Regulatory Changes Q&A

Regulatory Changes Q&A
What is the most critical issue impacting the financial industry?

The buzz concerns new financial regulations requiring where electronic trading is handled and the reporting of trade data. For example, the Dodd-Frank Wall Street Reform and Consumer Protection Act will require certain types of financial transactions to be centrally cleared, then the specifics of each transaction reported on the Internet, in both public and private repositories. Companies like Blotter are helping their clients anticipate changes to their workflow practices because of these new government mandates. We’ve discussed with our clients how our technology helps them comply to new legislation.

What tools are being used to address these new issues?

Technology is the best tool for responding to these conventions because when equally distributed, it trends toward transparency and open competition. But we’re also very guarded of a client’s proprietary models. We have to strike the acceptable balance using technology as the great equalizer. In this fashion, we welcome and commend the government’s work to enhance the safety and soundness of the markets, and not just because we’ve already integrated risk controls and open access for clients.

When did finance go into the cloud for the first time?

Arguably, when the Electronic Communication Network (ECN) model was implemented by NASDAQ in 1971. The underlying efficiency that has resulted as a result of this milestone changed our world forever, specifically the automation of pre- and post-trade management for back-office operations. The ECN model has resulted in open access for moms and pops to become active in trading asset classes previously reserved for dealers and banks only.

What new paradigm do you see emerging?

We are watching the government become involved in more types of trading activities, first derivatives and certain types of foreign exchange. At least that’s what Dodd-Frank aims to accomplish. But since politicians don’t practically solve problems, it’s left to the US Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) to enforce new standards, and the technologists must respond in turn. The shift occurs when the market responds with its participation. We are seeing that now.

What is the immediate change needed, and who has to make these changes?

Firstly, it’s up to the banks and dealers to ensure the changes are in place for the moms and pops, and I am including most institutional traders as well such as hedge funds, asset managers and corporate treasury desks. What these traders will adopt from their service providers may be transparent to them, because we’re talking about order lifecycle capture and timestamp reporting functionality. The technical burden is on the banks and exchanges to leverage feature sets for clients who will inevitably require their own unique regulatory solutions, too. So, companies like Blotter are accomplished technologists who have a methodology that allows software components to be integrated for anybody in the workflow chain.

What are some outside misconceptions of your industry and what are you doing to address them?

Popular opinion of US financial institutions hit an all-time low during the 2008 financial crisis, specifically because the average investor believed banks were taking dangerous risks to the detriment of their customer portfolios. Because of this popular sentiment, the financial realm has had to make a bigger effort to differentiate themselves as responsible enterprises with risk-aversion and transparency as core values.

How do you respond to those who are distrustful of the financial services industry?

I worked with State Street Bank & Trust and was amazed at the responsiveness of their Boston-based operation. Their white papers speak for themselves, for instance Jason Moore’s viewpoints on risk management, published on the State Street website, or any of our Vision Series thought leadership papers which clearly outline our researched approach to service. The common theme for these papers is responsiveness — here’s how we respond to public concern. Blotter takes a similar approach when writing white papers for clients, constantly rethinking and changing the scope of their policies.

How do you think clients should perceive Blotter?

We really are a different type of consultancy, in particular one that supports clients who need to show they are responding to increased demands for transparency and fairness in their operations. We hope that clients feel that we understand the current financial and technical issues in the industry and how it impacts their business. We see best practice as sustainable and responsible growth with transparency at its core. We have seen the projects and have the experience to share with our clients this knowledge we’ve gained. It’s important for everyone to know that.

1 Comment

  1. Taylor Cassidy

    You didn’t mention anything about the regulated exchanges and what your company is doing about the forced clearing?

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