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Technology in the Guise of Regulatory Solutions

By DTCC Connection Staff | May 17, 2021

Today’s increasing regulatory requirements are reshaping the post-trade world. How is technology keeping pace with regulations, and what solutions are available? Matthew Johnson, DTCC ITP Product Management & Industry Relations, recently spoke on a panel with industry partners on RegTech issues at the Securities Lending Technology Symposium.

Delivering Data

By managing the regulatory processes within the financial industry through technology—or RegTech—firms can find solutions including regulatory monitoring, reporting and compliance. The panel discussed how the Securities Financing Transaction Regulation (SFTR) and the Central Securities Depositories Regulation (CSDR) have required firms to enhance their data and improve the transparency of securities financing markets.

Speaking about the delivery and quality of data, Johnson remarked, “SFTR has acted as a change catalyst leading to a more robust control environment.” The regulations have prompted a considerable increase in reference data and data warehousing across securities finance markets. The additional standardization due to the regulations will lead to data consistency and better data quality for improved trade processing, as well as investment opportunities. Multiple benefits exist to enhance business intelligence, including cost trade analysis and improved transparency, while providing control benefits to existing affirmation, reconciliation and risk mitigation processes.

The technology development to meet the enhanced regulatory requirements has been quite significant and has resulted in enriched and higher quality data. With this enhanced data, firms now need to become more efficient with reconciliation and upfront data comparison to ultimately reduce costs. And while the regulation is for the Euro region, sourcing various information for trade reporting will have vast impacts for global businesses that utilize data across multiple jurisdictions.

Improving Efficiencies

Using the STFR-type data on a real-time basis can provide benefits across the spectrum and allow the data to be reused for better enrichment, reconciliations and data insights. This includes adding an operational process to improve onboarding and publishing data for other legacy businesses or regulatory uses.

The operation process has changed due to SFTR. Through standardization, lifecycle trade effects, such as rebooks, rate changes and dividend changes, are now picked up and reported correctly. This has helped front-office behaviors, improved focus around systems as data is timestamped and updated correctly in a timely manner.


"Improved data streams can enable firms to further analyze data for reporting and analytics use and then ultimately optimize costs and improve business efficiency by proposing reallocations or substitutions."


Minimizing Manual Processes

While data has been improved, manual touchpoints and adjustments remain a significant cause of errors. A recent analysis of trades showed the largest area of fails was the result of terminations and adjustments to the trade, and not in the initial trade. For example, an amendment that is missing a unique transaction identifier (UTI) is not the fault of technology but due to a manual adjustment within the technology. An efficient process allows the data to be copied across the lifecycle, with no breaks to allow errors.

Improved data streams can enable firms to further analyze data for reporting and analytics use and then ultimately optimize costs and improve business efficiency by proposing reallocations or substitutions. Johnson added, “From a different lens, the technology can drive harmonization through multiple jurisdictions and regulations across trade reporting globally.”

Utilizing Data to Minimize Fails

If a trade fails, the best source is to find out the cause is through the data. However, custodian data is currently fragmented and not standardized and proper collaboration is needed to consolidate data into one platform.

Johnson noted how custodians are analyzing their client base and finding that increased volume creates more fails. “While smaller firms may not have many fails, the amount of time to solve the fail needs to be considered, and the possibility of buy-in brackets will cause additional challenges, when and if the buy-in regime goes live.”

Confidence in settlement is key. Having access and consuming the data, as well as extracting value can help prevent fails and should be beneficial for pricing and easing the settlement process. The next step is applying this data to AI and machine learning into platforms to help identify signals and trends.

Regulatory requirements have come at a cost and over the last five years, firms' IT budgets have been used in meeting these needs across the financial markets. On the horizon is a less burdensome regulatory outlook, which should provide businesses with the ability to use this data to improve cost efficiencies and further optimize revenue.

Johnson spoke about how behavior is still a major barrier, as automotive platforms are available but are not utilized. “CSDR has firms thinking about automation more and how it can enable a clean, robust post-trade service, including enriched SSIs and agreed-upon instructions. The way forward comes with automation.”

Across the industry, firms are being asked to do more with less and greater efficiency will translate into higher matching rates. The ability to use data proves how efficient a firm can settle, and those who have the best rates will settle the fastest.

Increasing Usage of Data

There is an increased demand from issuers wanting to know who is holding shares, as well as an urgency to respond due to the Shareholder Rights Directive (SRD II). Data can inform that process and give confidence as firms access securities and manage processes within timeframes. This is becoming more critical around environmental, social and governance components, as the data can provide firms with the information needed to make decisions to vote or recall securities.

The value of the Common Data Model (CDM) is it places all standards once in place. CDM can provide increased transparency, allowing regulators to find new ways to view data once there is greater adoption. However, since it is a “best-practice,” and not a regulation, the challenge is having it utilized by all parties. Johnson added the value of CDM includes the harmonization across multiple jurisdictions. “As more firms adopt, it is difficult to ignore as it increases optimization and automation levels.”

Next-Step Technology Predictions

The panel concluded with thoughts on the next major steps for data technology solutions. In addition to the increased use of blockchain in solutions, as well as leveraging existing investments in data to monetize and reduce costs, Johnson mentioned the potential of technology to provide additional security in markets, including the shortened settlement cycle.

Data will always be crucial, and the importance of data keeps expanding. Johnson emphasized the amount of technology solutions available. “Firms need to understand what they can do and embrace how external vendors can help with solutions.”

Matt Johnson, DTCC Director, ITP Product Management
Matt Johnson DTCC Director, ITP Product Management

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