Sometimes "insourcing" pays off more than outsourcing. Until last year, two DTCC subsidiaries outsourced all their infrastructure support activities to the Securities Industry Automation Corporation (SIAC). Now, following the completion of a multi-year initiative, DTCC has cut costs and bolstered business continuity by insourcing the activities previously performed by SIAC into DTCC’s infrastructure. The two subsidiaries are National Securities Clearing Corporation (NSCC) and Fixed Income Clearing Corporation (FICC).
The project, completed in late 2005, meets a continuity recommendation from the 2003 "Interagency Paper on Sound Practices to Strengthen the Resilience of the U.S. Financial System," issued by the U.S. Federal Reserve Board, Office of the Comptroller of the Currency and the Securities and Exchange Commission (SEC).
Since SIAC's computer operations are both located in the metropolitan New York region, NSCC and FICC processing capabilities were at risk in the event of a New York-regional emergency. As a result, DTCC's insourcing of applications and network connections from SIAC has significantly strengthened the industry's business continuity by extending out-of-region backup capabilities to all DTCC subsidiaries, using DTCC's distant Remote Data Center facility.
The initiative has also reduced DTCC’s overall costs, with millions of dollars in savings already accruing to customers.
"Our primary goal with insourcing was to provide out-of-region data recovery for FICC and NSCC by leveraging the DTCC infrastructure," said George Perretti, DTCC managing director, Corporate Business Continuity. He added that this was a major concern of the SEC, which closely monitored the initiative. "We gave the regulators ongoing status reports," he noted.
George Perretti, DTCC managing director, Corporate Business Continuity
On top of strengthening the industry's business continuity and infrastructure, the project is yielding financial benefits, enabling DTCC to cut the industry’s overall operating expenses. In 2006, by leveraging DTCC's processing capabilities, insourcing has reduced DTCC's annual operating expenses an estimated $42 million, said William Aimetti, DTCC’s chief operating officer. This was one factor that enabled DTCC to lower its fees in 2006.
"By capitalizing on DTCC's existing infrastructure and equipment to support NSCC and FICC, we have been able to consolidate our systems, resulting in significant savings for both DTCC and the industry," said Aimetti.
The project, approved by DTCC's board in late 2002 and initiated in 2003, had two components.
The first entailed migrating from the SIAC data centers all mainframe and distributed applications for NSCC and FICC into the DTCC data centers, while taking advantage of its infrastructure. The second component brought customers’ network connections into DTCC as opposed to SIAC, thus providing direct connectivity to DTCC’s out-of-region facilities.
The strategy for insourcing the applications – approximately 100 in total – was to ensure the transition was seamless and transparent to customers, with no impact on processing.
"We built an environment in our data centers that mirrored the SIAC environment for FICC and NSCC," said Perretti. "We also had a team dedicated to massaging the incoming applications to ensure they were running smoothly through our systems."
In addition, DTCC took the opportunity to conduct a thorough review of all the applications being migrated. "We retired some of the legacy applications and replaced them with new ones," said Perretti. "For example, we were in the process of rewriting the Continuous Net Settlement [CNS] system," he noted. "Rather than insource the legacy CNS, we developed, tested and brought up the new CNS on our systems."
What's more, DTCC ensured that the industry would benefit from the project as it progressed. "As we insourced the mainframe apps, we immediately took advantage of our out-of-region capability," said Perretti.
The project's timeline called for the NSCC applications to come first, followed by those for FICC. According to Perretti, NSCC was completed in October 2004 and FICC in October 2005, both ahead of schedule.
As the FICC applications were being migrated, DTCC simultaneously began insourcing the network connections, which would allow customers to connect directly with DTCC rather than sending their data to SIAC first.
To implement this piece of the project, DTCC collaborated closely with customers. "We worked with each firm to make the necessary changes to their systems for the new circuits," said Perretti. Noting that every customer had a cutover date, he added, "We could not have completed the network insourcing as quickly and efficiently as we did without the full cooperation of our customers."
This conversion was finished in late 2005, also ahead of schedule. Now, all NSCC and FICC data are transmitted directly to and from DTCC over DTCC's Securely Managed and Reliable Technology (SMART) network or SIAC’s Secure Financial Transaction Infrastructure (SFTI) network, which is bridged to SMART.
With the entire insourcing finished, DTCC is giving its consolidated network a review to identify opportunities for further cost savings and consolidation, according to Perretti. "For example, we are looking at the number of circuits per customer and assessing with customers whether they can consolidate circuits to reduce their monthly expenses," he said. DTCC expects to complete these assessments in 2006 for all firms.
(Customers wishing to review their firms' configurations can contact their relationship managers.)
DTCC has already made recommen-dations for more than $6 million in communications savings and, to date, $3.3 million has been approved by customers and implemented.
Going forward, the centralization of DTCC applications and circuits within DTCC will also benefit the industry by providing a single point of contact for matters such as testing circuits, ordering services and continuity testing. @
The DTCC GCF Repo Index is the first – and only – index that tracks the average daily interest rate paid on overnight transactions in the $400 billion daily market for general collateral finance repurchase (GCF Repos®) agreements in U.S. Treasury, federal agency and mortgage-backed securities issued by Fannie Mae and Freddie Mac.Read More