Andrew Gray, DTCC Managing Director, Core Business Management
An intensified regulatory landscape combined with fundamental changes in market structure, have heightened pressure on financial firms to further mitigate risks and control costs, prompting the industry to look to financial market infrastructures (FMIs) to help it address these key challenges. In response, FMIs are recognizing that opportunities exist in certain instances to deliver more value to their clients by aligning to create global, shared services solutions that leverage their unique talents, intellectual capital and expertise.
DTCC Connection spoke with Andrew Gray, DTCC Managing Director, Core Business Management, following his joint keynote speech at Sibos 2014 Boston on the importance of collaboration among FMIs, and how it can help drive solutions to resolve current and future industry challenges.
DC: We have seen an expansion recently in collaboration between FMIs. What are the primary drivers that are fueling this?
AG: The theme of collaboration is one that I hear regularly in conversations with clients. We are seeing strong interest among financial firms and FMIs to work together to develop innovative solutions that address the risk management, operational efficiency and regulatory compliance needs of market participants globally.
Firms continue to face significant margin pressures in the current environment. We see this as a key driver prompting greater alliances across the industry, especially as FMIs look for opportunities to standardize and automate certain back office processes that do not generate revenue or provide a competitive advantage for firms.
DC: Can you provide some examples of how DTCC is collaborating with other institutions to help the industry during this period of transformation?
AG: There are several initiatives across the industry that demonstrate how collaboration among FMIs is helping to resolve key challenges in today’s environment.
The first example is entity data management. August 2014 marked the two-year anniversary of the launch of DTCC’s Global Markets Entity Identifier (GMEI) utility, our legal entity identifier (LEI) solution offered in collaboration with SWIFT. GMEI is a critical service to help bring transparency to the marketplace and mitigate systemic risk. We’ve built on this collaborative effort by establishing global partnerships with CUSIP Global Services in the U.S., NordLEI in Sweden, LuxCSD in Luxembourg and The Canadian Depository for Securities to facilitate LEI issuance for their customers.
By combining the capabilities of the GMEI utility with those of local partners, including their market positions, client and regulatory relationships and day-to-day operational interfaces, we’re helping to eliminate redundant infrastructure costs and create a more efficient system for issuing LEIs.
The second example is our partnership with six major global banks to launch Clarient. Its first offering, Clarient Entity Hub, is a new utility to provide centralized services for all client data and documents needed to satisfy internal on-boarding and help firms meet broader related regulatory requirements. Clarient Entity Hub will help create a more efficient process for the industry, lower costs, improve data quality, support regulatory reporting requirements and enhance its risk analysis.
DC: DTCC recently announced a pair of collaboration initiatives around collateral management and shortening the settlement cycle in the U.S. Can you give us more details about these initiatives?
AG: Our work to address new industry-wide challenges related to collateral is an excellent example of how collaboration among FMIs can lead to innovative solutions. At Sibos 2014 we announced a strategic partnership with Euroclear to bring together two of the industry's largest post-trade market infrastructures to develop and streamline margin settlement processes and enhance access to securities collateral worldwide, helping preserve the stability and soundness of financial markets.
Another example is our effort to gain consensus on shortening the settlement cycle for equities, corporate and municipal bonds and unit investment trust (UIT) trades to T+2 in the U.S. In October we announced the formation of an industry steering committee (ISC) and an industry working group (IWG) to facilitate the move to T+2 in the U.S.
As part the ISC’s commitment to informing the industry on topics related to shortening the settlement cycle in the U.S., an independent website, www.UST2.com, was created to provide the public with an information hub focused on the move to T+2. The website includes details pertaining to the background and purpose of the initiative; progress being made by the ISC and IWG; next steps; and other educational information.
DC: Is there potential for DTCC to explore collaborations beyond those that have been pursued with other financial market infrastructures or financial institutions?
AG: We’ve learned that, in some cases, partnering with a wide variety of organizations is a highly effective way to solve a problem. Soltra, our joint venture with The Financial Services Information Sharing and Analysis Center (FS-ISAC), demonstrates our commitment to being creative and innovative when it comes to developing new solutions related to cyber-security. Soltra was formed to develop solutions to help secure critical infrastructures from cyber threats. We recently announced the launch of Soltra Edge™, the threat intelligence sharing solution.
Soltra is a truly broad scale collaborative initiative – more than 150 FS-ISAC members and representatives from other Information Sharing and Analysis Centers (ISACs), government entities and the private sector are contributing to the requirements, architecture and design of the product.