dodd-frank real time reporting

WebSphere Powers Smarter Banking

Dodd Frank Real Time ReportingA.J. Aronoff - Connectivity Practice Director, Prolifics

Mike McChesney - Websphere Business Agility Tiger Team

© 2013 IBM Corporation


Business Agility in Banking

Dodd Frank Real Time Reporting

Building a Smarter Planet: Banking & Financial Markets

Mike McChesneyWebsphere Business Agility Tiger Team

© 2013 IBM Corporation 3WebSphere Powers Smarter Banking

Business Agility for Smarter Banking

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Real Time Reporting Update1

2 Case Studies

Agenda



Top of mind risk and compliance business issues

•Reducing risk exposure

•Ensuring regulatory compliance

•Reducing control testing and internal audit burden

•Reporting on risk exposure against business objectives and IT KRIs

•Preparing for internal and external audits and RCSAs

•Business continuity risk

•Vendor Risk

CIO/CISOCRO

•Aligning risk exposure with business objectives

•Risk management across market, credit, operational domains

•Ensuring adequate regulatory and economic capital and liquidity

•Quantifying risk exposure

•Avoiding unexpected loss

•Establishing risk appetite•Risk Culture and Policy

Communication

CCO

•Ensuring regulatory compliance

•Managing through regulatory change

•Managing regulatory exams, audits and requests (e.g. FFIEC)

•Reducing cost for policy and control management

•Adherence to policy and procedures

CFO

•Risk adjusted forecasting

and risk-based resourceallocation

•Better financial risk management (e.g. market, credit, liquidity, stress testing)

•Regulatory requirements

•Financial reporting (e.g. SOX, IFRS, FSA)

•Fulfilling compliance obligations (e.g. BSA/AML, SEC, FINRA, Dodd-Frank)

What’s keeping executives up at night?



Challenges In Planning for ComplianceWhat’s Keeping Your Peers Up at Night?

Macro-Prudential Risk Regulations such as DFA are Enormously Disruptive

– Impacting capital allocation & business / operating model– Inherently rolling nature from Act to statutory code

Even where firms have PMOs to demonstrate attainment and maintenance of compliance, they wrestle with

– Collective decision making and consensus building amongst the stakeholders

– Decisions are point in time and recursive

Firms are struggling with truly understanding the economic and financial impact AND are having challenges making it actionable

– McKinsey Day of Reckoning? ROE Capital markets businesses from 20% to 7%

Impact on the business and the operating model – Given the breadth of the enacting legislation, the related

management and reporting burdens and costs are significant. – Demands on budgets are doubling, yet maintenance budgets are

being slashed.– As compliance is pure cost, are there revenue-offset

opportunities?

New regulations require a new model to achieving compliance.



Investment

Followers

Achieve “Basic Dodd-Frank Compliance”

Innovators

Achieve “Strategic Value”

• Deploy minimal work-arounds and changes to comply with government mandates at the lowest possible cost

• Identify and maximize opportunities to increase business value by using Dodd-Frank mandate as an opportunity to invest in innovation for cost savings and growth

Business value

Required investment for

mandate

Government compliance & cost savings

InvestmentBusiness

value

Required investment for

mandate

Government compliance & cost savings

Strategic investment for business value

Strategic business

value Helps unlock the strategic business

value

Innovative firms can drive significant strategic benefits by capitalizing on the magnitude of the required investment



Dodd Frank Uncertainty Continues

Source: Davis Polk Regulatory Tracker



From Davis Polk Regulatory Tracker

SEC Rulemaking for Real Time Reporting Not Finalized

Source: Davis Polk Regulatory Tracker



Dodd-Frank Act is 848 pages with 398 rulemaking requirements. Two 85 page rules for real time reporting from CFTC and SEC with hundreds of

comments from a wide array of interested parties. Phase in with 6 categories of time delay based on asset class, counterparty or

swap type. Time delay rule covers 7 pages. 5 pages of rules on data definitions. Different thresholds and time delays required by CFTC and SEC. Need to track reportable events against time based or event based criteria. Real time reporting including time stamping to the second using UTC (vs.

Greenwich mean) coordinated universal time. What’s next?

Complex Compliance Challenges

Trading transactions

Lending transactions

Operational

Client activity

Real timeIntegrated data

Limits

History

Credit lines

Routing

Controls

Liquidity

Credit lines

Pricing

Products

Market data

Portfolio

Location

Industry

Rules

Patterns

Market

Liquidity

Credit

All FSI typesAll locations

All asset classesAll instruments

External transactions

Payments transactions

Low data latency



Other Challenges (Complex Rules)

Additional (50-100) data elements to be reported to the SEC. Oral or phone trades systematized based on time on phone when “material terms” agreed to. Pricing reporting challenges based on pricing definition-spread/basis points/discount or premium. Reporting “as soon as technologically practicable.” If a data field for a particular swap is a relevant term of the publicly reportable swap transaction,

the reporting party must provide sufficient information to publicly disseminate transaction and pricing data.

The Commission understands, further, that the SBS market is almost entirely institutional, and large institutions have in place the systems and processes necessary to support trading and risk management of complex structured products. In many cases, trade details will already be systematized and little or no manual intervention would be necessary to aggregate or send the transaction data. In such cases, where it is technologically practicable for a reporting party to report the SBS transaction information required by proposed Rule 901(c) in one second, then it would be required to report the SBS transaction to a registered SDR in one second.

Would require the reporting party to electronically transmit the information required to be reported… in a format as required by the registered SDR. In addition, …would require a registered SDR to have policies and procedures that specify the data format (which must be an open-source structured data format that is widely used by participants), connectivity requirements, and other protocols for submitting information.



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Real Time Reporting Update1

2 Case Studies

Agenda



Depository Trust and Clearing Corporation (DTCC)Keeping up with growth while keeping markets on firm ground

Business challenge:The dominant provider of investment processing services in the U.S., DTCC sought to parlay its record of service innovation and cost leadership by expanding globally. To meet the additional processing demands and new service development requirements of these new markets, DTCC needed scalability, reliability and flexibility in its processing platform.

Solution:DTCC teamed with IBM to re-architect its core processing infrastructure to enable it to push its already world-leading transaction capabilities even further to accommodate DTCC’s global growth vision. By re-architecting its systems and doubling its unmatched processing capabilities, DTCC has been able to enter new global markets while developing new services. IBM’s assistance in moving the company toward SOA is a key part of DTCC’s drive toward increased flexibility.

Benefits: 77% increase in overall transaction processing capacity, enabling TCC to handle

3x the highest volume ever recorded 100% rate of reliability, with $1.5 quadrillion in trades settled annually 25% reduction in cost per transaction, giving DTCC the lowest cost per

transaction in the world Rebates of excess transaction fees of more than $580 million

Solution components: IBM Global Business Services IBM WebSphere® Application Server IBM WebSphere MQ IBM DB2® IBM Tivoli® Composite Application

Manager IBM System z

“Our ability to expand capacity demonstrates our commitment to prepare for unprecedented growth and other risk factors affecting the global marketplace. IBM's technology and vision have been essential to our success in doing this.”

— William B. Aimetti,President and CEO, DTCC



An international financial firmEmploys real-time monitoring and pattern recognition to identify suspicious behavior

The need:With many unique business units, each employing independent processes and standards, this international financial firm was plagued by inefficiencies. In particular, the organization could not effectively coordinate its anti–money laundering and anti–terrorist financing efforts enterprise wide. Some business units lacked any viable plans at all. To comply with international regulations and standards, the organization needed to establish a common strategy.

The solution:Working closely with IBM Business Partner, the company implemented a unified monitoring solution that tracks global financial transactions in real time, automatically detecting suspicious behavior. The solution, leveraging IBM WebSphere® software and hosted on IBM System z® hardware, compares incoming transactions against regularly updated sanctions and watch lists. It also evaluates transactions for operational (e.g., credit) risks.

What makes it smarter: Monitors the transaction stream in real time, improving the efficiency and quality of anti–money laundering and

anti–terrorist financing efforts Standardizes and automates the identification of suspicious activity with deterministic detection and artificial

intelligence techniques Improves monitoring without compromising throughput, enabling the firm to screen over one million transactions per day,

with less than 0.5 percent false alerts

Solution components: IBM WebSphere® Application

Server IBM WebSphere MQ IBM System z9®

Enterprise Class IBM System z10™

Enterprise Class



Top 5 North American Bank Increases cross-selling results through deep customer insight and automated decisioningDramatic increase in offer acceptance leads to $14M new revenue in 2.5 monthsThe need:One of the largest financial services providers in the world recognized it was losing revenue opportunities within its customer base, as it was unable to present the right offer at the right time to customers.

Offers were sometimes proposed for which customers could not qualify, damaging customer satisfaction. Decision logic was scattered and inconsistent across channels, creating a lack of enterprise control.

The solution:Using components from the IBM Banking Industry Framework for customer care and insight, the bank revamped its decision support systems to use customer profile data and compliance policies to generate pre-approved offer recommendations of high interest to customers in real time. The system calculates risk, distribution amount, eligibility and limits with consistency across channels and speeds application upon offer acceptance.

What makes it smarter: Employees are equipped to make intelligent product recommendations in real time. Result: $14 million in

new business in 2.5 months. Customer experience is enhanced with pre-approved offers that better match needs. Result: Offer acceptance increased

from 3% to 20%-30%. Share of wallet is increased with improved risk management, and speed to market for new offers / products is increased

improving competitive results.

Solution components: IBM WebSphere® Operational

Decision Manager IBM WebSphere Application

Server IBM WebSphere MQ IBM DB2®



We Can Help

From the CFTC rule:

“As soon as technologically practicable” means as soon as possible, taking into consideration the prevalence, implementation and use of technology by comparable market participants.”

The prevalence, implementation and use of technology by comparable market participants can be delivered using an appropriate software stack from IBM.

Real time-low latency High availability Complex rule and event processing across lines of business and platforms

Trading transactions

Lending transactions

Operational

Client activity

Real timeIntegrated data

Limits

History

Credit lines

Routing

Controls

Liquidity

Credit lines

Pricing

Products

Market data

Portfolio

Location

Industry

Rules

Patterns

Market

Liquidity

Credit

All FSI typesAll locations

All asset classe sAll instruments

External transactions

Payments transactions

Low data latency



Thank you


Dodd Frank Real Time ReportingA.J. Aronoff - Connectivity Practice Director, Prolifics

Mike McChesney - Websphere Business Agility Tiger Team

Agenda

1. Risk And Compliance Issues

2. Keep Me in the Green

3. SPOF: Single Point of Failure

4. MQ Monitoring (Find problems & solutions)

5. MQ High Availability (no stranded messages)

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Accomplished IBM Software PartnerAWARDS: 2013 IBM Beacon Award Outstanding Technical

Vitality 2013 IBM Collaboration Solutions Distinguished

Business Achievement 2012 Outstanding Business Agility Solution Award 2012 IBM Smart SOA Impact Award Winner 2012 Global WebSphere Community Customer

Recognition Award Winner 2012 ICS Award for Best Industry Oriented Social

Business Solution 2012 IBM Awarding Client Excellence (ACE)

Award Winner 2010 Impact Best BPM Solution Award 2010 Lotus Best End-User Solution Award 2010 Lotus Best Industry Solution Award 2009 Rational Solution Award 2008 Outstanding SOA Solution Award 2008 Overall Technical Excellence Award 2007 Overall Technical Excellence Award 2007 Impact SOA Process Solution Award 2006 Best Portal Solution Lotus Award 2005 5-Star Partner Award

SKILLS and RESOURCES: Serviced over 1500 IBM software accounts in the past 8 years;

implemented over 300 portals

Conducted migrations to WebSphere from other technologies for over 140 clients encompassing more than 2,000 applications

Prolifics boasts over 400 J2EE, WebSphere, ICS, Security, Business Analytics, ECM, Tivoli, Rational certifications for architecture, development, administration, and project management

IBM’s highest technical rating (Level 5)

Highly Accredited - IBM Tivoli “AAA Accredited;” IBM Cloud Certified; Accredited with Ready for Rational; IBM Authorizations for Security, Insurance, Finance, Healthcare & Life Sciences, Banking, Energy & Utilities, Social Business and Enterprise Content Management.

15 Technical Staff are "IBM Champions"

Prolifics has worked with internal development teams multiple times for the development of IBM technologies.

Strategic relationship gains internal access to IBM’s resources, labs, and product development teams

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Prolifics CustomersF i n a n c i a l S e r v i c e s

H e a l t h c a r e G o v e r n m e n t

E d u c a t i o n

R e t a i l & D i s t r i b u t i o n U t i l i t i e s

I n s u r a n c e

http://www.schwab.com/public/schwab/home/index.html?cmsid=P-979213&pg=P-1023548&lvl1=home&

http://www.aig.com/Home-Page_20_17084.html



The almost universal message from anyone dealing with compliance

Keep me in the Green

Everyone from Einstein to Erasmus has said that “prevention is better than cure”

Einstein’s quote:

Brilliant people solve problems

Geniuses prevent them

The goal of this presentation is avoiding problems

And finding a bit of a safe harbor

“Keep me in the Green”

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Dodd Frank Reporting Requirements The Dodd-Frank Act requires that swap transaction and pricing data be

reported “as soon as technologically practicable.” What does that mean under the proposed rules?

“As soon as technologically practicable” means as soon as possible, taking into consideration the prevalence, implementation and use of technology by comparable market participants. http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/rtpr_qa.pdf

MQ for guaranteed delivery of messages and High Availability to handle failures is the prevalent implementation and use of technology by comparable market participants.

Note: MQ H.A. is available via a special part number.

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http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/rtpr_qa.pdf



SPOF: Single Point of Failure SPOF (Single Point of Failure) is a 4 letter word. That is one of the

many many words heard after hurricane Sandy

Every time there is a major outage, there are many lessons learned. One company had a clause guaranteeing next day delivery of fuel under any emergency. Sadly, (nor surprise) delivery proved to be impossible during an emergency. (The employees save the day. Preparation reduces anxiety.)

SPOFs have included: redundant firewalls that didn’t failover, air conditioners that melted & every other unimaginable occurrence

For compliance, using multi instance or highly available queue managers covers the clause for the prevalent implementation and use of technology by comparable market participants

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WebSphere MQ & Message Broker Monitoring

Decrease Downtime w/ WebSphere MQ & WebSphere Message Broker

Identifies common problems and automates corrective actions

Auto-discovery and immediate monitoring of complex environments

Drill-down to locate problem, identify root cause and resolve bottlenecks or outages

Proactively Prevent Problems

Correctly configure and deployyour WebSphere MQ infrastructure

Detect and repair problems as theyhappen, or alert you to an imminentconcern

Provides key MQ and MessageBroker metrics for real-time andhistorical data analysis

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WebSphere MQ Performance and Availability Monitoring

Workspace chart shows threshold violation values both initial & current

Workspace chart shows threshold violation values both initial & current

‘Take Action’ allows for manual or automated problem resolution

‘Take Action’ allows for manual or automated problem resolution

‘Expert Advice’ gives help for resolving out-of-box situations

‘Expert Advice’ gives help for resolving out-of-box situations

Monitor WebSphere MQ health and status Monitor channel status and performance Monitor queue status and performance Queue Sharing Group status

Monitor availability of all Queue Managers

Monitor queue/channel thresholds Automatically repair error conditions

Navigator showing WMQ monitoring agent

Navigator showing WMQ monitoring agent

Clicking on links takes you to the problem areaClicking on links takes you to the problem area

MQ High Availability: Multi-instance Queue Managers

Owns the queue manager data

MQClient

Machine A Machine B

QM1

QM1Active

instance

QM1Standbyinstance

can fail-over

MQClient

network

192.168.0.2192.168.0.1

networked storage

1. Normal Execution

Multi-instance Queue Managers

MQClient

Machine A Machine B

QM1

QM1Active

instance

QM1Standbyinstance

locks freed

MQClient

network

192.168.0.1

networked storage

2. Disaster Strikes

Connections broken from clients

192.168.0.2


MQClient

Machine B

QM1

MQClient

network

networked storage


QM1Active

instance

3. Standby Comes to Life Connections

still broken

192.168.0.2


MQClient

Machine B

QM1

QM1Active

instance

MQClient

network

networked storage


4. Recovery Complete Clients reconnected.

Processing continues.

192.168.0.2

Next Steps Prolifics is offering free Dodd Frank discovery calls that take into consideration the prevalence, implementation and use of technology by comparable market participants

IBM and Prolifics are offering MQ High Availability Licenses at large costs savings. Combination offerings (including installation and configuration) are available as well

MQ Advanced Developer licenses makes it easy to keep up with the latest advances in MQ (including security and Managed File Transfer).

IBM offers tools to monitor your systems and support pacs for recording transactions. Demos, discussion, software and service combos are all available.

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Contact – A.J. AronoffConnectivity Practice DirectorEmail - [email protected]

dodd-frank real time reporting

Documents

smarter banking agenda

smarter bankingchallenges

smarter planet

smarter banking sec

time delays

universal time

real time reporting

thestrategic business