Senior Executives from the Depository Trust & Clearing Corporation (DTCC) have provided reflections on what we might expect regarding financial market infrastructures in 2020.
The DTCC is a market infrastructure provider that automates, centralizes and standardizes the processing of financial transactions. It’s responsibilities include, “settling trading accounts, clearing trades, collecting and maintaining margin monies, regulating delivery of the bought/sold instrument, and reporting trading data.”
As FinTech start ups innovate to compete for the work performed by clearinghouses, DTCC staff have pointed to the company’s importance as a central aggregator of trade data and provider of comprehensive oversight information to governments.
The DTCC says it routes an enormous amount of reliable trade data while also securely housing certain assets:
“In 2018, DTCC’s subsidiaries processed securities transactions valued at more than U.S. $1.85 quadrillion. Its depository provides custody and asset servicing for securities issues from 170 countries and territories valued at U.S. $52.2 trillion. DTCC’s Global Trade Repository service, through locally registered, licensed, or approved trade repositories, processes over 14 billion messages annually.”
Mike Bodson, President & CEO, predicts a year, “dominated by the impact of geopolitical events, digitization and tokenized securities”:
“On geopolitics, the execution of Brexit, ongoing trade tensions and the upcoming US elections will be closely watched by market participants around the world and could have consequences on market stability…(W)e expect the digital transformation of financial services to continue, with further adoption of new technologies, the emergence of digital platforms and the increased use of application programming interfaces (APIs)…(which) will better enable data to flow seamlessly between systems and provide clients with the flexibility to conduct business tailored to their needs.”
Bodson says regulators will need to be on their toes, “developing rules for the post-trade processing of tokenized securities to protect market stability.”
Susan Cosgrove, CFO, highlighted the importance of CFO’s when it comes to implementing new financial tech:
“New technologies, such as distributed ledgers, artificial intelligence and robotics, will continue to be important themes in 2020. For market infrastructures, when new technologies are adopted in a thoughtful manner for the appropriate post-trade processes, there are multiple benefits, including increased operational efficiency, reduced risk and cost and increased client value…CFOs have an important strategic role to play when it comes to the adoption of new technologies because we have the skillset to strike the right balance between innovation and financially-sound decision-making.”
Tim Keady, Managing Director and Head of DTCC Solutions says DTCC clients are keen to streamline processes:
“From both sell-side and buy-side firms, we are hearing that a continued priority in 2020 will be reducing costs while ensuring that requisite systems and processes are in place for firms to meet new regulations…Currently, many clients are using these regulatory imperatives to revamp the patchwork of siloed platforms they use for their post-trade processing into fully-integrated and automated systems…This operational investment is a theme we expect to continue well into the next decade.”
Murray Pozmanter, Managing Director and Head of Clearing Agency Services says few players are interested in adding efficiency if it implies risk, adding that scrapping existing systems is often unnecessary:
“While organizations continue to experiment and invest in emerging fintech, many firms have come to the conclusion that innovation is only beneficial when the end result equates to stronger and safer markets. A key theme for 2020 will be how the financial industry continues to progress with combining proven, stable infrastructures with new technologies, and how those projects scale for adoption in high-volume, highly-regulated markets. The optimal solution isn’t always the newest technology. In many cases, enhancing existing infrastructures delivers better results. For example, when accelerating settlement to T+2 in the US, the underlying infrastructure wasn’t changed; but processes were updated, which led to a highly successful outcome.”
Andrew Gray, Group Chief Risk Officer predicts that regulators will continue working to assure that financial infrastructures are robust:
“In 2020, we expect to see continued focus on risk reduction from policy makers and a heightened attention on operational and business resilience and the continuity of services in the event of a disruption. The Bank of England’s recent consultation paper on new requirements to strengthen operational resilience in the financial services sector reinforces how important this issue will be. This is supported by the results of our most recent Systemic Risk Barometer survey, where 75% of respondents indicated that their firms plan to increase investments to enhance resilience. Critical to achieving operational resilience is a holistic approach to risk management, built on the foundation of intelligent resilience, which means finding the optimal balance of technology, data analysis and human capabilities.”