Q&A: Larry Thompson, DTCC
Markets Media recently connected with Larry Thompson, Vice Chairman of DTCC and the winner of the 2017 Markets Choice Award for Lifetime Achievement.
Please provide a brief career overview. What have been some highlights?
Over the past three decades, I’ve worked in a number of senior-level legal roles in the financial industry, and during that time I’ve had the opportunity to collaborate closely with my peers to help shape the marketplace and bring a greater focus to the importance of clearinghouses in mitigating risk. In my current role as Vice Chairman, I lead DTCC’s public policy engagement with regulators and lawmakers globally, in addition to serving as Chairman of the Deriv/SERV Board of Directors. I’ve been with DTCC since 1981 and while here, I’ve established several new functions, including the Office of Systemic Risk, Global Government Relations, Regulatory Relations and the Privacy Office, negotiated multiple settlements and litigation matters, and founded the DTCC Diversity Committee. We’ve been busy!
When considering my career highlights at DTCC, there have been many – too many to mention. But the one that I am most proud of is our response to the 9/11 attacks. As you know, the markets closed following the attacks and there was a backlog of three days’ worth of trades that still needed to be cleared and settled. If DTCC did not process those transactions, it would have created more confusion in the midst of the chaos. Plus, the markets would not have been able to reopen the following Monday. Everyone at DTCC came together and worked over the course of that week and weekend to provide stability and certainty to the marketplace. It is impossible to express the pride I still feel about the role we played during that horrific week.
Another memorable time was our response to the 2008 financial crisis, particularly in the hours and days after the collapse of Lehman Brothers. DTCC needed to wind down more than $500 billion in securities trades that remained on Lehman’s books. It was a herculean task, but we were able to close out Lehman’s open, unsettled trades without incurring any losses to the industry. We also mitigated systemic risk during a time of extreme volatility and brought certainty to a market that was in need of stability. I oversaw the negotiations with Lehman and the affected counterparties, and looking back on it now, it is humbling to have played a role in one of the most significant market events of the past century.
How have the markets changed over the years? What has stayed the same?
The markets have had many ups and downs over the years, but there are always defining events or inflection points. Events that come to mind are, of course, 9/11, the Lehman Brother’s collapse, the 2010 flash crash and the 2012 Knight Capital technology glitch. The industry overcame these crises, reinforcing the resilience of the global markets, and we learned important lessons about the need for greater transparency, risk mitigation, collaboration and standardization along the way.
Cyber security has also emerged as a critical priority. With many market participants continuing to rank cyber attack as the number one threat to the financial markets, much focus continues to be dedicated to protecting against and responding to threats. As attackers become more sophisticated, market participants must stay ahead via technology and process enhancements, leveraging best practices, collaboration and information sharing across firms.
What has stayed the same has been the centrality of systemically important financial market utilities such as DTCC’s National Securities Clearing Corporation (NSCC), The Depository Trust Company (DTC) and Fixed Income Clearing Corporation (FICC), which continue to underpin the U.S. financial system. As the market and our economy evolve, there must be pillars that can withstand changes and adapt to new developments, while providing a foundation where firms can look for guidance. We are very privileged to be considered one of those pillars.
How has DTCC changed over the years? How has it stayed the same?
Since day one, and for four decades since that time, DTCC has remained focused on delivering innovative solutions that mitigate risk, drive efficiencies and lower costs for the industry. This has not changed.
That said, in order to continually achieve these objectives, DTCC has evolved – as a firm and in the delivery of our solutions – to meet the changing demands of the industry and our clients as well as in response to market events. As I mentioned, we have a long history of innovation, which has been reinforced most recently with the work we’re doing to modernize our infrastructure by leveraging transformative technologies like distributed ledgers, cloud and automation. In fact, we are currently in the process of re-platforming our Trade Information Warehouse (TIW) on DLT. TIW is a solution that automates the record keeping, lifecycle events, and payment management for more than $11 trillion of cleared and bilateral credit derivatives. We are constantly evaluating new technologies to enhance our existing infrastructure and capabilities.
What are you working on at DTCC currently, as full-time Vice Chair?
As Vice Chairman, my role is to lead DTCC’s public policy engagement with key regulators and lawmakers around the world, as well as serve as a senior advisor to the firm.
Recently, I’ve been focused on leading DTCC’s effort to increase transparency in the global OTC derivatives market. Transparency is a mission very close to my heart as it is crucial to understanding, monitoring and mitigating risk that can build up across the financial system. Working in partnership with our colleagues across the industry and serving as a key liaison with global regulators, we hope we’ll continue to bring improvement to this area.
At the same time, DTCC was also a leader in advancing T+2 settlement in the US – a major change in the settlement cycle that will further mitigate risk for market participants.
You have called DTCC “the first fintech company.” What do you mean by that and how does DTCC fit in today’s fintech-oriented market?
I think fintech has had different meanings over time. What was considered fintech 10 years ago is different than how it is defined today. My view is that a fintech company evolves over time and is able to adapt as client needs, the environment and technologies change.
DTCC has been able to increase our value over time – driving continued reductions in risk and costs by automating critical processes in the trade lifecycle – because we have continually adapted, listened to our clients and the industry, and implemented solutions to solve industry needs. Our focus on adapting and driving innovation has never been more apparent than our choice to implement DLT for TIW. Everyone is talking about blockchain, but I’m proud to say that we have been among the first to evaluate it, test it and move to development leveraging the technology on a significant scale. At the same time, we’ve also embraced cloud technology to make our infrastructure even more cost effective and efficient. This is consistent with how we’ve leveraged technology to improve the safety and security of the marketplace for over 40 years.
What were your reflections on winning Markets Media’s Lifetime Achievement Award earlier this year?
I am so honored to have been selected for the award. It is humbling because I feel that I have so much more that I can and want to do! A lot of what I have been able to achieve is based on the opportunities that I’ve had at DTCC. I am very fortunate to be part of an organization that gives me the opportunity to lead change that improves how the markets operate.
What do you see as the future for financial markets, and for DTCC?
I believe we are on the cusp of great change, with distributed ledger technology, cloud and artificial intelligence capable of transforming organizations at the enterprise level. We’ve already seen how new technology has transformed the retail side of businesses.
At DTCC, we call these opportunities “generational” because their impact could live on for decades. Today’s infrastructure is efficient, battle-tested and safe but can be modernized to further improve processes and enhance transparency. DTCC views itself as a thought leader and central facilitator during this time of rapid technological change. As an industry-owned and governed organization, we are in a position to foster collaboration among the many different stakeholders and ensure that safety and security remain the overarching goals of any changes to the post-trade ecosystem.
What is in your professional and personal future?
There is so much more to do! At DTCC, I plan to continue working on efforts to increase market transparency, promote industry-wide collaboration on a variety of issues and represent the firm with policymakers globally.
Personally, giving back to the community has always been very important to me. I look forward to continuing to volunteer in my local area to make a difference where I live. I also take pride in my service as an Independent Director of the Federal Home Loan Bank of New York, where we help support first-time home buyer programs, affordable housing programs, disaster relief lending and much more.
Assessing whether Wall Street is doing enough to identify and manage technological risk.
White paper examines implications of fintech on markets.
DTCC sees an opportunity to improve the consistency of inter-firm data.
DTCC ensures a smooth and orderly back office for more than 100 million trades per day.