DTCC Connection

Mark Wetjen, DTCC Managing Director and Head of Global Public Policy, discussed margin, data standards and the importance of the International Organization of Securities Commissions (IOSCO) and other standard setting bodies (SSBs) on a panel at IOSCO’s 42^nd Annual Conference in Montego Bay, Jamaica.

The annual conference, held May 14 through 18, attracted a global audience including leaders from financial institutions, regulators and stock exchanges. Established in 1983, IOSCO is the international body that brings together the world's securities regulators and is recognized as the global standard setter for the securities sector. IOSCO develops, implements and promotes adherence to internationally recognized standards for securities regulation.

Moderated by Eric Pan, Director, Officer of International Affairs, Commodity Futures Trading Commission (CFTC), the panel highlighted work done by IOSCO-BCBS on margin issues and by CPMI-IOSCO on data standards and Principles for Financial Market Infrastructures (PFMI). Wetjen’s fellow panelists were Martin Moloney, Head of Markets Policy Division, Central Bank of Ireland, and Richard Cantor, Chief Credit Officer, Moody’s Investor Service.

IOSCO’s Position in the Financial Industry

Addressing the role of SSBs such as IOSCO in financial services, Wetjen said they should continue to ensure minimum standards for regulatory requirements to help avoid regulatory arbitrage and to drive consensus on needed policy responses. He explained that IOSCO has had a meaningful impact in three key areas at DTCC:

1. Data standards, with the work done on Uniform Product Identifiers (UPI) and Uniform Trade Identifiers (UTI), and its importance to the efforts toward data harmonization for swaps.
2. Guidance on Cyber resilience, which led to some confusion due to the mandate of a two-hour resumption requirement. The SEC and CFTC chose not to take this approach, keeping the diversity of Financial Market Infrastructures (FMI) and cyber events in mind is different.
3. Central Counterparty (CCP) recovery work, which has been well-intentioned but needs to be developed further to reflect differences in CCP governance structures and the markets they serve.

While looking at how financial firms such as DTCC deal with regulatory changes with IOSCO and other SSBs, Wetjen said it can often be a challenge to get ahead of these changes. He suggested a process change of bringing financial firms into the conversation early on, and soliciting consensus before consultations are released to the public while also keeping timeliness in mind.

"This could be done through roundtables or other such efforts that seek input in a more transparent and inclusive way," Wetjen said. “The downside is that this can prolong the process, and expedience regarding policy making is always a good thing, as long as it's deliberate and informed.  To be more precise, we would like to see the work on UTI and UPI be completed as quickly as possible."

International Standards and Domestic Laws

The panel also discussed the financial crisis, and the subsequent flurry of international standards efforts made by IOSCO, the FSB and the Basel Committee. Simultaneously, there was a great deal of national and regional rulemaking, which implemented reforms required under new European Union (EU) legislation, the Dodd-Frank Act and similar laws in other jurisdictions.

Panelists were asked how international standards should complement domestic rulemaking.

Wetjen explained that it wasn’t simplistic enough of a topic for there to be only one answer to the questions, and the solution for each region and each situation is purely circumstantial. While there are many circumstances that would reap more benefits from SSBs making the first move, it is important to keep in mind that their work should not be considered law in each jurisdiction.

"Where the incentives are significant for policy makers to over-weigh considerations around competition in a way that will minimize baseline standards related to risk management, it's useful to have the standard setters move first," Wetjen said. "However, one thing I feel strongly about: IOSCO and other standard setters should not be doing work that has the effect of law in each jurisdiction it impacts.  These organizations are standard setters, not law makers.  I would recommend that each piece of work done by IOSCO should make this plain."