DTCC outlined its agenda for modernizing and transforming post-trade services to the industry at the recent SIFMA Ops Virtual Forum 2020. In an hour-long discussion moderated by DTCC Head of Clearing Agency Service and Global Business Operations Murray Pozmanter, five DTCC leaders discussed the priorities driving this agenda in 2021 and beyond. Their remarks are summarized below.
Lynn Bishop, DTCC Managing Director & Chief Information Officer
The pandemic has required the industry to step back and reassess our plans and priorities. Along with other key industry drivers, like reducing risk and strengthening resilience, and addressing our internal strategic objectives, this year has been critical to advance our modernization agenda.
At the center of our modernization program is improving the client experience – for example, using APIs to give clients access to data how and when they want it. Three principles guide DTCC’s modernization effort: reimagine, reuse and resilience. Reimagining means we don’t approach it as a “lift and shift” to replace technologies like for like. Instead IT partners with business lines to imagine new capabilities, introduce efficiencies and simplify the environment with the right technology choices based on individual business use cases.
Reuse means, instead of developing bespoke solutions by asset class, we move to a model for common services with cross-functional synergies across the enterprise. We have close partnerships internally between our business architecture and IT architecture functions to drive this vision forward.
Resilience encompasses a range of things from physical scenarios to cyber threats. We’ve created a refined set of test principles that will be embedded in our modernization efforts and a robust, multi-faceted strategy to drive our capabilities forward.
Ann Bergin, DTCC Managing Director & General Manager, Wealth Management Services & Asset Services
Our modernization program includes dematerialization of physical securities. We currently hold 840,000 physical certificates worth $1 trillion – a very small percentage of what we do. We will leverage SIFMA’s committee structure to form groups of stakeholders to help us come up with a plan of action. Some aspects of this effort will be very easy to do, others will be complex – so we’ll triage the effort.
We’ll work with the exchanges to stop creating new paper and take the opportunity to move more agents and their activity to our Fast Automated Securities Transfer (FAST) process. First to be transformed into electronic certificates will be bank CDs; this will happen the end of 2020. Munis and corporates are next on the list and targeted for the next 18-24 months.
Restricted securities are another group of physical certificates we want to address. There is a broad range of stakeholders we’ll engage to set up workstreams around it.
We also see significant opportunities to improve our corporate actions processing and it is on the calendar for the second half of 2021.
Lallande de Gravelle, DTCC Managing Director & Head of Corporate Strategy
We’re not undertaking modernization for its own sake; it’s a critical component of our strategy. We see transformation as an opportunity to reshape post-trade.
Our strategy has four key themes: 1) Modernization of technology and creation of adaptable infrastructure; 2) Reimagining of existing solutions and development of new ones as we reshape post-trade for DTCC and our clients. Some of that will happen around dematerialization and underwriting changes, no-touch STP in Institutional Trade Processing, rethinking clearance and settlement, building on our sponsorships in FICC and expanding sponsorship to include equities. 3) Establishing next-gen resiliency in our technology and our processes. 4) Elevating the client experience, by offering digital interaction and superior client service. How we integrate with our clients is critical. We’re moving more and more to an API strategy and will look to rationalize our client portals to ensure the best client interaction possible.
DTCC’s biggest strategic challenge is delivering value to our clients and doing it in digestible, well-sequenced components. The age-old challenge is how to strategically sequence these efforts in ways that minimize disruption and maximize value – and It’s the only way to ensure the industry will sign on to our vision for modernization.
Jennifer Peve, DTCC Managing Director, Business Innovation
Our innovation efforts are moving away from paper exercises to real experiments built around targeted use cases. This approach is a way to assess client demand as well what is technically viable, and to identify risks and challenges prior to any potential implementation. Three of these projects are now underway:
Project Whitney: This effort is driven by companies staying private longer and the fact that private markets run on many manual processes. We’ve built a prototype of a digital securities management platform to support the issuance and secondary transfer of tokenized and traditional exempt securities in the private market space. The prototype introduces standardization and has the ability to increase operational efficiency in this market space
Project Dawn: Here we’re creating a utility-based digital platform using multiple technologies, including APIs, to capture golden reference data for the issuance and registration of securities. We’re starting with MMIs and are working with a couple of clients to assess business opportunities for potential cost reductions and operational efficiencies.
Project ION: ION focuses on two of our core capabilities – netting and settlement – and aims to drive down margin requirements for clients. The project is exploring the application of DLT to enable optional accelerated settlement. ION’s next phase will deliver a functional prototype – which is very different from a production-ready solution.
We are excited by the feedback we get from clients because it helps us build confidence in what we design or, as needed, shows us where to pivot when we’re not on track to deliver what will work for clients.
The industry has been modernizing and changing for decades, so there must be high business value – in terms of cost and operational efficiency – for clients to prioritize their resources and budgets so they can implement innovative approaches.
Michael McClain, DTCC Managing Director & General Manager, Equity Clearing & Settlement Services
Modernization is an opportunity to deliver some capabilities we’ve wanted to provide for a long time. But this effort doesn’t mean we’ve put other functionality on hold: we’ve also built out our legacy systems for important buy-side services like FICC triparty repo and equity finance for NSCC.
While each business line is modernizing, we’re not taking a siloed approach. We’re asking questions like, can we build one clearing system that can clear multiple asset classes? We want to become more nimble, take advantage of economies of scale and create a more harmonized client experience.
The innovation work we’re doing through projects like ION is also a tremendous help to the business. ION allows us to test the technology and functionality of these big ideas for Equities Clearance and Settlement -- like DLT, intraday slices, T-0 settlement – to see how they work in real-life situations. Not every idea will make it to the finish line but two of them likely will be part of our modernization plans: the DVP settlement model and T-0 settlement. DVP, the winner by far with clients, reduces their margin requirements. T-0 settlement, although tough to implement, also gets an enthusiastic response from our members.
We plan to make a number of these new services – probably less than half – optional for clients, but others will require the industry to change with us. For those, we need to be sure the value of their investment far exceeds their costs. We will not make any decisions unilaterally: they will all be considered in collaboration and consultation with our stakeholders – including small, medium and large sized clients, on the buy side and sell side. Different firms and market segments will derive different levels of benefits from various modernization changes and long transition periods, two to three years, will be needed in many cases – APIs, for example -- for firms to make the necessary changes on their end.