OCC’s Technology Transformation: Why it’s creating a more robust infrastructure
This Thought Leadership article is part of the 2022 Autumn Magazine, which can be accessed here.
What do you think are the main current trends and challenges for clearing and settlement? Can you provide some color to these based on some client feedback you’re getting?
The biggest challenge over the last couple of years continued to be the significant volatility in the markets. That being said, we managed to navigate this unprecedented volume and volatility smoothly and were even able to make process enhancements designed to mitigate risks. This includes enhancements to our initial margin modelling and to our stress testing methodology. We not only made significant inroads on those fronts while maintaining our systems’ resilience in the face of uncertainty, but also continued working on our Renaissance Initiative, which focuses on modernizing our technology infrastructure and replacing our legacy systems.
One major trend that is permeating the clearing and settlement space has been the move to cloud-based technology. It’s been transformational for the financial services sector as many firms continue to adopt cloud-based services to enhance business agility and operational efficiency as well as to monitor and manage risk. Those features are also very important to us as a clearing house and as part of our transformation efforts.
We have also been working closely with the SEC on our Advance Notice filing in connection with our proposed adoption of Cloud Infrastructure. We believe our proposal meets the needs of our members and market participants by providing OCC with improved resiliency, further enhanced security and increased scalability.
What type of innovation and enhancements do OCC’s members and market participants tend to ask for? How have these evolved over time?
One of the things that market participants are very interested in is their ability to monitor their positions, risk, and exposure while managing the status of their trades and transactions in near real-time. While they can do this today, the user experience can be somewhat fragmented. For instance, users today have multiple screens or run multiple reports to get the information they need.
Based on feedback we’ve received, enhancements that market participants would like to see include more consolidated reporting and easier access to this information. We’re also working on giving a more self-service style of reporting in addition to easier access to more of their historical data.
This is where our future comprehensive platform, Ovation, comes in. By providing real-time data, in the future our members and market participants will have access to a more user-friendly interface for viewing intraday transactions and can further optimize their risk management capabilities using this data. In addition, asset managers and other market participants prefer tools like application programming interfaces (APIs) to get data securely and on-demand. In the future, our users should find it easier to integrate with our systems and access information more efficiently. Initially we will offer two APIs and will gradually increase the universe of information that is available via API.
Ultimately, by tapping into real-time processing, we will be able to achieve greater transparency and operational efficiency for the settlement cycle.
How will OCC’s future clearing platform, Ovation, answer some of the marketplace’s demands?
Our ENCORE clearing system has served the marketplace well for more than 20 years, but it was originally designed to operate in traditional on-premises data centers. With our broad spectrum of members and market participants, we need to ensure our systems are supportive of their needs, which is why we believe that utilizing an event-based, service-oriented architecture, such as the cloud, will enhance our operational efficiencies and resiliency.
While our future platform will operate much as it does today, processing financial transactions and managing exposures to a diverse set of risks; standardizing data and technology enhancements will further drive operational excellence internally and externally. Plus, by enabling more modular architecture, OCC will be able to address the demand for more flexibility in processing and accommodating new industry offerings. This will provide our members and market participants with high-velocity clearing, settlement and risk management capabilities while also preserving OCC’s secure, efficient and reliable operations.
Within the future platform, members and market participants will notice these multiple operational efficiencies through significant process reengineering and the automation that we have discussed today. Most importantly, the future platform is designed for greater resiliency to maintain the integrity of the financial markets and to ensure the availability of high-quality operations.
What is your perspective on the main challenges ahead for OCC?
From our perspective, one of the big challenges going forward will be ensuring our members’ and market participants’ preparedness for launch. We have over 100 clearing members, as well as 19 exchanges and trading platforms.
Testing will be essential so that they can feel comfortable with the future system when we can make this switch. Since it will have a huge impact on their daily operations, it’s going to be really important that we can go through all the stages of testing and training with them to ensure that they are well prepared for this shift to ensure that it goes smoothly for everyone involved.
Testing and training will also allow us to get some feedback from clients to determine what’s working well and what isn’t, so we won’t get too far down the road without incorporating their feedback. I am encouraged that we have had some initial very positive feedback from our limited demonstrations to date.
We’re now moving into a phase where we will continue to provide more frequent demonstrations to our members and market participants as new aspects of our platform are developed, especially ahead of our planned industry-wide testing and training effort. This is why we look forward to rolling out specifications and beginning testing on our future system in the near future.
The Renaissance Initiative
The Renaissance Initiative is a multi-year effort to comprehensively redevelop and modernize OCC’s technology infrastructure, including its clearing, risk management and data management systems. When complete, it will streamline OCC’s operational framework, enhance its risk tools and establish a more robust data management system to better serve market participants. OCC also intends to expand its use of cloud technology to support its future platform implementation, subject to regulatory approval.
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