The challenge for Michael Bodson, COO of DTCC, Laurence Sweet of the New York Federal Reserve and Werner Steinmueller, Deutsche Bank’s head of global transaction banking was to highlight the value of those mandatory changes and identify how they helped the user community – lower cost, less risk, more opportunity or perhaps, from a cynic’s perspective, lower margins, more risk aversion and a limit on one’s horizons!

 

The cost-benefit equation was examined. Werner Steinmueller noted that Deutsche’s spend on compliance with US regulatory and infrastructure developments alone was more than USD 100 million. In Europe T2S would cost the market, in his estimation, around two billion dollars. Simply extrapolating those figures implied an industry-wide spend of anything up to five billion dollars.

 

But DTCC’s Michael Bodson felt that this did not preclude a positive business case. His estimate of the annual cost of operations in the top 10 firms in the US was around USD 20 billion per annum; and collateral efficiency, processing standardisation and operational rationalisation could easily save 10% to20% of that sum. In other words, a USD 200 to 400 million annual saving for a potential US spend of around USD 2 billion. That would just about pass the business case test.

 

However there are barriers to the world of efficiency. The one that appears to most concern DTCC’s Michael Bodson is ensuring trust across regulators so that we can avoid, at least for global products, duplicative developments. With the mandates that they have been awarded in the repository space, it is not surprising that his focus was on those structures. But he saw evidence of national regulators supporting national solutions, extra territoriality claims by regulators acting as barriers to progress on global solutions and also clear danger from inconsistency of regulation.

 

Deutsche’s Steinmueller had justifiable concerns about the resilience of the planned new CCP structures. He questioned whether we were not seeking to solve one problem by creating a new systemic risk. And his big concerns centred around unlimited liability within a CCP and concentration risk in consolidated environments. Have no doubt that he, and the others, tended to see fragmentation of infrastructure as a bad thing, especially in the CCP field where multiple CCPs suck liquidity out of the system. And Europe got the prize (if that is the right word) for having the most fragmented environment and being one of the most costly regions to do business. One assumes that is even before the USD 2 billion of spend on T2S.

 

Larry Sweet of the New York Federal Reserve was clear that global regulation could work. He pointed out that SWIFT was a good example of an infrastructure with a college of regulators. And he also saw CLS as an example of how global infrastructures can be regulated efficiently and in the interests of the user community. CPSS IOSCO cooperation was cited. But, although everyone agreed that there was consistency at the level of the principles to be adopted, consistent implementation was a more difficult part of the development chain.
 

Much may have been made of collaboration in yesterday's debate but any newcomer to the market would worry that, although everyone agrees that risk must be reduced, they are far from clear about how to do it in the global marketplace. Everyone claims to be having a dialogue, but is everyone listening?

However, for those who thought Dodd-Frank (which now with its associated regulations would create a pile of Empire State Building proportions), EMIR and everything else would mark the boundaries of regulatory and infrastructure change, there can only be disappointment. The “plumbing” in the system may have proved to be sound in the crisis, but the road to creating ever sounder infrastructures appears to be never ending.
 

That is a horrible challenge for the market. It looks as if Tim Keeney and his peers are going to face a future where IT spend goes on mandatory change required by the authorities and creating internal efficiencies. That does not augur well for progress in the market.