Comment Text:
The Division of Market Oversight (“DMO”) appears to circumvent the basic fundamental of financial reporting in the United States and most other jurisdictions. Reporting systems must be accompanied by an audit function. The CFTC has mandatory audits for futures commission merchants (1FR), commodity pools and clearing organizations. The Securities and Exchange Commission requires all publicly traded companies to submit to an annual audit by a certified public accountant. Similar regulations apply to broker dealers (Focus) and other registered entities such as custody audits for mutual funds. It does not appear that DMO has made any recommendation on how the swap data being reported will be audited for reliability and accuracy. Swap data reporting is very complicated and the data is voluminous. To be sure, the daily reporting of billions of Dollars of notional swap transactions is much more prone to errors than any financial statement. DMO should take notice of the nature and number of false reporting complaints filed by the Division of Enforcement against registrants. A close reading of those complaints indicates that most errors were due to weak internal controls and sloppy procedures. In the absence of an audit function the data cannot be reasonably relied upon. I hope that the Division of Swap Dealers and Intermediary Oversight will be consulted on designing an audit or review program to evaluate reporting accuracy. At a minimum, DMO should explain why an audit function is not a necessity for swaps reporting but is required for Form 1FR. Thank you.
