Focus On: Operations
Measuring Operational Risk: Part Science, Part Art | Licensing Ops Execs: Great Idea, Bad Execution? | Reducing Operational Errors With OTC Derivatives | A DAY IN THE BACK OFFICE:
Eliminating Operational Risk at a Transfer Agency | Giving a Single Name a Single Identity | TOP OPS EXEC: Timothy Doar, CME Clearing | TOP OPS EXEC: Mike Fish, SWIFT | TOP OPS EXEC: Patrick Kirby, DTCC | TOP OPS EXEC: John McCorvey, Gar Wood Securities | TOP OPS EXEC: Jeff Gooch, MarkitServ | TOP OPS EXEC: James Malgieri, BNY Mellon | TOP OPS EXEC: Hans Hufschmid, GlobeOp Financial Services | TOP OPS EXEC: Conrad Kozak, JPMorgan Chase
TOP OPS EXEC: Patrick Kirby, DTCC
May 4, 2011
NAME: Patrick Kirby
TITLE: General Manager, Asset Services
COMPANY: Depository Trust & Clearing Corp.
KEY FOCUS: Re-engineering corporate actions processing
As a vital organ of efficient U.S. capital markets, scrutinizing operations so they run as error-free as possible is an imperative for Depository Trust & Clearing Corp. The New York-headquartered firm’s asset-servicing unit is now reengineer- ing its corporate actions service, an initiative that – like its others – is designed to lower risk even further.
“Corporate actions are by far the riskiest piece of asset servicing,” said Patrick Kirby, its general manager of asset services.
Kirby notes that most investor losses related to corporate actions, which impact public companies’ securi- ties, come from missing the strict cutoffs or expiration dates on actions such as buyback offers, spinoffs or mergers. Corporate actions’ prospectuses for
actions such as tender offers tend to be very complex and must be addressed by several units at investment firms, leading to delays.
In fact, DTCC conducted a study with consultancy Oxera several years ago that concluded trading decisions based on incomplete or incorrect corporate action information may result in annual investor losses of more than $8 billion globally.
The risk-management framework of the DTCC’s asset servicing arm starts out with a Risk and Control Self Assess- ment (RCSA) that looks at each of the processes across the unit, identifying the risks and a plan to mitigate and eliminate them. Daily metrics including exceptions, volumes and exposures are also automati- cally pulled from the unit’s processing platforms and typically flow through spreadsheets for analysis. “We know what the daily averages are and we focus on spikes,” Kirby said.
Those metrics are compiled in monthly analyses of trends, costs, produc- tivity, profitability, and quality to show senior management and the DTCC’s board the business’s overall health and risks. They’re also run through the firm’s office of compliance and risk control and its audit unit, which examines specific business areas and develops action plans to improve them. In January, DTCC initiated a “self reporting audit process,” which gives front-line staff as well as management the ability to identify risks and have them addressed in an official action plan.
“It’s an example of us constantly looking at our processes to reduce risks by identifying and dealing with them sooner,” said Kirby, who started as head of DTCC’s asset servicing business in 2007.
He previously served as a top operations executive at firms including Citibank and ING. And, since this was written, he has moved from DTCC to
JPMorgan Chase. But the risk-management frame-
work set up at DTCC, for example, let its asset-servicing arm design a new principal and payments (P&I) process for the more than 3.6 million securities it services. This went live Feb. 7. Previ- ously, the DTCC allocated P&I even if payments had yet to be collected from the issuer, creating credit and opera- tional risk.
DTCC eliminated that risk because it now makes allocations only if payments are received before 3 p.m. and CUSIPs – the numbers used to identify securities – are correct. Late payments are credited the following day and in the meantime are invested in a money-market account overnight – in more than one account when a large balance exacerbates coun- terparty risk.