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Donald F. Donahue, DTCC president and CEO, gave the keynote address at the Securities Industry and Financial Markets Association’s (SIFMA) 38th annual Operations Conference on May 2 in Florida.

Donahue’s speech, with the intriguing title “Why the Chicken Won’t Cross the Road: Rethinking Risk Management,” was excerpted in the Securities Technology Monitor, a publication whose readership includes executives at buyside institutions, hedge funds, broker/dealers, exchange operators and clearing service providers.

Below is an excerpt from Donahue’s speech. To read the full version, visit and click Thought Leadership.

We all know the old joke that poses the question: “Why did the chicken cross the road?” The answer, of course, depends on who you ask. If you put the question to Captain James Kirk of the Starship Enterprise, the answer is likely to be, “to boldly go where no chicken has gone before.”

We’ve had some experience at DTCC in boldly going where no one in their right mind would want to go. We had to cross over to the far side of the road during the financial melt-down in 2008. We went because we had to sustain reliability and manage risk across all the industry’s infrastructure systems during those frightening weeks. In the wake of the Lehman collapse, as you may recall, we closed out more than a half-trillion dollars in open positions, and we prevented losses for the industry, and perhaps ultimately for taxpayers, that could have been in the hundreds of millions or billions of dollars.

We’re proud of that accomplishment. But it’s not the way we like to do business, and it’s not the way you like us to do business. We would rather stay on the safe side of the road. We would rather have our risk controls work so well that we never have to step out into the traffic on the road. It’s no secret that the Fed and our other regulators are also eager to keep us from having to cross over that road during emergencies. They really don’t want the chicken anywhere near the road.

So, to protect that chicken, we are in the midst of a complete overhaul of our whole approach to risk management at DTCC. We have given it a new structure, a new discipline, a more focused approach and more dedicated resources. For example, in addition to an office specifically focused on Systemic Risk, we now have:

  • A revamped governance structure, starting with the split in the functions and responsibilities of the Chairman and the CEO. As I’m sure you know, Bob Druskin has joined DTCC as its executive chairman, with direct responsibility for the firm’s risk and control functions. As CEO, I retain responsibility for DTCC’s businesses, technology and operations.
  • A consolidated risk oversight structure, reporting to Bob through a new Group Chief Risk Officer position.
  • A “three-lines-of-defense” structure, with risk officers embedded in each of our lines of business.
  • A new, much more intense process for evaluating the risks of new products and services.
  • A substantially beefed-up and aggressive internal audit system.
  • An enhanced operational risk organization.

As part of our more structured approach, we now target our risk management activities toward four key areas. First is our responsibility for monitoring and managing systemic risk. Second is our job to manage risk within DTCC itself, something we’re now even more aggressive about than in the past. Third is “raising the bar” on how effectively we help you manage your overall risks, too. We’ve always done that, of course. That’s the reason we’re in business. But we’re working to be more thorough, focused and methodical about it. Our ultimate aim is to take the risk burden off you wherever it makes sense by continuing to automate post-trade activities, and by centralizing within DTCC – as much as possible – risk for various asset classes.

Infrastructure resilience

These efforts aim to ensure that the infrastructure supporting the markets is as robust and as resilient as it is humanly possible to make it. As Chairman Bernanke said in his remarks last month,* doing so will require a strong focus on “requirements for credit and liquidity risk management, robust liquidity buffers, the maintenance of adequate amounts of high-quality collateral, and effective member-default procedures.” These are issues that we at DTCC will be intently working on, and they are also matters that our regulators will be carefully assessing and actively looking to drive improvements on.

You can rest assured that we are very actively working to protect the infrastructure and to protect you as effectively as we can against the complex and troubling risk issues we now, postcrisis, know that we face. And if you take any thought with you today, know that it is our intention to boldly go into the future… without ever having to cross the yellow centerline again. @

* Chairman Ben S. Bernanke gave a speech on April 4, 2011, titled “Clearinghouses, Financial Stability, and Financial Reform.” To read it, visit the Federal Reserve website at