Interview with Brian Nadzan on IMN’s Dodd-Frank Title VII Conference
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Interview with TradingScreen’s Chief Development Officer Brian Nadzan discussing the issues raised in the technology panel at the IMN Conference: Derivatives Trading in the Era of Dodd-Frank’s Title VII conference. This covers:
- Winners and losers
- What’s at stake
- What’s keeping market participants up at night over Dodd-Frank Title VII
- Predictions about standards
Or read the transcript below:
Brian Nadzan, TradingScreen’s Chief Development Officer, was on a technology breakout at IMN’s Derivatives Trading in the Era of Dodd Frank’s Title VII conference on 9/6/2012.
What were the goals of the IMN Conference?
It was to talk about where technology was going in this space in the dodd-frank era, what trends may come forth, what terms technologies overhyped and under-hyped.
Are there any parallel from previous years like reg nms?
When you compare the two, it’s astounding the level of complexity between Reg NMS, which was about 100 pages, and Dodd-Frank, which is more than 800 pages.
What were the big questions on the panel and what you were hearing?
When you’re talking about… Dodd-Frank, there’s a couple of different topics. One is about making sure that, at a global multi-asset level, you are looking at risk and anticipating and shocking your system on a regular basis. They are trying to prevent another type of scenario whereby a client and/or an asset class are going to systemically bring down the markets. So that behooves the buy side and sell side (to look) across their client base and look for opportunities where someone is overexposed in a certain segment. That doesn’t necessarily mean swaps, but also equities and derivatives to currencies to bonds to swaps. On the flip side, it was talking about what the technology would be for the swap market which has been OTC and its move toward a central clearing and central execution transparent market.
How well are market participants prepared for OTC products like swaps moving to a centrally cleared model? How well is TradingScreen prepared for that?
(The) biggest challenge for buy side and sell side clients are getting a global multi-asset client view of all their holdings and be able to do risk. Our system has been built from the start as a multi-asset system. One product database, one order manager, one position service, one credit and compliance service, that’s multi-asset and global. We are one of the few vendors out there that can help our clients to aggregate all their data that they have in separate side load systems. We can take in their feeds in any format, roll that up with any of our services, and give them that I’m overexposed to a bank or I’m overexposed in a product or I’m overexposed in a currency. Or if I’m a bank I want to limit my client on how much they can trade on a specific sector of the market or look at how they are compared to margin requirements or how they are dealing with VAR or volatility. Shock holdings to see what would happen in scenario of meltdowns in previous years.
How well prepared is the buy side and the sell side, given the reductions that have taken place in the current, challenging business environment?
Think about what’s been going on in these firms for the last two or three years. To save money they’ve downsized. And here (regulators) are saying that (market participants) are down at this level on staffing but (we’re) going to throw all this stuff at you now in terms of proving regulatory compliance. That’s just more stuff to do – more reporting, more auditing, more analysis. How are you going to do that?
What were the predictions for what the new standards will look like, and will there be an industry wide change due to swaps?
It’s very hard to predict. We have to recognize that most of the players, exchanges and clearers, out there today already have a protocol. Just because they’re putting swaps into their systems for clearing and execution they’re not going to change their protocol from FIX to XML. Their current daily protocols are going to be enhanced to support these new markets.
What’s the cause for anxiety around the new regulations?
The overall concern is really due to the lack of finality.
Does the fact that Dodd-Frank is still a work in progress give the market participants any breathing room?
You have to be front and center on this aggressively right now even if the standards aren’t clearly defined. There are regulations you have to be abiding with before the end of the year. Participants have to be much more proactive in figuring out ‘what-ifs’ that can be handed down from the SEC. Have to understand how swaps trade and clear, how collateralization and margin pools work. Can’t wait for regulation to be fully understood and documented. Have to be with system and vendor that is agile to help you navigate every changing landscape.
So, betting on a particular standard is dangerous, then?
You can fool yourself and say a (particular standard) is going to be what everybody adopts… but that is a foolish thought. We’ve had fix in the listed space for ten plus years. But while that’s a standard it doesn’t mean that there are adhering to it in the same way. It’s just a way to talk about how you would integrate, but how brokers use tags change, asset by asset and order type by order type. You really need to be dynamic in how you take in and receive and transfer messages from one party to another.
Is it the end of days for the single broker platform?
The last 5 years scared the buy side because they were too dependent on any one bank or any one prime/clearing broker but they will not go back to dependency. Even if a bank strives to be a full service provider in the swap space, the buy side still has best execution obligations and workflows spreading around exposure to multiple banks will mean they can’t be dependent on a single platform or bank or broker.
Are these new regulatory standards going to create barriers for market participants?
No. What it will do is force a better adoption of cloud providers. For example a service that is great with collateralization, will allow participants to plug into the cloud space and integrate them into the workflow. Wall Street is becoming more comfortable with the idea of risk and reporting type services and other types of cloud providers. These new standards will just accelerate this process.
Where does TradingScreen provide a solution to the current regulatory challenges?
Because of our experience in the listed and cash markets… we are probably one of the only vendors that can comply and be a solution… as the OTC markets move into more of a centrally cleared exchange-like model. It’s what we do every day. We connect to multiple vendors, exchanges ats, dark pools, brokers. We have intelligence in our network to take the new set of identifiers both from an entity client level and from a security level and convert them… so we can distribute it to the downstream party. Because we use (Software-as-a-Service) technology, our changes are across the board hitting every one of our clients. It’s the fastest way to adhere to the regulatory changes that are coming down. Our ability to take risk factors and margins and other types of risk attributes and marry them with the trades and positions we’re already managing is something very few around the world can do. We’re already connecting to all the exchanges and clearing agencies out there from the listed markets.