How do you categorize a year as volatile as 2012? For starters, it was finally a Year of Progress as the industry mulled the issues and moved forward. To make my case, I have picked the top FTF News story trends from the year that was. We have also listed the top stories based upon your hits to our website.

1.)    The U.S. Presidential Race and the Future of Dodd Frank

The U.S. presidential race took on a new significance as the victor would decide the fate of Dodd-Frank and other regulatory efforts, which although underway could still be halted by a new Republican administration.

While the candidates debated last year, many firms put compliance projects into a state of limbo as they waited for the next round of regulations generated by the Dodd-Frank, whose reach includes much of the securities trading process, including payment, clearing and settlement operations. Dodd Frank also caused an overhaul of the over-the-counter (OTC) swaps market, SEC registration for hedge funds and private equity firms, and the Volcker Rule. In particular, Dodd Frank put hedge funds and private equity firm on the radar of the regulators via Form PF and put them on notice that there may be new examinations to come once the PF data is collected.

GOP contender Mitt Romney said he would repeal many parts of Dodd Frank although he dodged specifics; President Obama indicated that Dodd-Frank would be moving ahead. Romney did decry the legislation’s inherent support for major institutions that are too big to fail and sounded like an Occupy Wall Street denizen, arguing that Obama gave “a big kiss to the New York banks.”

As we move ahead in 2013, Romney’s opposition to “too big to fail” (and maybe “too big to prosecute”) may signal a willingness on the part of the GOP to break up some of the big banks because they represent huge threats to the global financial system. There might even be some bipartisan support to break up the big boys.

With Obama’s re-election, it was clear that Dodd-Frank will move ahead even though about two-thirds of the regulations are still being processed. Regardless of how firms view this development, the limbo is over and firms have many decisions to make and systems to launch.

2.)    OTC Reforms Move Ahead

While compliance projects may have been on hold in 2012, there was a lot of forward movement for the execution and clearing of OTC derivative instruments. Firms were coming to grips with the IT infrastructure demands of OTC reform just as solution providers began delivering or developing offerings and services.

The IT infrastructure will have to accommodate the acronyms of OTC reform such as swap execution facilities (SEFs), swap data repositories (SDRs) and central counterparty clearing houses (CCPs), which went from abstractions to reality in the 2012. As products and services started to hit the market, it was clear that the full-steam-ahead approach will continue throughout 2013.

In fact, at a panel discussion at FTF’s 7th Annual OTC Derivatives Operations & Processing Conference this past November the speakers made clear that firms must get heir IT architectures in place now to stay on top of the OTC reforms to come in 2013. The panelists agreed that it was too late for most firms to build new systems from scratch. The “big ticket items” such as enterprise-wide accounting, reconciliation and new collateral management systems need a lot of lead time if they are to be created internally, according to the panel.

The panel also said some of the key points to keep in mind while building out an IT architecture are:

• The regulators are still formulating some key specifications and using a third-party provider can help in anticipating what the final versions will be;
• The OTC overhaul will impact front, middle and back-office operations so be prepared to let IT straddle the traditional demarcations;
• Use the latest best practices to guide the creation and deployment of an infrastructure;
• The buy side may not be able to rely on sell-side broker-dealers to supply the IT as they have in the past;
• And be rigorous when reviewing the capabilities of third-party suppliers and take control of the service level agreement (SLA) negotiations. Failing to do so could mean missing regulatory requirements and facing harsh and costly penalties.

3.)    Super-Storm Sandy Takes Its Toll

As we know, the near-hurricane Sandy hit New York, New Jersey and Connecticut hard and caused losses of life and multiple billions of dollars in damage. It also caused NYSE Euronext, the NASDAQ Stock Market, CME Group, the BATS Exchange and other leading transaction venues to add hurricanes to their list of potential disasters that they need to prepare for; banks and buy- and sell-side firms large and small have done the same.

Most observers praised the exchanges, banks and firms for how quickly they recovered from such a horrific event. There was even praise for President Obama and New Jersey Governor Chris Christie for the bipartisanship they showed in the days after Sandy hit.

Some even hoped that this cooperation and coordination could extend to Congress as it considers allocating funds to help our region recover. As CFTC commissioner Bart Chilton (a special speaker at an FTF event in 2012) pointed out in an FTF News story, natural disasters and terrorist attacks bring out the best in people and bring people together—if only temporarily. “That’s one of the silver linings for these very sad circumstances,” Chilton said.

But even the horrors of Sandy could not puncture the severe partisanship in Washington. The behind-the-scenes bickering caused a delay in Sandy relief funding that spurred Christie and other Republicans to speak out against their own party. To quote Chilton who commented before the Sandy funding fiasco: “Quite frankly, it’s a sad circumstance where we are today in how things are done in Washington. I certainly understand the frustration in the country with how Washington operates. I operate in Washington and I’m frustrated too.”

As if we needed more evidence of how dysfunctional Washington is, the Sturm und Drang of the so-called Fiscal Cliff crisis, which pushed Sandy relief funding aside, was a harbinger of more battles to come in 2013. These battles are having an increasingly negative impact upon the financial markets just when everyone is pushing for a stronger recovery.

4.)    The LEI Standard Comes Together

The push for a standardized Legal Entity Identifier (LEI) system moved quickly from conception to an endorsement by the G-20 group of nations, which by the end of 2012 accepted the Financial Stability Board’s LEI report and recommendations. Thus the FSB LEI Implementation Group (IG) has gotten the green light for advancing toward the launch the global LEI system by March 2013. There are many steps ahead as the IG will be working with many in the private sector experts via the Private Sector Preparatory Group (PSPG), which has members from 25 jurisdictions across the globe.

In addition, the DTCC and SWIFT launched a Web-based utility as part of their designated roles as interim service providers for the CFTC Interim Compliant Identifiers (CICIs) for legal entities that participate in over-the-counter (OTC) derivatives trading. The website www.ciciutility.org follows the CFTC’s plan to establish a CICI utility that issues identifiers to firms involved in OTC transactions. CICIs comply with a global standard for Legal Entity Identifiers (LEIs), known as ISO 17442. The temporary CICIs will become the real LEIs when the global system launches.

The LEI push was positive response to the Great Recession and its aftermath, which exposed the confusion and high risks for error caused by multiple ways of identifying a single entity.

5.)    Major Executive and Staff Shuffles at Citi, Swift and the SEC

Maybe it was the fatigue that must come from trying to recover from a major recession but there were some significant executive exits and layoffs in 2012.

• In May, the financial messaging and services cooperative SWIFT announced that Lázaro Campos would be stepping down by the end of June and would be replaced by Gottfried Leibbrandt, SWIFT’s head of marketing.

• In October, Vikram Pandit suddenly left his post as CEO for Citigroup. Disputes over strategy and management between Pandit and the Citi board paved the way for his departure. The board did acknowledge that Pandit had restructured and recapitalized Citi, strengthened its global franchise and re-focused the business. The Citi board then unanimously elected Michael Corbat to replace Pandit as CEO and serve as a director of the board. Corbat, who has held many executive posts, has been serving as Citigroup’s CEO of Europe, Middle East and Africa (EMEA).

• By early December, Citigroup grabbed headlines again when it announced that it would be laying off more than 11,000 people from its Operations and Technology, Institutional Clients Group (ICG), Global Consumer Banking (GCB), Citi Holdings and Corporate business units. This action spurred lots of speculation about the beginning of the end for the Citi Empire.

• After a tough but productive tenure as chairman of a revived SEC, Mary L. Schapiro left her post on Dec. 14. Elisse Walter, an SEC commissioner, was tapped to succeed her and Walter has stayed on as chairman past her desired departure by the end of 2012. A close associate of Schapiro, Walter is expected to continue Schapiro’s initiatives as the SEC looks for its next chairman.

What the People Say

Never mind what I just said, here is what you thought were the biggest stories of the year, according to the hits that we got to the FTF News website:

1. The Citi Layoffs (a Minding the Gap column)
2. A New IT Backbone for J.P. Morgan’s WSS, Part One
3. State Street and OTC Processing
4. SS&C Buys Portia
5. Are Obama and Christie a Model for Bipartisanship? (a Minding the Gap column)
6. Exit Interview with SWIFT’s Lázaro Campos (an FTF News exclusive)
7. Keeping Up with Brendan Farrell of XSP (the cover story for our Summer printed edition)
8. LEI at a Crossroads
9. OMS, PMS Vendors Chase Middle- and Back-Office Opportunities
10. The LEI Update
11. BNY Mellon Embraces a Corporate Actions Standar

Need a Reprint?

• Read More:
• Dodd-Frank,
• Hurricane Sandy,
• LEI,
• OTC reform