Outlook 2019: Matthew Stauffer, DTCC
Matthew Stauffer is managing director, head of institutional trade processing at DTCC.
What will be the next major watershed for the industry in 2019?
Today, institutional post-trades processes come at significant cost – $6-9 billion according to a study by Oliver Wyman. This is driven by the complexity of both the activities and operations of firms, such as multiple points of reconciliation and communication, inconsistent and incomplete reference data, the persistence of manual processes and a lack of a comprehensive and real-time trade lifecycle view. The industry has reached an inflection point and DTCC is working with the industry to eliminate some of that complexity. Key to this effort is the development of a no touch post-trade process, which will drive down risk and cost.
No-touch, post-trade processing will be enabled via a single integrated platform. The platform seamlessly integrates what were previously individual services to deliver an end-to-end automated workflow that ensures settlement finality through consolidated exception and settlement management processes. This will amount to a reinvention of the institutional post trade infrastructure.
What changes do you expect to see regarding regulation in 2019?
In the post-trade institutional space, firms will put a much greater focus on Central Securities Depositories Regulation (CSDR) in 2019 because the regulation’s Settlement Discipline Regime (SDR) is set to take effect in September 2020. SDR will require market participants to mitigate settlement fails or pay daily penalties against each transaction that fails to settle under the T+2 timeframe.
The penalty will be charged daily based on the notional value of the transaction up until the mandatory buy-in period. The workload and processing costs around fails is likely to skyrocket.
While CSDR’s SDR is an EU regulation, all firms based in the EU, or trading with firms within the EU, or trade in EU domiciled securities will be affected by CSDR. This is why I believe we will see significant global action to reduce fails in 2019. This further reinforces the need to identify and mitigate any issue which could potentially impact timely settlement as early in the trade lifecycle as possible.
Which market structure changes should take place in 2019?
In today’s market structure, the majority of standing settlement instructions (SSI) are maintained by individual buy side participants and stored locally by each of the broker dealers. A key to realizing the benefits of my earlier responses is the full automation of SSI delivery within the post-trade process.
Custodians and prime brokers have already begun to automate the maintenance of the underlying SSIs on behalf of their clients. This enables the industry to move to a centralized, just-in-time enrichment model to ensure timely and accurate SSI details inform every instruction to settle. We have the ability in place today to eliminate trade failure due to incorrect or inaccurate SSIs. Automating 100% of SSI would be a welcome market structure change in 2019.
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