[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]





                   H.R. __, THE SWAP DATA REPOSITORY
                   AND CLEARINGHOUSE INDEMNIFICATION
                         CORRECTION ACT OF 2012

=======================================================================

                                HEARING

                               BEFORE THE

                  SUBCOMMITTEE ON CAPITAL MARKETS AND

                    GOVERNMENT SPONSORED ENTERPRISES

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 21, 2012

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-109











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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                   SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts, 
    Chairman                             Ranking Member
PETER T. KING, New York              MAXINE WATERS, California
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois               BRAD SHERMAN, California
GARY G. MILLER, California           GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            JOE BACA, California
MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
KEVIN McCARTHY, California           DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico            AL GREEN, Texas
BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
    Pennsylvania                     KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia        ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri         JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee

           James H. Clinger, Staff Director and Chief Counsel
  Subcommittee on Capital Markets and Government Sponsored Enterprises

                  SCOTT GARRETT, New Jersey, Chairman

DAVID SCHWEIKERT, Arizona, Vice      MAXINE WATERS, California, Ranking 
    Chairman                             Member
PETER T. KING, New York              GARY L. ACKERMAN, New York
EDWARD R. ROYCE, California          BRAD SHERMAN, California
FRANK D. LUCAS, Oklahoma             RUBEN HINOJOSA, Texas
DONALD A. MANZULLO, Illinois         STEPHEN F. LYNCH, Massachusetts
JUDY BIGGERT, Illinois               BRAD MILLER, North Carolina
JEB HENSARLING, Texas                CAROLYN B. MALONEY, New York
RANDY NEUGEBAUER, Texas              GWEN MOORE, Wisconsin
JOHN CAMPBELL, California            ED PERLMUTTER, Colorado
THADDEUS G. McCOTTER, Michigan       JOE DONNELLY, Indiana
KEVIN McCARTHY, California           ANDRE CARSON, Indiana
STEVAN PEARCE, New Mexico            JAMES A. HIMES, Connecticut
BILL POSEY, Florida                  GARY C. PETERS, Michigan
MICHAEL G. FITZPATRICK,              AL GREEN, Texas
    Pennsylvania                     KEITH ELLISON, Minnesota
NAN A. S. HAYWORTH, New York
ROBERT HURT, Virginia
MICHAEL G. GRIMM, New York
STEVE STIVERS, Ohio
ROBERT J. DOLD, Illinois


















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 21, 2012...............................................     1
Appendix:
    March 21, 2012...............................................    23

                               WITNESSES
                       Wednesday, March 21, 2012

Berkovitz, Daniel M., General Counsel, U.S. Commodity Futures 
  Trading Commission (CFTC)......................................     6
Donahue, Donald F., Chief Executive Officer, The Depository Trust 
  and Clearing Corporation (DTCC)................................    13
Tafara, Ethiopis, Director, Office of International Affairs, U.S. 
  Securities and Exchange Commission (SEC).......................     4

                                APPENDIX

Prepared statements:
    Bachus, Hon. Spencer.........................................    24
    Berkovitz, Daniel M..........................................    25
    Donahue, Donald F............................................    30
    Tafara, Ethiopis.............................................    54

              Additional Material Submitted for the Record

Dold, Hon. Robert:
    Text of the Swap Data Repository and Clearinghouse 
      Indemnification Correction Act of 2012.....................    58

 
                   H.R. __, THE SWAP DATA REPOSITORY
                   AND CLEARINGHOUSE INDEMNIFICATION
                         CORRECTION ACT OF 2012

                              ----------                              


                       Wednesday, March 21, 2012

             U.S. House of Representatives,
                Subcommittee on Capital Markets and
                  Government Sponsored Enterprises,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:07 a.m., in 
room 2128, Rayburn House Office Building, Hon. Scott Garrett 
[chairman of the subcommittee] presiding.
    Members present: Representatives Garrett, Schweikert, 
Posey, Fitzpatrick, Hayworth, Hurt, Stivers; Waters, Maloney, 
Moore, Donnelly, Peters, and Green.
    Chairman Garrett. Good morning, sorry to make you sit there 
and wait. Today's Subcommittee on Capital Markets and 
Government Sponsored Enterprises hearing is called to order.
    The hearing will come to order. Today's hearing is on the 
Swap Data Repository Clearinghouse Indemnification Correction 
Act of 2012.
    We will be looking to our panel in a moment, but first, we 
will begin with opening statements from the folks up here, 10 
minutes on each side.
    I will recognize myself for 4 minutes, and then see if 
there are any other Members on our side with an opening 
statement.
    Again, thank you gentlemen.
    So to begin, I think, hopefully, one thing we might be able 
to agree on is that the Dodd-Frank Act is not totally perfect 
in every aspect. And therefore, it does require at least some 
degree of scrutiny, especially what we are looking at now with 
Title VII.
    We have held numerous hearings here in this committee, and 
I sponsored and cosponsored a number of bills, many of which, 
as you know, have been done in a bipartisan manner.
    And what were they for? They would try to address some of 
the problems and try to clarify some of the congressional 
intent in Dodd-Frank, and specifically again in Title VII.
    So today, we are here to discuss another issue with Dodd-
Frank that may not be as high profile as some of the other 
hearings that we have had. It does require correction, 
nonetheless. The issue that we are talking about today is 
indemnification.
    Thankfully, the CFTC and the SEC, as well as many of my 
colleagues on both sides of the aisle, do recognize that a 
repeal of the indemnification provisions in Title VII is 
required in order to avoid fragmentation in the collection of 
swap data, and to bring about regulatory transparency to the 
overall swaps marketplace.
    While it is important for the U.S. regulators to collect 
and also then to analyze swap data, it is equally important for 
U.S. regulators to share data with foreign regulators in order 
to thoroughly understand and monitor where the risk is 
concentrated actually in the entirety of the global swaps 
market.
    And so, while today's indemnification issue is really a 
little more technical in nature than some of the other issues 
that we talk about, the issue of extraterritoriality in global 
swap markets regulations certainly is not that technical in the 
same respect.
    Today, neither the CFTC nor the SEC has proposed rules that 
will define the scope of the Dodd-Frank extraterritorial reach, 
and so in essence, the failure to define the reach of clearing, 
of execution, of capital, of margin, of Volcker, and of other 
reporting obligations. What that is all doing is preventing 
market participants from taking the steps necessary to ensure 
their operations will comply with Dodd-Frank.
    So to correct this problem, I have cosponsored a bipartisan 
piece of legislation with Mr. Himes from Connecticut. And what 
this does is bring certainty then to this one area, to this 
issue, that will then be marked up hopefully in the full 
committee next week.
    I cannot be clear enough on this issue. Consistent 
regulation is fundamental across all lines actually, but 
especially to the efficient functioning and successful 
regulation of the derivatives U.S. marketplace.
    And in order to reduce systemic risk and to limit the 
opportunities for regulatory arbitrage, as well as the loss of 
jobs to going overseas, we cannot afford an inconsistent 
approach on issues of extraterritoriality among international 
regulators.
    So I am hopeful that we can move this bill through the 
House pretty quickly. I am also hopeful that the Senate will 
finally realize that Dodd-Frank is not completely perfect, and 
that they are willing to take up some of these issues. Maybe it 
does require some changes for our markets to function properly, 
and for regulators to understand where and how the risk is 
concentrated in the overall global system.
    I will look forward to hearing the testimony from our 
witnesses from the SEC, the CFTC, and the DTCC in a moment.
    And with that, I yield back.
    I recognize the gentlelady from California for her opening 
statement for--
    Ms. Waters. Thank you very much, Mr. Chairman--
    Chairman Garrett. --4 minutes?
    Ms. Waters. Fine--
    Chairman Garrett. Fine.
    Ms. Waters. I probably don't need that much.
    Chairman Garrett. Okay.
    Ms. Waters. I thank you for holding the hearing this 
morning.
    One of the most important reforms included in Dodd-Frank is 
our comprehensive regulation of over-the-counter derivatives.
    When swaps and security-based swaps are transparent and 
data is readily available, regulators are able to monitor the 
exposure of counterparties, identify risk concentrations, and 
limit the possibility of another systemic crisis like the one 
we experienced in 2008.
    Swap data repositories are the entities that are 
responsible for collecting and storing this data on the over-
the-counter derivatives. And global regulators have recognized 
the importance of requiring--reporting to these types of 
entities as a part of derivatives reform.
    Now, I understand that certain provisions in Title VII of 
Dodd-Frank would require that any U.S. or foreign authority 
that agreed to provide indemnification to a swap data 
repository, and the SEC or CFTC for any expenses arising from 
litigation as a precondition for receiving swaps data.
    Foreign regulators have raised a concern that this actually 
creates a barrier to them gaining access to critical swap data, 
particularly since they may lack the legal authority to enter 
into the required indemnification.
    These provisions may also have the unintended consequence 
of fragmenting global swaps reporting in order to circumvent 
this requirement. One possible consequence is that global 
regulators could advance their reciprocal provision, thereby 
harming the ability of U.S. regulators to access data from 
foreign trade repositories.
    So with that said, I am interested to hear more about this 
issue from the regulators here today as well as the Depository 
Trust and Clearing Corporation.
    I am also eager to hear from Representatives Dold and Moore 
about the bill that would strike the underlying indemnification 
provision in Dodd-Frank which many believe is problematic.
    I thank you, and I yield back the balance of my time.
    Chairman Garrett. I thank you.
    The gentlelady yields back.
    And I see no other speakers on our side.
    Ms. Moore is recognized for 2 minutes.
    Ms. Moore. Thank you so much, Mr. Chairman, and Madam 
Ranking Member. I want to thank the witnesses for their 
appearance today.
    I am so pleased to be a sponsor of this bipartisan 
legislation, the Swap Data Repository and Clearinghouse 
Indemnification Correction Act of 2012.
    This bill is the result of a tremendous collaboration among 
Republicans and Democrats on this committee, industry, and the 
regulators, and I might add that there has also been 
international collaboration and support for this bill.
    I am a strong supporter of the new transparency regime for 
the over-the-counter swaps market enacted in Dodd-Frank, and I 
am very proud of our work there.
    And I firmly believe that this bill will enhance the 
viability and functioning of the swap data repositories.
    By removing the indemnification provision, we do not 
compromise. I repeat, we do not compromise the legal framework 
or erode any market protections for market participants on 
either side of the water.
    The bill is consistent with the important goals regarding 
clearing and reporting of over-the-counter swaps agreed to at 
the 2009 International G-20 Meeting and that were eventually 
enshrined in Dodd-Frank.
    This bill promotes both better market pricing information 
and better regulatory oversight of the OTC market, including 
the tracking and management of systemic risk globally.
    This bill represents a small but a highly technical fix 
which is desperately needed. And it is vital to maintaining the 
integrity of domestic and global OTC market regulations.
    In plain language, the bill strikes the requirement that 
non-U.S. regulators ``indemnify U.S. regulators and private 
U.S. markets.''
    It is a requirement that a significant number of non-U.S. 
regulators would be unable to, and quite frankly, unwilling to 
comply with for various legal and other reasons.
    Accordingly and unfortunately, we have already seen foreign 
jurisdictions thinking to establish their own SDRs, if only to 
get around the indemnification issue.
    The proliferation of SDRs would have the unwanted effect of 
undermining global transparency and oversight by promoting the 
fragmentation of market information, and discouraging data 
sharing across global markets.
    Republicans, Democrats, industry, and regulators agree that 
striking the indemnification provision would encourage global 
OTC swap market function and oversight.
    I am so pleased that there is such a remarkable concensus 
on the indemnification issue. And therefore, I now look forward 
to hearing from today's witnesses, especially the regulators, 
regarding their views on the related issue of U.S. regulators 
having plenary access to all information warehouse and U.S.-
based SDRs, even trade information that the U.S. regulator does 
not have a nexus to.
    It is my sense that while we are dealing with the 
indemnification issue, it may also make sense to learn a lot 
more about, and possibly deal with, the plenary access issue.
    So therefore, I thank you, and I look forward to hearing 
your testimony.
    And with that, I yield back.
    Chairman Garrett. Thanks.
    The gentlelady yields back.
    And now seeing no other requests for time, we welcome our 
panel this morning from both the SEC and the CFTC.
    As always, your complete written statements will be made a 
part of the record. We look forward now to hearing from you for 
the next 5 minutes.
    Mr. Tafara, from the SEC, welcome and good morning.

STATEMENT OF ETHIOPIS TAFARA, DIRECTOR, OFFICE OF INTERNATIONAL 
     AFFAIRS, U.S. SECURITIES AND EXCHANGE COMMISSION (SEC)

    Mr. Tafara. Thank you, Chairman Garrett, Ranking Member 
Waters, and members of the subcommittee.
    Thank you very much for the opportunity to testify on 
behalf of the Securities and Exchange Commission on the topic 
of indemnification of security-based swap data repositories.
    As you know, Section 763(i) of the Dodd-Frank Act added a 
new provision to the Securities Exchange Act that requires any 
U.S. or foreign authority, other than the SEC, to indemnify 
both the SEC and security-based swap data repositories for any 
expenses arising from the litigation relating to the 
information provided by the repository.
    The indemnification requirement presents a barrier to U.S. 
and foreign governmental agencies' ability to obtain data from 
a security-based swap data repository. This is because 
generally speaking, U.S. and most other foreign governmental 
entities lack the legal authority to enter into such an 
indemnification agreement.
    One of the lessons of the 2008 financial crisis is the 
importance of ensuring that regulators have timely and 
comprehensive data about over-the-counter derivatives 
transactions. Improved transparency of swaps and security-based 
swaps enables the regulators to monitor the derivative exposure 
of counterparties to identify risk concentrations and to 
monitor systemic risks.
    Trade repositories can be thought of as electronic filing 
cabinets for information about derivative transactions, and 
serve as centralized locations where regulators can obtain data 
on open OTC derivative contracts.
    The establishment of trade repositories and reporting of 
data to them is a particularly important element of derivatives 
regulation, because trade repositories offer a venue for 
regulators from different jurisdictions, to obtain information 
about cross-border OTC derivative transactions.
    Without trade repositories and the ability to access them 
in a timely and reliable fashion, regulators, including U.S. 
regulators, would be challenged in carrying out their 
responsibility to oversee the OTC derivatives markets; a 
responsibility necessary to reduce threats to financial 
stability, to increase transparency, and to improve the 
integrity of the OTC derivatives marketplace.
    Given the limitation that the Section 763(i) 
indemnification requirement would place on regulators' access 
to data held by an SEC-registered data repository, foreign 
regulators, through formal and informal contact, have voiced 
strong concerns about the requirements to SEC Commissioners and 
to SEC staff.
    U.S. and foreign regulators share a common need to have 
access to data about OTC derivatives transactions, especially 
those transactions that take place across borders.
    In order to protect their access to security-based swap 
data, some foreign regulators have indicated to SEC staff that 
they plan to respond to the U.S. indemnification requirement by 
setting up, or encouraging the establishment of, local trade 
repositories. These local trade repositories would not be 
registered with the SEC and would not be subject to the 
indemnification requirement.
    And given these concerns, U.S.-based global trade 
repositories may seek to shift the bulk of their business to 
foreign jurisdictions to avoid the indemnification requirement, 
maintaining only a minimal presence in the United States 
necessary to service the U.S. market.
    The establishment of separate local trade repositories in 
the United States and in foreign jurisdictions would likely 
produce inefficiencies and fragmentation of information.
    Inefficiency may result from having multiple trade 
repositories collecting the same data. Fragmentation will 
result if data regarding the OTC derivatives market is 
scattered across different trade repositories, and regulators 
do not have access to all the relevant trade repositories.
    If this occurs, regulators will have an incomplete picture 
of the OTC derivatives market that may threaten the 
effectiveness of their oversight of the financial markets, and 
would harm U.S. and foreign regulators alike.
    In addition, the SEC is seriously troubled by statements by 
certain foreign regulators about their intention to adopt 
reciprocal indemnification requirements. Such requirements 
would require that the SEC provide written indemnification 
agreements to foreign SEC-registered trade repositories as a 
precondition for accessing data.
    Currently, the SEC is not able to provide such written 
indemnification, and therefore would be blocked from accessing 
data from these foreign trade repositories.
    The SEC recommends that Congress consider removing the 
indemnification requirement of Section 763(i). In removing the 
indemnification requirement, Congress would assist the SEC, as 
well as other U.S. regulators, in securing the access it needs 
to data held in global trade repositories.
    Removing the indemnification requirement would address the 
significant issue of contention with our foreign counterparts 
while leaving intact confidentiality protections for the 
information provided.
    Thank you for the opportunity to testify. And I would be 
happy to address any questions later.
    [The prepared statement of Mr. Tafara can be found on page 
54 of the appendix.]
    Chairman Garrett. And I thank you for your testimony.
    From the CFTC, Mr. Berkovitz, thank you for being with us. 
You are also recognized for 5 minutes.

    STATEMENT OF DANIEL M. BERKOVITZ, GENERAL COUNSEL, U.S. 
          COMMODITY FUTURES TRADING COMMISSION (CFTC)

    Mr. Berkovitz. Thank you, Mr. Chairman.
    Good morning, Chairman Garrett, Ranking Member Waters, and 
members of the subcommittee. Thank you for the opportunity to 
testify today.
    The CFTC is working to ensure that both domestic and 
international regulators have access to swap data to support 
their regulatory mandates.
    The CFTC participated in the 2010 report of the Financial 
Stability Board which recommended that market regulators, 
central banks, and prudential supervisors have effective and 
practical access to trade repository data.
    As has been noted, the Commodity Exchange Act, as amended 
by the Dodd-Frank Act, contains provisions that would require a 
foreign or domestic regulator seeking data from a swap data 
repository to execute an indemnification agreement with the 
Commission prior to the sharing of any confidential data.
    These requirements have caused concern among foreign 
regulators, some of which have expressed to the Commission an 
unwillingness to register or to recognize an SDR unless they 
have access to necessary information.
    Some foreign jurisdictions are also considering the 
imposition of similar conditions on the CFTC's access to swap 
information of data repositories located abroad.
    Last September, the Commission specifically addressed 
access to SDR data issues in its final rulemaking on SDRs. The 
CFTC noted that the Dodd-Frank Act requires a registered SDR to 
make data available on a confidential basis to appropriate 
domestic regulators and appropriate foreign regulators.
    With respect to indemnification, the CFTC's final rule 
release noted that the Commission is, ``mindful that the 
confidentiality and indemnification agreement requirement may 
be difficult for certain domestic and foreign regulators to 
execute with an SDR due to various home country laws and 
regulations.''
    Accordingly, the Commission stated that an appropriate 
domestic regulator may be provided access to swap data reported 
and maintained by SDRs without being subject to the notice and 
indemnification provisions of the CEA, if the SDR is subject to 
the regulatory jurisdiction of and registers with the 
appropriate domestic regulator.
    In addition, pursuant to a separate provision of the CEA, 
the SDR may be permitted to provide direct electronic access to 
such regulator designee of the Commission.
    With respect to foreign regulatory authorities, the final 
rule provides that data in an SDR may be accessed by an 
appropriate foreign regulator without the execution of a 
confidentiality and indemnification agreement in appropriate 
circumstances.
    Such access may be granted when the regulator is acting 
with respect to an SDR that is also registered with that 
regulator, or when the foreign regulator receives SDR 
information from the Commission.
    Recently, in response to further comments and concerns on 
this issue, the Chairman directed Commission staff to draft, 
for the Commission's consideration, proposed interpretive 
guidance stating that access to swap data reported to a trade 
repository that is registered with the CFTC will not be subject 
to the indemnification provisions of the Act if such trade 
repository is regulated pursuant to foreign law, and the 
applicable requested data is reported to the trade repositories 
pursuant to foreign law.
    Subject to the Commission's approval, this proposed 
interpretive guidance would be published for public comment.
    The CFTC is engaged in a wide range of international 
projects related to the reporting, trading, and risk management 
of swaps. We look forward to continuing to work with our 
domestic and international regulatory counterparts on access to 
swap data repositories and these other important issues.
    Thank you for the opportunity to address this important 
issue before the subcommittee.
    I would be happy to answer any questions that you may have.
    [The prepared statement of Mr. Berkovitz can be found on 
page 25 of the appendix.]
    Mr. Schweikert [presiding] Thank you, Mr. Berkovitz.
    The Chair will yield himself a few minutes here.
    Help me understand. And as we go through this, one of the 
things I am most concerned about is sort of the law of 
unintended consequences. If we make this adjustment, and the 
bill goes through the process, do we cause another issue?
    Part of the mechanic I want to ask is if you and I were a 
regulator in Europe or Asia, is this whole concept of--as we 
would do an indemnification, the way our tort laws and 
mechanics work here, is it just because this is a concept that 
doesn't weave through their jurisdictions and their laws, or 
their tradition?
    Where do you find most of the conflict?
    Mr. Berkovitz. That has been one concern that has been 
reported to us in our communications with the foreign 
regulators, the concern about being subject to U.S. tort law. 
And that is one of the motivations for our addressing this 
issue in the manner that we have.
    Mr. Schweikert. Mr. Tafara? And I have to tell you, if you 
weren't at the SEC, I would suggest a career as a radio 
announcer. You have a great voice.
    [laughter]
    Mr. Tafara. I think the concern from the standpoint of the 
foreign regulators is that--and domestic regulators as well, 
and by the way, given that the indemnification requirement 
applies to them as well, is that there is data that will be 
held by the trade repositories to which they do need access to 
do their jobs.
    Yet, they are not in a position, as a matter of law, to 
actually provide the indemnification required as a prerequisite 
to getting that data.
    So it is the legal impossibility, or the legal 
impracticality from their standpoint, that makes this 
indemnification requirement problematic.
    Mr. Schweikert. Gentlemen, during the drafting of this 
section of Dodd-Frank--and I was not here--I understand parts 
of this moved very, very quickly.
    Did any of this discussion from your understandings come to 
the forefront?
    Mr. Berkovitz. In my personal knowledge, I don't recall 
specifically that we had examined this, and specifically 
commented on this provision. How it was discussed between the 
committees on the Hill, I wouldn't have knowledge of.
    Mr. Schweikert. Mr. Tafara?
    Mr. Tafara. My answer would be pretty much the same.
    I am not aware of the discussions that took place around 
this particular requirement between the committees. I suspect 
had it been raised with us, and it possibly was, we would have 
indicated the difficulty that this indemnification requirement 
presented.
    Mr. Schweikert. And this is a little more conceptual and--
okay, the legislation moves forward. We fix this--have we 
created any type of vacuum, or as I was saying before, 
unintended consequences, where we may have provided an 
opportunity now that the private tort bars, some other vacuum 
now, created some of the types of exposures that also might 
become a barrier for organizations wishing to accurately or 
fully report?
    Mr. Berkovitz?
    Mr. Berkovitz. We have specifically heard the concern from 
the foreign regulators about the potential consequences of 
being subject to this liability, and from their perspective, 
the various issues that it may create.
    And so we have attempted to address that concern while 
maintaining the confidentiality of those as well.
    Mr. Schweikert. Okay.
    And on this--particularly speak to the confidentiality 
side?
    Mr. Tafara. I think the concern only arises to the extent 
that the information gets used inappropriately by the regulator 
that is seeking that information. And I believe this is being 
sought, and will be sought, for legitimate purposes.
    It is in connection with whatever your mandate is: 
regulating and supervising the trade repository itself; 
regulating or being prudentially responsible for the dealers 
who are reporting to the trade repository; or in connection 
with pursuing an investigation into potential wrongdoing.
    Those would be the purposes for which a regulator would be 
seeking the information. And to that end, I don't know that 
they run much risk in terms of liability.
    Of course, as Dan has indicated, it is important that the 
information be maintained confidentially by the authorities and 
used appropriately and not disclosed inappropriately.
    So yes, we do think confidentiality is an important aspect 
of this. But this is something that regulators deal with all 
the time. We are in possession of nonpublic information as part 
of our regulatory responsibilities and we use that information 
appropriately to meet our mandate.
    Mr. Schweikert. All right.
    Thank you, gentlemen, and I yield back my time.
    I recognize Ranking Member Waters for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman.
    I am wondering, to what extent does the SEC or the CFTC 
have the authority to exempt a foreign jurisdiction from 
indemnifying a swap data repository registered with either 
Commission, or to take other actions to limit the impact of 
this underlying provision in Dodd-Frank?
    In other words, I guess my question is to what extent does 
a change on this issue really require legislative action?
    Either one of you may answer.
    Mr. Berkovitz. We believe we have authority to address this 
issue.
    We addressed the issue in the rule that we published on our 
swap data repository--we call the core principles which the 
statue established and the regulation and the licensing of the 
swap data repository. In that rule, we provided several 
conditions under which a regulator could get access to the data 
without an indemnification agreement.
    Subsequently, subsequent to the publication and the 
enactment of that rule, we received comments in particular from 
the foreign regulators that the rule doesn't address a number 
of their concerns. And there are a number of instances in which 
foreign regulators would seek access that may not be covered by 
the rule that we have already published.
    And for this reason, the Chairman has directed the staff, 
and my office is drafting that additional interpretive 
guidance, to further address the issue and cover some of these 
additional situations where we could still provide access to 
the data without the indemnification agreement, and yet 
preserve confidentiality.
    So we believe we have extensive authority to address this 
issue already.
    Ms. Waters. Do you share that opinion Mr. Tafara?
    Mr. Tafara. We, like the CFTC, have explored the authority 
we may have either through exemption or interpretation to 
preclude the need for indemnification by foreign authorities.
    And it is possible that we could identify a way in which to 
address it.
    However, there is always a measure of uncertainty by virtue 
of going that route. And our sense from our counterparts is 
that they would prefer for there to be certainty with respect 
to whether or not they need to provide indemnification.
    Ms. Waters. If this bill doesn't make it through the Senate 
and to the President's desk, what would you do?
    Mr. Tafara. We would have to continue to explore the 
authority as--actually address the concerns that have been 
expressed by our counterparts.
    Ms. Waters. Mr. Berkovitz?
    Mr. Berkovitz. The Chairman has directed that we draft this 
additional guidance for the Commission's consideration very 
shortly. And it is our goal that the Commission should consider 
putting out this guidance for public comment within the next 
several weeks.
    So that is our goal, to do this very expeditiously.
    Ms. Waters. Thank you very much.
    I yield back.
    Mr. Schweikert. Thank you, Ranking Member Waters.
    Mr. Posey? No? Okay.
    Mr. Hurt, do you have any questions?
    Mr. Hurt. Just a couple of questions, Mr. Chairman, thank 
you.
    I was wondering in terms of the--I want to make sure I 
understand the proposal. What we are talking about is a breach 
of confidentiality, and Dodd-Frank's requirement that there be 
indemnification agreed to by the foreign regulators.
    If this is adopted, the legislative proposal before us, 
there will still be a remedy available to someone who is 
aggrieved by a breach in confidentiality, will there not? If 
there is a breach in confidentiality, there will be a remedy 
for the persons who--or for the entity that is hurt by that.
    Mr. Berkovitz. That would depend upon the particular law of 
this jurisdiction.
    So I don't know whether the answer would be yes or no. And 
I will certainly--
    Mr. Hurt. And that would depend on the laws of the foreign 
regulator?
    Mr. Berkovitz. It would, I guess, depend on the particular 
circumstance, the parties involved, where the breach occurred, 
and the actual circumstances.
    Mr. Hurt. Okay.
    Let me ask this. Have the SEC and the CFTC--are your 
organizations able to actively support this legislation? Is 
this something that you will go on the record as actively 
supporting?
    Mr. Berkovitz. The CFTC has not taken a position on the 
legislation.
    Mr. Hurt. Is that just by protocol or do you really not 
have a position on this?
    Mr. Berkovitz. It does not have a position.
    Mr. Tafara. We, at the SEC, support elimination of the 
indemnification requirement, and think that the draft in its 
current form seems to achieve that objective.
    Mr. Hurt. Okay.
    Thank you, Mr. Chairman.
    I yield back my time.
    Mr. Schweikert. Thank you, Mr. Hurt.
    Ms. Moore?
    Ms. Moore. Thank you, Mr. Chairman.
    I guess I want to make a comment and I want to ask the 
panel a question. And by the way, the CFTC and the SEC have 
been very, very helpful to us in drafting this legislation.
    There seems to be a lot of concern with regard to breach of 
confidentiality. And I guess I want to sort of reiterate the 
fact that there is a regulatory framework on both sides of the 
water to which entities have to comply.
    I guess I want the panel to have the opportunity to provide 
some details regarding the arrangements that the CFTC and the 
SEC already engage in with international counterparties for 
access to information and cooperative oversight, including the 
memoranda of understanding.
    So that if there were a breach of confidentiality, there is 
a regulatory framework that on this side of the water, the CFTC 
and the SEC would have authority over and Spain, London, or 
Asia or in the emerging markets, can you describe for us, 
without knowing the specifics, what those memoranda of 
understanding are, and how this is already handled?
    Mr. Berkovitz. That is correct, Congresswoman.
    We have under our existing authority in Section 8 of the 
Commodity Exchange Act, confidentiality provisions. We are 
required to keep business information regarding persons and 
their trading data confidential.
    However, the statute also allows us to share this 
information with domestic regulators and foreign regulators 
provided that we appropriate assurances of confidentiality.
    So it is already in the Commodity Exchange Act, that we are 
permitted to share information if the Commission is satisfied 
that the data will be adequately protected by the foreign 
regulator.
    So typically we do enter into a memorandum of understanding 
(MOU) with the commitment of the foreign regulator that they 
will keep the data appropriately confidential as required by 
the statute.
    And that system has worked. That system has worked very 
well.
    Mr. Tafara. Along those lines, we have entered into some 40 
or more arrangements with counterparts from around the world 
for purposes of assisting in enforcement matters as well in the 
supervision of global actors.
    Those arrangements call for the sharing of nonpublic 
information with one another to those ends. And the MOUs make 
clear the conditions under which the information is provided 
and how that information can be used.
    And much of the information being nonpublic, it must be 
maintained confidentially by the recipient and only used for 
the regulatory purposes for which it sought.
    One of the things we do in entering into these memoranda of 
understanding is come to an understanding of the legal 
protections that foreign counterpart can provide to the 
information. So we seek a measure of reassurance that as a 
matter of law, they can keep that information confidential and 
it is on that basis that we finalize the MOU.
    Ms. Moore. Thank you. I would like to follow up with a 
concern that still was on the table with regard to plenary 
access.
    Since U.S. regulators already have access to all trades on 
any SDR registered as a U.S. SDR, even if that SDR is 
physically located on foreign soil, what would be the benefit 
or the liability of pursuing plenary access?
    Would we find that foreign entities would have the same 
resistance to plenary access, find themselves establishing 
their own SDRs and fragmenting those data in the same way?
    What are the benefits or liabilities of continuing to 
pursue a plenary access playing field?
    And would it create the same sort of legal--the problems as 
we have seen in this indemnification issue play out?
    Mr. Berkovitz. This is another issue that we have begun to 
discuss with our international counterparts. And there is 
actually a working group on this issue in which the CFTC 
believes--my colleague here is also participating in on this 
issue.
    So we are already participating. And to trust some of these 
issues as the U.S. and the international counterparts are 
establishing swap data repositories, and the potential 
structures, and potential regulatory framework, who will have 
the licenses, what data will go in which license?
    These issues have arisen.
    And we are committed to working through them with our 
foreign regulators to ensure that, for example, the CFTC's main 
objective is to ensure we have access and the statute mandates 
data that is required to be reported under the Commodity 
Exchange Act.
    That is our primary objective.
    And to the extent that there is other data in the 
repository that might come from other regulatory requirements, 
who would have access to that or who might not have access to 
that, I think this is something that we need to reach a mutual 
understanding or working to reach a mutual understanding on 
with our international counterparts.
    So we are participating in those discussions to address 
that issue.
    Ms. Moore. [Off-mike.]
    Mr. Tafara. Absolutely, Ms. Moore.
    Different regulators will need different depth and breadth 
of access to the information that is held with the trade 
repository.
    When you think about it, the access that will be sought--it 
will be sought by different types of regulators.
    You will have regulators responsible for the trade 
repository itself given that it is registered with it. And who 
will have responsibility also for market surveillance. They 
will need a certain depth and breadth of access to information.
    Prudential supervisors or the dealers that are reporting to 
the trade repositories will need access to information. The 
breadth and access of information they need may differ from 
what you may need as a supervisor of the trade repository.
    Law enforcement authorities will need access to the 
information to the extent they are investigating potential 
wrongdoing. And the depth and breadth of access they will need 
will be dictated by the investigation that is being conducted.
    And then you will have authorities that will need access 
for monitoring systemic risk that have been charged.
    As Dan has indicated, there is a conversation that has 
taken place internationally now to understand what depth and 
breadth these different regulators may need, and to reach an 
understanding of that and some will need more access than 
others might, I think.
    But coming to agreement on that is something that is 
actually a work in process right now, and the subject of some 
debate amongst ourselves as an international regulatory 
community.
    Ms. Moore. Thank you so much.
    Mr. Schweikert. Thank you, Ms. Moore. Those were terrific 
questions.
    Gentlemen, thank you for your participation. I don't 
believe we have any more questions for this panel.
    So we will now move on to panel number two, Mr. Donahue.
    And to the young people who are visiting, where are you 
visiting from?
    I want you to know all hearings are exactly this exciting.
    [laughter]
    This room has fairly tough acoustics.
    I recognize Mr. Donald Donahue, chief executive officer of 
The Depository Trust & Clearing Corporation is recognized for 5 
minutes.

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

    Mr. Donahue. Chairman Schweikert, Ranking Member Waters, 
thank you very much for holding today's hearing.
    We support the leadership of this subcommittee in 
introducing legislation to ensure effective swap transaction 
reporting for monitoring systemic risk in global financial 
markets.
    DTCC and regulators have worked diligently to address these 
issues. However, it has become clear that a legislative fix is 
needed.
    Today, I address two technical provisions in the Dodd-Frank 
Act that make it more difficult for regulators around the world 
to share information. They are generally referred to as 
indemnification and plenary access. And both promote the risk 
of data fragmentation that Congresswoman Moore very eloquently 
described in her opening remarks.
    The first issue, indemnification, is an immediate problem. 
Many regulators worldwide are unable or unwilling to provide an 
indemnity agreement. The concept of indemnification is 
unfamiliar to them, and inconsistent with their traditions and 
legal structures.
    More plainly, though, foreign government agencies will not 
indemnify private third-party entities such as SDRs. The 
indemnification provision is also not needed in light of 
current international data-sharing guidelines developed through 
the cooperative efforts of more than 50 regulators worldwide 
including the CFTC, the SEC, and the Federal Reserve.
    Without an indemnity agreement, U.S.-based repositories 
would be legally prohibited from providing regulators outside 
the United States with market data on transactions under their 
jurisdiction.
    The clear risk is that global supervisors will have no 
viable option other than to fragment data globally by creating 
local repositories precisely to avoid indemnification.
    DTCC strongly supports the Swap Data Information Sharing 
Act of 2012 which would remove the indemnification provisions 
from the Dodd-Frank Act, and make U.S. law consistent with 
existing international protocols.
    This legislation will go a long way to ensuring global 
regulators can effectively monitor systemic risk. However, 
resolving indemnification without addressing the second issue, 
plenary access, still makes it likely that global swap data 
will be fragmented by jurisdiction.
    Addressing both issues now can preempt a future crisis for 
swap data information sharing.
    Plenary access requires U.S.-registered SDRs, even those 
who might be based outside the United States, to provide U.S. 
regulators with direct electronic access to data held by the 
SDR.
    While this provision was intended to ensure a thorough 
examination of the SDR's operations, non-U.S. regulators are 
very concerned that it may give U.S. agencies access to all 
swap data retained by the SDR, even data for transactions with 
no identifiable nexus to U.S. regulation.
    A broad interpretation by U.S. regulators of the plenary 
access provision would likely lead to fragmented swap data 
across SDRs in multiple jurisdictions, frustrating regulators' 
ability to monitor systemic risk.
    If a regulator can only see a limited slice of data from 
its own jurisdiction, then that regulator cannot see risk 
building up in the whole system, or provide adequate market 
surveillance and oversight.
    To illustrate the combined impact of these provisions, let 
us examine the case of two British banks executing your credit 
default swap involving a British underlying entity.
    Under the plenary access provision, if the trade was 
reported to a U.K.-based but U.S.-registered SDR, U.S. 
regulators could claim a legal right to view data on this 
transaction, even though the U.S. regulator has no material 
interest in it.
    Even worse, the indemnification provision would require the 
British regulator to indemnify the U.S.-registered SDR to 
access the same data, despite the fact that the entirety of the 
trade falls within the British regulator's jurisdiction.
    The issues of indemnification and plenary access must be 
dealt with in a tougher manner to prevent data fragmentation 
from occurring.
    Congress needs to address plenary access by clarifying the 
intent of the statute and reinforcing that regulators have 
access to the data in which the regulator has a material 
interest by amending and passing the Swap Data Information 
Sharing Act to ensure that technical corrections to both 
indemnification and plenary access are addressed.
    Congress will create the proper environment for the 
development of a global trade repository system to support 
systemic risk management and oversight.
    Thank you for your time this morning.
    [The prepared statement of Mr. Donahue can be found on page 
30 of the appendix.]
    Mr. Schweikert. Thank you, Mr. Donahue.
    A quick question--as we are going through the 
indemnification process of this piece of legislation moving 
forward, right now is it acting as a barrier for the United 
States to be the hub of suppository information?
    Are you getting much pushback? What is happening at this 
moment?
    Mr. Donahue. I think at this moment, Mr. Chairman, as I 
believe you are aware, we do actually operate a global swap 
data repository for credits--default swap data. And we are in 
the early stages of operating such a repository for interest 
rate swap data.
    We have a global data set to which under the agreement of 
the OTC derivatives regulators forum, under work being done by 
the International Organization of Securities Commissions, all 
regulators have equal access to that data, data they have a 
material interest in, on common terms, on the same terms. And 
they are in fact routinely accessing that data, routinely 
making use of that data.
    And when the indemnification provision comes in and comes 
into effect, it is very clear that will shut down the ability 
of regulators outside the United States to have access to that 
data, and to use that data the way they have become accustomed 
to doing that, until they cross the indemnification bridge and 
deal with the issues that indemnification presents to them.
    Our belief, and I think you heard it from the earlier 
panel, is that they will not be able to provide the 
indemnification agreements. And therefore, they will not have 
access to the data. And therefore, they will say, we have to 
start creating our own trade repositories. We have to start 
fragmenting the data to be able to keep access to this 
information that is so critical for us to have access to.
    Mr. Schweikert. Thank you, Mr. Donahue.
    So far, this seems actually somewhat simple.
    But from your viewpoint and from us doing the policy, one 
of my constant concerns is the law of unintended consequence.
    Do you see anything that might pop up, sneak up on us, 
cause an issue, cause a mechanic--or is this really truly that 
simple?
    Mr. Donahue. I believe this is really truly that simple. I 
think we have a regime today crafted by the work that the OTC 
derivatives regulators, foreign and other international groups 
of regulators, have crafted to create the ground rules under 
which they all have access on a common set of rules. They are 
all using that access, and all proceeding under those common 
rules.
    That has proven to be an enormously effective way of giving 
them access to the data they need for their regulatory purposes 
to monitor systemic risk. Preserving that is, I think, a very 
straightforward public policy good that this removal of the 
indemnification and the plenary access issues would continue to 
foster.
    Mr. Schweikert. All right. Thank you, Mr. Donahue.
    I yield back, and recognize Ranking Member Waters for 5 
minutes.
    Ms. Waters. Thank you very much, Mr. Chairman.
    Let me just say that Dodd-Frank is a most important piece 
of reform legislation that we spent an awful lot of time on. 
And we think that we have created a piece of legislation that 
will provide transparency and consumer protection and a lot of 
other things.
    So I am very careful as we review all aspects of this 
legislation. But it is very apparent that there are some pieces 
of the legislation that need to be revisited.
    And as we talk about these certain provisions of Title VII 
today in Dodd-Frank, that would require that any U.S. or 
foreign authority agree to provide this indemnification to a 
swap data repository, and the SEC or the CFTC for any expenses 
arising from litigation as a precondition for receiving swap 
data; that the information that we have received both from our 
regulators and from you, Mr. Donahue, it is quite clear that 
not only must we correct this legislatively to eliminate any 
questions or uncertainty about what the intentions are or were, 
but this is absolutely necessary.
    And so I want to thank you for your testimony here today. I 
have no further questions. Thank you very much.
    Mr. Schweikert. Thank you, Ms. Waters.
    Mr. Hurt?
    Mr. Hurt. Thank you, Mr. Chairman.
    Thank you for your testimony, Mr. Donahue.
    I guess my question is one I was trying to explore earlier 
with the earlier witnesses. And I guess I just was hoping to 
kind of better understand what happens if there is a breach of 
confidentiality.
    First, it does seem that under the current proposal, 
confidentiality still must be a part of the release of the 
information. And information cannot be released unless the 
foreign regulators agree that there will be confidentiality.
    Is that true?
    Mr. Donahue. The information--the guidelines that were 
adopted by the OTC derivatives regulators forum, and the 
similar work that is being done by the International 
Organization of Securities Commissions, is intended to give all 
regulators access to this information consistent with the rules 
that pertain--as I think, Mr. Berkovitz was indicating--in 
their particular regulatory jurisdiction.
    Mr. Hurt. From--I am sorry. Go ahead.
    Mr. Donahue. They have access. In our access methodology, 
we provide all of the regulators an electronic means to access 
the data in the repository, right. That electronic means limits 
them to the data that they have a material interest in.
    So an Italian regulator for example can see data that has 
an Italian counterparty, can see data that has an Italian 
reference entity. They only see what they are entitled to see 
in terms of what their regulatory jurisdiction is.
    And obviously, the retention of that data by them would be 
subject to whatever rules apply to them in their own 
jurisdiction--
    Mr. Hurt. And are they sufficient.
    Mr. Donahue. I am sorry?
    Mr. Hurt. Are they sufficient, those existing rules?
    Mr. Donahue. Obviously, that would be dependent on the 
jurisdiction of the particular regulator--
    Mr. Hurt. Are there some that are and are there some that 
are not?
    Mr. Donahue. I don't have any--I am not implying that there 
may be some that are not. I don't have any reason to think that 
there are not appropriate confidentiality restrictions for 
their jurisdiction.
    But as you well appreciate, they vary--
    Mr. Hurt. By jurisdiction. Okay.
    So because in your testimony you said that there are--that 
many of these groups, foreign groups, are not familiar--or 
indemnification is not part of their jurisprudence, so to 
speak.
    Mr. Donahue. Yes.
    Mr. Hurt. But it sounds like, to me, that confidentiality 
is.
    Mr. Donahue. I think confidentiality--I think pretty much 
every regulatory jurisdiction around the globe recognizes that 
regulators get from their regulatees highly confidential 
information
    Mr. Hurt. Right--
    Mr. Donahue. --about their business--
    Mr. Hurt. --that is what I am concerned about--
    Mr. Donahue. --that kind of thing and ergo each of them 
must have their own expression of how that gets retained.
    Mr. Hurt. And then can you walk through for me an example 
or talk to me about in the event that there is a breach of 
confidentiality by a foreign regulator who misuses this 
information, what are the remedies available?
    What are the remedies available if there is not an 
indemnification agreement?
    What are the remedies available to that person, or to that 
entity, that has suffered the consequence of misuse of this 
information?
    That is sort of what I was trying to get at.
    Mr. Donahue. Okay. I again would suggest to you that the 
information a particular regulator has is information first and 
foremost that his regulatees already could be obligated to 
provide to him, right.
    So an Italian regulator who receives information from the 
repository about Italian counterparties activities, obviously 
part of the nexus here is that he could say to those 
counterparties, you have to report this to us. And we are 
trying to make it a more efficient and effective process.
    So they would have, to the extent he disclosed that 
inappropriately as highly unlikely, as hypothetical as that is, 
those entities would have the remedies against the regulator 
that they would have under Italian law in my example.
    And they would be able to go against the regulator to 
enforce whatever remedy they would have against that kind of a 
breach.
    Mr. Hurt. Okay.
    Thank you, sir.
    I yield back my time.
    Mr. Schweikert. Thank you, Mr. Hurt.
    Ms. Moore?
    Ms. Moore. Thank you so much, Mr. Chairman, and Madam 
Ranking Member. And I want to thank Mr. Donahue for appearing.
    Mr. Donahue, I do know that the DTCC was very, very 
instrumental in this last financial crisis that we had, because 
of its repository responsibility was very, very helpful in 
responding and cooperating with regulators in our crisis.
    And so, I want to just follow up on some of the questions 
that other members have already asked with regard to if there 
is another financial crisis, and it is a global financial 
crisis, I want you to sort of walk us through how plenary 
access, in particular, would have an adverse impact on your 
ability to respond to these financial crises.
    I guess my understanding of your testimony is number one, 
you think that plenary access is just as contentious as 
indemnification with regard to preventing data fragmentation of 
the market, and that this legislation before us really needs to 
be amended to include plenary access.
    Can you just sort of walk us through an example of how 
plenary access might add to this market fragmentation?
    Mr. Donahue. Thank you, Congresswoman Moore.
    Yes, perhaps a way of doing that is to describe what 
specifically happened in the fall of 2008 after the failure of 
Lehman Brothers.
    Ms. Moore. Exactly.
    Mr. Donahue. We had, as I believe you know, a fully mature 
trade repository for credit default swap data at that time. And 
during the weeks following the failure of Lehman Brothers, 
there was a market firestorm essentially in terms of rumors 
about the magnitude of the liability counterparties on credit 
default swaps using Lehman as a reference entity had.
    There were rumors that the liability was north of $400 
billion. And clearly, there was a panic in the market that it 
was going to sink the markets--
    Ms. Moore. Right.
    Mr. Donahue. --if that kind of exposure was present.
    We were able from data in the repository to say the total 
liability is in fact not going to exceed $6 billion. We did say 
that publicly.
    In any event, it was $5.3 billion.
    Ms. Moore. Right.
    Mr. Donahue. So we were able, because we had all of that 
information together, to tell people this is how bad it looks. 
It is clearly not anything like the--
    Ms. Moore. $400 billion--
    Mr. Donahue. --the problem you think that you have--
    Ms. Moore. Yes--
    Mr. Donahue. --number one, right.
    But in a plenary access world, right, if plenary access 
motivates non-U.S regulators to say we need to create our own 
trade repositories. We need to fragment the data into our own 
jurisdiction. We need to preclude our own regulated firms from 
putting data anywhere else other than in our own repository.
    We would not have known what the picture was with respect 
to Lehman.
    We might have known, gee, we know $10 billion of the 
contracts are outstanding, but they are spread out in all other 
kinds of repositories, all around the world.
    No one could have put all of the pieces together and said 
this is what it would look like. This in fact is what the 
exposure is. No one could have put out that firestorm.
    And that firestorm could have had obviously very severe 
effects in terms of what was a very sensitive market 
environment at the time.
    Ms. Moore. Mr. Donahue?
    The CFTC thinks that there is a workaround for plenary 
access. Can you explain to us here today why you think that 
there is a legislative fix that needs to be done?
    Mr. Donahue. I certainly am not familiar with what 
specifically the CFTC has in mind.
    But I think the regulators outside of the United States in 
our discussions with them, in our contacts with them in the 
context of the credit default swap repository that we already 
have, had been very clear about their sensitivity about the 
confidentiality of the data actually.
    They are concerned that they see the same data that 
everyone else sees. And that no one is given the authority to 
see more data than the generally agreed international rules 
regarding data access would enable all regulators to be able to 
see.
    When they hear that there is a possibility that certain 
regulators might be able to see data that they view as 
confidential with respect to their own regulatees, that is 
something they view very, very negatively.
    And that is something where they think, wait a minute. That 
means I may need to pull my data back so that I control who is 
able to see it.
    Ms. Moore. Unanimous consent to just have more follow-up or 
no?
    Thank you so much.
    So with regard to your seeing a need for a legislative fix, 
we heard testimony earlier today that the SEC and the CFTC say 
that those conversations are happening already with regard to 
the depth and breadth of information that needs to be done.
    Do you think right now that given the integrity of the 
relationships that already occur, if there needs to be some 
sort of data-sharing without plenary access, that literally we 
could go to other regulators in Asian markets or Latin American 
markets or other markets and say, we need to see this data 
through an MOU versus having plenary access?
    Do you think the integrity of those relationships already 
exist without our having plenary access?
    Mr. Donahue. Our impression from our dialogue with 
regulators outside the United States suggests that that 
relationship is of the nature you described.
    I think I would add that having a conversation about the 
ground rules for sharing data among all regulators, where all 
regulators understand that they are approaching that discussion 
on a level platform can be a fruitful discussion.
    Having that dialogue when some of the regulators believe 
that some other regulators, namely the U.S. regulators, are 
privileged because of the plenary access provisions, that skews 
the way that dialogue is going to happen right from the 
beginning.
    And I think they will be less amenable to coming up with a 
global ground set because they are just going to say, wait a 
minute, some of us here are playing by different rules. We are 
not sure that we are willing to go down that road.
    So I think the removal of plenary access is precisely 
important to foster the kind of cooperative dialogue that you 
are describing.
    Ms. Moore. Thank you so much.
    And I thank the Chair for his indulgence.
    And thank you, Mr. Donahue.
    I yield back.
    Mr. Schweikert. Mr. Stivers?
    Mr. Stivers. Thank you, Mr. Chairman. I would like to first 
recognize the Ohio State University Mount Scholars in the 
second row for being here, and go Buckeyes.
    Mr. Schweikert. Mr. Stivers, do we owe them an apology for 
an exciting hearing?
    Mr. Stivers. It is pretty exciting. And I am sorry if we 
are getting your adrenaline pumping too much. So I would like 
to apologize for that.
    I do want to thank Mr. Donahue for your testimony. I have 
had a chance to see a working model of your credit default swap 
repository, and it is an impressive amount of data. I think you 
explained very well its value in the wake of the Lehman 
Brothers crisis.
    And I would like to ask you a question about if plenary 
access and the indemnification were required before that, and 
it resulted in the data fragmentation that you explained that 
is logical, what happened with those two requirements, would 
you have been able to give regulators enough access to data to 
calculate the exposure to focus on the Lehman Brothers problem?
    Mr. Donahue. If indemnification had existed, if plenary 
access had existed at the time we created the credit default 
swap repository, we would never have accumulated all of the 
data.
    So by definition, we would have known one piece. We would 
have had the tail of the elephant. We wouldn't have had the 
elephant.
    And we could not have told people, this is what the total 
picture is. We could have only reported on one slice of that 
picture.
    Mr. Stivers. And looking forward to potential future 
issues, data fragmentation and the risk of it, because of 
plenary access and indemnification, could risk the ability of 
regulators, not only in the United States but globally, to 
understand the exposure that their firms face on a worldwide 
basis.
    Is that correct?
    Mr. Donahue. There is no question if you fragment the data 
because of those factors, you are enormously handicapped in 
being able to do that.
    Mr. Stivers. And Ms. Moore already alluded to it. But I 
want to hear you say it from your own mouth.
    The bill that is in draft form here does deal with the 
indemnification issue, but does not deal with the plenary 
access issue. Would you recommend that we include that in this 
bill?
    Mr. Donahue. We believe that the two issues are crucially 
joined, and must both be addressed to be able to eliminate the 
risk of data fragmentation that we are very concerned about, so 
plenary access definitely needs to be addressed.
    Mr. Stivers. Great, thank you. I appreciate your testimony, 
and being involved in these issues is very important.
    I think there seems to be unanimity among the subcommittee 
here that this is an issue that is really important and needs 
to be dealt with in a very thoughtful way.
    And that the two issues here, while they may have worked in 
some circumstances, don't fit where we are in this point in 
time, and need to be corrected so that we can get better access 
to data, not only for American regulators, but global 
regulators.
    Mr. Donahue. We would agree with that completely.
    Mr. Stivers. Thank you for your time.
    I yield back the balance of my time, Mr. Chairman.
    Mr. Schweikert. Thank you, Mr. Stivers.
    And Mr. Donahue, thank you for your time.
    Without objection, the written statements of both panels 
will be made a part of the record.
    The Chair notes that some Members may have additional 
questions for the panels, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for Members to submit written questions to these 
witnesses and to place their responses in the record.
    And with that, this hearing is adjourned.
    [Whereupon, at 11:14 a.m., the hearing was adjourned.]






                            A P P E N D I X



                             March 21, 2012



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