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Bedrock foundation spurs market growth | DTCC’s Donahue on infrastructure needs

July 14, 2011

Today’s guest contributor is Donald F. Donahue, President and CEO, The Depository Trust & Clearing Corporation

Skyscraper under constructionDTCC, through its subsidiaries, provides critical infrastructure supporting the activities of the U.S. and global financial markets. For four decades, our mission has been to bring certainty and reliability to financial markets by managing risk, reducing costs and automating processing. In the funds industry, we’ve worked closely with market participants since introducing Fund/SERV® 25 years ago. That collaboration has contributed to the phenomenal growth and mainstreaming of this industry segment.

Today at DTCC, we are re-thinking and re-inventing our risk management approaches. Across the industry, risk has become a very different animal since the 2008 global financial crisis. The new environment is a product of the passage of Dodd-Frank in the U.S. and the regulatory push – both here and abroad – to write new rules and forge greater international coordination on risk standards.

As we review and strengthen our risk capabilities at DTCC, we are also reconsidering how we deliver services and how we work with our customers to help them deliver services. In the wealth management sector, we see huge opportunities to reshape the managed accounts and alternative investment spaces by leveraging the technology and know-how we have deployed in the mutual funds industry.

Today, most separately managed account processing lacks a central communications infrastructure and standardized practices. In a business that oversees more than $1 trillion in assets, these limitations pose significant operational barriers to growth, while keeping the cost and risk of account processing extraordinarily high. The trend toward unified managed accounts and model management programs offers a unique opportunity to address these challenges at the outset by implementing a single platform that centralizes and streamlines communication between investment managers, overlay portfolio managers and program sponsors.

The alternative investments marketplace faces similar challenges. Despite the fact that alternative investment vehicles are again emerging as a top investment strategy in the asset management landscape, market participants continue to wrestle with risk, cost and processing challenges, including a heavy reliance on email, faxes and cumbersome spreadsheets. Clearly, this market too would derive significant benefits from a single, automated platform that provides end-to-end processing.

In both these segments, the opportunity exists to raise the bar on risk management, reduce costs, gain scalability and increase overall efficiency by working with the infrastructure and building on the success of the mutual funds industry.

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