Michael Bodson is the chief operating officer, as well as the president and COO of the three Depository Trust & Clearing Corp. (DTCC) operating subsidiaries: The Depository Trust Company, National Securities Clearing Corporation and Fixed Income Clearing Corporation. On Apr. 23, it was announced that Bodson would succeed the retiring Donald F. Donahue as CEO of DTCC, effective July 1, 2012. Bodson will also become CEO of the three operating subsidiaries. Bodson talked this week with Douglas Ashburn, editor-at-large of John Lothian News and lead project manager for MarketsReformWiki and JLN managing editor Christine Nielsen.
Q: The business and regulatory climate has changed considerably in the few years you have been with DTCC. Could you talk about what has happened?
A: The re-regulation of the industry has had far-reaching impact and plays to the strengths of the asset the industry has created in DTCC. It really leverages our capabilities in terms of processing, risk management, in data, and our network globally. The most obvious example is the global trade repository for swaps, which built on the warehouse we had done for credit default swaps. That acted as a backbone for the mandate to create the GTR system globally.
As the regulations continue to be rolled out and as the industry continues to analyze the impact, there will be more opportunities to leverage what we have in place. We are working closely with the industry in terms of understanding where we can add value and leverage the investments we have made. Lastly, being a central counterparty and risk manager, the appreciation for – not only ourselves, but all the CCPs in the world – how we help mitigate risk and how we bring stability to the financial market has gone up in appreciation tremendously. That also puts pressure on us in terms of how regulators and market participants will expect us to perform at a high level. That is the most important thing we do. Failure of a CCP would really cause a ripple effect in the entire financial infrastructure. They have raised the bar on our performance, and we have to act accordingly, and that is a challenge we are up to meeting.
Q: And that challenge will be your main focus going forward with DTCC?
A: In anything we do, we can’t lose sight of what we handle on a day-to-day basis. We handle 100 million transactions. If we go down, the markets don’t function, and we understand that is a major obligation and responsibility. So, we can’t fall in love with any new opportunity and lose sight that what we do on a day-to-day basis is critical to the functioning of the world’s largest market.
Q: How has your background prepared you for this role?
A: In my previous life, I was with Morgan Stanley for 20 years. I was always a back-office geek. I spent nine years in Asia, came back and played a variety of roles in the institutional securities side of the business with Morgan Stanley.
My career ended up in the operations side of the business. I saw all three main components in retail, institutional and buy-side. I spent five years on the board of DTCC. I spent the last five years just getting to know the business all that much more. I was involved in the formation of Euro CCP, was involved in the NYPC transaction, a lot of the new initiatives.
My brother always tells me that nobody becomes an accounting major unless their father tells them it’s what they should do. I worked at Price Waterhouse when I first came out of college. I had a variety of clients.
There is an allure to the financial industry. It’s global. It is leading edge in terms of technology and economic theory. It attracts some wild personalities, so it’s not a business that is boring. So when I left Price Waterhouse I knew I wanted to go work for a financial firm.
Q: What can we expect to see from DTCC in coming months?
A: We just had our board of directors meeting, and we looked at how we can add value to the industry in the next three to five years, in both the cash markets and the derivatives markets. We’ll spend a lot of time with our participants and fleshing out where those opportunities are.
I’ll be spending a lot of time going out and talking with board members, regulators globally and just trying to get a better understanding of where we can add value.
[I’ll] ask a few questions and listen a lot, and just try to determine how I can help the industry.
Q: So, joint agreements, such as the “one-pot” cross-margining system developed with LCH Clearnet, NYPC and NYSE – is this the type of thing we can expect more of?
A: I think we have been very successful in partnering with other organizations to solve problems. You go back to the formation of Omgeo with Thomson Reuters, where there was a high level of skepticism in terms of how a utility and a profit entity (can work together). That has been a raging success. We did the same with MarkitSERV – again a commercial entity and a utility – and MarkitSERV has been successful in every manner possible.
And NYPC, the newest of our endeavors is off to a solid start. The introduction of the SwapClear positions into the one-pot is about as innovative as you can be.
I think what it says is that we are not looking to try and reinvent something that another entity is already doing well at. In this instance, having a futures trading platform with the technology, like what NYSE Liffe brought to the table. We obviously brought the cash side of it. SwapClear is the leader in OTC clearing. So, rather than try to reinvent the wheel, getting together and partnering with other organizations to build a best of breed is the best we can do. It also lets us get up and running more quickly.
If there are other opportunities to leverage our assets with somebody else’s capabilities, that is something we certainly would not turn our back to.
Q: The idea of an IPO for the company has been bandied about, but you’ve told The Wall Street Journal there are no plans to go public?
A: There are definitely no plans to go public. I think there is an advantage to the industry that we are an at-cost model. It’s a unique value proposition. We are trying to drive down risk.
When you go public, sometimes there is a change in the challenges, you then get into the mode of no longer serving the industry and serving shareholders. Those who don’t think we are cost conscious should simply sit through one of our board meetings.
Q: What regulatory issues are you dealing with right now?
A: What we are very much focused on in the short-to-medium term is executing the rollout of the global trade repository and the swap data repository here in the U.S., rolling out the LEIs (legal entity identifiers), and just working with the industry on trying to figure out innovative solutions like the one-pot to help them on their capital constraints.