In this episode, Val Wotton, DTCC Managing Director, General Manager of Institutional Trade Processing discusses how DTCC’s Institutional Trade Processing (ITP) is supporting accelerated settlement globally through leading the way in creating enhanced trade flows, driving the adoption of UTIs and partnering with non-U.S. CSDs and CCPs.
From DTCC, you're listening to Take 5. A bite-sized post-trade financial services podcast that tackles an industry topic or trend in just 5 minutes. Tune in to hear a DTCC executive share their perspective on how to grow, prosper, and protect the global financial markets. There's a lot to uncover in five, so let's start the clock.
Hi, this is Val Watton, General Manager of Institutional Trade Processing, and I'm here to talk to you about our CTM and ALERT Global Strategy.
I’m excited to get the opportunity to speak to you today. I'm very focused around how we can build out on the flows and workflows that we've built out in the U.S. from an international perspective. What we really want to do is take the concept of match to instruct – the golden transaction, if you like – that we flow down into DTC and NSCC and export across the globe. And there's a couple of use cases where we're looking to do that more broadly.
I'll focus on two different flows as we think about the international space. The first one would be the CSD, or bilateral settlement flow. Within CTM, we match agree transactions. Those transactions are enriched with SSIs and also place of settlement - essentially, in my mind, creating a “golden transaction.”
You know, the sad thing is that across the globe, what actually happens is that rather than being able to flow that transaction downstream as we do in the U.S. into DTC or NSCC, the broker dealer and the custodian actually take it out of the golden process. You could even say this turns it into a “copper” transaction and flows that independently down into the CCP or CSD. From our perspective, it's highly inefficient when we think about markets that are moving to a T+1 model outside of the US.
The idea of being able to flow transactions straight down into the CCP and CSD has a lot of virtue to it and there are a couple of examples in flight that I want to share with you.
On the bilateral settlement side, or the CSD side, there was recently a press release by the Hong Kong Exchange announcing a product line called Synapse. What that's doing is taking the match agreed CTM transaction and, rather than breaking it out of CTM, it's fundamentally sending it all the way down into Synapse at the Hong Kong Exchange. What they've done there is built an authorization layer where the local and global custodian will come in and actually agree to the transactions before it's in settlement as part of the local stock connects market in China. What you can see there is entire efficiency from CTM match all the way through to settlement within the CSD.
The other interesting thing there is that as part of that initiative, the Hong Kong Exchange mandates the use of the UTI or unique transaction identifier, which something CTM already generates today. Certainly, you've seen more from us around how we can advocate that across the securities market more broadly, not only international but on the U.S. side as well.
The second flow that I'd like to talk to you about today is our CCP flow, or the prime broker flow that we're looking to build out. This is focused on the prime broker volume and how we get that PB volume onto CTM in the first place. So, we’re in the process of going live with a prime broker workflow for the international flow or a non-U.S. flow on CTM. What that's looking to do is create a tri-party match to the hedge fund, the executing broker, and the prime broker. What that will do is automate all the notifications. Also more importantly, reduce settlement risk because again, not only will you match the transaction, but it’ll be also enriched with both the SSIs and the place of settlement more broadly. The second step is building connectivity down into the CCP and we're working with a license in Europe exactly on that, where not only do we take the match agreed transactions, enrich the SSI of the place settlement, but we also automatically feed it downstream into the CCP.
What that really means is that firms will be able to benefit from the netting process that happens within the CCP. Which will lead to not only far more efficiency optimization in their workflow, but also from a balance sheet and netting perspective, firms will see significant benefits.
So hopefully what you can see the whole concept of taking a golden transaction and keeping it within a single pipe that flows all the way down to that market infrastructure in the U.S. (and obviously we do that with DTC and NSCC). We'll export that globally with both the bilateral flow and the example I gave around the Hong Kong Exchange and then with the prime broker workflow that we're about to go live with on CTM.
And that's just the start. We're really looking at how we work far more closely with other CCPs and CSDs to maximize these flows, ensure that we're not taking golden trade, breaking them and turning them into “copper” and then having bilateral notifications downstream which creates an efficiency and essentially leads to fails. It's all around how we accelerate settlement, how do we ensure a no touch workflow and how do we drive efficiency through the end-to-end security processing workflow today. If you'd like any more information, feel free to chat to myself, your relationship manager, or visit DTCC.com.