SIFMA Insights Notebook: SIFMA Ops, May 18, 2023

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

Technology: As the industry continued to think about technological advances, there were concerns that it would be disruptive. Now, the industry is regularly looking for ways to integrate new technologies into the operations business model, as they can offer many benefits: cloud to optimize the utilization of resources; AI to analyze and address reconciliations. Modernizing the operations business model can blend technology, processes, and people to make money, save money, and keep firms from losing money.?

UST Clearing: The SEC proposal on mandating clearing of Treasuries will have significant ramifications on the market. It will substantially increase the scope of what is cleared, both cash and repo. It will have risk management implications, in particular the creation of a customer segregation regime (which does not exist today). It will require an assessment of access models to FICC, the clearing house.

UST Clearing: In an industry survey, 95% of respondents indicated that they do not believe mandated clearing will increase liquidity in Treasury markets. In fact, 2/3 responded it could actually decrease liquidity, as increased costs drive out existing liquidity providers. As currently understood, market participants expect the proposal to increase costs – capital, margin, legal, etc. – across the system, potentially putting significant burdens on small and mid-sized firms.

More UST Clearing: The Treasury market is the base of the financial system. While it is important for the industry to look for ways to increase capacity, resiliency, and efficiencies in the market, it should be done analytically and cautiously, rather than a big bang. Panelists recommended looking at the existing market structure first, then assessing the impact and costs of any proposed changes before making them.

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