DTCC Survey Shows Impact of New Regulations as Top Concern in Addressing Systemic Risks

From: DTCC

Survey Polls Industry Leaders on Biggest Challenges to Mitigating Risk

NEW YORK--(BUSINESS WIRE)--May 09, 2013--

The impact of new regulations in the financial services industry is by far the most important systemic-risk concern facing the global capital markets, according to a recent client survey conducted by The Depository Trust & Clearing Corporation (DTCC). The survey revealed that 82% of industry leaders ranked meeting new regulatory requirements as a top concern in mitigating systemic risks.

“Given the massive scope of Dodd-Frank, CPSS IOSCO, Basel III and other new or enhanced regulations, the tremendous commitment of time and resources necessary to build and maintain compliance structures is clearly keeping people up at night,” said DTCC’s Michael Leibrock, Vice President, Operational & Systemic Risk Management, who cited comments received by respondents to the survey. “The findings suggest that if execution of regulatory mandates is done poorly, that could actually create risks which supervisors are trying to avoid, including the potential failure of a firm as a worst-case scenario,”

Top Ten Risks

DTCC’s survey ranked the following ten issues in this order of importance to its clients. In two cases, there were ties.


Top Ten Risks                     Response %  Commentary by DTCC Clients 
--------------------------------  ----------  -------------------------------- 
1. Impact of New Regulations      82%         The time and resources required 
                                              to meet new regulators could 
                                              result in companies "taking 
                                              their eye off the ball" from 
                                              managing day-to-day risk. 
--------------------------------  ----------  -------------------------------- 
2. Disruption or Failure of a     61%         The "too big to fail" issue is 
Key Market Participant                        still a concern as the 
                                              interconnected nature of the 
                                              financial system could cause a 
                                              domino effect if one major 
                                              player fails. 
--------------------------------  ----------  -------------------------------- 
3. Cyber Security                 53%         Small firms with limited 
                                              resources for IT departments or 
                                              constant technology upgrades are 
                                              considered the weakest link in 
                                              combating cyber threats. 
--------------------------------  ----------  -------------------------------- 
4. Significant Business           45%         Unpredictable events such as 
Continuity Event                              natural disasters and terrorist 
                                              acts, as well as more 
                                              predictable events such as 
                                              extreme weather, are both of 
                                              considerable concern. 
--------------------------------  ----------  -------------------------------- 
5. Sudden Dislocation in Stock    37%         With yields on most bonds at or 
or Bond Market                                near historical lows, there is a 
                                              significant risk that even a 
                                              modest increase in yields could 
                                              result in massive losses in the 
                                              fixed income markets. 
--------------------------------  ----------  -------------------------------- 
6. U.S. Recession                 37%         The ability of the U.S. 
                                              government to address the 
                                              deficit and the cumulative 
                                              effects of heavy regulations are 
--------------------------------  ----------  -------------------------------- 
7. Partial or Full Eurozone       35%         The over-leveraged nature of 
Breakup                                       certain Eurozone countries and 
                                              lack of fiscal/monetary 
                                              integration across the region, 
                                              could lead to a forced or 
                                              voluntary exit of one or more 
--------------------------------  ----------  -------------------------------- 
8. Major Compliance or            35%         Respondents note a troubling 
Governance Event                              trend in compliance violations 
                                              by large financial 
--------------------------------  ----------  -------------------------------- 
9. Interconnection Risks          25%         Increasing linkages among global 
                                              financial firms, combined with 
                                              the high speed of transactions, 
                                              is a cause for concern. 
--------------------------------  ----------  -------------------------------- 
10. High-Frequency Trading        18%         Faster trading and algorithmic 
                                              trading could lead to future 
                                              anomalies in the securities 
--------------------------------  ----------  --------------------------------

Of the 80 institutions that responded to the survey, banks and broker/dealers comprised the majority.

DTCC’s Role as Risk Mitigator

With 40 years of experience providing custody, netting, clearing and settlement services to the financial community, DTCC is the world’s largest post-trade processing infrastructure. In July 2012, three of its subsidiaries were designated Systemically Important Financial Market Utilities* by the Financial Stability Oversight Council. Because of its designation and central role as a risk mitigator for the financial markets, DTCC has an inherent interest in keeping a pulse on its clients’ positions on risk.

“The cooperative nature of our relationships with all our constituents has given us unparalleled insights into their needs. As a result, we have been able to develop many pioneering tools to manage risk across a broad range of financial instruments and market sectors,” said Noel Donohoe, DTCC Group Chief Risk Officer.

Among those tools are:

   -- A Mortgage-Backed Securities (MBS) Central Counterparty to reduce risk 
      and costs in the $100-trillion-a-year U.S. market for MBS. 

   -- Expansion of the Global Trade Repository infrastructure worldwide and by 
      asset class to support reporting requirements for over-the-counter (OTC) 

   -- The CFTC Interim Compliant Identifier (CICI) Utility to support OTC 
      derivatives reporting requirements.

In addition, DTCC has provided the industry with proposals to:

   -- Shorten the settlement cycle for U.S. cash securities transactions to 
      mitigate counterparty risk, reduce costs and optimize capital. 

   -- Continue reducing and eventually eliminate the remaining physical 
      securities certificates in the U.S. to reduce risk and costs, and boost 

   -- Establish a common infrastructure to provide certain middle office 
      processes that support the front and back offices to reduce costs and 
      operational risk for financial institutions and advance straight-through 

   -- Introduce a global straight-through margin processing utility for 
      over-the-counter (OTC) bilateral and cleared derivatives trades in 
      response to significant changes resulting from regulatory, industry and 
      market drivers.

* Being designated a Systemically Important Financial Market Utility means a company is required to meet prescribed risk-management standards and heightened oversight by the relevant US regulatory authorities. Systemic risks are generally defined as developments that threaten the stability of the financial system as a whole and consequently the broader economy.

About DTCC

DTCC has operating facilities and data centers around the world and, through its subsidiaries, automates, centralizes, and standardizes the post-trade processing of financial transactions for thousands of institutions worldwide. With 40 years of experience, DTCC is the premier post-trade market infrastructure for the global financial services industry, simplifying the complexities of clearance, settlement, asset servicing, global data management and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, derivatives, money market instruments, syndicated loans, mutual funds, alternative investment products, and insurance transactions. In 2012, DTCC’s subsidiaries processed securities transactions valued at approximately US$1.6 quadrillion. Its depository provides custody and asset servicing for securities issues from 131 countries and territories valued at US$37.2 trillion. DTCC’s global trade repositories record more than US$500 trillion in gross notional value of transactions made worldwide.

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