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Financial Regulators Are Drowning in Data

Scott O'Malia, a commissioner at the U.S. Commodity Futures Trading Commission

Photo illustration by 731; Photograph by Getty Images

Scott O'Malia, a commissioner at the U.S. Commodity Futures Trading Commission

The financial crisis revealed how regulators didn’t have enough data to see how risky mortgage securities were piling up in certain corners of Wall Street, ultimately causing a marketwide crash. Now regulators are dealing with a different problem: too much data.

In a speech yesterday, Scott O’Malia, a Republican commissioner at the U.S. Commodity Futures Trading Commission, said his agency has been inundated with new intel on derivatives trades, but making sense of the sheer volume and inconsistent formats “is not going well.” The influx comes from the 2010 Dodd-Frank financial reform bill, which, among many other things, required derivatives dealers—including such banks as JPMorgan Chase (JPM) and Goldman Sachs (GS)—to report over-the-counter transactions on new databases, known technically as “swaps data repositories.” The trades had to be reported starting late last year, but regulators so far haven’t specified what format the repositories needed to use. As O’Malia explained, “for each category of swap identified by the 70+ reporting swap dealers, those swaps will be reported in 70+ different data formats.”

O’Malia says the problem is “so bad that staff have indicated that they currently cannot find the London Whale in the current data files.” That may be a bit of a spurious argument—JPMorgan Chase made the London Whale trades in early 2012, before the reporting requirements kicked in—but nonetheless, so much data are flowing in each day that O’Malia says the CFTC’s computers can’t load the information without crashing.

Things may get worse before they get better. O’Malia, who generally has said that Dodd-Frank went too far, says the CFTC will start getting reports from even more parties, namely major swap participants and end users, adding to the pile of info that it must try to wade through in the hunt for large positions that could threaten the market. The CFTC could collect less info, as O’Malia suggests, or upgrade its systems and demand more uniformity in the data. In any case, the current situation O’Malia describes isn’t comforting, to say the least.


Weise is a reporter for Bloomberg Businessweek in Seattle. Follow her on Twitter @kyweise.

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