Systemic risk, the U.S. regulatory landscape and market structure changes needed for risk mitigation were the dominant themes at DTCC’s 2013 Executive Forum, a full-day conference attended by more than 150 leaders from across the financial industry, academia and advocacy groups. This was the fifth year DTCC hosted the forum, which gathers clients, industry experts and DTCC executives to discuss insights on a broad range of subjects.
“It is heartening to see how this event has evolved in such a short period of time into a world-class conference tackling some of the most critical issues facing financial services,” said Michael Bodson, DTCC President and CEO.
The theme of this year’s event, held March 19 in New York, was “Risk Management and Innovation: Securing Today, Shaping Tomorrow,” which incorporates DTCC’s new corporate strategic positioning and updated brand identity.
Call to ‘seize this moment’
Bodson, who gave the day’s opening remarks, talked about ongoing challenges facing financial services, as well critical inflection points and how they are shaping the industry and DTCC’s role in it. He concluded with a challenge for the industry to seize this moment of change to develop a bold agenda, new ideas and a compelling vision to help lead financial services forward.
“It’s clear to me that we now stand at a pivotal moment – an inflection point that requires each of us to rethink our roles in the industry, to move beyond the excesses that brought us to the brink of financial collapse, and to take a bold step forward toward reestablishing public trust in financial institutions and global financial markets,” he said.
The panel discussions brought together an impressive array of industry experts and key influencers who provided their views on topics including key systemic risks facing the industry today; the market structure changes required to mitigate future systemic risks; the evolving U.S. regulatory landscape and its impact on the industry; and what the future holds for cyber-security. Dr. Richard Haass, President of the Council on Foreign Relations, gave the keynote address on global risks and innovation.
Focus on solutions
Key business enablers and market structure changes to mitigate risk were themes throughout the day.
Views expressed in the market structure panel included the need for settlement matching, an accelerated trade guarantee, and intraday settlement finality to reduce costs as well as required collateral and related liquidity concerns. Shortening the settlement cycle was discussed as another key enabler to better manage counterparty risk and reduce the time of collateral exposure.
The panel on key business enablers focused on the industry’s need for better data and collateral management solutions, including a global trade repository, legal entity identifiers and a global middle office utility in order to reduce inefficiencies and risk inherent in today’s markets.
“Data alone is not enough,” said one panelist. “The data needs to be actionable and well understood, with the proper taxonomy and ontology around data aggregation and analytics.”
The vision shared by the panelists included an ideal “golden source,” in which data for each entity would be captured in a centralized utility linked through a common framework of identifiers.
The panel also discussed how the global middle office wouldn’t replace a firm’s due diligence. Rather, it would serve to simplify data exchanges, eliminate double reporting, allow for faster onboarding of reference data and link that data back to all originating parties. Creating standard settlement instructions and straight-through processing were also discussed as key enablers toward this vision.
Systemic nature of cyber-threats
The event ended with an eye-opening discussion on the increased complexity of cyber-threats and the need for the industry to take a much more proactive approach in deterring, detecting and defending against sophisticated cyber-intrusions.
“The barn door is now open on more severe denial-of-service cyber-attacks to induce failure,” said a panelist. “Firms don’t necessarily have the operational command and control to detect and respond to intrusions or attacks. This is also a risk that’s systemic in nature and very hard to price and quantify.”
The panel painted a potential worst-case scenario in which a cyber-attacker consumes an industry competitor’s bandwidth to the point where back-up servers fail and entire departments are taken offline for days. “One day, shipping and receiving is turned off. The next day, it’s accounting,” said a panelist.
The panel highlighted the need for the industry to work more collaboratively with regulators and governments. Speakers also voiced the opinion that the solution lies in the private sector, which best understands the evolving nature of the threat and is deemed most likely to develop the best solutions to meet the growing threat. A panelist concluded the discussion by stating, “The threat is incredibly dynamic. A static, reactive approach is not enough. We can’t just build a higher cyber-wall when our adversaries have a cyber-helicopter.”
‘Already in flight’
The forum concluded with remarks by Bodson and Executive Chairman Robert Druskin, who both highlighted the need for ongoing dialogue and collaboration to solve the industry’s challenges, while underscoring progress made to date.
“As an industry, we’re starting to coalesce around market structure changes that meet regulatory requirements,” said Druskin. “There’s a broad consensus that change is necessary… and it’s encouraging that so many of these initiatives discussed today are already in flight.”