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CHAPTER EIGHT | A HIGHER PROFILE
DTCC Clearing Agency Services and head of Global Business Operations, explained:
There was a bit of retrenchment and we had to react to many of the new regulations. Some of it opened the door for us to offer more capital efficiency to the markets. So the value of the central counterparty structure, and the ability to get capital relief and balance sheet relief, became that much more important to firms as the new regulations made capital more valuable or more scarce to a certain extent. Being able to utilize the services of FICC and MBSCC, in particular, helped firms weather those changes and allowed them to continue to do robust business.
Throughout the recession and slow recovery, DTCC provided stability in a volatile market. In 2011, credit rating agency Standard & Poor’s (S&P) downgraded the credit rating of the US government in response to the congressional stalemate over raising the debt ceiling. It was the first time this had occurred since S&P first issued the government a AAA rating in 1917. Instability was apparent in Europe, too, where Portugal, Italy, Ireland, Greece and Spain were unable to pay debts over the course of two years, leaving other European Union countries to bail them out. DTCC’s management team worked through multiple scenarios to identify implications for the firm and its clients to prepare for these events. In another example of DTCC’s role in protecting market stability, when MF Global collapsed at the end of October 2011, it closed out all the trades guaranteed by DTCC over the course of just four days and at no cost to its members or the industry. The new regulations created opportunities as well. In 2010, DTCC acquired Avox Limited, a United Kingdom-based company that provided reference data about legal entities. The Dodd-Frank Act called on regulators to reform and bring transparency to the OTC derivatives markets. As a result, many regulators, under the auspices of the Financial Stability Board, joined together to create a Global Legal Entity Identifier (LEI) System. One US regulator, the Commodity Futures Trading Commission (CFTC), became the first regulator to mandate that all OTC derivatives market counterparties be identified by LEIs on regulatory reporting. Many regulators would soon follow the CFTC’s lead. “DTCC didn’t have the tools or know-how to make that happen, but Avox did,” said William Hodash, former managing director and
Murray Pozmanter, former managing director, president of DTCC Clearing Agency Services and head of Global Business Operations, was part of DTCC’s proactive response to new regulations brought on by passage of the Dodd-Frank Act. (Photo courtesy of Christopher Elston Photography.)
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