Michael Bodson, DTCC President & CEO
In the keynote conversation at the April 19 Synchronize fintech conference in New York, DTCC President and CEO Mike Bodson said he believes the firm should play a central role in managing the governance and standards of new fintech applications.
Bodson explained that as new technologies take hold in financial services, the need for standards to govern their use will grow. As this ecosystem evolves, he said DTCC is well-positioned to assume a central governance role.
“Given DTCC’s unique structure – we are owned and governed by the industry – we should play that role. Our interests are aligned with the industry, which means we’re not trying to inject change for the sake of it,” he said. “Setting standards, fixing problems, acting as the administrator – that’s how DTCC needs to envision ourselves.”
In a wide-ranging conversation with Simon Whitehouse, Senior Managing Director, Accenture, Bodson also urged financial services firms to choose judiciously in pursuing new technology solutions and discounted the possibility of a “big bang” conversion to new technologies in the post-trade space.
DLT in Action
DTCC’s first DLT application is the re-platforming of its Trade Information Warehouse (TIW), the lifecycle event processing infrastructure for credit derivatives transactions. The initiative, which is expected to go live in Q1 2019, reinforces that “DLT works. It delivers what you think it will – a golden copy of the truth for $10 trillion in transactions,” Bodson said.
But the learning curve has been steep, he noted, and the application is not “plug and play” because the stakes of managing TIW’s golden records are too high. DTCC has had to make decisions every step of the way about who will get platform access, how they will access the platform and how smart contracts will be designed, Bodson said.
Bodson and Whitehouse concurred that new technologies offer exciting opportunities in financial services – AI for analysis and surveillance, DLT for reducing friction in the marketplace, for instance. Their potential lies in “freeing up capital, which is a very scarce resource,” said Bodson. He sees regulatory compliance as a huge growth area for new technologies because they can centralize functions like trade reporting.
Yet Bodson cautioned firms not to “fall in love with the latest big, shiny application. You must be very thoughtful about what you create and realistic about the appropriateness of new technology in a particular case.”
Furthermore, he noted, the market’s scale means DLT is not practical for all applications. “For processing the U.S. cash securities market, I don’t see the end of Cobol and our mainframes in the near term. Using AI and DLT to move to real-time gross settlement for all products will come later, because the volumes in our market are too great.”
Jennifer Peve, DTCC Managing Director of Solutions Business Development and the Office of Fintech Strategy
No ‘Big Bang’
Also tempering a technology-driven transformation of industry functions like settlement is the institutional and human resistance to change, Bodson said. “Moving to T+1 or T+0 would require fundamental changes to all post-trade systems and processes, which not all firms do the same way,” he said. “In a market so large, in dollars and volumes, that reality scares people.”
Instead of a sudden move to a world governed by DLT and AI, Bodson predicted new and old technologies will coexist in the post-trade space for the foreseeable future. A number of forces beyond the disruptive technologies themselves will affect the pace of transition, he said, such as market structure, regulations and human dynamics.
In the conference session focused on derivatives, DTCC’s Jennifer Peve, who co-leads the firm’s Office of Fintech Strategy, recounted some challenges that have impacted the TIW’s move to a DLT platform.
“The technology doesn’t do everything,” Peve observed. “That’s why we need an entity to vet deployment of new processes, to manage the aftermath of a catastrophic event. With TIW, we see our role evolving into its governing body. When a regulator asks, ‘Who is responsible for this network?’ we can say it’s us.”
Peve said the past 14 months of work have been highly collaborative and a great learning experience for DTCC and the industry. However, despite phasing the project to minimize client disruption, change cannot be avoided – for example, on the re-platformed TIW, clients will need to alter how they perform certain activities.
Whitehouse also asked Bodson about the importance of opening Wall Street, particularly its technology roles, to those currently underrepresented in the industry – women as well as Blacks and Latinos.
DTCC is supporting an NYU School of Engineering coding program for inner city children, but he said, “we do a massive disservice to underrepresented groups by not doing enough to encourage them into STEM fields.”