DTCC continues to enhance its risk management practices and, in 2013, undertook several significant initiatives to further strengthen its capabilities to protect against the exposures its subsidiaries face as central counterparties (CCPs).

    protecting the industry
  • In November, DTCC issued a white paper, "Enhancing Risk Management," that outlines a range of proposals its NSCC subsidiary is currently considering to enhance its risk-management capabilities. Five of the proposals involve NSCC's Clearing Fund requirements and seek ways to better mitigate a variety of the risk exposures NSCC and its clients face. Other proposals offered in the white paper include amending minimum membership requirements, shortening the settlement cycle, providing an overview of the supplemental liquidity deposit facility and introducing a Guarantee Fund concept, which could cover potential losses if a defaulting member's clearing fund deposit is depleted.
  • NSCC received approval from the Securities and Exchange Commission (SEC) in December for its Supplemental Liquidity Deposit (SLD) Rule. The change permits NSCC to establish a funding requirement to cover the liquidity exposure of clients that regularly incur the largest gross settlement debits around option expiry periods.
  • DTCC established an additional layer of oversight with the creation of an internal Model Risk Governance Council. Chaired by the head of DTCC's quantitative risk management group and involving senior representatives from key areas of the organization, the council has responsibility for the review, oversight and governance of all risk-assessment models and their use throughout DTCC. This includes evaluating and recommending new models as well as reviewing the performance and suitability of existing models. The ability to identify, manage and mitigate model risk is critical to the soundness of the services DTCC provides to its clients throughout financial markets.
  • As part of DTCC efforts to be at the leading edge of risk management practices across the industry, the company's multiyear strategic risk plan anticipates the need to respond to more demanding risk reporting requirements, as well as to provide more comprehensive data and quantitative tools to mitigate the risks that DTCC faces. In 2013, the Risk Transformation Initiative was able to provide key foundational capabilities in data visualization and analytic tools, increase trade processing and margin calculation speeds, improve risk and pricing methodologies, and upgrade the company's risk technology infrastructure.

In coming years, the industry expects to face a growing centralization of risk management and increased exposures at central counterparties (CCPs), creating a need for more comprehensive margining calculations, enhanced liquidity resources and more timely risk exposure data.