The Depository Trust & Clearing Corporation (DTCC) and TABB Group recently hosted a 10-minute webcast to discuss findings from the white paper, “Managing Market Structure Risk: Flash Back.”
The webcast, a Q&A between Sayena Mostowfi, TABB Group Principal, Head of Equities Research, and Bill Kapogiannis, DTCC Vice President, Equity Clearing, highlighted both findings and recommendations from the white paper.
According to TABB’s research, which was commissioned by DTCC in late October, market infrastructure risk has become as important as market structure risk in the years since the May 6, 2010 Flash Crash. With average daily trades for the first eight months of 2015 versus the same period a decade ago increasing to 31.6 million trades from 10 million, the US equity national market system's stability is now as much tied to market structure as it is to market infrastructure.
“As the stand-alone CCP (central counterparty) in the U.S. equity markets, NSCC is the ultimate bearer of risk and needs to ensure appropriate controls in the industry are in place to mitigate the impact of unintended market activity,” said Kapogiannis, “We need to protect the CCP and its members during times of stress.”
Recent improvements to DTCC’s systems and processes began with the redesign of its trade capture and reporting process through implementing a centralized, real-time processing platform with normalized data across all execution venues. Other initiatives currently being worked on to reduce risk include accelerating the NSCC trade guarantee from T+1 to point of validation and driving the industry initiative to shorten the trade settlement cycle to T+2.
Kapogiannis highlighted several recommendations from the white paper that will help reduce market risk, including, “Exchange Kill Switches and DTCC Limit Monitoring,” “Market-wide Communications” and “Establishing Exchange Best Practices.”
The white paper and accompanying webcast are provided to educate the industry on the Flash Crash and other events, review regulatory actions and controls that were implemented as a result of these events, and highlight potential areas of improvement.
“I think we can all agree there will be another event; the question is how prepared will the industry be to react to it,” Kapogiannis said.
To watch the webcast, please click here.
To view the white paper, please click here.