Central Counterparty Opportunities

ACSDA, November 2002

Keith C. Kanaga

DTCC

Some Trends Which May Influence CCPsSome Trends Which May Influence CCPs

•Increasing market growth •Straight Through Processing

(STP) needs•Technology investment•Increasing cross-border flows•Multiple listings by issuers•Internalization•Real-time trade guaranty•Product expansion, integration•Integration of CCPs, CSDs

•Increasing market growth •Straight Through Processing

(STP) needs•Technology investment•Increasing cross-border flows•Multiple listings by issuers•Internalization•Real-time trade guaranty•Product expansion, integration•Integration of CCPs, CSDs

FocusFocus

•Demand for STP

•Real-time trade guaranty

•Continuing technology investment

•Demand for STP

•Real-time trade guaranty

•Continuing technology investment

Demand for STPDemand for STP

•High labor cost

•Growth in business volumes

•Reduced settlement time periods

•Declining cost of IT hardware

•Error cost

•Operational risks

•High labor cost

•Growth in business volumes

•Reduced settlement time periods

•Declining cost of IT hardware

•Error cost

•Operational risks

Real-Time Trade GuarantyReal-Time Trade Guaranty

•Increased volume increased risk

•Volatility and market exposure

•Regulatory concerns re systemic risk

•Technology as an enabler

•Increased volume increased risk

•Volatility and market exposure

•Regulatory concerns re systemic risk

•Technology as an enabler

Continuing Investment in TechnologyContinuing Investment in Technology

•Technology enables new solutions, e.g. handhelds, real time trade matching (RTTM), real time risk management

•New product development

•Demand for integration of new with existing products

•Technology enables new solutions, e.g. handhelds, real time trade matching (RTTM), real time risk management

•New product development

•Demand for integration of new with existing products

Continuing Investment in Tech (cont’d)Continuing Investment in Tech (cont’d)

•Increasing volumes

•STP

•Rapid implementation requirements

•Competition from third parties

•Increasing volumes

•STP

•Rapid implementation requirements

•Competition from third parties

Some OpportunitiesSome Opportunities

•The good news – all these play directly to CCP strengths

•Limitations on achieving success – the cost, finite resources, and effort required to meet these requirements

•What can we do to improve our chances of success?

•The good news – all these play directly to CCP strengths

•Limitations on achieving success – the cost, finite resources, and effort required to meet these requirements

•What can we do to improve our chances of success?

Improving Our Chances of SuccessImproving Our Chances of Success

•Integration•Already done – CCPs, CSDs,

settlement systems, e.g. DTC, NSCC, others

•Alliances•To do – others within same

national boundaries, e.g. OCC

•To do – others across national boundaries; links are a good start

•Integration•Already done – CCPs, CSDs,

settlement systems, e.g. DTC, NSCC, others

•Alliances•To do – others within same

national boundaries, e.g. OCC

•To do – others across national boundaries; links are a good start

Improving our chances (cont’d)Improving our chances (cont’d)

•Systems development

• Jointly with other CCPs

• Jointly through third-party providers, such as OM

•Jointly operated systems – nationally, regionally

•Systems development

• Jointly with other CCPs

• Jointly through third-party providers, such as OM

•Jointly operated systems – nationally, regionally

Improving our chances (cont’d)Improving our chances (cont’d)

•Opportunities for jointly operated systems

•Applications Service Provider (ASP)

•Business Service Provider (BSP)

•Remote processing, or

•On-site processing

•Opportunities for jointly operated systems

•Applications Service Provider (ASP)

•Business Service Provider (BSP)

•Remote processing, or

•On-site processing

Benefits of Jointly Operated SystemsBenefits of Jointly Operated Systems

•Cost reduction

•Development

•Operation

•More rapid implementation

•Broader range of products supported

•Business continuity

•Cost reduction

•Development

•Operation

•More rapid implementation

•Broader range of products supported

•Business continuity

Benefits (cont’d)Benefits (cont’d)

•Brand name retained (private label)

•Low volume products can be supported cost effectively

•Brand name retained (private label)

•Low volume products can be supported cost effectively

DTCC’s PlansDTCC’s Plans

•Committed to work with other CCPs

• In U.S.

•Cross-border

•Both outsource and provide

•Partnering with other firms with proven expertise in financial processing

•Committed to work with other CCPs

• In U.S.

•Cross-border

•Both outsource and provide

•Partnering with other firms with proven expertise in financial processing

Central Counterparty Opportunities

ACSDA, November 2002

Keith C. Kanaga

DTCC