New white paper highlights the need for FMIs to focus on risks created or exacerbated by the impact of the pandemic
New York/London/Hong Kong/Singapore/Sydney, 13 January, 2021 ‒ The Depository Trust & Clearing Corporation (DTCC), the premier market infrastructure for the global financial services industry, today identified key priorities where financial market infrastructures (FMIs) should focus in the coming years to proactively and effectively manage risk in a post-pandemic environment.
In a new white paper, “COVID-19: Impact and Implications for Financial Market Infrastructures,” DTCC explains that FMIs around the globe performed remarkably well amid unprecedented market volatility and record trade volumes in the wake of the coronavirus outbreak. However, the pandemic’s considerable impact on the macroeconomic environment and systemic vulnerabilities will likely cause structural changes to the financial services industry, as well as the regulatory landscape and legislative agendas.
In response, DTCC has identified a number of key challenges and implications for FMIs, which play a crucial role in safeguarding global financial stability:
- The impact of the pandemic on markets was a real-life stress test for FMI risk management regimes, and lessons learned from this crisis should be factored into risk models moving forward.
- The market turmoil observed in March 2020 provided additional data on margin procyclicality and illustrated that providing greater margin transparency to clients is key to helping them navigate extreme volatility.
- FMIs should take an enhanced sector-specific approach to managing.
- FMIs should constantly reassess clearing member’s available liquidity, which can deteriorate quickly in periods of market stress.
- An extended remote working environment creates new operational risks with respect to cyber security, third-party dependencies and other aspects, which must continue to be managed.
The paper also notes that the longer-term effects of the pandemic will likely reverberate through the financial industry for years to come and could weigh on the financial sector’s profitability, potentially contributing to further consolidation within the industry.
“Extreme events, such as the COVID-19 pandemic, illustrate and reinforce the importance of an unwavering commitment to risk mitigation and resilience across the industry. While FMIs continued to perform as expected throughout unprecedented market turmoil, risk management practices must continue to evolve,” said Andrew Gray, Managing Director and Group Chief Risk Officer at DTCC. “As the industry adapts to the new normal and ultimately a post-pandemic world, we must take a close look at the risk management implications for FMIs that emerged from this crisis and address those areas to help us prepare for the next one.”
With over 45 years of experience, DTCC is the premier post-trade market infrastructure for the global financial services industry. From operating facilities, data centers and offices in 15 countries, DTCC, through its subsidiaries, automates, centralizes and standardizes the processing of financial transactions, mitigating risk, increasing transparency and driving efficiency for thousands of broker/dealers, custodian banks and asset managers. Industry owned and governed, the firm simplifies the complexities of clearing, settlement, asset servicing, data management, data reporting and information services across asset classes, bringing increased security and soundness to financial markets. In 2019, DTCC’s subsidiaries processed securities transactions valued at more than U.S. $2.15 quadrillion. Its depository provides custody and asset servicing for securities issues from 170 countries and territories valued at U.S. $63.0 trillion. DTCC’s Global Trade Repository service, through locally registered, licensed, or approved trade repositories, processes over 14 billion messages annually. To learn more, please visit us at www.dtcc.com or connect with us on LinkedIn, Twitter, YouTube and Facebook.