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DTCC identifies key systematic threats that require close monitoring

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The Depository Trust & Clearing Corporation (DTCC), a post-trade market infrastructure for the global financial services industry, has published a new white paper highlighting key risks that deserve close attention as firms navigate a global financial industry that is increasingly intertwined.

The white paper, Interconnectedness Revisited, details a key set of significant recent developments that require heightened scrutiny among risk managers, including:
Greater cross-border financial exposures make countries that rely heavily on foreign capital more vulnerable to systemic shocks;

New fintech innovations like distributed ledger technology (DLT), and the growth of cryptocurrencies are becoming increasingly interconnected with other parts of the financial ecosystem;

The industry’s increased reliance on third-party vendors and the rise in the volume and sophistication of cyberattacks exacerbates operational risk challenges;

The growing importance of Non-Bank Financial Intermediation (NBFI) represents yet another channel of risk transmission.

The paper also notes that Financial Market Infrastructures (FMIs) face their own set of unique risk management challenges, especially given that they are interconnected with the financial ecosystem in various ways. To reduce these risks, DTCC has taken initiatives including:
Implementing agreements between DTCC’s clearing agencies and other FMIs to reduce the risk associated with a common member’s insolvency;

Establishing a cross-functional initiative to address risks related to interconnected entities;

Developing a comprehensive framework to identify, monitor and manage risks posed by links between clearing agencies, financial market utilities or trading venues.

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