DTCC senior executives were joined by industry experts to discuss digital innovation in the financial services industry at the firm’s recent virtual, live-streamed event titled, “DTCC Forum 2020: Digital Transformation in Public and Private Markets.”
“Technology has enabled us to reduce risk and cost, enhance efficiency, and increase the safety and stability of the marketplace,” said Mike Bodson, DTCC President and CEO. “Today’s post-trade system is the most efficient and lowest cost in the world.”
The event focused on DTCC’s Projects Ion and Whitney, initiatives geared towards making T+0 settlement and asset tokenization a reality. This work builds upon DTCC’s legacy of using technology to drive innovation in post-trade processing while maintaining the highest levels of risk management.
Leading Innovation: Moving Fast Without Breaking Things
During the opening fireside chat, Rob Palatnick, DTCC Managing Director & Chief Technology Architect, and Jennifer Peve, DTCC Managing Director, Business Innovation, discussed how business innovation, supported by technology, makes client-focused ideas real, while also reducing time and cost to market. Emerging technologies can play an important role in helping to address top industry pain points by increasing efficiencies and reducing costs and risks.
Using a development cycle that moves through a proof-of-concept stage to prototype and then production, combined with an Enterprise Agile development model, DTCC is able to achieve continuous iteration and refinement. This approach is especially powerful when combined with the application of new and emerging financial technologies.
Peve emphasized the firm’s client-first approach. “We start and lead with a business problem, not technology,” she said. “Industry expertise and technological acumen foster a deep understanding of stakeholder pain points. Concepts are then brought to life through technology.”
“DTCC’s technology journey over the past four decades has led to innovations, moving the industry from paper to computer, batch processing to real-time and single points of failure to multi-region resiliency,” Palatnick said. “The next logical step on this journey involves further exploration of digitization, making T+0 and asset tokenization a possible reality.”
Project Ion - Making T+0 a Reality
DTCC collaborated with the industry to explore distributed ledger technology (DLT) and the re-representation of DTC-eligible securities. Project Ion is an example of how innovation in netting and settlement capabilities, coupled with more modern technologies, can drive accelerated settlement while shaping the future of U.S. equities market structure. Artem Korenyuk, DTCC Executive Director, Business Innovation, moderated a panel on Project Ion, commenting that reduced timing is just one aspect of accelerated settlement.
“The true benefits are ultimately quantified by a reduction in cost and risk,” said Korenyuk. “By reducing settlement times, accelerated settlement significantly lowers the amount of capital required to support open transactions and optimizes the business value of risk protection of a CCP with better capital management.”
A shortened settlement cycle could strengthen financial markets, particularly in times of significant volatility. Other benefits include improving capital efficiency and reducing market and margin risk while also enhancing operating efficiency and providing seamless reconciliation. These capabilities can be used in multiple settlement environments, including netting, to improve capital efficiency and apply it to all DTC-eligible securities.
“Project Ion is another step forward in accelerated settlement, taking advantage of multilateral netting, ultimately reducing NSCC market risk, as well as the amount of margin DTCC collects,” said Mike McClain, DTCC Managing Director and General Manager of Equity Clearing and DTC Settlement Service. “Integrated into the current infrastructure, Ion will provide for optionality and the ability for fast adopters to take advantage of key features sooner.”
“Information Technology (IT) was implemented to improve pain points in different parts of the value chain,” said Emmanuel Aidoo, Global Head of Digital Asset Markets, Credit Suisse, commenting on the tremendous rate of change in the industry, progressing from paper to electronic, and now to digital. “DLT provides us an opportunity to unify the different processes that have built up over time.”
DTCC continues to work with strategic partners on Project Ion. Client feedback on real-time demos will help modify proof of concepts to develop prototypes and test functionality before engaging on the final product.
Project Whitney - Tokenization in the Private Markets
In the private markets, DTCC has been exploring asset tokenization. Theresa Paraschac, DTCC Executive Director, Global Government Relations and Business Innovation, moderated a panel on DTCC’s Project Whitney, highlighting about the benefits of a digital infrastructure in the private markets.
“Private markets need a different solution due to their various challenges,” said Peve. “Project Whitney was developed to examine how tokenization and digital infrastructure can transform private markets through their asset lifecycle.”
“Pain points include differing valuations, an intense lack of data and standards, a manually-intensive process, no repository, less liquidity, limited access, and other barriers to entry,” said Jay Biancamano, U.S. Head of Digital Products, State Street. “And at the same time, these markets are growing much faster than public markets.”
Project Whitney is a natural extension of DTCC’s history of providing resilient post-trade infrastructure, Peve noted. “We believe Whitney allows us to extend DTCC’s strengths to the private markets, providing proactive, automated compliance, creating standardization and maintaining stock records in one central location.”
Project Whitney has the potential to democratize the private markets, allowing increased liquidity, and seamless entry and exit points. Benefits also include automation of manual and administrative tasks, open architecture to allow financial institutions to interact and increased speed and ideation.
The main goal of any initiative, involving tokenization, is an improved end-user experience, Biancamano added, whether by eliminating processes, implementing cost savings and being completely transparent.
Project Whitney is a functional prototype allowing DTCC to work with key stakeholders to find out how the platform can meet their needs and integrate into workflows, ensuring client value and developing a case for change.
Focused on Reimagination - Delivering Value Together
Both Project Ion and Project Whitney remain in the experimentation stage, and a decision to progress the projects will be determined following further analysis and feedback from the industry. DTCC will continue to work with its strategic partners on these and other projects to build a better understanding of client needs and advance innovation.
“We continue to make great strides on the digital journey, knowing that fintech will play a critical role in driving improvements in market structure,” Bodson concluded. “We believe that open dialogue with clients and stakeholders is critical to building a better understanding of their needs and advancing innovation. This is an initial step in a much longer journey that our industry will take together to reshape the financial markets.”