Streetwise Professor Craig Pirrong: ”A Tower of Babel: OTC Derivatives Edition”

Economist Craig Pirrong (“A Tower of Babel: OTC Derivatives Edition,” Streetwise Professor) discussed a recent speech by Beniot Coeuré of the European Central Bank (“ECB”) in which Coeuré argued that global regulators have created a system for the reporting of OTC derivatives transactions which does not promote transparency.  According to Coeuré, privacy laws, blocking statues, and indemnification clauses in several jurisdictions all restrict access to the details of OTC derivatives transactions, which prevents regulators from being able to aggregate data across trade repositories.

Pirrong agrees with Coeuré’s points, stating that commercial and political pressures have led to the proliferation of trade repositories and calling the collection of databases, which were intended to be a means of sharing information, a “derivatives Tower of Babel” that instead serves as a barrier to sharing information.  He notes that even if there were a single, unified database of all OTC derivatives trades, it would still be incomplete due to the complexity of the interconnections in the system.  Additionally, Pirrong argues that even if regulators had a single unified database of all derivative trades, they would still not have a complete picture of the “interconnections in the system as a whole.”  And even if they did, he asks: “what could they do with that information?” 

See also:  Coeuré’s Speech.
Related News:  Regulators Issue Report to the G20 on Cross-Border Derivatives Regulation (September 3, 2013)