Michael Bodson, DTCC President and CEO
A stronger and more secure financial system is the foundation upon which the industry can begin to rebuild trust with the public and close the trust deficit. To keep pace with the evolving nature of risk and create a more resilient system, DTCC has transformed its risk management practices and placed a greater emphasis on identifying, monitoring, and mitigating both the traditional and newer forms of risk that could impact financial stability.
Michael Bodson, DTCC President and CEO, highlighted the issue of trust during his keynote speech at the DTCC Client Forum 2015. In the final of a three-part series, Bodson discusses DTCC initiatives that are designed to make the financial system more stable and transparent.
Part III: Stability, Transparency and Resiliency
Our Global Trade Repository (GTR) and Global Markets Entity Identifier (GMEI) are examples of how we are bringing greater transparency and risk mitigation to financial markets and helping regulators better understand exposures in the OTC derivatives market and the build-up of risk in the system. These initiatives also underscore the benefits of our utility model – for the GTR, we make data available to the public free of charge and provide more detailed information to regulators…and, for GMEI, information is stored in a public database and available to all at no cost.
Additionally, our plans to provide central clearing services for the approximately $1.6 trillion institutional tri-party repo market will give regulators a broader and more comprehensive view of the marketplace. This lowers the risk of a liquidity drain in the event of a dealer failure and could potentially prevent another financial crisis like in 2008 when the funds stopped lending to the dealers after Lehman failed.
Market resiliency is critical to ensuring the stability and integrity of the system, and this issue has become even more prominent in recent years as systemic shocks seem to occur with greater frequency than ever before. We take an intentionally broad view of risk management at DTCC, allowing us to focus on traditional and not-so-traditional forms of risk, including credit, market, liquidity, systemic, operational, and other risks that could impact us, our clients and the marketplace.
For example, cyber risk is an area not traditionally associated with DTCC, but we have become very active in combatting this problem because we have both the expertise and the technology to make a difference. We are all aware of the threats posed by cyber criminals. The news is filled with stories of how cyber risk is threatening all industries – from the data breach at Target to the attempted infiltration of NATO’s key systems and more recent attacks on ATM machines.
Financial services remains one of the most heavily targeted industries globally, and the reality is that a cyber attack has the potential to take down the largest financial institutions in an instant – just like being hit by lightning. DTCC and the Financial Services Information Sharing and Analysis Center (FS-ISAC) recently launched a new joint venture, known as Soltra, to help critical infrastructures harden their defenses against cyber crimes. This public-private partnership is founded on the principle that information sharing is the key to successfully protecting against attack.
Shortening the Settlement Cycle in the U.S.
Another initiative we’re helping to lead will mitigate risk by shortening the US settlement cycle to T+2. We took a giant step forward last year when major organizations like SIFMA and the ICI endorsed the initiative. The industry has since formed a steering committee and working group to identify and execute a plan to implement the business and rule changes required to achieve T+2 in a timeframe that is acceptable for the industry.
In 2015, we hope to complete a list of industry-level requirements and develop a proposed timeline for implementation. Following that, this information will be socialized more broadly, we will engage regulators on proposed rules changes and we will begin planning for testing and implementation of the shortened settlement cycle.
Finally, I want to highlight our Risk Transformation Initiative because this multi-year effort will bring our risk management technology to world-class levels. It is an excellent example of how we invest in risk management as part of our continuing commitment to ensuring market resiliency.
The nature of risk has evolved in recent years, and we have kept pace by transforming our risk management practices and placing a greater emphasis on identifying, monitoring, and mitigating both the traditional and newer forms of risk that could impact financial stability.
I want to reinforce the importance that a stronger and more secure financial system is the foundation upon which the industry can begin to rebuild trust with the public. Ensuring the safety and soundness of financial markets and financial institutions is the first step on the road to closing the trust deficit. And certainly, we also need to listen to our clients better and always, always act with integrity.
We all have a responsibility to help restore the reputation of the industry. This should be a top priority for all firms because trust is the currency of business – and trust is critical to ensuring the long-term viability of the industry and creating long-term growth for firms. We look forward to working with all of you, and with our colleagues across the industry globally, on this in the months and years ahead.
Trust: The Currency of Business
Part I: The Trust Deficit - The Path Forward
Part II: The Role of Financial Market Infrastructures in Rebuilding Trust