SIFMA Insights' Notebook: SIFMA Ops, May 17, 2023

SIFMA's 2023 Operations Conference & Exhibition continued today in Orlando. Here are just some of our notes from the day's sessions:

Debt Ceiling: While panelists are hoping for a resolution to the debt ceiling debate, they are also preparing for a potential disruption in Treasury payments. The focus is on understanding the potential scenarios for disruption in US Treasury security payments, including, if payments were delayed, how those scenarios would impact key infrastructure providers and internal firm processes, and how the industry would coordinate to mitigate operational disruption.

Electronification: The pace of electronification in fixed income markets continues to steadily march forward, as it can offer access to competitive prices, reduce errors, and simplify regulatory reporting requirements, among other benefits. The degree of electronification varies across asset classes, with a speaker estimating the following: UST 65%, U.S. credit 35%, interest rate swaps 30%, munis 10-15%, and emerging market bonds 10%.

Remote: The relief for remote branch inspections remains in place through the end of the year, and FINRA’s proposed three-year pilot awaits SEC approval. FINRA is searching for a balance between what firms want – flexibility – and regulatory objectives – effectiveness. FINRA indicated that it needed data-driven results to show effectiveness. For example, are firms finding the same issues remotely that they have onsite in the past?

Markets: With interest rates remaining at/near zero for such a long time, some valuations moved away from reality. Some equity capital markets businesses are down 90-95% from the COVID-driven boost to volumes/deals. Today’s IPO deal activity can be summarized as: no profit, no IPO; a little profit, do not miss earning guidance on your first call or your stock price drops by half; and strong revenue, IPO is a go. A speaker expressed optimism for deal recovery in 2H23 or 1Q24.

Readiness: A SIFMA T+1 transition readiness survey showed that most firms believe they are on track to meet the May 28, 2024 deadline. Survey respondents also feel their large counterparties and third-party vendors should be ready. Areas of focus continue to be on affirmation of trade date, the smaller testing window, and the shortened time to address fails (from nineteen to five hours). Panelists note that firms' readiness checklists go beyond just the technological aspects to include behavioral changes by all market participants.

As a reminder, results from our pre-conference survey are available here . We'll be back tomorrow with notes from the last day of programming!