Michael Bodson, DTCC President and CEO
Building consensus on shortening the settlement cycle for securities trades and developing new solutions that address the need for more effective collateral management and client reference data are just some of the key areas of focus for The Depository Trust & Clearing Corporation (DTCC) so far in 2014.
“DTCC has placed great priority on pushing forward a number of important initiatives that aim to strengthen the financial market infrastructure even further, bring greater operational efficiency to our clients and promote a more resilient market environment,” said Michael Bodson, DTCC President and CEO. “We’ve made significant progress on a number of fronts through close collaboration with our clients and the industry at large and these efforts are helping shape the direction of our activities for the balance of the year and into next.”
Building Industry Support for T+2
After in-depth analysis, industry debate and client engagement, DTCC and major industry groups such as the Investment Company Institute, the Association of Global Custodians, the Association of Institutional INVESTORS and SIFMA as well as individual firms are aligning to move towards shortening the settlement cycle from T+3 to T+2.
In April, DTCC issued a position paper on shortening the settlement cycle for U.S. equities, corporate and municipal bonds and unit investment trust (UIT) trades. The paper, “DTCC Recommends Shortening the U.S. Trade Settlement Cycle,” states that a shortened settlement cycle will help to mitigate counterparty risk, reduce costs and optimize capital.
“Gaining industry-wide support on an issue of this magnitude is an important first step in moving this initiative forward,” Bodson said. “This is a significant achievement that will help enhance the efficiency of the U.S. markets and better align them with settlement cycles across the globe.”
Collateral Management Initiative
In May, the company announced a new joint venture with Euroclear to deliver a Margin Transit Utility (MTU) that will provide straight through processing to the settlement of margin obligations and enhance access to collateral worldwide, improving the safety and soundness of the financial markets.
The JV also calls for piloting a Collateral Management Utility (CMU) to address the pressing problem of sub-optimal collateral mobility and allocation at a global level. When fully operational, the MTU and CMU will be integrated to provide a seamless front-to-back collateral processing platform.
“These are groundbreaking services that will address key challenges facing the industry while also improving efficiency and mitigating risk,” Bodson said. “These initiatives demonstrate how DTCC can leverage its growing suite of data assets to create value-added services to support the industry as well as working with its infrastructure colleagues around the world to create innovative solutions to industry challenges.”
In January, DTCC released the white paper, “Trends, Risks and Opportunities in Collateral Management,” in which the company outlines the key drivers behind emerging trends and risks, potential solutions and opportunities in collateral management.
In April, the London School of Economics (LSE) published an academic study, “The Economics of Collateral,” supported by DTCC, which provides an overview of current and projected collateral supply and demand as well as challenges facing the industry.
The LSE study found that the supply of collateral, in principle, will be sufficient to meet growing demands expected as a result of regulatory reform and evolving market practice worldwide. However, the study cautioned that access to collateral and the ability for it to circulate freely across the financial system could become challenging as market participants seek sources of liquidity and assets worldwide.
Client Reference Data - Clarient
In July, DTCC and six global banks announced the establishment of Clarient Entity Hub, a comprehensive reference data solution that provides industry participants worldwide increased control, standardization and transparency during the client onboarding process and ongoing client lifecycle events. Clarient Entity Hub will enable industry participants to better cope with evolving internal risk management requirements, including Know Your Customer (KYC), Foreign Account Tax Compliance Act (FATCA) and other client data and documentation challenges.
Improvements to Core Businesses
DTCC made a number of enhancements to its Systemically Important Financial Market Utilities (SIFMUs).
In April, DTCC launched its Limit Monitoring Tool designed to help identify unusual trading activity and serve as an early warning system that alerts those firms to trading activity that is nearing defined trading limits. The tool will enable firms to manage potential risk exposure for both their own accounts and their clients’ accounts for the trading in equities, corporate and municipal bonds, and unit investment trust instruments.
Moreover, the Alternative Investment Produce Service (AIP) launched a redesigned platform with improved performance and capacity. Processing times have improved by over 90% and more than 300 funds have been added in 2014 raising the total to 1150 funds.
GTR Goes Live in Europe
Further expanding its global reach, the DTCC Global Trade Repository (GTR), began supporting trade reporting in Europe mandated under the European Market Infrastructure Regulation (EMIR) in February. Two month later, DTCC extended its GTR service in Singapore and Australia to assist a broader range of firms meet new over-the-counter (OTC) derivatives reporting requirements that went into effect April 1.
“GTR remains the one and only truly global trade repository in the world, providing our clients the ability to streamline their reporting requirements for multiple jurisdictions in the most efficient way possible,” Bodson said. “We have made great strides in bringing greater transparency to derivatives trading and risk exposures in this global market, and we continue to address challenges that come with this rapidly evolving market environment.”
In October 2013, DTCC announced it acquired full ownership of Omgeo (DTCC Acquires 100% of Omgeo). In the span of less than a year, DTCC has completed a number of key milestones in integrating Omgeo into DTCC, which positions DTCC to more effectively meet the future needs of the financial services industry.
With Omgeo, DTCC remains committed to driving a single, global strategy for post-trade processing and settlement while facilitating increased collaboration among the buy-side, sell-side and custodian communities. Leveraging its offices in 14 countries and a global workforce, DTCC will advance critical initiatives and lead industry discussion around the importance of infrastructure, automation and transparency – all to help mitigate systemic, market and operational risk and reduce costs for clients.