LATEST ARTICLES | OPERATIONS

CDs Dematerialized at DTCC

Infrastructure giant DTCC today confirmed the launch of its new Underwriting Central (UWC) platform, an automated service for electronic Certificates of Deposit (CD) offered by its subsidiary, The Depository Trust Company (DTC).The new, digital UWC platform provides a paperless process for the delivery of CDs, increasing efficiency through automation, improving data quality, reducing risk, and providing greater transparency into the eligibility life cycle, DTCC said in a statement, further saying that it also represents an important step in bringing the industry closer to achieving full dematerialization.

Volatile Markets Require Modernized and Digital Infrastructure Models

Nasdaq and Celent have released the results of the CIO Market Infrastructure Survey 2021, commissioned by Nasdaq. Based on interviews with 25 chief information officers and senior technology leaders of market infrastructure operators (MI) worldwide, the survey aims to understand their focus, priorities, and investments around the creation of their future technology platforms. With the COVID-19 pandemic acting as a stress test on capital markets infrastructure – exposing data flow, scaling, and operational challenges – the survey results, said Nasdaq, uncover increasing demand to move to more agile technology, microservices, and data models.“For our survey, we wanted to examine how technology leaders of the world’s markets have navigated rapidly changing technological advancements in the face of modernization challenges,” said Lars Ottersgård, Executive Vice President and Head of Market Technology at Nasdaq. “The capital markets ecosystem experienced intense volatility and record high transaction volumes in 2020. In combination with a changing regulatory landscape, evolving market forces and emerging digital models, our research has shown technology leaders across the industry investing in cloud technology and data analytics specifically to future-proof infrastructure across both traditional and digital asset classes,” Ottersgård said.Additional key findings from the 2021 survey:

White Paper: Increased Adoption of Central Clearing in US Treasury Market Needed

The Depository Trust & Clearing Corporation (DTCC) has released a new white paper that explores the risks created by U.S. Treasury market fragmentation. The paper, More Clearing, Less Risk: Increasing Centrally Cleared Activity in the U.S. Treasury Cash Market, examines growing concerns around the increased adoption of bilateral clearing for Treasury activity and details the benefits of unifying the market under a central clearing model.According to industry watchers, Treasury market activity today is split between two disparate clearing processes: bilaterally cleared transactions, and centrally cleared transactions via DTCC’s Fixed Income Clearing Corporation (FICC). According to the white paper, interdealer brokers (IDBs) are frequently executing transactions between FICC members and non-FICC members, in which one side of the trade is centrally cleared and the other is bilaterally cleared. The paper notes that this fragmentation is creating “contagion risk,” in part because if a non-FICC member defaults, there could be larger systemic impacts.The white paper notes that the issue of fragmentation has taken on greater urgency due to ongoing market volatility, prompting discussion among industry participants and regulators on the need for an ideal market structure. Prior to 2000, all outright purchases and sales of Treasuries through IDBs were centrally cleared. Today,...

DTCC Outlines 2-Year Roadmap to T+1 Settlement

The Depository Trust & Clearing Corporation (DTCC) today released a two-year industry roadmap for shortening the settlement cyclefor U.S. equities to one business day after the trade is executed (T+1). In its latest paper, “Advancing Together: Leading the Industry to Accelerated Settlement,” DTCC highlights the immediate benefits of moving to a T+1 settlement cycle, including cost savings, reduced market risk and lower margin requirements as well as the firm’s plans for galvanizing the necessary support for the project across a wide range of market participants.The Move to T+1In order to move to T+1, industry participants must align and agree to shorten the settlement cycle by implementing the necessary operational and business changes, and regulators must be engaged. DTCC says it does not have the regulatory or legal authority to unilaterally change the settlement cycle, but despite this, the organization said it continues to take a leadership position to shorten the settlement cycle to T+1, similar to the role it played in 2017 to move to T+2.

Citadel and Robinhood call for T+1 settlement cycle

Vladimir Tenev, CEO of Robinhood, an American financial services company known for offering commission-free trades of stocks and exchange-traded funds via a mobile app, is pushing for the settlement infrastructure to be modernised.This follows the course of events from January when Robinhood had to restrict trading in stocks including GameStop because of the volatility caused by retail traders.The surge in buying of GameStop and other 'meme stocks' was partly aimed at creating a short squeeze on several hedge funds with known positions against the high-street games retailer.

ISLA Addresses Securities Lending Digitization

The International Securities Lending Association (ISLA), has confirmed the publication of ‘Legal Clause Library & Legal Data Standards‘, a white paper produced in association with D2 Legal Technology (D2LT).Documentation plays a crucial part in the securities lending industry, creating a set of obligations between the contracting parties and recording the terms of their transactions and relationship, says ISLA. Accordingly, any successful digital transformation requires a focus on documentation. The trade group has therefore mobilized a clause library and taxonomy project in respect of the GMSLA documentation suite.The ‘Legal Clause Library & Legal Data Standards‘ white paper focuses on digital data standards created by the clause library and taxonomy project through a look at the key aspects of the securities lending industry:how the industry is positioned today;a vision for what the strategic state looks like;the steps required to achieve this strategic state;how best to achieve adoption across the industry; and immediate next steps. It concludes that in an increasingly data-driven world, firms are moving to operationalise their business through automating data-driven processes, allowing greater efficiency, scalability, and resilience through the medium of data. Key to this, according to the paper, is the representation of contractual terms and the expression of business outcomes...

Automating the End-to-End Collateral Lifecycle

Speaking at the International Swaps and Derivatives Association’s (ISDA’s) Collateral Management Virtual Showcase, Duncan Scott, Product Management Consultant for DTCC’s Margin Transit Utility (MTU), positioned MTU as an automation tool or ‘plug-in’ application, and described how MTU can extend its automation advantages to more products and use cases over time. The event allowed several providers of automation solutions for collateral management to highlight the features and benefits of their offerings and discuss the importance of automating the end-to-end collateral lifecycle.

Why Shortening the Settlement Cycle Will Benefit the Industry & Investors

DTCC has long advocated for shortening the settlement cycle to enhance market resilience, reduce margin requirements and lower costs for investors. In 2017, we led the industry-wide initiative to shorten the U.S. settlement cycle to T+2 – the most significant change to the market’s settlement cycle in over 20 years.Although DTCC’s equities clearing and settlement subsidiaries, NSCC and DTC, can support some T+1 and even same-day settlement using existing technology, many market participants don’t leverage this option because of market structure complexities, legacy business and operational processes.While the industry continues to align itself around shortening the settlement cycle further, as announced in January 2018, DTCC has begun steadily implementing a series of operational improvements that optimize current processes to further accelerate settlement times, and to lay the foundation for what we see as an eventual move to T+1.

EC gives green light to Euroclear UK & Ireland for temporary equivalence extension

The European Commission has granted Euroclear UK & Ireland (EUI) the ability to continue to offer issuer central security depository (CSD) services after the Brexit transition period ends on 31 December 2020.EUI will be able to continue settling Irish-domiclied funds and securities up until the end of the new extension period of 30 June 2021.This comes as the EC has decided to adopt an implementing act determining the legal and supervisory requirements for UK CSDs as equivalent to those in the EU.

COVID-19 inspires derivatives post trade renovations

A market survey by Acuiti has found that almost all tier one and tier two banks queried plan to invest more in derivatives post-trade operations over the next three years than in the last three, as a result of the COVID-19 fuelled market volatility seen in the first months of 2020.Almost half of tier one and two banks that responded to the survey are expecting to invest more than $5 million over the next three years in “long-awaited upgrades to post-trade processing capacity”.

CLS rolls out netting calculation service to Finastra clients under partnership

Foreign exchange settlement specialist CLS will provide its netting calculation platform to clients of global FinTech provider Finastra under a new partnership. Finastra’s clients, including over 800 corporate and buy-side firms, will gain access to the CLSNet platform following an integration between CLS and the Finastra Fusion confirmation matching service.

Banks to increase spend on post-trade infrastructure after failures in market volatility

Major investment banks will increase investment in post-trade infrastructure after reporting failures with back-office processes during the market volatility earlier this year.According to a recent survey by Acuti, 95% of tier one and tier two banks are planning to invest more than $1 million in post-trade infrastructure over the next three years, with 45% hoping to invest more than $5 million. 

Central Bank of Iceland goes live with new interbank payment system

The Central Bank of Iceland (CBI) and SIA, a European hi-tech company in payment services and infrastructures, have gone live with the new real-time gross settlement system (RTGS) and the new instant payment platform.The new payments system is a more strategic and modern infrastructure and enables closer cooperation with other central banks.CBI manages all interbank payments in the country: it currently processes up to one million payments with peaks of 160,000 per hour despite the small population of just over 365,000.

Is analytics the missing piece in a complex settlement jigsaw?

At a time when the costs of doing business are skyrocketing, is it sustainable for banks to persevere with the current approach to trade settlement failure?While there will always be trades that fail, the tolerance levels of banking boardroom execs must be at breaking point right now if the latest Esma Trends Risks and Vulnerabilities (TVR) report is anything to go by. The study shows a dramatic surge in the level of settlement fails during the second half of March, with fails climbing to around 14 percent for equities and close to six percent for government and corporate bonds.  

ECB confirms one-year delay to Eurosystem Collateral Management System

The Governing Council of the ECB has decided to reschedule the launch of the Eurosystem Collateral Management System (ECMS) from November 2022 to November 2023.This development follows the Governing Council’s earlier decision to extend the timeline of the T2-T2S consolidation project by one year. It addresses the concerns of market participants that the current adverse environment would hamper their preparations.

BoE and CFTC reinforce cross-border supervision of derivatives clearing in new agreement

Regulators for the UK and US derivatives markets have signed a new cross-border supervisory agreement for clearing houses operating in both countries. The Bank of England (BoE) and the US Commodity Futures Trading Commission (CFTC) announced the signing of a new memorandum of understanding (MOU) where they have established a cooperation framework for overseeing international clearing houses.  

Operational Resiliency Must Remain a Top Priority

New layers of risk and complexity call for holistic, collaborative and cross-border responses.As a vast majority of the financial industry's workforce continues working remotely, organizations are operating in entirely new ways. No one could have predicted at the end of last year that a global pandemic would impact the world's workers in 2020 and force millions of financial services staff, and staff across other industries, into a remote work environment.

ISLA forms three new “broader” steering groups

The International Securities Lending Association (ISLA) has formed three new steering groups to address the regulatory, digital and associated market practice changes the industry is experiencing through the recent pandemic.ISLA runs a variety of working groups for its members, covering all aspects of advocacy, tax, legal, regulation and best practice in order to allow members to discuss challenges, debate issues, conceive ideas and seek solutions. 

Big banks give backing to Singapore Green Finance Centre

The Monetary Authority of Singapore and nine international banks have leant their weight to the establishment of a research institute dedicated to green finance research and talent development.The Singapore Green Finance Centre, run by Imperial College Business School and the Lee Kong Chian School of Business at Singapore Management University (SMU), will pursue research to help develop strategies for policy makers and financial institutions to support Asia’s transition to a low carbon future.

Bank of Japan preps CBDC experiments

The Bank of Japan will begin central bank digital currency (CBDC) experiments early next year but says it still does not yet have any plans to issue its own digital yen.Central banks around the world have been grappling for years with the pros and cons of creating their own digital currencies.

HSBC appointed securities services provider for HK ESG ETF

HSBC has been appointed as the as the full securities service provider by Haitong International Asset Management (HK) Limited for Haitong MSCI China A ESG ETF, the first broad-based environmental, social and governance exchange-traded fund listed on Hong Kong Stock Exchange. 

SFTR: Buy side start reporting

Buy-side members must begin reporting under the EU's Securities Financing Transactions Regulation (SFTR) from today as part of the third phase of implementation.SFTR reporting obligations now apply to investment funds, pension funds and (re-)insurance undertakings, which join sell-side firms, central counterparties and central securities depositories that began reporting in July. 

Finadium: Total Return Swaps and Bank Resource Optimization

This Finadium report investigates current dynamics in the Total Return Swaps market with a focus on bank resource optimization. We deliver market sizing through H2 2020 and analyze the dynamics that lead to a continued preference for TRS over physical financing transactions.

LCH SA to support the clearing of €87.4 billion of EU emergency SURE bonds

Central clearing counterparty (CCP) LCH SA will support the clearing of bonds issued as part of the European Union’s temporary support to mitigate unemployment risks in an emergency (SURE) programme.The bonds issued as part of the scheme will be eligible for clearing at LCH SA’s RepoClear service. LCH SA offers clearing of euro-denominated bonds and repos across 13 government bond markets. It will also support and clear the upcoming Next Generation EU Bonds. 

Reporting data integrity undermined by widespread LEI lapses

As much as 30 percent (500,000) of legal entity identifiers globally are out of date and in need of renewal, according to LEI Worldwide, a GLEIF-registration agent and LEI provider.LEIs are a 20-character alphanumeric code that, as the name suggests, allows regulators to identify individual counterparties in a transaction.They are currently required under several rules frameworks including the Securities Financing Transactions Regulation and the European Market Infrastructure Regulation, among others. 
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