DTCC Consulting Services has begun its first client engagement since the new advisory business was launched by the Depository Trust and Clearing Corporation (DTCC) a month ago.

“We have one engagement at the moment, and a couple of other potential opportunities that we expect to follow shortly,” says Chris Childs, managing director and head of repository and derivatives services at DTCC, and CEO and president of DTCC DerivSERV.

The consulting offshoot is the market infrastructure provider’s first foray into an advisory business. It will initially leverage the DTCC’s Repository and Derivatives Services unit, which falls under Childs’s remit, and its Institutional Trade Processing (ITP) businesses, which does not.

For this first client engagement, the consultancy is working on a control function for the client, a broker-dealer, to set standards and measure the accuracy of its regulatory reporting.

“We are working on a project looking at the trade information that is coming into the Global Trade Repository [the DTCC’s repository for derivatives and securities financing transactions] from a third party on behalf of our client and working on a reconcilement and control process for that client. This will enable a comparison of the information that is coming from the third party to the data that is in the trade repository—and therefore being provided to the regulators—as well as the data in their own books and records,” Childs says. “It allows firms to identify any issues with that data, and address them.”

Childs says he anticipates that this kind of engagement will be typical for the new business. “We expect to see further engagement in this area.”

DTCC Consulting Services was launched in early October, and the DTCC said at the time that it is intended to provide market participants with specialized consulting on clients’ post-trade business operations, including infrastructure diagnostics, providing insight on operational model design, and identifying benchmarks.

The firm hired Quorsus, a specialist consultancy, to support the launch, but Childs says he hopes that the consulting service will run independently in three to five years’ time, and grow to employ 30 to 50 people. Trade repositories are highly-regulated businesses, and the consulting service, while leveraging the experience of the trade repository, will be run separately from it, he adds.

Improving Post-Trade

The DTCC decided to open the advisory business after it became clear last year that clients were looking for help identifying where efficiencies could be realized in post-trade processes. Childs says financial market participants have spent the last eight years getting used to the slew of regulatory reporting regimes from governments around the world, and now are trying to move beyond doing mere change management to improving the quality of their reports and maybe even realizing some cost savings. This is where the DTCC thinks it can leverage its experience in its reporting businesses to help.

In 2012, for the first time market participants began to report swap data to the US Commodities Futures Trading Commission. This created new challenges for firms, and the amount of reporting has only increased over the last eight years.

“We went from zero over-the-counter reporting to reporting in pretty much all major jurisdictions, to ongoing changes made to the reporting rules over the years,” Childs says. “Our clients were starting to look at what efficiencies can now be gained in how they approach trade reporting, where do they get the data from, is it cost-effective and accurate. We noticed there was an increased focus on ensuring a best practice approach to reporting and compliance. We have accumulated significant experience in the field, and we felt these were both areas where we could help our clients.”

The DTCC also identified the ITP as a potential source of expertise for future engagements. The ITP suite is partly formed of what was once known as Omgeo, providing solutions for trade matching and settlement, including the storage of standing settlement instructions (SSIs). DTCC Consulting Services could leverage this knowledge base to analyze clients’ trade breaks, which are caused by discrepancies between the SSIs of trading parties. 

“On the ITP side, we might be engaged, for example, with looking at the amount of trade breaks a client has and trying to identify possible solutions, including potentially drawing on DTCC’s existing product suite,” Childs says. 

Breaks analysis is very detailed and confusing, and every firm wants to know how other firms have reduced breaks, or what controls they have implemented to make sure that analysis was being done. And gathering those best practices from outside, that is what everyone wants.

Vinod Jain, Aite Group

He adds that more regulatory change is coming, as existing regulations are reviewed, and new standards are introduced. The Securities Financing Transactions Regulation (SFTR), for example, requires that counterparties should submit their regulatory reports in accordance with the ISO 20022 methodology. This is the first regulation to stipulate a standard message format for counterparties’ “inbound” messages to the trade repositories, and hitherto, it has been up to each trade repository to define a standard, Childs says. 

The DTCC launched its Report Hub solution this year to help clients with translating their own internal data to the ISO 20022 schemas provided by the regulators.

“We think that as rules change around the world, technology like our Report Hub will be in demand to help clients with the format of inbound submissions, as well as trade enrichment, pre-validation, checking the edit-ability of trades, and reconciliations after reporting,” Childs says.

Vinod Jain, a senior analyst at Aite Group, commenting on the DTCC’s move into consulting, agrees that after a decade of getting to grips with regulatory reporting under the various global regimes, reporting entities want to conduct independent evaluations.

“The obvious questions that come up are, ‘Are we over-reporting or under-reporting, or are we incorrectly reporting?’ Each firm has developed some insight—a control measure to ensure correct data is reported to regulators.” And they want independent assurance as to whether those measures are working, and some idea of how other firms are handling it, which is where the DTCC could provide value, Jain says.

There is also a greater demand to bring efficiency in post-trade processing including exceptions and breaks management, he adds.

“The DTCC is building up its portfolio of offerings under ITP business to offer firms an end-to-end straight-through-processing solution for their trading activity. Breaks analysis and remediation is very detailed, time-consuming and can be confusing, so every firm wants to know best practices on how other firms have reduced breaks, or what controls they have implemented to make sure that analysis was being done. And gathering those best practices from outside, that is what everyone wants,” he says.

The DTCC, as a market infrastructure and utility, has always had to make decisions based on a consensus among its users, and these are services its users need, Jain says. “These new [DTCC] businesses want to go as fast as the market demands and for what it needs. That is why we see these new Projects Ion and Project Whitney”—projects to digitalize assets with distributed ledger technology for settlement and to support private market securities, respectively.

“They realize that it’s all about the technology and how fast can you bring knowledge and technology to the institution,” Jain says.