DTCC Connection

May 14, 2015 • DTCC Connection

SIFMA Ops 2015: Equity Clearing Update

By Michael Battaglini

Thomas Sakaris
Thomas Sakaris, DTCC Managing Director, Equities Clearing

Initiatives designed to mitigate risk, optimize capital and promote safety and soundness in the U.S. equity markets and updates on DTCC services including Automated Customer Account Transfer Service (ACATS) Redesign, DTCC Limit Monitoring and Trade Input Enhancements were discussed during the “Equities Clearing Update” session at SIFMA Ops 2015.

Thomas Sakaris, DTCC Managing Director, Equities Clearing, moderated the session. He was joined on the panel by Bill J. Kapogiannis, DTCC Vice President, Equity Clearing Product Management Group, Michele Hillery, DTCC Vice President, Product Management, Joseph Zaets, Executive Director, Morgan Stanley, and Dr. Lawrence E. Holmes, Jr., Senior Operations Specialist, Division of Trading and Markets, U.S. Securities and Exchange Commission.

DC: Since 2009, DTCC has worked with the industry and regulators to make improvements to the ACATS system. How does the ACATS Redesign initiative help to protect client assets?

TS: ACATS automates and standardizes procedures for the transfer of assets in a customer account from one broker-dealer and/or bank to another. DTCC, industry representative and regulators have been engaged in a four-phase project since 2010 designed to improve efficiency and reduce risks associated with transactions processed through ACATS. We have completed three phases to date that provides the functionality for National Securities Clearing Corporation (NSCC) and its clients to expedite the transfer of customer positions.

DC: How have advancements in technology impacted the clearing space?

TS: Manual processes in trade execution have been replaced by automated, technology-driven systems. These advancements in efficiency have increased processing speed and the ability to facilitate increased trading activity. Technology glitches could have a major financial and reputational impact on the community we serve. In 2012, the industry came together to identify ways to manage this type of risk.

One part of the solution to mitigate technology risk was the development of DTCC Limit Monitoring (LM). Virtually all trading activity in U.S. listed equities is sent to and processed by Universal Trade Capture (UTC) in near real-time. As the aggregator of all market executions regardless of trading venue, NSCC was uniquely positioned to provide a limit monitoring tool to our clients to monitor trading activity against pre-established limits. NSCC Members have established net-notional limits within DTCC LM for each of their correspondent accounts. DTCC LM delivers alerts to Members as their trading activity nears the pre-established trading limits. In this way, Members get early warnings from the alert notification to better manage potential risk exposure associated with their correspondent accounts.

DC: The lack of standardization and the impact it has on the industry was a key topic during the panel. What initiatives have been done to combat this?

TS: DTCC’s UTC system utilizes the open sourceFinancial Information eXchange (FIX) standard protocol for all UTC submissions. Additionally as part of the UTC development effort, the legacy output formats were decommissioned and all clients migrated to a single UTC output format.

Another initiative is the expansion of Cost Basis Reporting System (CBRS). DTCC responded to our participants’ requests to establish a centralized, automated process with industry standards to support the legal requirements for financial intermediaries to pass cost basis information when assets move from one firm to another. The changes made were instrumental in helping our participants comply with the law and meet the expectations of their clients. The roll out occurred in phases as the law became effective by asset class: equities, mutual funds, options and fixed income. Work is underway with the industry to define the system requirements for complex debt securities, due in 2017.

dtccdotcom