Solutions: Post-Trade

deputy head of strategy, SunGard’s capital markets business

CAPITALIZING ON CHANGE: EXCHANGE-TRADED DERIVATIVES

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Author: Tony Scianna, deputy head of strategy, SunGard

While we may sometimes consider 2011 to be the year of change for the financial system, the reality is we all work in an industry that is constantly growing, evolving, and changing.

Just look at exchange-traded derivatives. Back in 2001, exchange-traded derivatives volumes were only a fifth of what they are today. Ten years later, an average of 500 ETD contracts are executed every second. And with more and more OTC contracts moving onto exchanges, this number is only rising.

With all this growth, firms need fast, reliable solutions to help them seize new opportunities and keep up with the pace of change. Watch the brief video below (about 40 seconds), which illustrates this topic. How are you responding as these numbers continue to grow? How are you capitalizing on change in exchange-traded derivatives?

While you’re here…

deputy head of strategy, SunGard’s capital markets business

A DERIVATIVES DELAY? WHAT TO DO FOR THE NEXT 15 MONTHS

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Originally posted on FTF’s The Bull Run here.

Author: Tony Scianna, deputy head of strategy, SunGard

Last week we read that U.S. House Republicans voted to delay new derivatives rules by 15 months. Before we go into what this means for the derivatives industry, let’s take a look at how long 15 months really is:

  • 5 seasons will pass
  • We’ll all be 1.25 years older
  • U.S. citizens will be preparing to vote in the 2012 presidential election

    A lot can happen in 15 months. For an industry that has been facing an uncertain regulatory environment since the approval of Dodd-Frank last July, the proposed delay would only extend that uncertainty. I am concerned that with such a long period of waiting for regulatory guidance, the urgency of Dodd-Frank could diminish and leave firms feeling forced to sit back on their heels. Firms will have to reevaluate their strategies and budgets, and they may choose to focus their energy and investments in different areas rather than regulatory compliance. How long can lawmakers say “hurry up and wait” before firms “hurry up” and focus on something else? Firms need guidance to be proactive.

    While both sides of the political aisle have agreed that more time is needed to finalize the rules, there are big disagreements about what this proposed delay means.  On one hand, one side is arguing that they are “not repealing any rules… just setting a more deliberative rule-making process.” On the other hand, others are saying that “it’s not a bill to give the regulators more time—it is a bill to prevent the regulators from acting.”

    And then there’s the perspective of the regulators. CFTC Chairman Gary Gensler, who recently stated that the CFTC would not meet the original July 2011 rule-writing deadline, warned that a delay would put the U.S. “at great risk,” and that “reform will only be effective once rules are completed.”

    So what is a firm to do? Continue planning. Ensure that your approaches are flexible. Partner with your vendors to be sure your technology strategies are ready to tackle new challenges and reveal new opportunities. Talk to as many industry experts as possible. Participate in industry groups that are working to shape the end-state of the regulations.

    What is your take on the proposed Dodd-Frank delay? If we do wind up with a 15-month wait, what will your firm do with your budget for regulatory compliance in 2011? And will you be allocating the same, a bigger, or a smaller budget to regulatory compliance in 2012? I would encourage you to comment here, and to tell me your thoughts in person at SunGard’s New York City Day discussions on Pre- to Post-trade Implementation of Dodd-Frank and Regulatory Reform on June 20.

    While you’re here…

    deputy head of strategy, SunGard’s capital markets business

    INDUSTRY ROUNDTABLE: DODD-FRANK RULE IMPLEMENTATION

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    Author: Tony Scianna, deputy head of strategy, SunGard

    We’ve talked a lot on this blog about the new rules and requirements that will soon affect the financial industry as a whole. After catching up with John Omahen, vice president of our post-trade derivatives solutions, who recently attended talks with regulators in Washington, D.C., it is clear that there is still a lot of work to do.

    I asked John some questions about his participation in a joint CFTC-SEC roundtable discussion on May 2. Take a look at the Q&A below to see what John had to say. Do you have your own Dodd-Frank implementation questions?

    —

    Tony Scianna: What was the focus of your roundtable discussion?

    John Omahen: I joined several other representatives from the industry to discuss how phasing the rule implementation might affect connectivity and infrastructure for the market. It was clear in the discussions that U.S. regulators have a difficult task ahead of them as they attempt to implement reforms quickly without disrupting the market or creating opportunities for “regulatory arbitrage.”

    Tony: I am sure “the question of when” played a role in the discussions, then. Did you gain any clarity regarding how long the CFTC would allow for implementation of the rules once they are written?

    John: The panel was asked to comment on the length of time needed but there were some disagreements as to what a “reasonable time frame” was for different reforms. However, most on the panel agreed that when it came to implementing changes, the real challenge would not be establishing connections to SEFs, swap data repositories, clearinghouses and the like, but changing business processes to support the new regulatory structure. This is where it gets much more complicated.

    Tony: Speaking of things getting complicated, your panel came together to discuss sequencing with regard to rule implementation. Can you share what the panel recommended?

    John: We discussed the possible phasing of rules in a few different ways: by asset class (credit swaps first, interest rate swaps next, etc.), by market participant (swap dealers first, with end-users last), or by function (clearing first, and then trading). The panelists agreed that a phased implementation was a good idea, but cautioned against creating a disadvantage for some market participants over others.

    Tony: Was there a general consensus within the panel on any of the possible implementation sequences?

    John: The panel did agree that the clearing side of the equation seems to be the most defined at this point, and it could be a good candidate to push to the head of the regulatory sequence. We all also agreed that specifying even some of the rules could make the rest of the implementation easier. With fewer unknowns, more planning and resourcing could be taking place.

    Tony: What else did you take away from the roundtable discussions?

    John:  Many industry insiders will tell you privately that the CFTC was already underfunded, even before Dodd-Frank was passed.  Now that the CFTC is tasked with regulating the much larger OTC derivatives markets, that issue has become even more acute. As if that weren’t difficult enough, with cost-cutting such a high priority in Washington, increasing staff levels to cover this gap will be a big challenge for the CFTC.  At the end of the day, someone has to pay for all this regulatory reform.  There is uncertainty around how this cost will be shared between the CFTC and the industry; determining the right balance between the two could end up being the greatest challenge of all.

    While you’re here…

     

    deputy head of strategy, SunGard’s capital markets business

    SUNGARD WINS FOUR FTF TECHNOLOGY INNOVATION AWARDS

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    Author: Tony Scianna, executive vice president, SunGard

    “People who work together will win, whether it be against complex football defenses, or the problems of modern society.” -Vince Lombardi

    It’s nice to be on a winning team. At the recent FTF Hedge Fund Operations & Technology Conference (where I spoke on the panel Industry Response to New Regulation – Less is More?), SunGard took home four of the Financial Technology Forum’s Technology Innovation Awards for 2011. I believe this is a testament to the strong community within SunGard, because we are continually working together to solve the pressing challenges facing the financial industry. I particularly liked the headline from the FTF’s press release announcing the awards, which said that the honorees, including SunGard, “set the example for the industry.”

    SunGard won in the following categories: Enterprise Operations – Best Utilization of the Cloud; Risk Management – Most Innovative Approach to Operational Risk; Most Effective Use of Social Media; and, Person of the Year (tied with another vendor) for SunGard CEO Cris Conde. Each award is distinct and shows that we are innovating in a variety of ways across the business. Thank you to all who voted.

    You can read more about the FTF Technology Innovation Awards here. What are your thoughts on the awards and the list of winners?

    deputy head of strategy, SunGard’s capital markets business

    “A DAUNTING TASK” – REGULATORY READINESS: THE DATA MANAGEMENT CHALLENGE WEBINAR RECAP

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    Author: Tony Scianna, executive vice president, SunGard

    I recently participated in a webinar with DerivSource that tackled the topic “Regulatory Readiness: The Data Management Challenge.” You can now hear the playback on the DerivSource website, and I thought I would provide a brief recap to highlight some of the key points I discussed with Anshuman Jaswal, senior analyst in the Securities and Investments Group at Celent, and Norman Brower, executive director at Morgan Stanley.

    If you were listening live, you’ll know that we covered a lot during this webinar, which was moderated by DerivSource’s Julia Schieffer. From my perspective, here are some of the top takeaways:

    • We are just at the tip of the iceberg here. We still don’t know exactly what the regulatory requirements are going to look like, and there are plenty of questions that can’t be answered yet.
    • Regulatory risk is a critical concern for firms, even more than operational risk or counterparty risk today. Every firm knows it has a lot of work to do.
    • I boiled down the data management challenge to this: Firms must be able to capture their data in as close to real time as possible, standardize, normalize, and cross-reference that data then have the ability to access it. Financial services firms have grown up with multiple silos, and breaking them down is a complicated, “daunting” process.
    • Find ways to influence and shape the regulations. We had some questions about how to get involved, and the panel mentioned industry groups like the EDM Council, working groups such as the SIFMA Technology Work Group, and conferences like those put on by the Financial Information Management Association. Also a great resource: requests from regulators and responses from the industry groups, such as SIFMA and the FIA, which you can find on sites such as the SEC and CFTC.

    Did you attend this webinar? Do you have any questions about the data management challenge that you haven’t been able to ask? Continue asking your questions and offering your perspective in the comments below.

    deputy head of strategy, SunGard’s capital markets business

    OTC DERIVATIVES AND THE QUESTION OF WHEN

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    Author: Tony Scianna, executive vice president, SunGard

    It had been a while since I participated in a Twitterview – a real-time interview via Twitter – so I was glad to have the opportunity to join TABB Group’s senior analyst Kevin McPartland in yesterday’s “DerivChat” conversation. SunGard’s own director of analyst relations, Alyssa Gilmore, moderated the discussion, which focused on OTC derivatives.

    During the Twitterview, Kevin and I discussed the topic of OTC derivatives in the context of his recent article on TabbFORUM titled, “OTC Derivatives: Not What, But When.” We talked about business and technology challenges, as well as our thoughts on timing and preparedness. There is no doubt this is a topic that we’ll continue watching and discussing throughout the year and beyond, as regulatory requirements become clearer and new regulations are announced.

    If you didn’t see it happening in real time, you can read the interview here or in Twitter Search under #derivchat. And if you have your own answer to one of the questions or want to ask something new, leave a comment for us below.

    Alyssa4AR: Welcome to #derivchat! Today we’ll be talking with @kmcpartland of @TabbFORUM and @tonyscianna of @SGBrokerage at SunGard.

    Alyssa4AR: Follow the #derivchat conversation by using the hashtag. Thanks for joining, @kmcpartland & @tonyscianna. Ready to get started?

    Kmcpartland: Glad to be part of #derivchat, @Alyssa4AR. Looking forward to discussing OTC #derivatives today with you and @tonyscianna

    Tonyscianna: Likewise, @kmcpartland @Alyssa4AR. Let’s get started #derivchat

    Alyssa4AR: Let’s jump right in. @kmcpartland, you recently wrote: OTC Derivatives: Not What, But When. What makes “when?” such a big Q? #derivchat

    Kmcpartland: They will finish most of the rules on time, but the implementation times are up in the air. Q1 2012 we will start to see change. #derivchat

    Tonyscianna: I agree. In my opinion, the regulators will move forward faster then we expect and require some form of compliance by 2012. #derivchat

    Alyssa4AR: And there is a lot to accomplish btwn now & 2012. What are some of the key business challenges re: central clearing of OTC? #derivchat

    Tonyscianna: Firms need to be able to capture data, normalize it and access it in real-time or near real-time … #derivchat

    Tonyscianna: …to meet reqs such as intraday reporting. But a lot of info is locked in legacy systems & silos and batch processes #derivchat

    Kmcpartland: Then there is connectivity to CCPs, SEFs and the new data sources @tonyscianna mentioned.  #derivchat

    Alyssa4AR: With the “when” now on the horizon, what needs to be done in terms of technology? #derivchat

    Tonyscianna: Firms need to align tech w/new reg reqs, & be able to not only get info in real-time but cross-reference data from mult sources #derivchat

    Kmcpartland: Most of this falls on the brokers. PB platforms, execution platforms, the clearing infrastructure. All need major revamps… #derivchat

    Kmcpartland: …Buy side clients are depending on their brokers in this regard. #derivchat

    Alyssa4AR: From @CFTC O’Malia: So Many Regulations, So Little Time http://on.wsj.com/haMvcX. What does this mean for firms asking “when?” #derivchat

    Kmcpartland: O’Malia recognizes importance of these rules & doesn’t want to rush. Politics say they’ll hit deadlines for most things though. #derivchat

    Tonyscianna: Also means you need to build your enterprise data management solution NOW to be prepared. #derivchat

    Tonyscianna: Soon, no matter where you are or what regs apply to you, you’ll need to report every transaction & it can’t be a week later #derivchat

    Kmcpartland: And this is global. Europe isn’t as far behind as some think. The MiFID Review will require major changes as well #derivchat

    Alyssa4AR: Keeping with the theme of “when,” let’s fast forward to next year. What will we be talking about in 2012? #derivchat

    Tonyscianna: Don’t know what new challenges will come up, but believe we’ll be talking about same issues but w/ more clarity from regulators #derivchat

    Kmcpartland: Hopefully we’ll be talking about how liquid the vanilla swaps market has become, and which SEF has the liquidity! #derivchat

    Alyssa4AR: That closes #derivchat! Thanks to @kmcpartland and @tonyscianna and everyone who followed.

    deputy head of strategy, SunGard’s capital markets business

    WEBINAR: REGULATORY READINESS: THE DATA MANAGEMENT CHALLENGE

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    Author: Tony Scianna, executive vice president, SunGard

    When it comes to the Dodd-Frank Wall Street Reform and Consumer Protection Act, there continues to be a lot of discussion about new requirements and challenges, with an emphasis on data and risk management.  But even before Dodd-Frank was a household word, we had been discussing the need for a real-time, enterprise-wide data management infrastructure. Today the story is just more urgent.

    As everyone tries to understand the new data and reporting requirements under Dodd-Frank, I will be joining Anshuman Jaswal, senior analyst in the Securities and Investments Group at Celent, and Norman Brower, executive director at Morgan Stanley, in an interactive webinar with DerivSource titled Regulatory Readiness: The Data Management Challenge.

    During this webinar, we will discuss the requirements of the Dodd-Frank rules, including new data and reporting requirements, how operations and technology can help improve compliance with the new regulations, and how to prepare for regulations that will soon be introduced by other jurisdictions, including in Europe and Asia.

    It’s a big topic and undoubtedly one that will continue to be a top priority for financial firms throughout the year. Some of the specific questions we are going to cover include:

    • What are the implications of the new real-time reporting requirements?
    • What are the OCR and the OFR?
    • How can firms build a ‘future proof’ data management infrastructure that is capable of meeting current and future regulatory requirements across the globe?

    REGISTER HERE
    WEBINAR: Regulatory Readiness: The Data Management Challenge
    DATE: Wednesday, March 2, 2011
    TIME: 10:00 a.m. EST / 3:00 p.m. GMT

    I hope you will join Anshuman, Norman and me for this timely webinar. As part of registering for the webinar, you will also receive a copy of our latest whitepaper, Managing Risk and Exposure in the New Regulatory Environment. Please bring your questions and ideas to the webinar on Wednesday – I look forward to this important discussion.

    deputy head of strategy, SunGard’s capital markets business

    THE CAPITAL MARKETS CIO’S TOP GOALS

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    Author: Tony Scianna, executive vice president, SunGard

    As I read this Wall Street & Technology article on the final version of Dodd-Frank today, I realized that it speaks directly to the work that my team and I are doing to help our customers navigate this new regulatory environment. One part in particular jumped out at me so much that I wanted to share it here on the blog. Greg MacSweeney boils it down:

    And while the rules may change the cost of doing business for almost every financial services business unit in some way, the IT organization is going to bear the burden of a good portion of Dodd-Frank compliance…  As we examined recently, risk management, data management, business intelligence and knowledge management all will play large parts in helping firms meet Dodd-Frank’s requirements. For the capital markets CIO, even though the final rules aren’t written yet, the overall goal is clear: increasing transparency and improving reporting. To their credit, CIOs are wasting no time preparing. In fact, most are looking at Dodd-Frank as an opportunity to (finally) get data management under control.

    Increasing transparency. Improving reporting. Getting data management under control. These goals are at the heart of my day-to-day work, and you have seen me discussing them numerous times here on the blog. From the looks of it, we will continue to have a lot to talk about in these areas as the final rules are ironed out.

    I would be interested to hear your take on the article and what the biggest goals and challenges are coming out of Dodd-Frank.  Do you agree that the capital markets CIO’s top goals today are increasing transparency, improving reporting and streamlining data management?

    deputy head of strategy, SunGard’s capital markets business

    A BEST PRACTICE APPROACH TO DATA AND RISK MANAGEMENT

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    Author: Tony Scianna, executive vice president, SunGard

    In recent conversations about siloed data and risk management, I have heard the words, “mythical,” “cynical,” and “perils.” Not exactly a bright outlook on the topic. However, from what I have seen from our customers and the latest publication from the Senior Supervisors Group, skeptics may be changing their tune, because firms are taking steps in the right direction.

    The report, entitled, “Observations on Developments in Risk Appetite Frameworks and IT Infrastructure,” picks up where the 2009 version left off with “Risk Management Lessons from the Global Banking Crisis of 2008,” and the 2008 report before it: “Observations on Risk Management Practices during the Recent Market Turbulence.” The 2009 report discussed data and risk management practices, the perils of fragmented IT systems, and where firms need to improve post-crisis. The 2008 report focused on the effectiveness of risk management practices as the global financial crisis unfolded.

    A few specific statements in this latest report stood out to me:

    “While firms have devoted significant resources to infrastructure, very few can quickly aggregate risk data without a substantial amount of manual intervention.”

    “Some firms still require days or weeks to accurately and completely aggregate risk exposures; few firms can aggregate data within a single business day.”

    “Supervisors have observed that an inability to aggregate risk data in an accurate, timely, or comprehensive manner can undermine the overall value of internal risk reporting.”

    While we’ve heard about the challenges before, these statements do show that firms are taking action, and a few are even applying best practice approaches to data and risk management. We have seen this already with our customers, and expect to see a continued focus on taking data management to the next—and necessary—level. Regulators will not leave much room or time for the firms that “still require days or weeks” to aggregate and report their risk data.

    Our recent white paper, “Managing Risk and Exposure in the New Regulatory Environment” digs into these issues as well. The paper covers ways to solve data and risk challenges by taking an enterprise-wide approach.

    The conversations about data and risk management aren’t going anywhere soon. While firms are taking steps towards achieving a real-time view of firm-wide risk and exposure, there is still a need for improvement. I hope the SSG report and our white paper offer new perspective on this ongoing conversation. Please share your opinions and questions in the comments section.

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    DEFINING “THE BIGGEST CHALLENGE” – A VIDEO INTERVIEW WITH FIA

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    Author: Rich Hulit, former executive vice president, SunGard

    Last month, I attended the FIA Futures & Options Expo in Chicago. Not only did I sit on the Expo’s Tech Solutions for OTC Clearing panel (which you can now listen to on the FIA site), but I participated in a video interview series with the Futures Industry Association.

    Dodd-Frank with its many nascent requirements was, of course, the subject of many conversations at FIA Expo. One question that many people discussed was, “What is the biggest challenge?” From my perspective, the most pressing issue today is that the industry needs to be ready to comply with new regulations that are not fully developed yet. Right now it is about preparing to respond. As I say in the video, the “biggest challenge is understanding the challenges themselves.”

    When it comes to OTC derivatives in particular, we also talked about the push to increase transparency. As I say in the interview, regulators will require transparency into what’s being traded, how it’s being traded, how it’s being priced, how it’s being processed, exposures, and positions… Are you ready for this?

    Watch the video above and tell me your thoughts here in the comments section. How would you have answered the questions? What do you think is “the biggest challenge” as we head into 2011?

    Video recorded at FIA Futures & Options Expo 2010. Visit www.futuresindustry.org/expo for more information.