels is, I think, the key is going to be, 

 3 obviously, a very -- and this is where there's 

 4 going to be a fairly, a need for a fairly 

 5 broad-based amount of cooperation across market 

 6 participants -- is a very kind of agreed upon, as 

 7 close to standardized as possible, methodology or 

 8 taxonomy for describing not just, you know, the 

 9 larger transaction but the pieces of the 

 10 transaction -- again, those unique counterparty 

 11 identifiers, and then ultimately those unique 

 12 product identifiers. 

 13 MR. CUTIHO: I just want to acknowledge, 

 14 and actually highlight one of Arthur's points 

 15 before. 

 16 It doesn't matter whether we're talking 

 17 about seasoned swaps, or things that are 

 18 bilateral, or swaps going forward. But if a 

 19 product is standardized, and if clearing is 

 20 provided on a positional basis, then there is no 

 21 ability for a clearinghouse to then report the 

 22 transaction identifier on an ongoing basis. So it 
 227 

 1 means nothing. It's just a net position at that 

 2 point in time. 

 3 CDS as a SNAK is a good example. 

 4 MR. MAGNUS: Then again, I do want to 

 5 caution that many asset classes you will not be 

 6 able to do that. And so we just have to be very, 

 7 very careful when we use that terminology. 

 8 Again, I want to go back and -- there 

 9 are one or two other attributes I think are very 

 10 important. One is, if we have identifiers out 

 11 there, the identifiers itself should adhere to the 

 12 general policies of good data management, which is 

 13 they should not mean anything. There should be no 

 14 meaning ascribed to the digits, characters, that 

 15 make up that alphanumeric or numeric or character 

 16 string -- in terms of who the parties were, where 

 17 it was executed or anything else. Those are 

 18 attributes of the transaction, and they should go 

 19 somewhere else. 

 20 And I think maybe it might make sense 

 21 just to think about the whole work flow. In 

 22 addition to the use cases, one of the concerns 
 228 

 1 that we certainly have, as we look at all of the 

 2 NPRs, not just the data one, is how the 

 3 information is going to flow between the various 

 4 parties in the system, and how it's all going to 

 5 fit together. 

 6 And a transaction ID is an interesting 

 7 one, because that's something that's going to have 

 8 to cut across, and isn't as well defined as the 

 9 earlier discussion this morning, on counterparty 

 10 or legal entity identifier, which is a little bit 

 11 clearer, because they do have contracts for those. 

 12 And so I think we do need -- you know, 

 13 again, and I'm going to use -- I think the way to 

 14 move this forward, again, is to get a very small 

 15 group of people in a room to define the problem 

 16 we're trying to solve. Because there is a 

 17 difference between a transaction, and I'll call it 

 18 a "deal" on my books. And this is a problem -- I 

 19 started in derivatives back when we were 

 20 converting all of our -- Morgan was converting all 

 21 of its parallel loans into swaps under an ISDA 

 22 Master Agreement. And I remember having 
 229 

 1 discussions, whiteboard discussions, in the room 

 2 about the difference between a transaction and an 

 3 instrument. 

 4 And the reason I bring this up, because 

 5 when we do, in the OTC market, an instrument 

 6 effectively is a unique instrument -- well, say, I 

 7 do a trade with Bruce, where Bruce and I have done 

 8 a trade together, that instrument only exists for 

 9 the two of us. And no one else needs to know 

 10 about it in today's market, that we've done that 

 11 particular instrument. So any transactions on 

 12 that instrument are really between us, and we use 

 13 our own nomenclature. 

 14 We're now moving into a market where we 

 15 have to share that with other people. And we have 

 16 to think about the difference between what is my 

 17 position in that instrument at the end of the day, 

 18 that might only exist between two parties, and the 

 19 event and the way that might change through some 

 20 transaction that might occur which is a one-time 

 21 event. 

 22 And the way you talk about the SDR and 
 230 

 1 the continuation data, we talk about what is the 

 2 mark-to-market of a transaction over its life? 

 3 But a transaction only exists at a point in time. 

 4 The position I have, or that instrument, the 

 5 position in that instrument, occurs for the life. 

 6 And that's where this data modeling 

 7 exercise becomes really complicated. But if you 

 8 break it down into its parts, we might be able to 

 9 come up with a nomenclature that actually will 

 10 allow us to get to a solution. 

 11 MR. TUPPER: Thanks, Arthur. This is 

 12 Bruce Tupper with ICE. I'm actually -- just to 

 13 kind of summarize, I'm really glad you got all 

 14 this feedback. 

 15 Because when I read this section I had a 

 16 lot of concerns, because operating a repository 

 17 for intercontinental exchange, I quickly got a 

 18 call from the clearinghouse. And they said to me, 

 19 "Oh, my God. We just roll up the open interest. 

 20 And I'm not really interested in an ID, nor do I 

 21 have the systems to do that." 

 22 And then to Arthur's point, you got a 
 231 

 1 great view into how one, you know, one large 

 2 dealer handles trades, although -- that's not to 

 3 say it's right or wrong -- other dealers may just 

 4 amend a trade, and keep the life -- the trade 

 5 open. And as a central provider of services, we, 

 6 in our system, we're required to architect a 

 7 system that could do both. 

 8 And then, you know, Peter also said 

 9 that, you know, you're going to be generating a 

 10 lot of IDs, and then this is going to be very 

 11 burdensome on the SDR, because we're going to be 

 12 ultimately the one where all this stuff's coming 

 13 into, and I need to tie out everyone's trade ID -- 

 14 which is a lot of columns. Because every time 

 15 someone gives you another ID, you're trying your 

 16 best to manage your tables, and link back all the 

 17 IDS. 

 18 And from the suss perspective, I think 

 19 the old -- they could easily generate unique IDS, 

 20 but once they report, they're really -- they're 

 21 not really involved in what life-cycle processing, 

 22 or what's going to happen post-trade. So, you 
 232 

 1 know, this is not to -- because we also, our 

 2 exchange guys are doing this and they're like, 

 3 "Yeah, great. I can issue an ID." And I'm like, 

 4 "Yeah, that's great. You're just -- you're around 

 5 for one night, then you're gone -- " and we're 

 6 going to be living with these trades for possibly 

 7 years. 

 8 So I think, going back to what Arthur's 

 9 saying, I think it would helpful to know what 

 10 you're trying to do with this ID. I think you're 

 11 going to run into difficulties trying to get every 

 12 potential, just call them "market participant" to 

 13 be able to manage them, because not all of them do 

 14 it. 

 15 I can't tell you that the SDRs probably 

 16 are best suited to do it. Because when we deal 

 17 with -- I'll speak to it from our perspective, 

 18 when we deal with it, we get unique IDs from each 

 19 person, and we show that to them, where we process 

 20 it. But to us, we always put our own behind it. 

 21 So that's fairly easy for me to do that in one 

 22 single system. And if I had to handle maybe a few 
 233 

 1 other, or foreign entities, it would be some work, 

 2 but it's doable. 

 3 Once you start stepping out of that 

 4 central processor, and if you quickly get to a 

 5 clearinghouse, or you go back to other customers 

 6 -- if you get out of the world of the swap 

 7 dealers, the idea of adding other columns to their 

 8 database, and tracking other IDs is going to 

 9 become very difficult. You know, they're going to 

 10 have to go back to their vendor, the vendor is 

 11 going to give them a quote in order to do this, 

 12 because they don't do it today. Whereas a firm 

 13 like JP Morgan will just add the column. 

 14 So I think we need to kind of figure you 

 15 -- and I'm echoing Arthur -- is that what would 

 16 you like to do with the ID? And it's not so much 

 17 the creation ID, but it's the ability to keep that 

 18 ID appended to the trade correctly, and move 

 19 throughout all the different reporting entities. 

 20 MR. AXILROD: I guess I don't know that 

 21 it's really that hard. As long as your 

 22 standardizing the number of digits, and it's not 
 234 

 1 too big, and everybody knows and can deal with it 

 2 -- I know that, you know, the smallest municipal 

 3 utility may not be able to do that. So I think 

 4 commodities is sort of a little bit different when 

 5 you get to -- you know, there's a lot of end-user 

 6 to end-user trades in commodities. And the 

 7 technological abilities of municipal utilities and 

 8 other small players may not be there. So I think 

 9 you need to sort of consider that somewhat 

 10 separately. 

 11 But for the large financial derivatives, 

 12 most people who have to report are technologically 

 13 sophisticated enough. Almost everybody has their 

 14 own trade identifiers. And I think, you know, 

 15 giving up trades for clearing is just another 

 16 instance of many-to-one, or one-to- many. There 

 17 is a contractual relationship between the 

 18 clearinghouse and the counterparty. 

 19 I think as long as you can solve that 

 20 many-into-one or one-into-many audit trail, it's 

 21 not -- actually, we don't necessarily do it the 

 22 greatest today. We can do it, but it's a little 
 235 

 1 bit convoluted. As long as you can do that, I 

 2 think you will have your universal identifier. 

 3 Maybe I'm missing something. 

 4 MR. MAGNUS: Peter, I just think about 

 5 applying that in the uncleared market. Because I 

 6 think when you get to clearing, and you have that 

 7 central counterpart and you can apply an ID to it, 

 8 it's one thing. But there are going to be deals 

 9 that are going to end up being bespoke, and will 

 10 be bilateral. And the Dodd-Frank Act, and all the 

 11 draft rules I've seen cater for that. 

 12 And so we need to make sure that 

 13 whatever identification system we come up with 

 14 also caters for that. 

 15 MR. AXILROD: No, I agree. I just 

 16 didn't think it was that difficult for people that 

 17 are used to technology. It's going to be very 

 18 difficult for people who are not. And you just -- 

 19 I do think that if you -- I mean, what we do is we 

 20 map firms' IDs to our IDs because, you know, if 

 21 you make everybody who's a market participant redo 

 22 all their systems, it's going to be difficult. 
 236 

 1 But as long as the SDR is sure that they 

 2 can track things with a unique identifier, I don't 

 3 know that the people communicating with the SDR 

 4 need to use that identifier. They could use their 

 5 own if the SDR has linked it to a unique 

 6 identifier. 

 7 MR. MAGNUS: And that probably is the 

 8 practical solution for implementing something 

 9 sooner, is to make that a requirement of the SDRs, 

 10 to provide that -- potentially provide that 

 11 capability. 

 12 MR. PRITCHARD: Yeah, I think Arthur and 

 13 Peter have got it just right there. For the 

 14 non-cleared example that we spoke about, as long 

 15 as parties report their trade to the same SDR -- 

 16 which I think is foreseen in the rule-making -- 

 17 and they use a consistent internal ID, which is 

 18 unique from their point of view, consistently over 

 19 that reporting, then the SDR itself can be 

 20 responsible for prefixing with it's own bit to 

 21 provide the universal unique feature when 

 22 reporting upwards to the Commission. 
 237 

 1 MR. MAGNUS: As long as we still get 

 2 standardized market practice. Because the example 

 3 I gave before, of that $100 million deal going to 

 4 $75 million, in certain asset classes it's done 

 5 one way, in other asset classes it's done another 

 6 way, and we have to decide if we -- or certain 

 7 firms will do it one way or another way. And we 

 8 have to decide if we need to standardize that. 

 9 MR. AXILROD: It's not only across asset 

 10 classes, actually. Within each asset class JP 

 11 Morgan does it one way, and Morgan Stanley does it 

 12 another way. And it gets -- (laughs). 

 13 MR. PRITCHARD: And I would think that 

 14 you'll get pretty much the same value with a lot 

 15 less expense if you let the SDR translate it, and 

 16 don't impose standardization on every last end- 

 17 user. 

 18 MS. LEONOVA: Okay. Then if, say, ID is 

 19 generated on the SDR level, it has to drip down 

 20 back to the original execution clearing and 

 21 everything else. 

 22 Is it feasible from -- 
 238 

 1 MR. MAGNUS: Right. 

 2 MS. LEONOVA: So how do you envision 

 3 audit trail of individual books if you cannot 

 4 track the SDR trail to, say, documentation of a 

 5 particular counterparty in their books? 

 6 MR. AXILROD: That's part -- I mean, 

 7 there's a little bit of latency, but it's part of 

 8 the Act -- Act. In other words, when we get it -- 

 9 I mean, Jonathan described it. When we get a 

 10 trade in, when we send that trade back, if -- or 

 11 if we get a confirmed trade in, when we send it 

 12 back it has our identifier on it. We don't apply 

 13 identifiers to information with unconfirmed 

 14 trades, because you have this double-counting 

 15 issue. You potentially get two legs of the same 

 16 trade in with different identifiers, and then you 

 17 have to make one go away once it gets confirmed. 

 18 You can do that, but it's a technological -- more 

 19 of a technological hurdle. 

 20 MS. LEONOVA: So you are talking about a 

 21 system of mapping of identifiers? 

 22 MR. AXILROD: Of? 
 239 

 1 MS. LEONOVA: Mapping. 

 2 MR. AXILROD: Well -- that's correct. 

 3 In other words, when you have a central identifier 

 4 you can map it to the firm's identifiers. But 

 5 once trades are confirmed, they go out -- unique 

 6 identifier generation can be done pretty quickly, 

 7 and then your acknowledgment back, you can have 

 8 your own identifier attached to it. So firm's can 

 9 use it or not, as they see fit. Most firms don't 

 10 use it. Most firms use their own identifiers and 

 11 it works fine. 

 12 MR. CUTIHO: As a technologist, I think 

 13 it's not very efficient to have a central system 

 14 just issue IDs, and every system in the chain, 

 15 just go and contact it every time. I don't 

 16 believe that will work very well. 

 17 I think if the goal is to have an 

 18 identifier at different points in time and 

 19 recognize them as events for a life-cycle, you 

 20 could have multiple identifiers and perhaps the 

 21 SDR manages the complexity of tying the different 

 22 identifiers together to give you an audit trail. 
 240 

 1 But I don't think polling a system to 

 2 get an ID every time is a very efficient approach. 

 3 MR. TAYLOR: Let me summarize a bit, and 

 4 get feedback from you all am I summarizing 

 5 correctly. 

 6 What we've got in the proposed rule is 

 7 not a system where there's a central giver of all 

 8 the swap identifiers. We called it a "first 

 9 touch" approach. The way we've got it is, if 

 10 there's a platform involved here, a (inaudible) or 

 11 a DCM, they create the swap identifier. 

 12 No platform, but you've got a dealer or 

 13 an MSP who presumably has sophisticated systems, 

 14 and is going to be the reporting counterpart, the 

 15 way the statute is set up, they create the 

 16 identifier. And if it's end-users on both sides, 

 17 where there may not be systems, the SDR creates 

 18 the identifier. 

 19 I think I hear you all saying you like 

 20 that, as opposed to -- you know, in terms of who's 

 21 creating it. Am I right or wrong about that? 

 22 MR. MAGNUS: As long as there's no 
 241 

 1 intelligence in the identifier. And by 

 2 definition, if a SEF or swap dealer is issuing 

 3 identifiers, there has to be some controlling 

 4 mechanism to either give it a block of identifiers 

 5 they can use or whatever. And that immediately 

 6 means that it has some intelligence in it, and 

 7 someone can reverse-engineer based on the 

 8 identifier. 

 9 MR. TAYLOR: The only intelligence, if 

 10 -- I don't know whether you should call this 

 11 "intelligence" or not. But if there is any built 

 12 in the way we wrote it in the proposed rule, the 

 13 proposed rule is saying that each of these 

 14 "creators" of an identifier would get a small code 

 15 that just identifies them. And that would be 

 16 either the beginning to the end of the identifier 

 17 itself. I mean, to be honest, we modeled that on 

 18 Tag 50 distribution from CME where, you know, each 

 19 clearing member can give Tag 50s, and once piece 

 20 of the identifier says which clearing member. And 

 21 that keeps them all unique. 

 22 I don't know whether you call that 
 242 

 1 "intelligence" or not. But is that problematic? 

 2 MR. MAGNUS: Well, it certainly 

 3 identifies parties to the transaction -- 

 4 potentially. So we have JP Morgan does a private 

 5 transaction with somebody, and our little tag at 

 6 the beginning, and everyone knows we have the 

 7 number "5." If there's a "5" at the beginning of 

 8 the transaction identifier, they know it came from 

 9 JP Morgan, they know that JP Morgan did the deal. 

 10 So I guess part of it would be what is 

 11 the -- how will that data be used, and what is the 

 12 publication of that data? 

 13 If I assign that deal to somebody else, 

 14 does it keep that same unique identifier, or "deal 

 15 identifier" I'm going to use, instead of 

 16 "transaction" -- or is the very nature of the fact 

 17 that I'm now not in that, and now someone else is, 

 18 is the transaction, and the actual instrument, you 

 19 know, has a unique identifier? 

 20 Again, this goes back to the modeling 

 21 issue that I said before, and we just have to be 

 22 careful. 
 243 

 1 If only the SDR and the supervisors get 

 2 to see that, probably less of a problem -- but not 

 3 clear how the supervisors are all going to share 

 4 this information, how widely spread it will end up 

 5 being. 

 6 MR. AXILROD: Two things. One is, if 

 7 you accept that as true, then the SDR has to 

 8 create the identifier. You have to have -- if 

 9 there's more than one SDR for a particular product 

 10 type, you have to have some way of assuring that 

 11 each SDR is producing unique identifiers. 

 12 And I guess I would say, generally, the 

 13 program by which you use the reporting parties' -- 

 14 remember, the -- right, the initial, in some ways 

 15 -- right -- the initial trade, if it comes from a 

 16 platform, that identifier is going to become 

 17 irrelevant later, because it's really the dealer 

 18 with the continuing reporting obligations. 

 19 I don't think it will work at all just 

 20 to use the dealer identifiers. And the reason is, 

 21 what we found is the dealers like to change them. 

 22 And for various good reasons. There's a merger, 
 244 

 1 there's something on. They're changing their 

 2 internal systems, they're changing their 

 3 identifiers. There's lots of reasons why dealers 

 4 might want to change their identifiers. And we've 

 5 actually had to put in a program that allows 

 6 dealers to go in at will and change their 

 7 identifiers. And the way we manage that is we 

 8 have our own identifiers, so that's what keeps the 

 9 audit trail. 

 10 So I don't really thing you can get away 

 11 from the repository maintaining their own 

 12 identifiers at some level. 

 13 MR. TAYLOR: So, if I'm understanding 

 14 right, if you were redesigning this you would say, 

 15 yes, if it's executed on a platform, the platform 

 16 should create the identifier at the beginning. 

 17 But if it's not, forget the dealers, the SDR 

 18 should create the identifiers or all of the 

 19 non-platform executed. 

 20 MR. AXILROD: I don't know that it 

 21 really matters who creates it. I honestly don't 

 22 think it does -- as long as the SDR can manage a 
 245 

 1 single identifier all the way through. In that 

 2 case, I would suggest it's probably easiest for 

 3 the SDR to create it, because it's its systems 

 4 that have to maintain this over their life. And, 

 5 frankly, we could work with a lot of providers and 

 6 say, "Here's how you have to give it to us," but 

 7 it's easier and safer if we create them ourselves. 

 8 MR. TAYLOR: And then the other thing I 

 9 thought I heard some consensus on was you all 

 10 don't think the swap identifier is useful after a 

 11 swap is cleared. 

 12 Am I right about that? 

 13 MR. CUTIHO: For a position-based 

 14 clearing -- yes. After that point, it's just a 

 15 position, and that position. 

 16 MR. AXILROD: I guess I -- 

 17 MR. CUTIHO: Net long, net short. For 

 18 trade-based clearing, we keep the trade open. But 

 19 there are terminations. Once they're terminated, 

 20 the IDs go away -- I mean, the swaps go away. A 

 21 clearinghouse doesn't maintain trades. 

 22 MR. AXILROD: I guess I'm not sure I 
 246 

 1 agree with that. You have to -- when a trade is 

 2 executed, you want to know whether it went to 

 3 clearing or not. So you have to still -- you 

 4 know, unless we get to the point, and I hope we 

 5 do, that, you know, there's automatic clearing at 

 6 point-of-trade. 

 7 But under most models -- not all -- 

 8 that's not the case yet. And you're going to have 

 9 to say, "This trade went to clearing here." 

 10 So what you really want is, you know, 

 11 you have a cleared position that has an 

 12 identifier. It goes up and down, but you really 

 13 want to be able to say, "This trade went to 

 14 clearing," and be able to sort of document that, 

 15 and "This trade didn't." 

 16 MR. MAGNUS: But that actually 

 17 reinforces, I think, exactly what Sunil said, and 

 18 what I was saying earlier -- is that "transaction" 

 19 is an event, and a "position" is a position. And 

 20 in certain cases where you have position-based 

 21 cleared instruments, you will not care about the 

 22 transaction once it moves to cleared. 
 247 

 1 And you basically said, "I have the 

 2 transaction. It gets me to cleared. But once 

 3 it's cleared, I don't want to do continuation 

 4 reporting -- which is the other piece of this 

 5 NPR -- on a transactional level. I want -- the 

 6 clearinghouse will want to only report on the 

 7 position that, let's say, JP Morgan has, or its 

 8 clients have, in, you know, in ID-6, settling in 

 9 December, you know, 2016. 

 10 MR. AXILROD: Arthur, I think we're 

 11 violently agreeing. 

 12 MR. MAGNUS: Yes, we are violently 

 13 agreeing. 

 14 MR. AXILROD: I think there's, at that 

 15 point there's no difference -- 

 16 MR. MAGNUS: Right. 

 17 MR. AXILROD: -- between the contract 

 18 and the position. 

 19 MR. MAGNUS: Right. But -- 

 20 MR. AXILROD: They're the same thing. 

 21 You don't have the independent trade anymore. 

 22 MR. MAGNUS: -- but for those things 
 248 

 1 that are maintained on a trade basis, that you 

 2 can't get to a position, you're going to have to 

 3 maintain some semblance of what that individual 

 4 unique deal is for its life. 

 5 MR. AXILROD: All I was saying is, for 

 6 us it's the same thing. It looks -- a position or 

 7 a trade looks exactly the same to us. It's just a 

 8 contract between two parties. 

 9 MR. CUTIHO: And another nuance I would 

 10 like to add, post-clearing, is that there is a -- 

 11 I think Arthur pointed to this before -- there is 

 12 a swap identified at the point where it's affirmed 

 13 or executed, but once cleared, it's broken into 

 14 two. And we're both -- you know, with the CCP 

 15 being the counterparty on both ends. 

 16 At that point in time, on an ongoing 

 17 basis, you know, it would make more sense for us 

 18 to report on a cleared identifier of that 

 19 position, even if it is trade-based clearing, 

 20 rather that, you know, the original execution. 

 21 Because we have broken the connection between the 

 22 two counterparties. 
 249 

 1 MR. TAYLOR: If a regulator is wanting 

 2 to follow this "thing" over its life, and this 

 3 thing gets cleared -- this may be another dumb 

 4 question. But suppose we have a swap identifier 

 5 that doesn't live very long. You know, you're 

 6 following the life of this swap identifier for, 

 7 you know, two hours or something, and then it 

 8 says, "This went to clearing." Thereafter, in 

 9 what you just said, is your ID would get replaced 

 10 by a cleared-trade identifier, or whatever we call 

 11 it. Is that a useful -- how would that work? 

 12 MR. CUTIHO: It's based on the purpose. 

 13 So if your purpose is to track the life-cycle post 

 14 clearing, then you want to know the cleared 

 15 identifier. Because at that point in time, the 

 16 CCP is the counterparty, not the (inaudible). 

 17 MR. TAYLOR: I think that would be the 

 18 purpose. 

 19 MR. AXILROD: That's what happens today, 

 20 both in clearing and in prime brokerage, where 

 21 it's exactly the same process, where you have a 

 22 lot of prime brokers net and compress with their 
 250 

 1 counterparties. That's what happens. 

 2 When the CCP, or a prime broker, steps 

 3 in the middle and becomes a counterparty to the 

 4 trade, we get fed the identifier of the person who 

 5 stepped in the middle. Sometimes we can attach 

 6 that to a particular transaction as an assignment, 

 7 and sometimes we can't because it's a many-to-one, 

 8 so we just keep a record that that's what 

 9 happened. 

 10 But if we know what the cleared 

 11 positions are, and we have the clearer's 

 12 identifier, it's just the same as a counterparty 

 13 giving us an identifier. We just want to make 

 14 sure that we've kept them all separate, and we've 

 15 got the appropriate inventory. 

 16 MR. MAGNUS: Again, if I do a 

 17 transaction with Bruce, the moment I move it to 

 18 clearing, I no longer have a relationship with 

 19 Bruce. That transaction does not exist. So 

 20 there's no way you can -- or that deal does not 

 21 exist in my records anymore. I now have a deal 

 22 with -- I'll use Sunil -- with Sunil as the 
 251 

 1 clearer, in that particular example. And Bruce 

 2 has a position with Sunil. 

 3 Now, I may do another trade with 

 4 somebody else that flattens my position out, so I 

 5 actually have no position anymore. I'm not going 

 6 to track anything, because those two positions are 

 7 equal and offsetting and I'm done. I've assigned 

 8 it, or whatever. Bruce may go add on to his 

 9 position. 

 10 And this is not terribly dissimilar to 

 11 what you're doing in the futures market today, 

 12 where an FCM in the futures market is required to 

 13 keep the transactions that led to the end-of- day 

 14 position. But once you get to the end of the day, 

 15 and everyone's confirmed and agreed the end-of-day 

 16 position, they basically stick those in an archive 

 17 somewhere, and will make it available if you ask 

 18 them for it. But they don't report it anywhere. 

 19 And that's not a terribly dissimilar 

 20 concept. And, again, it goes back to what are we 

 21 trying to trace? What is it that you want to 

 22 trace -- quote -- "through its life-cycle?" Do 
 252 

 1 you want to understand what JP Morgan's position 

 2 is over time and how we got there? Or are you 

 3 trying to understand, literally, an individual 

 4 transaction, and keep it alive much longer than it 

 5 really is alive, for some purpose that, quite 

 6 frankly, I'm not sure about? 

 7 MR. TUPPER: Yeah, and just, if I may -- 

 8 if the SDR is providing the reporting function -- 

 9 the SDR is mandated to provide reporting 

 10 functionality to the Commission -- right? So if 

 11 we're able to provide you that rolled-up reporting 

 12 functionality each day, that gives you the net 

 13 positions, I think -- you know, I kind of agree 

 14 with Arthur -- I'm trying to struggle with what is 

 15 the need for the Commission to know, behind the 

 16 scenes, the audit trail, how it calculated that 

 17 net? 

 18 Because if, you know, the SDR would be 

 19 receiving the cleared positions from the DCOs, and 

 20 then the uncleared positions would come in from 

 21 the reporting entities, and then they could 

 22 aggregate up these net positions for you -- 
 253 

 1 MR. AXILROD: I mean, I think the 

 2 regulators -- I don't think anyone's saying trying 

 3 to trace a trade that you can't trace anymore 

 4 because it doesn't exist anymore. But I think the 

 5 regulators probably want to know if the world has 

 6 changed from today to tomorrow, why that happened. 

 7 And whether you call that, you know, 

 8 "audit trail" or whatever, you're going to want to 

 9 know "This went to clearing," and you're going to 

 10 want to make sure that it foots -- that everything 

 11 that went to clearing actually results in the net 

 12 position that the clearer is reporting, that sort 

 13 of thing -- would be my guess. 

 14 MR. PRITCHARD: I think, you know, we 

 15 run a rates repository (inaudible) where we get 

 16 3-point-something million live contracts in, and a 

 17 lot of them are cleared. So, you know, we simply 

 18 get a set of live contracts every reporting cycle, 

 19 and some of them are cleared and some of them 

 20 aren't. And if they want to look at something 

 21 else, like the history, then they can construct 

 22 that in some way. 
 254 

 1 But fundamentally what's being reported 

 2 is a set of live contracts. And whether they're 

 3 with a party and a clearinghouse, or party and a 

 4 party -- but it does point up, for some of the 

 5 sort of clearing scenarios that were alluded to 

 6 over there, that these rules -- if you want to 

 7 have a universal set of identifiers, will need 

 8 rules for what constitutes a new ID being 

 9 generated or not. 

 10 MR. TAYLOR: Let me ask both Pete and 

 11 Raf -- because you illustrate the conceptual 

 12 universe here, I think, on continuation data 

 13 reporting. 

 14 Take a cleared trade. A swap was made. 

 15 It went to clearing. And now, over its existence, 

 16 it is being reported to you. 

 17 Pete, you're getting life-cycle events, 

 18 if I understand properly. And Raf, you're getting 

 19 snapshots. 

 20 What's in those, and who's giving it to 

 21 you? Is it coming from the clearinghouse? I 

 22 mean, walk through that. 
 255 

 1 MR. AXILROD: It depends. If the 

 2 clearinghouse is doing its own life-cycle event 

 3 processing and reporting it, then we're getting it 

 4 from the clearinghouse. 

 5 Most clearinghouses -- I mean, not 

 6 everyone at this table, but one of the two at this 

 7 table -- oh, this is going to change -- is 

 8 actually using DTCC's sort of trade warehouse to 

 9 do it. So, in a sense, we would -- the 

 10 repository, if you will -- would get that 

 11 information from the warehouse. 

 12 For other credit events, we either 

 13 generate it. For the non-standard trades -- 

 14 which, by the way, given the last session, I 

 15 believe include all the AIG trades, so I am 

 16 wondering whether a category of "non-standard," 

 17 and throwing everything into that bucket would 

 18 help us much. 

 19 That aside, I think -- I mean, this will 

 20 -- you'll see this in our comment letter. But I 

 21 think you ought to be, repositories ought to have 

 22 the flexibility of using whatever method is 
 256 

 1 easiest and best for the market participants. 

 2 For the trades that are non-standard, it 

 3 may be easier and better, you know, for us, 

 4 instead of asking people to report the life-cycle 

 5 events, to just have them report the snapshots -- 

 6 especially if there's a lot of life-cycle events. 

 7 When there are not too many life-cycle 

 8 events, you know, it might be easier to have 

 9 people just report the changes, or report the 

 10 life-cycle events. 

 11 So, right now, for 

 12 electronically-confirmed trades -- which is what 

 13 we deal with for credit, but not for equities, 

 14 where we're sort of going to have to change what 

 15 we do, because it's actually much more like what 

 16 TriOptima does -- but for electronically-confirmed 

 17 trades, I would expect that it's just easier for 

 18 everybody to have the life-cycle events reported, 

 19 because they're either going to be computed 

 20 centrally, or they're going to be confirmed. 

 21 They're confirmable life-cycle events, they'll be 

 22 confirmed electronically, and they'll come in for 
 257 

 1 trade. So they're not electronically confirmed, 

 2 it may be that the only way you can get them is by 

 3 snapshots. 

 4 But I think, I really think that 

 5 repositories -- right? -- if one is good enough, 

 6 and the other -- if both are good enough -- right? 

 7 -- then the repositories ought to have the 

 8 flexibility to use whichever they want to use. 

 9 You know, if it's good enough for credit, it 

 10 should be good enough for rates. If it's good 

 11 enough for rates, it should be good enough for 

 12 credit. 

 13 That's our view. 

 14 MR. PRITCHARD: Well, I'll just follow 

 15 on briefly there. I think that the two -- you 

 16 know, from the point in time of the state 

 17 reporting approach to repositories, the two 

 18 advantages -- and I think Peter was saying it's 

 19 easier in circumstances, but we'd totally agree, 

 20 is that it's more robust, because you're not 

 21 dependent on anything that was ever previously 

 22 reported. You simply get a full refresh. If 
 258 

 1 somebody's got a zero position, they don't report. 

 2 If they've got a non-zero position, they do 

 3 report. And you just get that fresh, from scratch 

 4 every day, so it's more robust and 

 5 self-correcting. 

 6 And, secondly, you don't need any of 

 7 these rules about the scenario under which the 

 8 trade was done, or the history of how it got to be 

 9 there, because you simply just report all 

 10 outstanding positions every day. And it makes it 

 11 a lot simpler to know that you're in compliance, 

 12 and that you just report -- 

 13 MR. AXILROD: I can't let that go 

 14 un-commented on. I actually think it's a lot less 

 15 robust. And the reason I think it's a lot less 

 16 robust is because a snapshot simply won't tell you 

 17 why something happened. It will just tell you 

 18 that positions changed, and you won't really know 

 19 was this a tear-up? Was this a compression? Was 

 20 this an assignment? Was it a price-forming event? 

 21 Was it not a price-forming event? Is it relevant 

 22 to the market? What's going on? 
 259 

 1 So I think, I mean, that would -- I know 

 2 we could go back and forth for a while. But I 

 3 would take the opposite view. 

 4 MR. MAGNUS: I would just add one thing 

 5 to that, which I think you've highlighted in both 

 6 of your comments, and there's truth to both of 

 7 what you're saying -- is that this goes back to 

 8 saying we need to be objective-based in what we're 

 9 trying to accomplish with the reporting and with 

 10 the identifiers. 

 11 And, you know, I would argue from JP 

 12 Morgan and from many of the industry groups that I 

 13 sit in, we believe that the regulation should not 

 14 stipulate the technical method for accomplishing 

 15 the objectives. It should state, "Here's the 

 16 objectives of what I want to see at the end of 

 17 every day for continuation reporting," and the 

 18 industry should figure out what is the best way to 

 19 do it for that asset class, which may be the right 

 20 way to do it today. And it may be that three 

 21 years from now, you know, the industry may change, 

 22 and it might be better to do it a different way. 
 260 

 1 And for CDS it may change and you want to do it a 

 2 different way, also. 

 3 But it should be objective-based, and 

 4 not actually dictated in the regulation, what 

 5 method of reporting to the repositories you should 

 6 use, whether it's life-cycle or totally placed. 

 7 You should state what the objectives are, and 

 8 we'll figure out how to meet those objectives. 

 9 And we'll work with you to figure that out. 

 10 MR. TAYLOR: We've let this discussion 

 11 -- because it was so interesting -- bleed a bit 

 12 into the Q&A time. I suppose I don't feel too 

 13 bad, because I think Pete's the only person in the 

 14 audience -- and he's not in the audience anymore 

 15 -- who asked a question. So we're probably safe. 

 16 But I will open it up. Is there anyone 

 17 who wants to ask a question relating to any of 

 18 this? There's a couple microphones out there if 

 19 anyone does. 

 20 (No response.) 

 21 MR. TAYLOR: Passive investors. What 

 22 can we say? What else do you think? 
 261 

 1 MS. LEONOVA: Okay, then. I guess we're 

 2 going to have a 20-minute break for coffee. Thank 

 3 you. I really appreciate your making it here. 

 4 MR. TAYLOR: Okay. We're ready for 

 5 Panel 6, the last of the day, but some very 

 6 interesting topics. I think everybody is here. 

 7 Does everyone have their name tags? Yes. 

 8 We've moved, you know, into a different 

 9 arena. Not identifiers now but there were 

 10 interesting questions before us about whether 

 11 there would be utility in some sort of master 

 12 agreement library or some sort of portfolio data 

 13 warehouse and we wanted to get more input about 

 14 that. So that's the topic here. 

 15 And let's start with the first question 

 16 we have, which is should a separate collateral 

 17 warehouse system be established as part of an SDR 

 18 to enable the systemic risk and prudential 

 19 regulators to monitor collateral management and 

 20 gross exposure on a portfolio level for swap 

 21 participants? And if so, how do we do that? 

 22 MR. MAGNUS: So allow me to take a stab 
 262 

 1 at that. We've been talking about that. This is 

 2 Arthur Magnus from JP Morgan. 

 3 One of the other hats that I wear though 

 4 is co- chair of ISDA's Collateral Committee. And 

 5 it's something that we've been discussing in that 

 6 forum for a long time. And then in reading the 

 7 NPR we got a little bit concerned because there 

 8 are concepts in there that do not work at all in 

 9 the bilateral space. So particularly, we cannot 

 10 ascribe -- in the valuation data that you have, we 

 11 cannot ascribe collateral to an individual 

 12 transaction. The bilateral OTC space is on a 

 13 contractual or portfolio basis. We have ISDA 

 14 master agreements and CSAs primarily, credit 

 15 support annexes, and they dictate what 

 16 transactions are part of that portfolio and how 

 17 that collateral is to move. And we provide a call 

 18 to our counterparties if we are the valuation 

 19 agent for collateral and they provide it to us on 

 20 a portfolio basis. We reconcile the transactions 

 21 that underlie that on a transactional basis but 

 22 the collateral is pooled. 
 263 

 1 And for what I'm going to call exposure 

 2 collateral -- not variation margin, and that is 

 3 just because the term variation margin as we use 

 4 it in the bilateral space is different than the 

 5 draft definitions that you've provided and the way 

 6 it is used in the future space. And I want to 

 7 suggest that we need to keep them separate and be 

 8 consistent. And that will be in several of the 

 9 comment letters I think you'll get in the not too 

 10 distant future. 

 11 So I'm just going to call it exposure 

 12 margin when I'm talking in the bilateral space and 

 13 I'll use variation margin for the cleared space. 

 14 But for exposure margin, it generally is an offset 

 15 for mark-to-market. So you could argue that the 

 16 collateral we have you could prorate it among all 

 17 the deals based on the mark-to-market but it's 

 18 never an exact match because of the point in time. 

 19 Initial amount, which is a separate amount that we 

 20 get from certain counterparties, can be calculated 

 21 any number of ways. Sometimes it's on a deal 

 22 basis but frequently it's on a portfolio basis 
 264 

 1 also. 

 2 So in thinking about that and thinking 

 3 about the prudential and systematic risk oversight 

 4 that the regulatory community abroad needs, the 

 5 only way that you're going to understand what our 

 6 true risks are and what our true counterparty 

 7 exposures are is on a portfolio basis. Therefore, 

 8 we would strongly support the creation of a -- I'm 

 9 not going to call it a warehouse because that 

 10 actually has other connotations and collateral, 

 11 including physically where the collateral might be 

 12 stored. So I'm going to call it a collateral 

 13 evaluation repository. Just to be clear, it looks 

 14 like other repositories and it's on a portfolio 

 15 basis where it would have in it a variety of 

 16 attributes, including the mark-to-market of the -- 

 17 the mark-to-markets of the portfolio or the 

 18 exposure that we have to each other on a net basis 

 19 -- sorry, on a gross basis without any benefit of 

 20 any credit support. And what is it after 

 21 collateral, which is a specific type of credit 

 22 support. Obviously, there may be other credit 
 265 

 1 support which is very hard to -- it's very hard to 

 2 put in there what is the value of a particular 

 3 lien we may have on property, plant, and 

 4 equipment, or whatever it happens to be. 

 5 So we would recommend that type of an 

 6 approach. And then we could also provide for you 

 7 what is the cash and marketable security 

 8 collateral that is behind that. And if you want 

 9 to know where it is we can tell you that also, 

 10 which we think would serve the purposes of the 

 11 systemic oversight that you are trying to 

 12 accomplish. 

 13 So I'll stop there. We can talk about 

 14 how you get that and build such a thing if you're 

 15 interested. 

 16 MR. TAYLOR: We are but maybe let's go 

 17 around on the first question first and then we'll 

 18 come back to how do we do it. 

 19 MR. PRITCHARD: Maybe I can talk a bit 

 20 there. This is Raf Pritchard from TriOptima 

 21 again. 

 22 So we've talked in some of our previous 
 266 

 1 discussions about repositories, about the 

 2 diversity of goals that have been set out for 

 3 repositories, systemic risk monitoring being one 

 4 but not the most important one, but an important 

 5 one, but also market risk surveillance and 

 6 enforcement, and realtime reporting. And one of 

 7 the things that we've alluded to is that that's a 

 8 different -- that's got a diverse selection of 

 9 goals and as a software architect it kind of sets 

 10 up some challenges as to which one you're going to 

 11 meet when you design the repository. So I think, 

 12 you know, what Arthur is describing there, a 

 13 collateral valuation repository does definitely 

 14 address the systemic risk goal much more directly. 

 15 And we've been providing an exposure 

 16 management service for some time now whereby 

 17 parties can exchange their data on their line item 

 18 OTC swap basis and evaluations. And what that 

 19 enables them to do for their collateral process is 

 20 to reconcile the total exposure they have between 

 21 each other early in the 24-hour cycles so that 

 22 they can get to moving and settling the collateral 
 267 

 1 and delivering the risk mitigation that that 

 2 provides. And I think, you know, from what we can 

 3 see we get 75 percent of the noncleared OTC swap 

 4 live contracts through that service and the large 

 5 number of dealers and firms on that. And you can 

 6 see that if you took that and extrapolate it 

 7 upwards a layer so that you aggregate it across 

 8 the firm's positions you would get to a pretty 

 9 good view of systemic risk. And so we, you know, 

 10 I think it's a good approach towards systemic risk 

 11 monitoring and it's a feasible one, too. 

 12 MR. WILL: It's Michael Will here from 

 13 docGenix. I would agree with Arthur to the extent 

 14 that a different beast is required as far as the 

 15 nature of the repository here. We are definitely 

 16 looking at a portfolio animal, if you like. Where 

 17 I would slightly disagree with him is really in 

 18 terms of the level of information that is stored 

 19 within that particular repository. We're here 

 20 today to discuss two central themes that have been 

 21 enshrined by Congress in the Dodd-Frank Act, and 

 22 namely these are transparency and accountability. 
 268 

 1 To achieve these objectives, it's my 

 2 view that you, as regulators, will require access 

 3 to information that's been reduced to data from 

 4 three distinct but related document types. These 

 5 are the confirmations, which (inaudible) very 

 6 well, the economic terms. But we also need some 

 7 information concerning enforceable master 

 8 agreements and enforceable credit support 

 9 agreements. The master agreements themselves 

 10 include the legal and credit terms, and the credit 

 11 support agreements contain the margin terms. 

 12 As I've watched you promulgate these 

 13 rules, I think it's right and proper for me to 

 14 perhaps be a little concerned that you are, in 

 15 fact, missing an important part of the picture by 

 16 focusing primarily on the economic data to the 

 17 exclusion of legal credit and margin data. And as 

 18 a result there's perhaps a risk that you might be 

 19 unable to achieve the transparency and 

 20 accountability objects of Dodd-Frank. 

 21 In short, if you only have access to the 

 22 economic data, in my view you'll have a mere 
 269 

 1 one-third of the information you need to evaluate 

 2 counterparty credit risk. And counterparty credit 

 3 risk is, of course, a key component of systemic 

 4 risk. In any crisis or legal proceedings, in my 

 5 view it's inevitable that the legal credit and 

 6 margin terms enshrined in the master agreement and 

 7 credit support agreement will take center stage. 

 8 The events of the past couple of years are no 

 9 exception. 

 10 Why is data from these legal agreements 

 11 important? Well, it's really quite simple. 

 12 They're the primary mechanism by which the parties 

 13 manage and mitigate their counterparty credit risk 

 14 exposure to each other. So I do believe it's a 

 15 good idea to have a collateral agreement data 

 16 repository and that swap dealers and major swap 

 17 participants should be asked to submit data to it. 

 18 Once you have this repository and you have access 

 19 to the credit support data, you're going to have 

 20 access to a number of key pieces of information. 

 21 For example, is a relationship actually 

 22 collateralized? I think currently data released 
 270 

 1 by ISDA indicates that 22 percent of all bilateral 

 2 relationships are not supported by collateral 

 3 arrangements. 

 4 You'll be able to have a very 

 5 transparent view as to the nature of the 

 6 collateral the parties are using. You'll have 

 7 indications of whether they're using cash, 

 8 government or agency securities, perhaps any other 

 9 collateral agreed between the parties, and 

 10 sometimes in these agreements one of the parties 

 11 will have the right to say I unilaterally decide 

 12 that this is eligible collateral and the other 

 13 party will have nothing to say about it. You'll 

 14 learn about valuation percentages and haircuts, as 

 15 well as minimum credit requirements for the 

 16 collateral. Frequently collateral will need to be 

 17 highly rated to be eligible. 

 18 Thresholds also are of great interest 

 19 because they're used to calculate exposure. I'm 

 20 referring here, of course, to independent amounts, 

 21 thresholds, minimum transfer amounts, and initial 

 22 margin. And this is important. These thresholds 
 271 

 1 are extremely sensitive to minor changes in credit 

 2 ratings and asset value declines. 

 3 Another important factor will be the 

 4 nature of the relationship. Is it bilateral or 

 5 unilateral? In some agreements only one party has 

 6 the obligation to post collateral. You'll be able 

 7 to find out rights of the parties to substitute 

 8 collateral, valuation procedures and dispute 

 9 mechanism, the rights of the parties to reuse or 

 10 rehypothecate the collateral, as well as the scope 

 11 of the collateral coverage. Indeed, it's not 

 12 uncommon for parties to actually exclude 

 13 transactions from the collateral arrangements. So 

 14 I think we need to go a little bit further. 

 15 MR. PICKEL: Bob Pickel from ISDA. Far 

 16 be it for me to suggest that there's not a wealth 

 17 of information in master agreements and credit 

 18 support annexes. (Laughter.) There is plenty, 

 19 and it is very important, and as Mike suggests, at 

 20 critical times it is, you know, in many ways the 

 21 most important information. 

 22 I guess I would circle back to a theme 
 272 

 1 that we've been sounding in some of our comment 

 2 letters. I think it's been sounded to some extent 

 3 today. We certainly sounded it yesterday with the 

 4 New York Fed and Sarah Josephson from the CFTC and 

 5 other global regulators, and that is let's figure 

 6 out what the critical first steps are here in 

 7 terms of the information that you feel you need. 

 8 Yes, I think there's a lot of -- the risk that get 

 9 created, the exposures that get created are 

 10 created through those transactions that are put 

 11 on. And so it's important for you to have a 

 12 window into that information. 

 13 It may very well be that it's important 

 14 for the CFTC to have the kind of information that 

 15 Mike suggests and we can look at that over time. 

 16 I think most importantly you should have -- make 

 17 sure that the prudential regulators are requiring 

 18 their regulated entities to maintain this 

 19 information. Obviously, make sure they've got 

 20 master agreements in place and there are other 

 21 master agreements. I think the LEAP one was 

 22 measured earlier today. That they know what the, 
 273 

 1 you know, obviously you have access to the master 

 2 agreement. You know what's in that. There's a 

 3 schedule to that. That's the structure. It's 

 4 really those variations from the master that are 

 5 most relevant in many things like cross defaults 

 6 and the credit support annexes, various thresholds 

 7 and triggers and things like that that are very 

 8 important. 

 9 So I think it's important for the 

 10 regulators to require the institutions to have 

 11 that in place. And there can be -- there are 

 12 mechanisms, and Mike I'm sure would be happy to 

 13 talk about them, that may facilitate the more 

 14 ready access of the entity to that information. 

 15 And we'll see how that develops over time. But I 

 16 guess I would, you know, circle back to the notion 

 17 of phasing in. Let's think about what's most 

 18 important, what the first steps are as we consider 

 19 these other issues of master agreements and credit 

 20 support annexes. 

 21 MR. TROZZO: Pat Trozzo from Reval. 

 22 Just to extend some of the good points that have 
 274 

 1 been brought forward here today, taking it up to 

 2 maybe a little higher level first, is, as I read 

 3 the rules, I believe there still needs to be 

 4 further definition of what are the goals in the 

 5 area of overseeing or measuring and tracking 

 6 systemic risk. Like many things in our business, 

 7 the devil is in the details. And those details 

 8 will drive a lot of the issues that we're hitting 

 9 upon here today and answer to some of the 

 10 questions -- many of the questions here in this 

 11 panel. So I think that first needs to be -- 

 12 questions of if you are looking to what degree to 

 13 measure it, right now potentially the rules are 

 14 written that you're limited to more of a current 

 15 exposure approach of looking at counterparty 

 16 credit exposure as opposed to maybe some 

 17 alternative means. So I think that definition 

 18 needs to be further extended and clarified. And 

 19 then that will help drive a lot of, if you will, 

 20 some of the answers to these questions. 

 21 And then one other thing I'll add is 

 22 there's the legal aspects of netting and so forth. 
 275 

 1 All the points brought forward here are correct 

 2 and I agree but there's one other area what I 

 3 would call more of the economic look of the 

 4 exposure across an enterprise between one 

 5 enterprise and another enterprise and looking at 

 6 the overall exposure, that on the bilateral mass 

 7 agreements doesn't necessarily cover it. There is 

 8 a related party effect of multiple agreements that 

 9 may come into play here and I call that more the 

 10 overall economic look. So that also I think needs 

 11 to be taken into consideration when looking at 

 12 overall systemic risk and counterparty credit 

 13 exposure. 

 14 MS. GOLDMAN: Hi. I'm Melissa Goldman 

 15 from Goldman Sachs. I would also like to 

 16 reiterate the points made by both Arthur and 

 17 Robert in terms of the way we view the collateral 

 18 risk and being at portfolio level and the need to 

 19 be able to represent it that way to get the most 

 20 accurate view of where the risks live. 

 21 I would, to Mike's point, I would like 

 22 the agreement sort of data similar to some of the 
 276 

 1 conversations that we had around the product 

 2 identifiers in that the -- you could think of the 

 3 masters and the CSAs as a -- almost as an exotic 

 4 in how we need to model that data and represent 

 5 that data. And it's not always at all 

 6 straightforward in terms of how that becomes 

 7 represented within a data model. 

 8 Additionally, I think there's, you know, 

 9 a significant amount of interpretation that 

 10 happens with that data and so to be able to sort 

 11 of go through that -- the cost of going through 

 12 that interpretation and then systemically 

 13 representing it in a central repository would be a 

 14 quite expensive exercise. 

 15 MR. AXILROD: Can I just make it 

 16 unanimous in the sense that I think, you know, the 

 17 obvious missing piece from what everyone had been 

 18 doing was the collateral. You simply are not 

 19 going to understand -- this may not be sufficient 

 20 but you simply are not going to understand 

 21 systemic risk or exposures unless you understand 

 22 what collateral is held where and essentially 
 277 

 1 parties' legal rights to it. So yes, I fully 

 2 support making that fact transparent to 

 3 regulators. I think that I also agree that on a 

 4 bilateral basis, just as on a cleared basis, 

 5 right, nobody collects collateral, whether cleared 

 6 or uncleared, on a trade by trade basis entirely. 

 7 They do it on a portfolio basis generally. So 

 8 you're stuck with portfolio- based collateral 

 9 reporting, which means that you're going to have 

 10 to put together all the various valuations that 

 11 you got in the individual repositories, assuming 

 12 that they're complete and accurate. You probably 

 13 ought to include in what's reported to 

 14 repositories as maybe static data or something 

 15 else, whether this particular counterparty or this 

 16 particular group of transactions actually is done 

 17 on a collateralized basis or not. But the 

 18 important thing really is to compare the value of 

 19 the portfolio with the value of the collateral. 

 20 If there's a very big disparity, you know you 

 21 probably have to make some more inquiries. 

 22 The other thing that you really need to 
 278 

 1 get a handle on is, you know, and this will come 

 2 down to concentrations, but what collateral might 

 3 a counterparty have to put up with very small 

 4 movements in the market or a particular event. So 

 5 if you've got -- if it looks like a party is going 

 6 to have to come up with collateral upon the 

 7 occurrence of certain events that they're just not 

 8 going to be able to come up with. And this 

 9 includes across cleared and uncleared trades. And 

 10 you won't understand it unless you get the whole 

 11 picture across cleared and uncleared trades. 

 12 You're not going to know whether a 

 13 particular event will drive that party under and 

 14 essentially, you know, cause the system to 

 15 collapse. And in that event, the legal right to 

 16 require people to post collateral isn't so 

 17 important as the practical realities really. Is 

 18 this guy extended to the limit of the amount of 

 19 collateral he can post? Will certain sorts of 

 20 events make it so it's going to be impossible for 

 21 him to post variation margin? Should people be 

 22 collecting additional either CCPs or bilateral 
 279 

 1 counterparties? Collecting additional sort of 

 2 initial margin because these positions are just 

 3 too concentrated and you need to do something to 

 4 protect yourself against the fact that when the 

 5 position starts to deteriorate, generally this 

 6 firm won't be able to come up with anything to 

 7 provide anybody. 

 8 So I think you need to concentrate. A, 

 9 we need to have a repository like this. You need 

 10 to know where the collateral is and you need to do 

 11 something to figure out, you know, these sort of 

 12 exposure to events over concentrations that are 

 13 going to make it difficult if not impossible for a 

 14 firm to put up additional collateral. 

 15 MR. MAGNUS: I would just add to that 

 16 that, you know, JP Morgan has spent tens of 

 17 millions of dollars to build systems to take the 

 18 data that we have in our master agreements and in 

 19 our transaction and data repositories to look at 

 20 our exposures in different ways to understand what 

 21 happens when a counterparty gets downgraded or a 

 22 trigger or something happens in the market to 
 280 

 1 stress test the portfolio. These are very, very 

 2 complex calculations and we make them available to 

 3 our prudential regulators already on a regular 

 4 basis. 

 5 I think this is incredibly important 

 6 information and, you know, my first, you know, the 

 7 first thing I would say is, you know. Dodd-Frank 

 8 is going live in this year. If you're going to 

 9 collect this data and do something with it it's 

 10 going to take years to do. It's taken us years to 

 11 build the infrastructure as we have to manipulate 

 12 this data and use it effectively in our risk 

 13 management regime. As has been pointed out in 

 14 numerous other places, you know, a huge percentage 

 15 of the market share -- I think the CFTC has quoted 

 16 over 90 percent of the market share is 

 17 consolidated in five dealers which are all subject 

 18 to prudential regulation in this country. And we 

 19 already share with those prudential regulators 

 20 significant information about our portfolios and 

 21 what happens in various scenarios. 

 22 My short term recommendation, certainly 
 281 

 1 until we can sort of what we're doing because I 

 2 think this is important and I think Dodd-Frank 

 3 says you should have -- you need -- we need to 

 4 make sure this information is available in some 

 5 form -- you should look through the Financial 

 6 Stability Counsel, as well as working with the OCC 

 7 and the Fed who are generally the prudential 

 8 regulators through the -- I guess it's the 

 9 memorandum of understanding (MOU) process that you 

 10 have between regulatory agencies to share this 

 11 information because that will give you a huge view 

 12 of the risks that are currently being run in the 

 13 market place. 

 14 I think that a master agreement library 

 15 is probably, you know, an expensive definition of 

 16 what is in Dodd-Frank. And quite frankly, I think 

 17 we have so many fish we have to fry, if you will, 

 18 in order to implement what we have to implement. 

 19 We ought to focus on that first and then come back 

 20 to this one at a later date because this one -- 

 21 there's so many different ways you can use that 

 22 data that just collecting it without understanding 
 282 

 1 how you're going to use it I think would be 

 2 difficult and just incredibly complicated and 

 3 expensive. So we're going to put it into 

 4 repositories and we're not going to use it because 

 5 we can't figure out what we're going to do with 

 6 it. And if we're not going to spend the tens and 

 7 hundreds of millions of dollars you're going to 

 8 have to spend to actually crunch it, then we're 

 9 probably not the best use of our time at this 

 10 moment in time. And it's probably something we 

 11 should be coming back to after we move somewhere 

 12 down the road. And I would echo what Bob said 

 13 earlier and what we suggested to the ODSG 

 14 yesterday through the IIGC, is that we need to 

 15 move in incremental steps to implement this. This 

 16 is a sweeping piece of legislation, as we all 

 17 know, and it contains many structural changes to 

 18 the infrastructure. And we need to work together 

 19 and we need to do it in a stepwise fashion in 

 20 order to implement this in a way that is not going 

 21 to disrupt the market and disrupt commerce in the 

 22 United States and potentially move jobs and 
 283 

 1 business out of the United States. 

 2 MR. AXILROD: I would agree. 

 3 MR. TAYLOR: Before -- 

 4 MR. AXILROD: Oh, sorry. 

 5 MR. TAYLOR: Before he does that 

 6 follow-up, I thought somewhere in the course of 

 7 that you shifted over from information about 

 8 collateral to master agreement library. And I 

 9 just want to make sure which one we're talking 

 10 about. 

 11 MR. MAGNUS: I was -- I was particularly 

 12 talking about the master agreement library. As I 

 13 said before -- 

 14 MR. TAYLOR: Let's save that one. 

 15 MR. MAGNUS: -- I support -- as I said, 

 16 I support and JP Morgan supports the idea that we 

 17 should create a single portfolio repository for 

 18 looking at exposure-related information and the 

 19 credit support and collateral against it to be 

 20 very clear. 

 21 MR. TAYLOR: Okay. Let's -- let's beat 

 22 one horse to death before we do the other one. 
 284 

 1 MR. WILL: Okay, I would actually 

 2 disagree with that and the reason why, perhaps not 

 3 surprisingly, is that the only way you can get a 

 4 complete view of the exposure you have to a 

 5 counterparty is a combination of economic data 

 6 contained in the confirmations, the master 

 7 agreement, and the credit support agreement. I 

 8 understand the points and actually would endorse a 

 9 phased approach. I think that's a good idea. But 

 10 I think if you as prudential regulators want to be 

 11 -- want to have advance knowledge of say a ratings 

 12 downgrade hedge trigger that it impacts a 

 13 particular party, I'm not sure with Arthur's 

 14 proposal that you would actually have any advance 

 15 notice. It would just happen. However, if you 

 16 had access to information in the master agreement 

 17 which required a party to post collateral, then 

 18 you would. You would know it was coming. 

 19 MR. AXILROD: I would say amen. First 

 20 -- first, I'm sorry, to Arthur. (Laughter.) 

 21 You've got to understand the collateral. 

 22 Right? The last place anybody wants to be is, you 
 285 

 1 know, big counterparty exposures and not having a 

 2 clue what the collateral is. And I can just see, 

 3 you know, Senator, I don't know why I didn't know 

 4 but we didn't know. I guess my successor will 

 5 figure that out. I think that's a -- I think you 

 6 really have to get that first things first. 

 7 MR. WILL: I think some senators have 

 8 actually been told, Senator, I didn't know. 

 9 (Laughter.) 

 10 MS. GOLDMAN: And just to echo Peter's 

 11 point, I mean, you have to walk before you run and 

 12 I think there's a whole slew of data that's out 

 13 there that's going to be relevant from a risk 

 14 management perspective even beyond the stuff that 

 15 we're talking about here but it's really about 

 16 where, you know, the core of the risks exist. And 

 17 in fact, I think the industry is moving towards, 

 18 you know, some of the biggest risks around 

 19 portfolio reconciliations and dispute resolutions. 

 20 And so where, you know, we see the biggest issues 

 21 focusing our time and our resources around that 

 22 rather than on some of the collection of this data 
 286 

 1 which then would absolutely need to be, you know, 

 2 invested in the collection and then beyond that 

 3 modeled in a way, that would give meaningful kind 

 4 of risk information. 

 5 MR. PICKEL: And I think -- and I 

 6 realize for certain types of entities, the CFTC 

 7 might become a prudential regulator. But of 

 8 course, the most active participants in these 

 9 markets are going to be the large financial 

 10 institutions who will be -- have a different 

 11 prudential regulator. And obviously, as Arthur 

 12 and Melissa mentioned, you know, there needs to be 

 13 coordination with them on this information. 

 14 You know, collateral is critical. 

 15 Whether that just means that -- whether that means 

 16 the prudential regulator has to know all the 

 17 details or whether it needs to be confident 

 18 through its oversight of the entity, that the 

 19 entity has a good handle on that and that the 

 20 prudential regulator has the opportunity at any 

 21 time to find out what that position will be or is, 

 22 I think that's a different scenario than kind of 
 287 

 1 everything getting, you know, flowing into the 

 2 prudential regulator. It's a question of making 

 3 sure that the regulated entity has the 

 4 methodologies in place, the practices in place to 

 5 make sure that they are tracking it properly and 

 6 in turn the prudential regulator can see that. 

 7 MR. PRITCHARD: Can I just comment 

 8 there? I think (inaudible) swapped out a 

 9 repository hat on again and it's interesting what 

 10 Melissa said. She characterized the collateral 

 11 terms as an exotic because there's a sort of walk 

 12 before you run aspect to this which is, you know, 

 13 we've heard about the exotics bucket today already 

 14 and I think you really need to be sure that you're 

 15 capturing all those trades in some detail and 

 16 capturing the valuations of all those because if 

 17 you're not doing that effectively, then knowing 

 18 about the what if scenarios on your 

 19 collateralization is really of secondary 

 20 importance. So I think to Arthur's point about 

 21 the phasing and putting things in order, then it's 

 22 really important the repository captures accurate 
 288 

 1 -- the accurate complete population, exotic as 

 2 well as standardized, and gets values on that on a 

 3 continuation basis. Then captures the exposure at 

 4 the relationship level and then can start looking 

 5 at the more exotic sort of scenarios on the 

 6 collateral. 

 7 MR. AXILROD: I guess I would never 

 8 disagree with a statement that they swap data 

 9 repository out have the best possible, most 

 10 accurate, most up-to-date swap data that the 

 11 regulators want to see. And I agree with that. 

 12 But I honestly think that you could equally say 

 13 without understanding the collateral the swap data 

 14 information isn't very relevant either. This is 

 15 one of those cases where you really need to have 

 16 both and it's not -- you're not -- I don't think 

 17 you ought to sequence the -- what Arthur called 

 18 the collateral reporting repository with the swap 

 19 data repositories. They ought to be, whether 

 20 it's, you know, sequenced maybe by a couple of 

 21 months but that's the basis. You need to see all 

 22 that information. 
 289 

 1 MR. MAGNUS: No, no, Peter, I agree with 

 2 that. What I was saying sequence was if you want 

 3 detailed master agreement information. 

 4 MR. AXILROD: No, no. 

 5 MR. MAGNUS: I totally agree that the 

 6 swap data repositories and this portfolio 

 7 repository probably need to come into existence. 

 8 There's relationships potentially between them 

 9 that we could devise through interesting use 

 10 cases. But they're going to be separated by 

 11 whatever the practicality is of building them. 

 12 We'll probably build them on independent tracks 

 13 and they'll be done when they're done but it'll be 

 14 around each other. It's the more detailed master 

 15 agreement information that I was commenting on. 

 16 MS. GOLDMAN: And by the way, I was 

 17 echoing that same comment. Okay. 

 18 MS. LEONOVA: Can we focus on 

 19 independent tracks for collateral data warehouses 

 20 and whatever else we are talking about right now? 

 21 You can't keep names straight. 

 22 MR. TAYLOR: And let's do -- let's do 
 290 

 1 the collateral piece first. There seems to be 

 2 passionate unanimity around the table that the 

 3 answer to our very first question, should we have 

 4 a separate collateral warehouse system, is yes, 

 5 absolutely. 

 6 Well, the next question was, how should 

 7 this be done? And I thought I was hearing in what 

 8 some of you were saying the notion that there 

 9 might be one SDR warehouse repository or whatever 

 10 you want to call it here, that that information 

 11 might not be sitting in each of the SDRs but might 

 12 be sitting in one location. Obviously, the other 

 13 possibility is that it sits in each SDR with 

 14 respect to the swaps that got reported there. 

 15 MS. LEONOVA: It doesn't really matter 

 16 whether it sits in the same SDR, not whether it's 

 17 the same system or not. 

 18 MR. TAYLOR: Yes. 

 19 MS. LEONOVA: Whether we want to keep 

 20 two separate systems and if they are separate how 

 21 we link them or we try to merge it all together. 

 22 MR. MAGNUS: So logically -- forget 
 291 

 1 about where it physically resides -- there should 

 2 be one -- as we will probably end up with one 

 3 hopefully asset class repository for each asset 

 4 class, the regulations, the draft regulations 

 5 provision that we might end up with more than one, 

 6 that information cannot be housed with the asset 

 7 class information. It needs to logically be kept 

 8 in a portfolio that cuts across asset classes 

 9 because the information is across asset classes. 

 10 The portfolio I described before, which I did not 

 11 put that adjective on it, is across asset classes. 

 12 The ISDA master agreement and the CSA cover all 

 13 asset classes simultaneously between two legal 

 14 entities. So therefore, it needs to be in a 

 15 separate place. 

 16 Now, whether or not we have multiple 

 17 repositories that have this information, that 

 18 could become inefficient and then you have to 

 19 figure out, well, which one does it go in and who 

 20 is doing the reporting, which are other things 

 21 we'll figure out over time. There are probably 

 22 advantages when you start talking about that, at 
 292 

 1 least for the large players, to have large players 

 2 put their entire portfolio in it and not have, for 

 3 example, I'm going to use Goldman because Melissa 

 4 is sitting next to me. If Morgan has -- if one 

 5 Morgan entity has a portfolio with Goldman to say 

 6 that Morgan is always going to be reporting it 

 7 actually probably makes some sense for both of us 

 8 to report it from our vantage point because that 

 9 actually provides with the biggest players some 

 10 useful information to you about whether or not 

 11 we're valuing those portfolios roughly the same. 

 12 MR. TAYLOR: No, I have had prudential 

 13 regulators say to me it's interesting, it's useful 

 14 to know that AIG, just to take a random example, 

 15 thinks this collateral is worth, you know, $100 

 16 billion and the counterparty things it's worth $10 

 17 million. 

 18 MR. MAGNUS: Thing that that I would -- 

 19 and I would absolutely agree with that. The other 

 20 thing that I would say is the biggest issue that 

 21 we had around transparency with that situation was 

 22 the fact that there was a longstanding dispute of 
 293 

 1 a very large size that was not transparent to the 

 2 supervisory community. As we told the -- as we 

 3 told the ODSG yesterday, we believe that we've 

 4 actually solved that through the commitments 

 5 process of providing reporting of large disputes 

 6 on a regular basis to our prudential regulators. 

 7 At least now they have the tools to identify that. 

 8 We also have portfolio reconciliation and a few 

 9 other tools that are coming out in your draft 

 10 regulations also that would prevent that type of 

 11 situation. But I absolutely agree that you would 

 12 want to see both sides of that if you can. And 

 13 obviously there are certain counterparties in the 

 14 market if I'm dealing with a smaller corporate, 

 15 for example, that probably would not be reporting 

 16 into that portfolio repository. It probably 

 17 doesn't make sense to force them to do that to be 

 18 a player. 

 19 MR. TAYLOR: Two follow up questions to 

 20 that. One of them is I take the point. I think I 

 21 thought some agreement to this that this goes 

 22 across asset classes. And I think it's obvious 
 294 

 1 that the statute at least permits a repository for 

 2 a single asset class. I mean, it doesn't say that 

 3 repository can't do multiple asset classes but it 

 4 doesn't say it has to either. Does that suggest 

 5 then this really needs to be in a separate place 

 6 as opposed to each SDR? 

 7 MR. MAGNUS: Again, to the point I 

 8 started to answer Irina's question is it needs to 

 9 logically be separate from the asset class 

 10 repositories. I mean, if there was one uber 

 11 repository that we had globally that covered the 

 12 entire derivative world, that's a different story. 

 13 That's not going to happen under any scenario I 

 14 can think of. 

 15 So we're going to have asset class 

 16 specific repositories. We'll probably have 

 17 multiple repositories in an asset class as we 

 18 start going international. But if a prudential 

 19 regulator wants to see, and particularly a 

 20 systemic regulator wants to see what JP Morgan's 

 21 position is to any other counterparty, we should 

 22 be reporting that somewhere so that our prudential 
 295 

 1 regulators can see that at a summary level. We 

 2 provide that information today by the way and they 

 3 have access to that information. They have to 

 4 come to us to get it and they have regulators and 

 5 supervisors onsite who go into our systems on a 

 6 regular basis to see that but if they want to see 

 7 it in aggregate then you need to report it 

 8 somewhere. 

 9 MR. PICKEL: I think that having the 

 10 repository -- I'm not going to contradict my 

 11 members here. If they want to have it, they'll 

 12 build it, they'll make it, and they'll make it 

 13 available to the regulators. But ultimately, that 

 14 can't be any substitute for the prudential 

 15 regulators really getting in there and 

 16 understanding what the collateral positions are, 

 17 what the policies are. That's what I would get 

 18 back to. The repository may be a good first look 

 19 to see what the big picture issues are but if the 

 20 work's not being done at the regulatory level in 

 21 the institutions, then the repository is not going 

 22 to be all that useful I don't think. 
 296 

 1 MR. MAGNUS: And Basel II actually 

 2 supports that because we have to actually do some 

 3 fairly complex exposure calculations that take 

 4 into account all of this information in order to 

 5 produce risk graded asset requirements under Basel 

 6 II. And our prudential regulators are the ones 

 7 who have to sign off on the models that we're 

 8 actually using. And so they are -- I can assure 

 9 you they are spending a huge amount of time 

 10 digging through how those models work and what 

 11 information goes in the controls over those models 

 12 and everything else. So one would hope that we're 

 13 doing a reasonably good job calculating in a way 

 14 that the supervisory community is comfortable with 

 15 so that the results that come out of that would be 

 16 of use to the various regulatory bodies and we 

 17 would not try to replicate those calculations 

 18 externally. But again, reporting it could add 

 19 value. And if you're going to want that 

 20 information, I can understand many reasons why you 

 21 might want to see it in a data store so you can 

 22 look across organizations and not only see how 
 297 

 1 much exposure JP Morgan maybe has to a particular 

 2 MSP or an end-user, but how much five other 

 3 dealers have and see it in some aggregated way. 

 4 That becomes useful in a repository. But short of 

 5 that I would go with Bob's approach, which was the 

 6 prudential regulation approach. 

 7 MR. TAYLOR: Let me ask all of you, are 

 8 you thinking that this information needs to sit at 

 9 least in a separate system, as opposed to, you 

 10 know, this is (inaudible) all the regulator 

 11 assets? 

 12 SPEAKERS: Yes. 

 13 MR. PRITCHARD: Yeah, I think if I can 

 14 just go back to your original multiple repository 

 15 question, I mean, in order for parties to agree 

 16 their exposure between each other which they then 

 17 subsequently collateralize, they submit that live 

 18 contract on a cross asset class basis to a single 

 19 venue, exposure management service, that then 

 20 reconciles them. 

 21 And secondly, as both Arthur and Melissa 

 22 allude to, you know, collateral is not really 
 298 

 1 meaningful at the transaction or life contract 

 2 level in OTC derivatives. It's only really at the 

 3 relationship level. And so the fundamental, you 

 4 know, the trade repositories are at the trade 

 5 level and then this collateral or this exposure 

 6 view would then be at the relationship level. And 

 7 that would be -- there's some advantages of that 

 8 because it, you know, as we've seen there are 

 9 multiple repositories and this would pre-aggregate 

 10 that. 

 11 MS. LEONOVA: May I? I didn't get 

 12 (inaudible) discussions on Panel 4 and 5. Does it 

 13 mean that we want to ultimately track the master 

 14 agreement identifier rather than transaction 

 15 identifier itself and link all individual 

 16 positions (inaudible) master agreement? 

 17 MR. AXILROD: I guess eventually but I 

 18 think you'd want -- I'm sure this thing is going 

 19 to evolve but you need to stop right -- you need 

 20 to stop the bleeding. And you know, so far not 

 21 much of what we've been talking about actually 

 22 affects the AIG type of situation which was the 
 299 

 1 largest single contributor of TOC derivatives to 

 2 the 2008 crisis. And this sort of thing does. 

 3 Right? If you have -- if you have the positions 

 4 and if they get very concentrated, which means 

 5 that the concentrated positions are sort of 

 6 dominating the portfolio, if you will, to relate 

 7 it back to the other discussion, the exotics are 

 8 now a large part of a systemically important 

 9 firm's portfolio. The next thing you want to know 

 10 is what's the valuation. Do parties agree and is 

 11 there collateral? And I guess the only -- the way 

 12 to do that is by having a separate collateral 

 13 reporting portfolio. I understand that 

 14 supervisors need to do their jobs, too, but I 

 15 agree. I'm sort of a belt and suspenders guy. 

 16 I'm not going to rely on one thing to prevent the 

 17 system from going under. Yes, it's very important 

 18 that prudential supervisors make sure that firms 

 19 do the type of risk management they're supposed to 

 20 do but I'd also like to have the suspenders as 

 21 sort of an early warning system. And it's 

 22 positions concentration values collateral, and if 
 300 

 1 you see those getting out of whack you've got a 

 2 problem. 

 3 MR. WILL: I actually think -- 

 4 MS. LEONOVA: I'm sorry. ON what level 

 5 are you tracking collateral? You have to tie it 

 6 to something. What are you tying it to? 

 7 MR. AXILROD: Oh, you're tying it to the 

 8 portfolio because that's what the firms do. So, 

 9 but it's just going to be the case if you have -- 

 10 if you've written $80 billion in notional exposure 

 11 to mortgage securities and the rest of your 

 12 portfolio is, you know, $10, $20 billion, that's 

 13 going to drive your collateral requirements. And 

 14 it's just because the firm's position is very 

 15 concentrated. So you'll be able to -- it doesn't 

 16 have to all be tied together perfectly in a nice, 

 17 you know, in an all singing, all dancing model 

 18 base system to get some use out of that. I think 

 19 at a very rough level you need the basic data. 

 20 And as long as you have the basic data, some of 

 21 the things are just going to pop out at people. 

 22 And that's the stuff you'll get, you know, and 
 301 

 1 that's likely to be the most obvious stuff that's 

 2 going to create systemic risk. If there's stuff 

 3 you won't see unless you apply a very exotic, 

 4 fancy model, okay, so you'll miss it. What you 

 5 don't want to miss is this simple, obvious stuff 

 6 that -- just some basic informational sort of 

 7 throw in your face. 

 8 MR. WILL: Irina, I actually think you 

 9 do need two new categories of identifier. One for 

 10 the master agreement, one for the CSA. 

 11 MR. PRITCHARD: I think if it's helpful, 

 12 Irina, in our exposure management service, what 

 13 corresponds to the relationship most directly is 

 14 an agreement. That's -- when parties set up 

 15 something that they're going to resolve the 

 16 dispute over the exposure on, often the 

 17 relationship that they're modeling there is an 

 18 agreement, some kind of collateral agreement. 

 19 MS. GOLDMAN: Yeah, I mean, I would 

 20 agree with the points that you need to be able to 

 21 roll up your transactions under the appropriate 

 22 agreement and then apply the appropriate 
 302 

 1 collateral to that and sort of bring that 

 2 altogether. And I think you also probably want 

 3 the ability to then look at, you know, maybe 

 4 separately the broader uncollateralized exposure 

 5 in which case you might go back to the SDR to, you 

 6 know, to pull that using again a common identifier 

 7 to bring that picture together. 

 8 MR. MAGNUS: But the definition of an 

 9 agreement in that particular instance, Raf, is 

 10 just the fact that, let's say Morgan and Goldman 

 11 again, using that example, have agreed that we 

 12 have an agreement and we're telling you that 

 13 there's an agreement there. It's an ISDA Master 

 14 and you don't have any other information about 

 15 that agreement. 

 16 MR. PRITCHARD: Correct, yeah. For the 

 17 avoidance of that, that is true. 

 18 MR. MAGNUS: Yeah. And, you know, the 

 19 minimal amount of agreement you need to know is 

 20 this particular Morgan entity, this particular 

 21 Goldman entity, this is the agreement name and 

 22 this was the date it was executed. 
 303 

 1 MR. PRITCHARD: Yeah, I was just saying 

 2 that's what it corresponds to. 

 3 MR. MAGNUS: Yes. 

 4 MR. PRITCHARD: We don't have any data 

 5 about it. 

 6 MR. MAGNUS: Right. And that's the 

 7 important thing. And that is how we actually pull 

 8 portfolios together today, and that does work. 

 9 MR. TROZZO: You know, again, if you 

 10 look at it you're going to have, you know, we're 

 11 going to take, without mentioning names, say 

 12 Counterparty A, Counterparty B. Their whole 

 13 portfolio is going to be spread across the 

 14 relative SDRs. Whether there's multiple SDRs in 

 15 an asset class or one in each. But they're spread 

 16 across asset classes and multiple SDRS. Okay, so 

 17 first of all, the first step is you've got to find 

 18 some mechanism and rule to net those. That's 

 19 driven by an agreement. Okay? So there has to be 

 20 some connection there. I agree with Arthur that 

 21 this gets very (inaudible). It takes years to 

 22 build. No doubt about that. But maybe there is 
 304 

 1 some phase-in approach or first layers. 

 2 MS. LEONOVA: Okay, what is a phase-in 

 3 approach? That's what we're trying to get out of 

 4 you. 

 5 MR. TROZZO: We'll come back. But you 

 6 have to connect those because there's been some 

 7 discussion on whether -- I think you need not only 

 8 the transactions with the SDR and some rules too 

 9 net those which are driven by the master 

 10 agreements so you're going to need something from 

 11 there. And it will then connect to a CSA which 

 12 should be housed in a separate warehouse. That's 

 13 what we all agree. You need all those pieces. 

 14 Without all those pieces, regardless of whatever 

 15 phased-in timeframe it is, you will not have your 

 16 counterparty credit exposure. You will not have a 

 17 feel of systemic risk. So you need them all. And 

 18 the phase, you know, how do you phase it in? You 

 19 know, that starts getting into some of the other 

 20 points below regarding the technology and 

 21 timeframes. 

 22 MR. WILL: I think you could have 
 305 

 1 actually parallel phased approaches for the CSAs 

 2 end also. I know I'm touching on ground I 

 3 shouldn't really go to in terms of master 

 4 agreements, but the master agreements. 

 5 MR. AXILROD: Can I just very quickly, 

 6 in terms of phasing in, I know you sort of want to 

 7 have the roadmap of where you're going but I think 

 8 to try to figure out what the end state is going 

 9 to look like now is just going to get people sort 

 10 of running around in circles. And I would say, 

 11 look, this is the most important thing is that we 

 12 need to get done in the next year, you know, 

 13 before year end or the first half of 2012. And 

 14 just fair warning, by the way, another shoe is 

 15 going to drop but we need to get some -- we need 

 16 to get some experience with this. And I would say 

 17 given, you know, the industry is just now trying 

 18 to deal with -- because they've been dealing with 

 19 SEFs and clearing and everything else. They're 

 20 just now sort of waking up to, oh, we've got all 

 21 these reporting requirements and it's a big 

 22 technical challenge. And they'll do it. I mean, 
 306 

 1 everyone's determined to do it but it's a 

 2 technical challenge to get it done. So I think 

 3 for really through the middle of 2012, if you can 

 4 focus on getting accurate trade data into the 

 5 repositories and accurate data around, you know, 

 6 collateral collected under CSAs into another 

 7 repository, that's going to be very difficult to 

 8 do but that will be a huge step forward in terms 

 9 of, you know, regulators' ability to oversee the 

 10 markets and their counterparties. And I think a 

 11 lot of good would come of that. 

 12 MR. TAYLOR: Let me ask, I think you all 

 13 are envisioning, and, you know, Bob is sitting 

 14 here on behalf of his members and a couple of the 

 15 members are here, you know, who will have to do a 

 16 lot of reporting, counterparty reporting. It 

 17 sounds as though this vision would mean we are 

 18 adding a reporting stream for the reporting 

 19 counterparty. You have to report the transaction 

 20 data, you know, that's required for the swap to an 

 21 SDR and you have to report to some collateral SDR 

 22 let's call it, collateral information. Am I right 
 307 

 1 that's what you're envisioning and can that be 

 2 done? 

 3 MR. MAGNUS: Well, I'd actually take a 

 4 slight step back. Again, I use the words 

 5 "collateral" and "valuation repository" originally 

 6 and intentionally because what you're looking at 

 7 is the exposure under -- is the master agreement 

 8 or any other master agreement. And first of all, 

 9 not everything is collateralized under it, so the 

 10 first question that you want to ask yourself if 

 11 you're looking at systemic risk is what is the 

 12 exposure, you know, that JP Morgan has to AIG if 

 13 AIG were to default? I'll use AIG as an example. 

 14 If we did SpotFX with them or we do certain 

 15 transactions with them that are not covered by the 

 16 CSA, they would never be in a portfolio just 

 17 looking at collateral or the collateralized risk. 

 18 So that's sort of one piece of it. 

 19 So what you really want to understand is 

 20 what is our exposure to the counterparty, that's 

 21 question number one. And then what is the amount 

 22 of exposure under the CSA and what is the value of 
 308 

 1 the collateral against it? You may additionally 

 2 want the -- what is that collateral made up of, so 

 3 you can look for other concentrations and things 

 4 like that in the collateral, which, to me, that's 

 5 a second order. Let's just get the first bit I 

 6 just said first. 

 7 The linkages is going to be some kind of 

 8 a portfolio identifier, which will link to a legal 

 9 agreement. But we have to be careful what legal 

 10 agreement we do and we want to keep it very, very 

 11 simple in its initial incarnation. But the reason 

 12 why we're recommending this is as a practical 

 13 response to what you have in the NPR where you're 

 14 asking for valuation of collateral data because 

 15 you believe you need that for your supervisory 

 16 functions. And what we're suggesting is we would 

 17 rather do it that way in a single repository where 

 18 we can give you it on a portfolio level, which is 

 19 a logical way to make sense of it, than a 

 20 transactional level where we would only be able to 

 21 do it arbitrarily and we can't provide that 

 22 information in a useful manner. So to us, we're 
 309 

 1 trying to help you get to a solution that we think 

 2 is a practical solution to achieve what you want, 

 3 but we're also trying to say yeah, but don't make 

 4 us give you information at a transactional level 

 5 that doesn't make sense. 

 6 MS. LEONOVA: Okay, going to portfolio 

 7 level data, do you propose universal reporting of 

 8 the portfolio level or only on the levels for 

 9 dealers and MSPs? 

 10 MR. MAGNUS: I'm sorry, when you say as 

 11 a swap dealer would we have to report on all our 

 12 counterparties or are you saying -- 

 13 MS. LEONOVA: No, I'm saying -- 

 14 MR. MAGNUS: -- everybody who plays in 

 15 the market? 

 16 MS. LEONOVA: You're here talking about 

 17 portfolio valuation, (inaudible) house, whatever 

 18 we are calling it right now. Are we talking about 

 19 universal reporting requirement of all 

 20 counterparties or are we talking about reporting 

 21 requirements imposed only on swap dealers and MSPs 

 22 who actually have large portfolio exposures -- 
 310 

 1 MR. MAGNUS: I would certainly recommend 

 2 that only sophisticated players would be able to 

 3 do that. Many of the smaller players rely on 

 4 their dealers to actually provide that information 

 5 to them anyway, and to impose on that portion of 

 6 the market the technical requirement that they go 

 7 and provide that doesn't, to me, feel like it 

 8 makes a lot of sense. I would -- 

 9 MS. LEONOVA: How much market do you 

 10 believe it can recover? 

 11 MR. MAGNUS: Well, we -- if you get -- 

 12 if most of the deals today are between a swap 

 13 dealer and other players in the marketplace, 

 14 there's very little -- there's very few deals that 

 15 I'm aware of between -- and maybe Bob has industry 

 16 data that I don't have privilege to, between let's 

 17 say in between MSPs or between MSPs and end users 

 18 by using your definition. 

 19 MR. AXILROD: Outside of commodities. 

 20 MR. MAGNUS: Outside of commodities. 

 21 And again, I'm talking derivative transactions, 

 22 not physical. So even commodities I would argue 
 311 

 1 that, when you talk about derivatives, they're 

 2 generally between executing brokers or dealers. 

 3 So I think if you had the dealers doing 

 4 the reporting, you would capture the vast majority 

 5 of the transactional data, most of the risk. If 

 6 you discover through the trade repositories, which 

 7 will have all of the transactions and all the 

 8 positions that parties have, that there are 

 9 players who are doing deals with each other that 

 10 are not reporting to this portfolio level 

 11 collateral and valuation repository, then I would 

 12 suggest they might be more systemic than they've 

 13 let on to. Maybe they should be registered as an 

 14 MSP, and that's a different dialogue which you as 

 15 a prudential regulator can go and have a 

 16 conversation with that about. 

 17 MR. TAYLOR: Let me do a follow-up to 

 18 that. Are you all suggesting, you know, as part 

 19 of the continuation data that we wanted to get 

 20 over the existence of a swap, we were asking for 

 21 valuation data, are you suggesting that all of 

 22 that valuation data reporting ought to go into 
 312 

 1 this collateral SDR rather than into the regular 

 2 SDR, if I may call it that? You know, unpack 

 3 that. And then you might also talk about, I mean, 

 4 you know, the statute has this setup where one 

 5 counterparty reports, it's not two. And I heard 

 6 you all saying, you know, it'd be nice to know the 

 7 view of each counterparty about what the 

 8 collateral is worth. How do we deal with that? 

 9 MR. PICKEL: Yeah. 

 10 MR. TAYLOR: Go ahead, Bob. 

 11 MR. PICKEL: Well, I was going to say 

 12 that I think, you know, realistically, you know, 

 13 once the trades are on, they're being managed, as 

 14 we've talked before, as part of a portfolio, so it 

 15 really is this portfolio level information. 

 16 Because you're going to have thousands of trades 

 17 potentially underneath the master agreement, 

 18 governed by the master agreement, and they're all 

 19 going to be, you know, fluctuating in value based 

 20 on market prices versus the price of the contract. 

 21 You're going to be looking at your exposure across 

 22 all those on a netted basis. You're going to be 
 313 

 1 calling for collateral on that basis. So, yes, 

 2 actually I think it probably is far more relevant 

 3 to be looking at that valuation at that level than 

 4 to be valuing every single contract as 

 5 contemplated. 

 6 MR. PRITCHARD: And I think, you know, 

 7 from the current industry practice, a huge amount 

 8 of the industry is currently comparing their 

 9 exposure and reconciling their values of the live 

 10 contracts. If, you know, we are piloting some 

 11 parties who want to reconcile the collateral held 

 12 in respect to that is a newer addition to that 

 13 service. But we're seeing 6 million live 

 14 contracts on a regular basis being -- having their 

 15 values reconciled centrally. 

 16 MR. WILL: I guess what would be 

 17 interesting actually is to see whether the parties 

 18 agree in terms of the events that trigger the 

 19 obligation to post collateral (inaudible). I 

 20 mean, it's something that doesn't happen in the 

 21 legal agreement area, so to speak. With confirms, 

 22 you know, you have a reconciliation agreement 
 314 

 1 between the parties, but currently you have -- 

 2 there's not very much translation of the text into 

 3 data, so it's very difficult for the parties to 

 4 actually reconcile their particular views. 

 5 MR. AXILROD: I guess I would take -- I 

 6 know I'm owned by the community generally, not the 

 7 banks, but the banks, the investment managers, and 

 8 so forth and so on, and the custodians, but I'll 

 9 risk taking a somewhat contrarian view. I'm just 

 10 going to note that it's not incoherent to report 

 11 trade level valuations or position level 

 12 valuations, if you will. That's not incoherent. 

 13 You know, individual positions are valued. 

 14 There's a lot of them and, as Raf noted, a lot of 

 15 people report them anyway to various service 

 16 providers. Banks report them to their customers, 

 17 so forth, and so on. 

 18 You can't deal with collateral that way 

 19 because collateral relates only to the entire 

 20 portfolio. So let me just leave it there. It's 

 21 certainly possible to, you know, sort of report 

 22 market-to-market for each position that's in a 
 315 

 1 repository. I think there's a lot of use for it. 

 2 I don't know how -- I'll let others address, you 

 3 know, whether that should be phase one or phase 

 4 two. 

 5 MS. LEONOVA: If I may follow up on your 

 6 comments. So before you mentioned that when there 

 7 is a difference between collateral and net 

 8 exposures, then we have a problem. If you do a 

 9 de-evaluation on a transactional level, what is 

 10 the margin of error when we start to pull it all 

 11 together that gets exposure? 

 12 MR. AXILROD: Well, I was going to say, 

 13 you know, you've got the exact same problem with 

 14 cleared transactions, right? Cleared transactions 

 15 are valued daily, but the initial margin is 

 16 collected on a portfolio basis. It's the same 

 17 thing. And if you want to start looking, when you 

 18 see something alarming, the first thing you're 

 19 going to ask yourself -- and you can either call 

 20 someone up or it could be right at your fingertips 

 21 -- is, wait, there's a big disparity between the 

 22 portfolio value and the amount of collateral. The 
 316 

 1 first thing you want to look at is what's making 

 2 up the portfolio and what's the value of the 

 3 pieces of the portfolio? 

 4 MR. TROZZO: I would just comment that 

 5 -- this is Pat Trozzo from Reval. If you just 

 6 look at and have data reported on the portfolio 

 7 level, yes, collateral, I agree, is posted on a 

 8 portfolio level. But then the Commission or the 

 9 users of this information would lose some data, 

 10 would lose some information. You talk about, you 

 11 know, for an example looking at potentially 

 12 concentrations. What caused this net exposure? 

 13 You might find in many cases you could have 1,000 

 14 transactions between 2 dealers and you might find 

 15 some small fraction of those make up 90 percent of 

 16 the exposure. You would lose that if you don't 

 17 have it on a trade-by-trade basis. 

 18 MR. TAYLOR: So I think I hear you all 

 19 saying leave the transaction level valuation 

 20 reporting that we asked for, add collateral 

 21 reporting to a collateral SDR. 

 22 MR. PRITCHARD: Because one opportunity 
 317 

 1 there, David, is that you can cross-check between 

 2 the two. You could see some of the exposures at 

 3 the transaction level and see the alleged total 

 4 exposure on the relationship level. 

 5 MR. MAGNUS: I think, again, you have to 

 6 look at holistically how all these different rules 

 7 fit together. And the way the SDRs are being 

 8 defined is they're one-sided reporting, not 

 9 two-sided reporting, the way we report to you 

 10 today, Raf. And so the valuation -- and there's 

 11 another NPR out there on portfolio reconciliation 

 12 which the industry very much supports. We've been 

 13 pushing portfolio reconciliation for a while to 

 14 get at the disputes that underlie that. 

 15 We volunteered and we have already 

 16 delivered information to supervisors where there 

 17 are disputes in our portfolio. The regulations 

 18 will probably require us to do more reporting on 

 19 that. Our prudential regulators are going to be 

 20 checking that we are capturing that information 

 21 because it's now enshrined in Basel III. So 

 22 there's a whole bunch -- a panoply of things to 
 318 

 1 make sure that these portfolios are accurate and 

 2 tie-up. The question is what are you looking for? 

 3 And I want to be careful when you talk 

 4 about collateral, Peter. There's the exposure, 

 5 the net exposure, between two parties on a total 

 6 portfolio basis. There is the gross 

 7 collateralized exposure, i.e., the exposure I 

 8 would have to you, Peter, without any credit 

 9 support. And then there's the amount of 

 10 collateral supporting that agreement. And there 

 11 may be a difference because of things in the 

 12 agreement or whatnot. 

 13 The point you're making, which I think 

 14 is really the valid one, banks take risks every 

 15 day. That is what we're in the business of doing. 

 16 The question is, are we controlling those risks? 

 17 Are we managing it well? 

 18 And a certain amount of risk is okay and 

 19 you want to have the information available to 

 20 prudential regulators so they ask the right 

 21 questions. Had this type of reporting that we 

 22 have today without these repositories been in 
 319 

 1 place back a couple of years ago, the prudential 

 2 regulators would have said, my god, you have a 

 3 huge exposure to AIG, tell us more about it. And 

 4 we would have had a very interesting conversation 

 5 and they would have started learning all kinds of 

 6 interesting things that they wouldn't have been 

 7 very happy with. And they would have had much 

 8 more visibility on that long before it became a 

 9 headline. 

 10 So I'm in total support, but I'm not 

 11 sure you necessarily want that market-to-market 

 12 information on a transactional basis. I don't 

 13 think you need it. I do think we do need to do 

 14 reconciliations of portfolios, which we are doing 

 15 and the industry supports. And I think the most 

 16 important thing you need to look at from a 

 17 systemic point of view are the big numbers and use 

 18 that to drive the conversations that you have with 

 19 the entities that you're regulating. 

 20 MR. AXILROD: I guess it depends on how 

 21 quick a reaction that you want, right? I think 

 22 that, you know, the more -- if it's not too hard 
 320 

 1 to provide those marks, and it must not be because 

 2 you're providing them today, you know, I guess the 

 3 question is, that information could be valuable 

 4 because you could relate it to, you know, 

 5 concentrated positions or so forth. And I guess, 

 6 you know, whether you need it or not, it's likely 

 7 to be a building block to something else, maybe 

 8 you could do it later. All I'm saying is it's not 

 9 incoherent to ask for it at the position level. 

 10 MS. GOLDMAN: Yeah. The only thing I 

 11 would argue is, you know, to the extent that it 

 12 ends up being needed based on sort of triggering 

 13 -- 

 14 MR. AXILROD: Yeah. 

 15 MS. GOLDMAN: -- a conversation that 

 16 that information should be deemed readily 

 17 available, you know, to the regulators upon, you 

 18 know, an inquiry, so. 

 19 MR. AXILROD: Yeah. 

 20 MR. WILL: Are you saying that they have 

 21 to come to you or you go to them with the 

 22 information? 
 321 

 1 MS. GOLDMAN: It would be them coming to 

 2 us. 

 3 MR. WILL: Okay. 

 4 MR. MAGNUS: We go to our regulators 

 5 every day and give them tons of reports about our 

 6 positions, our large positions, and a whole bunch 

 7 of other reports that our prudential regulators 

 8 get on our credit exposures. So they have that 

 9 information available. 

 10 MR. WILL: And I think what's 

 11 interesting here is there's much talk about 

 12 exposure, but what I'm particularly concerned 

 13 about having been a lawyer is potential exposure. 

 14 You know, what's actually going to happen just 

 15 around the corner? You as regulators really need 

 16 to decide what level of interest you have in that. 

 17 MR. TROZZO: Well, if I may, that's what 

 18 I was trying to comment on before, defining what 

 19 you mean by looking at and monitoring and 

 20 measuring systemic risk. What is being put 

 21 forward currently in the rules is can it lead to a 

 22 measure and monitoring of systemic risks? But as 
 322 

 1 it's written right now it's limiting to current 

 2 exposure and not saying something like "potential 

 3 future exposure" or some other method. Not that 

 4 I'm necessarily saying you have to do that, but it 

 5 is -- right now you are limited to one specific 

 6 form. 

 7 MR. MAGNUS: But I would just -- again, 

 8 I'm not sure Dodd-Frank actually suggests that we 

 9 would be required to report potential exposure of 

 10 these data stores. We do calculate it, we do 

 11 provide that information to our prudential 

 12 regulators already in numerous forms and it is 

 13 reviewed again as part of our capital 

 14 calculations. 

 15 MR. AXILROD: No, Arthur, I agree. And, 

 16 again, I'm not suggesting it. All I'm just 

 17 pointing out, as currently written, you are 

 18 limited to this one form of exposure. That's all 

 19 I'm saying. 

 20 MR. PICKEL: And I would get back, I 

 21 mean, I don't know the -- what people here may 

 22 mean by "potential future exposure," that, you 
 323 

 1 know, typically in the Basel context means some 

 2 estimation of how prospective market price 

 3 fluctuations may affect your exposure. Mike's 

 4 talking about, you know, what's embedded in the 

 5 contract that given circumstances might, you know, 

 6 spring to present an issue. And there I think 

 7 it's important for -- again, I get back to the 

 8 prudential regulators. It's important for them to 

 9 understand and to grill, frankly, their regulated 

 10 entity, where do you have these types of triggers? 

 11 Where do they exist? Who are they -- which 

 12 counterparties are they with? Where are these 

 13 areas of potential concern? So that the 

 14 regulator's alerted to where those things might 

 15 pop up in the future. 

 16 MR. WILL: I would prefer instead of the 

 17 term "grill," perhaps "learning." (Laughter) I 

 18 mean, a serious point here, there is actually a 

 19 lot of expertise available around this table in 

 20 terms of risk management, et cetera, and I would 

 21 encourage you to learn as much as you can from 

 22 everybody here and also from the law firms, 
 324 

 1 frankly, because they're looking at these as users 

 2 as well. 

 3 MR. PICKEL: I mean grill. (Laughter) 

 4 MR. TAYLOR: Let me ask one more 

 5 question as quickly as we can about collateral 

 6 warehouse, and then just have to ignore the other 

 7 horse. We'll shift over to master agreements 

 8 before we're done here. 

 9 This was the last question on the list, 

 10 but in this picture of a collateral SDR that we 

 11 have begun to talk about, are you all envisioning 

 12 that it's doing anything more than having a 

 13 warehouse function with this data? And then the 

 14 question was, if there's more, does that transform 

 15 that warehouse into some sort of SRO? 

 16 MS. GOLDMAN: I would just say I think 

 17 part of the reason why we're kind of labeling it 

 18 as opposed to a "warehouse," a "repository" is 

 19 because the expectation that it's not doing a 

 20 whole lot more than just the sourcing of that -- 

 21 MR. TAYLOR: Okay. 

 22 MS. GOLDMAN: -- and just the ability to 
 325 

 1 aggregate, you know, across the balances that end 

 2 up being in there. 

 3 MR. TAYLOR: So you're not seeing it as 

 4 an SRO. 

 5 MS. GOLDMAN: Right. 

 6 MR. TAYLOR: It's just the data's there 

 7 and the regulators can't use it. 

 8 MS. GOLDMAN: Yes. 

 9 MR. AXILROD: I would say no. You know, 

 10 it's there. It's going to be a big task to get it 

 11 there. 

 12 MR. MAGNUS: I also think there are 

 13 enough systemic and prudential regulators and, for 

 14 that matter, as we do push-out under Dodd-Frank, 

 15 there'll be other SROs and other bodies who will 

 16 be looking at that data and have an interest in 

 17 that data, who will look for concentrations and 

 18 other issues that they might find in that data. 

 19 So I certainly would not suggest that the 

 20 repository -- and I would please encourage you to 

 21 change the terminology and not use the term 

 22 "warehouse" and use the term "repository." And I 
 326 

 1 would also suggest that you don't just call it 

 2 "collateral." What we're really talking about is 

 3 "exposure and collateral" or "valuation and 

 4 collateral" or something along those lines because 

 5 it is more than just collateral information that 

 6 we're suggesting you put in there. 

 7 MR. TAYLOR: All right. Let's shift the 

 8 discussion -- we have a bit of time left -- to the 

 9 master agreement issue. Should there be a master 

 10 agreement library of some sort? How should we 

 11 handle -- you know, what information about master 

 12 agreements do we need and how should we get it? 

 13 MR. WILL: Lots. I think it's critical 

 14 that we do actually have a master agreement 

 15 library. We'll come on to whether it actually 

 16 should be combined with a collateral library. But 

 17 the master -- credit report agreements and 

 18 confirmations constitute a single agreement. And 

 19 we're coming up to the Oscars, so I'm going to 

 20 give you a very interesting analogy here. 

 21 In many ways, an ISDA relationship is 

 22 like a Hollywood movie. It has a script, it goes 
 327 

 1 through many drafts, it gets heavily negotiated. 

 2 There's a cast of characters, and there's one or 

 3 more events that can place these characters into 

 4 jeopardy and, of course, there are consequences 

 5 that flow from these events. So let's take a look 

 6 at the cast of characters. It's more than just 

 7 the party executing the contract that you need to 

 8 be concerned about. I characterize these guys 

 9 really as the parties in the leading role. 

 10 There are characters in a supporting 

 11 role that can actually trigger a default or some 

 12 kind of event in relation to the master agreement. 

 13 These might be a credit support provider, a 

 14 guarantor, or someone providing a form of 

 15 security. And also this category known as 

 16 "specified entities." These are third-party 

 17 entities, frequently established in different 

 18 jurisdictions, whose fortunes are closely 

 19 correlated to those of the contracting party 

 20 itself. Now, there might be no specified entities 

 21 for a particular agreement, but there can be 

 22 sometimes four or five specified entities and it 
 328 

 1 can go even broader to all affiliates. So if 

 2 you're a large organization it might that a 

 3 default on payment of a bond will trigger some 

 4 pretty significant consequences for you in terms 

 5 of the master agreement. 

 6 The point to take away here is the 

 7 relationship of necessity establishes a complex 

 8 web of interconnectedness that can extend to 

 9 entities other than the contracting parties. So 

 10 if you're going to effectively monitor systemic 

 11 risk, then you need to know with a great deal of 

 12 specificity for any given relationship precisely 

 13 who is connected to whom. Access to master 

 14 agreement data will provide that particular aspect 

 15 of transparency. 

 16 MR. PICKEL: I guess I'd have to say I 

 17 agree with everything that Mike says and I 

 18 disagree with his conclusion. I don't know -- I 

 19 don't see why the need for all that information -- 

 20 and it is very important information and every one 

 21 of these institutions who engages in derivatives 

 22 activity ought to be charged with making sure that 
 329 

 1 they have that information, they understand all 

 2 those details, but I just don't see why that has 

 3 to be put into some central repository. I don't 

 4 know what that gains the system. I don't know 

 5 whether that gains the CFTC in its oversight. But 

 6 certainly, again, grill or hold people to the 

 7 charge, they need to have that information and 

 8 they need to be able to access it and they need to 

 9 use tools that may be available to them to 

 10 facilitate the access to that information. I just 

 11 don't see why that leads -- the need for that 

 12 leads to a central data repository of master 

 13 agreements. 

 14 MR. WILL: I mean -- sorry. There's 

 15 currently a proposal for an affiliate's database 

 16 that's going to be accessible, I believe, on a 

 17 private basis. If you maintain that affiliate's 

 18 database, if everybody has to report all their 

 19 affiliations, then you might actually get an 

 20 inaccurate picture because you may assume that 

 21 everybody is associated with a particular master 

 22 agreement when, in fact, it's just a small subset 
 330 

 1 of entities that are associated with that 

 2 particular master agreement. So if you really 

 3 want to understand who's connected to who, I think 

 4 you do need to go to that level. But I do take 

 5 Bob's point about the effort involved in that. 

 6 MR. TAYLOR: Since there are two views 

 7 about that let's explore a little bit. If we need 

 8 information about master agreements, but we assume 

 9 for the moment in arguendo that it's too costly, 

 10 too burdensome to put it all into some master 

 11 agreement SDR, how do we get that information? 

 12 Does master agreement information somehow need to 

 13 flow into a regular SDR with the transaction 

 14 information or what? 

 15 MR. AXILROD: I would say no to flowing 

 16 that in. That's even harder, I think, to have it 

 17 flow in with the trade information. Because 

 18 typically today, the way trade information works 

 19 when it's submitted to a repository or a confirm 

 20 engine is that one agreement is referred to, 

 21 sometimes it a master confirmation agreement, 

 22 sometimes it's a master confirm, it's whatever the 
 331 

 1 lowest level master agreement is. That agreement 

 2 actually refers then to -- you can chain then 

 3 through agreements to find all of them. 

 4 But I guess I agree that, you know, when 

 5 you want -- when something else is ringing an 

 6 alarm bell -- you want a pretty good basic alarm 

 7 system -- when something else is ringing the alarm 

 8 bell, you know, the market participants should be 

 9 able at a moment's notice to tell you here's how 

 10 it works. 

 11 MR. PICKEL: And, again, I think that 

 12 that's certainly true, you know. The question's 

 13 whether that's a before the fact or an after the 

 14 fact -- or not the fact, but is there a way to get 

 15 that information when you need it? And do you 

 16 rely on the fact that you're regulating these 

 17 entities and you've got requirements for them to 

 18 have the procedures in place, to understand what 

 19 their exposures are, and have the details that 

 20 they could access readily, quickly when you ask 

 21 them for it about what their contractual 

 22 arrangements are? 
 332 

 1 MS. LEONOVA: So say it's nice to have, 

 2 but it's not critical. 

 3 MR. PRITCHARD: Yeah. As a repository, 

 4 I think, to agree with Peter, we wouldn't see 

 5 ourselves as a great channel for you to receive 

 6 master agreement information. I mean, as Melissa 

 7 characterized it as an exotic, it's very hard to 

 8 summarize sort of the primary terms of a master 

 9 agreement. You either have the detail or you have 

 10 nothing at all. And as a repository it's kind of 

 11 far from what we're managing. 

 12 MR. TROZZO: But I would think at least 

 13 at a minimum level, you know, one of the first 

 14 keys of the agreement is to decide with all this 

 15 data across the various SDRs between two 

 16 counterparties is it netables and not netables? 

 17 What is netables? Those little first level 

 18 definitions are in the agreement. So at a minimum 

 19 you need that, so you have a roadmap to decide 

 20 what do you -- and it's tracked against each 

 21 other. 

 22 MR. MAGNUS: But, again, we're providing 
 333 

 1 the portfolio level netting -- 

 2 MR. TROZZO: Well, that's assuming if 

 3 you provide it on portfolio level. 

 4 MR. MAGNUS: Well, but I'm going to 

 5 assume that they're going to do that because while 

 6 a master agreement may specify the netting that is 

 7 theoretically allowed in the event of bankruptcy 

 8 of a counterparty, it will only be if the 

 9 bankruptcy regime in that country allows it that 

 10 it happens. So one of the other factors, for 

 11 example, that a firm like mine uses is we have 

 12 confidence factors around both the ability to 

 13 perfect a security interest in collateral and the 

 14 netting opinions for different jurisdictions. And 

 15 when we have multijurisdictional agreements, which 

 16 we do frequently with certain types of 

 17 counterparties -- 

 18 MS. LEONOVA: Arthur, may I clarify? So 

 19 what you're saying is that your portfolio exposure 

 20 already is kind of having built-in netting 

 21 arrangements that are in (inaudible)? 

 22 MR. MAGNUS: Yes, we've done the math 
 334 

 1 for you taking into factors that are both in the 

 2 agreement and our business judgment or our legal 

 3 judgment and the legal opinions that would allow 

 4 us to manipulate that data. 

 5 MR. TROZZO: But then -- 

 6 MS. LEONOVA: And what makes you think 

 7 that you're right? 

 8 MR. MAGNUS: Well, one, we are 

 9 supervised and these calculations and whatnot are 

 10 reviewed on numerous bases. Many of the legal 

 11 opinions have actually been reviewed and are built 

 12 by the industry by law firms around the world and 

 13 are put together by ISDA. But as any of the 

 14 lawyers in this room would probably tell me, 

 15 nothing in law is absolutely certain until it gets 

 16 before a judge, which is why we look at data on 

 17 both a net and a gross basis. 

 18 MR. TAYLOR: And if you think it's 

 19 certain then, you're smoking something. 

 20 (Laughter) 

 21 MR. MAGNUS: That's also true. 

 22 MR. TROZZO: True. But if I -- again, I 
 335 

 1 think we're mixing a little two different things 

 2 here. 

 3 MR. MAGNUS: Yeah. 

 4 MR. TROZZO: I agree. If the rules 

 5 state that you're reporting valuations on a net 

 6 portfolio basis between two counterparties, 

 7 whoever the reporting counterparty is, reporting 

 8 entity, then that's fine. But if you -- within 

 9 the rules right now, you're reporting valuations 

 10 on an individual transaction basis. So if that 

 11 stands, you need to have some roadmap of deciding 

 12 what you add and what you subtract. And that's 

 13 the only point I'll make. 

 14 MR. WILL: I mean, there's actually an 

 15 important point here is the existence of a master 

 16 agreement in the CSA doesn't necessarily mean that 

 17 that agreement's going to be enforceable. So if 

 18 you want to add an extra layer of complexity here, 

 19 you actually start to have to go and look at legal 

 20 opinions, something very close to my heart. 

 21 MR. AXILROD: Yeah. I mean, you can 

 22 sort of imagine a process that might work over 
 336 

 1 time. I mean, if these CSAs are standardized 

 2 enough and they're enough accepted legal opinions, 

 3 right, CCPs in some jurisdictions are in the same 

 4 place as normal counterparties. In the U.S., 

 5 they're not -- they all have to get opinions sort 

 6 of for each jurisdiction that their counterparties 

 7 are in. All the banks get opinions with respect 

 8 to each jurisdiction that their counterparties are 

 9 in. A lot of these are published. So if you get 

 10 to sort of, you know, a set of standard CSA 

 11 positions and standard sort of jurisdictions in 

 12 which we're not too worried about closeout risk 

 13 and the courts won't allow you to net, then 

 14 there's something useful in understanding where, 

 15 due to some relation or other, somebody isn't 

 16 following that standard. It's a good client of 

 17 mine; I'm not following the standard. I'm talking 

 18 off the top of my head, but I think it requires a 

 19 lot more information gathering even to know how 

 20 you could make this useful. 

 21 MR. PICKEL: I would point out we have a 

 22 very good model for this. It's the Basel process. 
 337 

 1 In the early 1990s, they recognized closeout 

 2 netting under the ISDA contract -- well, not the 

 3 ISDA contract, under an industry master agreement, 

 4 so long as there were legal opinions obtained and 

 5 updated annually. And we've provided access to 

 6 those opinions to many regulators around the 

 7 world; happy to do so with the CFTC and the SEC. 

 8 But the regulators rely on the banks to do the 

 9 analysis on the legal opinions subject to the 

 10 regulators again questioning them, probing them, 

 11 grilling them, and asking them why they feel in 

 12 that particular circumstance, with that 

 13 counterparty and that jurisdiction, they feel that 

 14 that opinion is of a sufficient level of certainty 

 15 that they can net. So that process has worked. 

 16 And, I think, let's reflect on the fact 

 17 that whatever the situation with AIG was, this 

 18 architecture is there, it works. Yes, there are 

 19 questions in terms of making sure that you've got 

 20 the legal opinions. And we're happy to, you know, 

 21 work with the Commissions to help them understand 

 22 what exists and how it has worked very well and 
 338 

 1 how it can work, you know, well under the new 

 2 structure going forward. 

 3 But I think if we start -- Mike, if we 

 4 start saying, well, you know, the agreement might 

 5 be, you know, subject to -- you got to -- it may 

 6 be subject to question until you get all these 

 7 legal opinions, that's all built in already. 

 8 Let's not suggest that there's some question as to 

 9 the enforceability of these contracts. Otherwise, 

 10 we've got a serious, serious problem here, Mike. 

 11 MR. WILL: I'm not saying that, Bob. 

 12 Believe me, I'm not saying that. 

 13 MR. PICKEL: I'm sure you're not because 

 14 you've worked too closely with us over the years. 

 15 MR. WILL: Yes. No, absolutely, and I 

 16 designed -- 

 17 MR. PICKEL: But let's not suggest that 

 18 there's some doubt. 

 19 MR. WILL: No, I'm not doing that. 

 20 MR. TAYLOR: It's -- I'm trying mostly 

 21 just to ask questions, but let's put it this way: 

 22 If you assume for a minute -- and I do -- if you 
 339 

 1 look at the recordkeeping rules, basically they 

 2 say you have to keep records of anything that has 

 3 anything to do with your business in swaps, and 

 4 you have to be able to produce them when asked -- 

 5 a fair enough summary -- that would mean master 

 6 agreements are available to regulators for the 

 7 asking if something else says to them, gee, we 

 8 need to go look at this master agreement. Does 

 9 that sound satisfactory to you all as opposed to 

 10 getting them all in a warehouse somewhere? 

 11 MR. MAGNUS: Yes. I would say yes and I 

 12 would say we actually have those requirement today 

 13 because there are other rules, at least for 

 14 dealers, that require us to keep documents and 

 15 whatnot for periods of time. And so we have them 

 16 and we do produce them for our prudential 

 17 regulators today and we could product them for 

 18 you. 

 19 MR. WILL: I should say that'll be a lot 

 20 of pages that you'll have to review, so you won't 

 21 be able to access the data immediately. And the 

 22 one thing you might want to think about is if 
 340 

 1 you're dealing with a dealer in distress, for 

 2 example, and you have to come in and regulate that 

 3 particular entity, you're going to be reading a 

 4 lot of paper. It might be better to have the data 

 5 available even if it's not reported to you in that 

 6 particular circumstance. 

 7 MS. GOLDMAN: Yeah, I would just add 

 8 you're reading the data and then you're 

 9 interpreting the language as well in terms of, you 

 10 know, what the representation means. 

 11 MR. TAYLOR: Maybe we'll send the 

 12 prudential regulators. 

 13 We've bled a little bit into our Q&A 

 14 time, which, again, I don't mind because it's not 

 15 an active question- asking audience. But I will 

 16 say if anyone's got any questions for this panel 

 17 or that you'd like us to kick around, please feel 

 18 free to come to a mic. There are a couple out 

 19 there. Anyone? 

 20 Is there more? 

 21 MS. LEONOVA: Okay. Any final comments? 

 22 Any burning issues that you want to utter right 
 341 

 1 now? Of course, Mike, you have it. (Laughter) 

 2 MR. WILL: Actually -- I apologize. I 

 3 always have to have the last word. What I would 

 4 actually like to just pose is whether it actually 

 5 would be a good idea to combine the collateral 

 6 warehouse with the master agreement warehouse. I 

 7 personally think that in certain circumstances the 

 8 credit support agreement is actually deemed to be 

 9 part of the master agreement, and consideration 

 10 should be given to actually merging the functions 

 11 together. 

 12 MR. TROZZO: I agree. 

 13 MR. MAGNUS: Again, I think there are 

 14 terms that are in agreements that are very hard to 

 15 quantify and put in there, and so you'll never get 

 16 a complete characterization that you can 

 17 standardize and put into a repository and know 

 18 that if you're looking at it in the repository 

 19 with the attributes that were specified, that you 

 20 have the correct interpretation and there isn't 

 21 something else. These are bilateral contracts 

 22 between people. And yes, they do follow a 
 342 

 1 standardized template, but they are allowed to -- 

 2 and they do -- contain customized terms. 

 3 And I will tell you that one of the 

 4 several functions that I do at JP Morgan is I run 

 5 our credit risk middle office and I support a lot 

 6 of our credit executives. And the moment a name 

 7 gets into distress we have a procedure that we 

 8 follow. And one of the first things we do is we 

 9 pull the master agreements and get the lawyers to 

 10 look it over to see what's in it. And we do not 

 11 rely on the (inaudible) that we've done of that 

 12 agreement because it's just too much of a risk at 

 13 that moment in time when that event occurs to rely 

 14 on any interpretation that might have been done 

 15 three years ago. 

 16 So I think that the right approach -- 

 17 and certainly at the onset of this so as not to 

 18 create a burden, and we have enough things that we 

 19 have to do -- is to focus on that which we have to 

 20 do, get the high-level information to sound the 

 21 alarm bells as a first step. And we can come back 

 22 and we can explore with you, you know, when we're 
 343 

 1 all a little bit more calm and not writing -- I 

 2 forget how many rules are being written, and we're 

 3 implementing those rules. We can then go back and 

 4 calmly figure out what we want to do. 

 5 I also think, in a couple years, the 

 6 landscape is going to look very different than it 

 7 does today. There'll be a lot more in the 

 8 clearing sector, which will be governed by much 

 9 more standardized agreements because of the very 

 10 nature of clearing than the bespoke agreement. 

 11 And that might yield different risks or different 

 12 things that we might think are important. And so 

 13 we shouldn't jump the gun and do that. 

 14 I think we definitely have to recognize 

 15 that master agreements exist; that's how we define 

 16 our portfolios. But beyond the existence of the 

 17 master agreement, I think you need to rely on, in 

 18 a crisis, getting those master agreements and 

 19 require, you know, the prudential regulator firms 

 20 will look at it. And there are technologies 

 21 available that, theoretically, look at this stuff 

 22 and get it in different ways. But I still think 
 344 

 1 nothing is going to change that in a crisis we're 

 2 going to have a lawyer review the agreement. 

 3 MR. TAYLOR: If nobody else has anything 

 4 substantive, I do have one thing I'd like to close 

 5 with, and I address this -- there are people in 

 6 the audience who are on panels and -- all of you 

 7 in the audience for that matter, but I 

 8 particularly address it to the panel. We've had 

 9 this conversation with a few people during the 

 10 breaks, but I just thought I would emphasize it. 

 11 It seems so obvious to us, but you all may not 

 12 think of it this way. 

 13 The comment period for our rule closes 

 14 on February 7, and the effect legally is that 

 15 after February 7 we go behind a curtain and we 

 16 can't talk to you anymore. So if there is any 

 17 input that you would like to give us beyond what 

 18 you've said here today, please send us comment 

 19 letters. I mean, feel free. I mean, I'm asking 

 20 for an increase in our workload, but it's going to 

 21 actually be very valuable. I mean, no matter how 

 22 valuable it is, after February 7 we can't get it, 
 345 

 1 so I encourage you. You have positive/negative 

 2 comments about, you know, any of the issues we've 

 3 talked about today, please do send things in. 

 4 MR. WILL: Well, I, for one, now know 

 5 who the Wizard of Oz is. 

 6 MR. TAYLOR: I'm sorry? 

 7 MR. WILL: I, for one, now know who the 

 8 Wizard of Oz is. 

 9 MR. TAYLOR: Pay no attention to the man 

 10 behind the curtain, yes. 

 11 MS. LEONOVA: Again, I thank you very 

 12 much for making this trip to Washington, D.C., in 

 13 such horrific weather. We greatly appreciate your 

 14 time and look forward to hearing from you again. 

 15 MR. TAYLOR: Thank you all. 

 16 (Whereupon, at 4:55 p.m., the 

 17 PROCEEDINGS were adjourned.) 

 18 * * * * * 

 19 

 20 

 21 

 22 
 346 

 1 CERTIFICATE OF NOTARY PUBLIC 

 2 DISTRICT OF COLUMBIA 

 3 I, Christine Allen, notary public in and 

 4 for the District of Columbia, do hereby certify 

 5 that the forgoing PROCEEDING was duly recorded and 

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 8 under penalty of perjury; that said transcript is a 

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 13 that I am not a relative or employee of any 

 14 attorney or counsel employed by the parties hereto, 

 15 nor financially or otherwise interested in the 

 16 outcome of this action. 

 17 

 18 

 19 ----------------------------------- 

 20 Notary Public, in and for the District of Columbia 

 21 My Commission Expires: January 14, 2013 

 22