GC: How does DTCC plan to transform Institutional Trade Processing and why is now the time for such an undertaking?
Mark Bouchea: The industry has not realised the levels of straight through processing (STP) desired in institutional post-trade processing. Fragmentation in providers, high integration costs, increasing regulatory demands and the persistence of manual processes have brought the industry to an inflection point. Market forces and technology advances have introduced an opportunity to shift the post-trade processing experience away from a series of disparate, proprietary products to an open, integrated market infrastructure which can deliver large scale efficiency gains. Our platform aims to drive out the inefficiencies in the post-trade processing lifecycle by delivering a suite of integrated services. These services enable full trade lifecycle management, providing transparency and oversight from pre-trade/account enablement through to settlement finality.
GC: Is the industry ready, how have your clients reacted?
MB: There’s a passion within the post-trade community to move the industry to do what’s right for it. Clients consistently tell us they want to adopt a no-touch workflow. When automation drives efficient trade agreement and settlement instruction, most transaction flow won’t require client intervention; it should just settle. DTCC has highly efficient tools in our portfolio today, solutions which drive the very STP flow that helps clients move toward a low/no touch process. Our goal is to build on top of these capabilities.
These same themes emerge in discussions around the refinement of our strategic roadmap. When we talk to our community about our target future state, there is very strong agreement on our strategy and approach – a low/no touch workflow. Trade agreements on economics and PSET on T, automated enrichment of custodian maintained standing settlement instructions (SSI), auto-generated version of trade agreement delivered to all parties and ideally down to central securities depositories (CSDs), and settlement confirmation captured to assure finality. DTCC’s current solution portfolio combined with our new platform deliveries aim to extend this highly automated/low touch workflow to more markets/CSDs and client community.
GC: What is the impact to the custodial community with this type of transformation? How will they benefit?
MB: The journey to DTCC’s institutional trade processing target state aims to achieve higher levels of collaboration and automation with our custodians. Early feedback has proven that the automation is driving more standardisation and subsequently, a reduction in processing errors. Automating SSIs has provided tremendous efficiency for early adopter custodians. Measuring effectiveness for their client base both prior to and post their automated SSI conversion, two custodians have reported between a 40-50% reduction in associated fails. Their peers in the community are accelerating their own development as the benefits are clear; automated SSI data is boosting quality and measurable settlement efficiency.
Similarly, in our efficient trade lifecycle flow automating the central match trade agreement, enrichment and instruction delivery, custodians can receive the automated trade record from the DTCC system of record. As their clients move to adopt this workflow and leverage the trade agreement output to instruct the custodian directly, they are seeing cleaner process with fewer breaks.
Finally, our exception management tool provides a portal for custodians to have better engagement with their clients and counterparts. The DTCC Exception Manager provides early transparency into client trades and enables a more proactive exception resolution process, ultimately reducing the number of failed client trades.