Featured Speaker Presentation by Frank La Salla, DTCC President, CEO & Director
A Springboard to the Future
2023 SIFMA Operations Conference
May 16, 2023
As prepared for delivery
Good morning and thank you, Ken. I’m very happy to join you today at the SIFMA Ops 2023 conference. I’m excited because it’s my first time addressing the SIFMA Ops audience as CEO of DTCC, so thank you for that privilege. And as you just saw, it’s also our company’s 50th anniversary.
I know many of you are already very familiar with DTCC. But watching that video reinforces the critical role our firm has played over the past half-century in safeguarding and supporting the global financial system.
And when you look at the significant issues we’ve tackled and the challenges we’ve managed together, what stands out to me most is this – our partnership and engagement with the industry has been essential to our success over the years.
Related: 50 Years of Advancing Financial Markets
The fact is that we can’t do it alone. It requires extraordinary teamwork among the industry, the regulators, our clients and so many others to orchestrate the complex processes that support the flow of more than $2 trillion a day in financial transactions.
So, on behalf of our firm I want to extend my appreciation to all our stakeholders – past and present – for your support and contributions to our longevity and accomplishments. And I also want to congratulate SIFMA on your own 50th anniversary this year.
It goes without saying that you are a very important part of our industry, and you’ve been a fantastic partner to DTCC over the years.
It’s an honor to have the opportunity to lead DTCC at this unique period in time. In fact, you could say it’s a job I’ve been preparing for my entire career. Over nearly three decades in financial services, I’ve primarily managed operationally focused businesses, including spending 28 years at BNY Mellon.
Among the roles I held, I was most recently CEO of BNY’s Issuer Services business. In that capacity, I also sat on the firm’s Executive Committee. In these and other assignments, I’ve had many interactions with DTCC. This has given me a deep appreciation for the organization, its unique mission and the wide cross-section of constituents we serve. And now as DTCC’s CEO, I’m committed to building upon these strong relationships.
But most of all, I want to elevate the organization to play a more impactful role supporting our industry. And I want DTCC to serve as our clients' strategic partner of choice in the coming years. In that sense, I view our 50th anniversary as a springboard to the future.
With that as a backdrop, I want to discuss three important and interconnected topics with you this morning.
The first is, why this period of acceleration and change is creating an opportunity for DTCC to redefine how we support the industry. The second is, the steps we’re taking to strengthen our value proposition and grow our capabilities and leadership. And the third is, an overview of key initiatives we’re advancing to drive safer and more resilient markets, and how they’ll position us to do more for the industry in the future.
A Moment of Acceleration & Change
Let me begin with my first point about the external and internal dynamics. It’s an issue we’re all wrestling with right now. Since joining DTCC, I’ve traveled around the world to meet with key stakeholders, including colleagues, clients, policymakers, business leaders and others to listen and learn.
DTCC is a complex business with many different stakeholders, so there’s no better sources of information than talking to those that work with us every day. It’s important for me to hear directly from you – and for you to hear directly from me. That’s one of my top priorities as CEO, and I intend for us to have an ongoing dialogue.
Three Stakeholder Themes
I’ve heard a wide range of opinions from our constituents, but there were three common themes regardless of who I spoke to, so let me synthesize them.
One, the pace of change in all aspects of life, including business, is accelerating. It’s not just a perception – things are moving faster than ever before in our industry.
This is being driven by technological innovation, the emergence of new forms of risk and changes in the labor market – not to mention the triple threat of an uncertain macroeconomic environment, heightened regulatory expectations and a volatile geopolitical landscape.
The examples of this are many – persistent inflation, high interest rates, potential rule making related to US market structure, the rewrite of swaps reporting rules, the war in Ukraine, the collapse of regional banks, the rescue of a global bank through acquisition, and the regulatory response to the failure of one of the world’s largest crypto exchanges. Needless to say, we’re living in a period of extreme change.
The second theme I heard is that firms are facing intense cost pressures. These challenges have become magnified since the end of the pandemic, and it’s possible they may intensify further in the coming years.
Because of this, there’s limited funding and few resources for executing long-term, transformative initiatives to modernize legacy technology — despite the fact that we know it’s the key to squeezing more cost and risk out of the system.
The third theme is risk management. There was a lot of feedback on this topic – from strengthening data protection to enhancing cyber defenses to increasing resilience. Risk remains one of the top priorities of all firms, and every executive I’ve spoken to has told me they expect more rigorous regulatory standards and mandates in the future.
As I think about these three themes, what’s become crystal clear to me is that DTCC is in a unique position to drive positive change for the industry. And that’s why we’re going to raise the level of support we provide and lead on initiatives that mitigate risk, deliver value and safeguard the markets.
Our Strategic Priorities
Let me turn to my second point and explain how we will accomplish this. Over the past 9 months, the management team and I undertook a comprehensive review of our organization and the industry.
We began with a series of strategy sessions to dig into the current state of things. We examined the dynamics affecting our clients and brainstorming how and where we can provide greater support. We enriched this information with insights and feedback from our clients, regulators, industry partners and other business leaders.
I want to point out that bringing the industry’s perspective into these discussions reflects another priority of mine – to create a more holistic and improved client experience based on client feedback.
Optimizing for Long-Term Growth
Soon after, we launched a series of internal initiatives to reduce complexity, enhance prioritization and simplify our operating model.
We know that complexity is the enemy of innovation, so we’re increasing the velocity of decision-making and instilling greater urgency in how we act and respond to evolving circumstances or new client needs.
While DTCC is trusted, respected, financially strong and performing very well, the dynamics I mentioned earlier, along with other changes occurring in the marketplace, demanded that we refocus.
One of the most important actions we undertook was to bring greater prioritization and discipline to our business planning and expense management processes, including hitting a target of reducing operating expenses by over $100 million by the end of 2024.
It’s a basic rule of business – if you spread yourself too thin, you won’t accomplish very much and you definitely won’t have the energy, time or resources to tackle the biggest issues.
Therefore, we’ve increased the rigor of the initiatives we pursue from a budget and execution standpoint. And we intend to advance a sharper and more focused agenda for the industry.
However, this also served another purpose. At a time when our clients and stakeholders are also going through their own cost-efficiency exercises, we want to let you know that we’re empathetic to the challenges you face. We’ll “walk-the-walk” alongside you, and,
as a company that was formed for the industry, by the industry, we'll always operate as responsible stewards.
The next action we took was to kick off a refresh of our corporate strategy and strategic positioning, including updating our Vision, Mission, Values and Behaviors.
I’ve already talked about my vision for DTCC, but to summarize it – we will lead the advancement of the global financial markets as the most influential, strategic and tech-focused partner.
The key word in our new Vision is “partner,” meaning that we’ll engage with you on a regular basis, understand your business as well as we know our own, and elevate our relationships so that you view us as a trusted advisor.
Refreshing the Corporate Strategy & Growing Our Capabilities
As part of our strategic refresh, we also challenged ourselves to identify new ways to strengthen our value proposition. We debated this extensively, and from those conversations, we coalesced around a bold strategic underpinning. Moving forward, we will innovate with purpose to:
One, deliver solutions that will allow firms to outsource and consolidate non-core and non-competitive functions. We believe this will help address the cost and compliance pressures you’re under.
Two, we’ll play a stronger leadership role in defining how clearance and settlement and the operational side of market structure evolve. This is critically important as new technologies open the door to reimagining processes and business models.
And three, we’ll continue to identify and advance initiatives that make the financial system safer, more efficient and resilient while reducing latency.
The Power of Our Platform
At the heart of bringing this vision to life is our platform – we believe it’s a powerful differentiator for us. However, we also know that we need to further maximize it to deliver even more value and a better client experience in the future.
In recent years, we’ve taken steps to enhance our platform by further interconnecting our businesses, modernizing our technology and developing new approaches and models with different partners.
We’ve made good progress in all these areas. Moving forward we’ll look to create services based on DTCC enterprise platforms. And we’ll invest at scale to deliver solutions that our clients don’t want to compete on and that no single client could or should develop on their own.
In doing so, we’ll always deliver the highest levels of production stability, risk management, controls, resilience and a superior client experience.
Our Strategic Initiatives
The planned move to a T+1 settlement cycle in the U.S. is a great example of how we’ll deliver on this. So let me turn to my third point and highlight several key strategic initiatives we’re pursuing.
As you know, DTCC partnered with SIFMA and ICI in 2017 to shorten the settlement cycle to T+2. At the time, this represented one of the most significant changes to market structure in decades.
Immediately after, we continued to work closely with the industry to further optimize settlement. This included implementing changes to the night cycle to improve workflows, enhance capital efficiencies and reduce risk through automation.
However, our active engagement with the industry revealed a bigger opportunity – the chance to shave one more day off the settlement cycle.
So, we took ownership of the issue. We performed due diligence, shared our findings and perspectives with the industry and galvanized support, including partnering again with SIFMA and ICI, to bring this initiative to the forefront.
Thanks to these efforts, T+1 will deliver real value to industry participants by reducing risk, lowering clearing fund requirements and improving capital and liquidity utilization.
Just as impressive, our collective leadership is having a global impact. Canada will transition with the US next year, and the UK, Europe and Mexico have begun their own assessments. In addition, markets throughout Asia-Pacific, including Australia, Japan, Hong Kong and Singapore, are watching the situation closely.
As a former trader, I have a personal belief that if all major markets aligned around a T+1 settlement schedule, it would improve price discovery for institutional and individual investors alike.
When you reduce latency, you reduce friction - you reduce risk, and you ultimately reduce cost. And that should lead to price improvement. It's something for all of us to think about.
This is just one example of how we plan to lead and drive positive change in the future.
With that said, we also understand that the transition to T+1 requires significant work for many market participants. And we know there’s concern about meeting the SEC’s implementation date of May 28th, 2024.
We’re sensitive to these realities, so I promise you this – we’ll continue to partner closely with the industry, as well as regulators, SIFMA, ICI and others, to help ensure a successful move to T+1.
We’re taking a similar approach when it comes to meeting the SEC’s proposal to expand access to central clearing for U.S. Treasury transactions. It goes without saying that DTCC is a strong proponent of central clearing.
It’s a point of pride within our organization that we have a long and successful history of creating innovative clearing services across asset classes and for market participants.
The SEC’s proposal on Treasury clearing would represent a dramatic change in market structure – even more significant than the move to T+1. However, we recognize there are many industry viewpoints on the SEC’s plan, and there’s going to be a need to reconcile them in the months ahead.
Our primary focus right now is to provide thought leadership and transparency. We also want to share information and grow awareness of how our products and services can support the proposed expansion of Treasury clearing. And, if and when the final rule is approved, we’ll devote all our energy and expertise to working with all of you to successfully deliver on this clearing imperative.
Easing the Transition
When it comes to both T+1 and Treasury clearing, there’s a larger point that I want to make. Despite the challenges this might present, these initiatives are important because they serve the public good. You're going to hear more about this over the next several days.
In these instances, it’s important for the industry to take a broader view and focus on what’s best for the system and the investing public. And let me reiterate – we’ll be the industry’s partner and help you navigate through these issues and support a seamless transition.
Shaping the Digital Frontier
As I think about the future, a key area of focus for DTCC is digital transformation. Our firm has been a leader in digitization dating back to our founding and our creation of the first digitized security.
More recently, we’ve pioneered major initiatives using distributed ledger technology (DLT), and we’ve been trailblazers in leveraging public and private cloud and experimenting with other emerging technologies.
I’m sure you’re all aware that we completed two important DLT initiatives in 2022. We launched Project Ion, our alternative settlement system that leverages DLT. And we published a white paper with the Digital Dollar Project on wholesale Central Bank Digital Currencies.
Because of our unique role in the industry, we will always explore new technologies and ways to leverage them to improve processes and business models to serve the industry.
And we’ll share our knowledge to help shape future digital endeavors.
Thinking back to Project ION, we proved we could move delivery orders on-chain and off-chain at scale. Now, I’ve challenged our team to take their learnings - from this and other work we’ve done - to develop a bold digital asset strategy.
Also, on the issue of payment systems and rails, the industry will take the lead, but DTCC must (and will be) an active participant in those conversations. We’re intrigued by the possibilities of the oncoming digital revolution. And we’re eager to bring our creativity, ingenuity and expertise to these issues.
Need for Industry-Wide Collaboration
During these early days of the coming digitization of the financial industry, it’s imperative that we work together because, while the future is filled with unlimited opportunity, there’s a cautionary tale we must heed.
Today, many banks and service providers are exploring how to leverage new technologies individually or as islands of digital innovation.
What’s lacking is widespread, industry-wide collaboration, and it has the potential to recreate the challenges of the past – specifically, a new and disconnected puzzle of DLT silos that use different technologies and standards. We need to get this right during these early days, and DTCC has a critical role to play.
We intend to champion this because we know from experience that standardization is key and that developing the right architecture and infrastructure from the beginning are essential as technology matures.
A Springboard to the Future
As I conclude my remarks, I want to again thank Ken Bentsen and the team and SIFMA for inviting me to share my thoughts with you today. As I mentioned, the world is moving faster than ever before.
In this environment, we’re committed to elevating DTCC to play a more impactful role supporting our industry and serving as our clients' strategic partner of choice. And whatever the opportunity or challenges our clients face — whether it’s T+1, Treasury clearing or digitization — we will be right by your side every step of the way.
On the 50th anniversary of DTCC, I believe the best way to honor our firm’s legacy is by taking definitive steps to prepare us for a new era of industry leadership. I encourage you to learn more about the innovative work we’re undertaking by attending the panel discussions throughout the conference. We have 8 DTCC executives speaking this week, with several others also joining us.
And, please, if you see me or any of my colleagues from DTCC, come over and say hello. We’re looking forward to listening, learning and engaging with you.
It’s an exciting time for DTCC and our industry. I can’t wait to work with you to shape and define the future.