DTCC seeks to address post Sept 11op-risk concerns

The Depository Trust & Clearing Corporation (DTCC), the world’s largest clearing company, has seized the initiative to address the issue of systemic operational risk concerns raised in the aftermath of the US terrorist attacks of September 11.

DTCC chairman and chief executive Jill Considine held the first in a series of discussions with representatives of the Securities Exchange Commission, the Federal Reserve Board and the Federal Reserve Bank of New York, yesterday, to address operational risks exposed by the attacks on the World Trade Center.

In a speech to the Bond Market Association in New York prior to the meeting, Considine said the major systemic risk posed by the September 11 attack stemmed from over-centralisation of physical assets – people and facilities – related to financial markets in New York. Bond market settlement banks, the New York telephone carrier Verizon’s network in lower Manhattan, and numerous market makers on the New York Stock Exchange (NYSE) and Nasdaq were briefly incapacitated by the attack. US fixed-income markets did not resume trading until September 14, while trading on NYSE and Nasdaq did not resume until September 17.

The Bank of New York, a large custodian and securities settlement bank, had major problems paying out funds due to failed communications lines, with some market sources indicating that Bank of New York’s payments backlog reached $130 billion on Thursday September 13, leaving a number of large European institutions with large overdrafts with other banks.

After a 'breather' from weeks of intensive recovery efforts by US regulatory authorities subsequent to the attack, Considine said the DTCC would look to take a leadership role in helping the US financial industry adopt new best practices to manage the newly exposed risks. Comments made by Considine during her speech suggested the DTCC would hold discussions with regulators, broker-dealers, electronic trading network service providers, clearing houses, and even public utilities like phone companies.

Asked whether new awareness of the risks stemming from spatial concentration would result in calls to disperse financial market operations over wider areas, Considine said, “I think people are looking at that very seriously.” But it was unclear whether Considine was referring to regulatory authorities. Neither the SEC nor the Federal Reserve Bank of New York have yet issued any new regulations related to the attacks, though impact assessment is ongoing, spokespersons for the two organisations said.

The DTCC is the world’s largest post-trade infrastructure organisation, providing clearance, settlement and custody services for equities, corporate and municipal debt, exchange-traded funds, mutual funds, ADRs, money market instruments, unit investment trusts and insurance products.