Remarks as Prepared for SIFMA’s Operations Conference – Ken Bentsen, SIFMA

Remarks as Prepared for the SIFMA Operations Conference & Exhibition

Good morning.  It is with great pleasure that I welcome all of you to the 48th annual SIFMA Operations conference.  Today is quite special, not just because of the opening of this important annual event, but also because this is the first in-person conference SIFMA has held in 581 days since our last such event concluded just down the street on March 3, 2020.  I cannot tell you how excited we at SIFMA are to see so many of you here today!

And, we are not the only ones.  In addition to the strong registration exceeding our expectations, I want to thank our sponsors and exhibitors (slides).  Just like many of you, I know they too have been eager to get back to live engagement, and so please, please take some time to visit the exhibit hall.  I also want to thank our many speakers for their participation over the next three days.

Even in normal times, a tremendous amount of planning and work goes into bringing this conference to fruition.  I want to thank the members of SIFMA’s Operations and Technology Committee for their engagement and support in developing the content for this event, not to mention their work throughout the year on behalf of the industry.   In particular I would like to call out the leadership of the Committee:  Chair Thom Tremaine, from Raymond James, and co-chairs Graeme McEvoy, from Morgan Stanley, and Claire Santaniello, from BNYPershing.

I also want to give a shout out to my SIFMA colleagues who have worked to make this conference a success.  They do so year after year, but of course this year is different.  In particular, Tom Price and his team on our Operations and Technology group have done an extraordinary job of putting together an outstanding program.

I also want to thank SIFMA’s conference and events and communications and marketing teams, led by Sal Chiarelli and Cheryl Crispen, respectively.  Their diligent work always ensures our events are well organized, marketed and go off without a hitch.  But in the midst of a pandemic, the teams have worked diligently to meet and exceed compliance with federal and state health mandates, to ensure that you, our members, can feel comfortable that we have taken every possible precaution.

Since this is our first in person conference with SIFMA members and friends in 581 days, I just want to say how proud I am to be associated with all our member companies and my SIFMA colleagues who have led this industry during an unprecedented period both with responsiveness and responsibility to ensuring that our markets continue to operate efficiently and effectively no matter what the impediment.

The last 18 months have been both heartbreaking and tumultuous.  More than 700,000 people have succumbed to Covid in the United States.  And while we have hopefully begun to turn the corner, we still have infections, hospitalizations and deaths, albeit far less than what we previously experienced.

In addition to the human tragedy of COVID-19, I don’t need to emphasize for this group that the pandemic presented the ultimate stress test of operational resiliency of our industry.   While many in this room and across industry BCP groups had been monitoring the outbreak of Covid first in Asia in 2019 and then Europe in early 2020, and making plans accordingly, by the second week in March the industry began its dramatic shift to remote working.  Ultimately more than 90% of the industry workforce would go remote at the peak. Playbooks and planning made that transition work better than many expected.  Compounding operational and logistical issues both in the US and abroad, the initial government responses at the federal, state and local levels sent shockwaves through the economy and markets.  Putting the economy in a coma to address a grave public health crisis, as one prominent economist noted, impacted investor confidence and led to unprecedented market volatility and volumes. But notwithstanding asymmetric behavior in normally staid markets, the markets never closed, and ultimately cleared and returned to normal, through a combination of necessary government intervention to backstop liquidity, and restore confidence and industry resiliency to insure normal operations.  Likewise, while the volatility was extreme, no banks failed, and to the extent balance sheets were constrained it was the result of regulatory requirements, as acknowledged by government action.

As the industry went remote, SIFMA and its members worked with our regulators to develop contingencies to maintain operational efficiency and compliance with various rules and processes impeded by the pandemic related shutdown, such as branch inspections, vault counts and even mail delivery.   One of our board members noted to me at the time ‘that I now have over 100 trading desks’!  And several other firms had many, many more.

The success of the industry’s response to the COVID-19 pandemic underscores the importance and value of business continuity planning.  The industry training, advance planning, exercises, and drills—all the pieces that have been in place for years to help mitigate risk not only in ordinary times, but when the extraordinary events inevitably occur, paid-off.  I say this not to boast, but to acknowledge the hard work and many hours put in by many in this room and across our industry over the years to be prepared for the unexpected.

As the nation and world have begun to move beyond the pandemic, industry efforts have shifted to returning to office.  While this began in earnest last fall, it is not without fits and starts, most recently due to the Delta variant. Through on-going communication and coordination with operations, human resource, compliance and other industry personnel SIFMA has sought to be a clearinghouse of information as our members seek to return to normal operations in a way that puts health of the employees first.  In addition, we continue to engage our regulators on how to adjust current policies, procedures and protocols to meet a new working landscape that will definitely include some permanent form of remote working and also recognize and change outdated protocols, just as we have done after other industry events.   This includes such things a dematerialization of securities processing, remote inspections and what constitutes a branch.  The Covid experience has also intensified focus and transition on priorities evident before the pandemic, such as e-delivery.  Well before Covid, more investors were opting toward e-delivery, and the pandemic only hastened that transition.  As the industry moves toward further shortening the settlement cycle (more on that in a minute) e-delivery will only become more necessary and we are engaging the SEC to make it easier for investors and dealers to make this transition.

As SIFMA and our members continue to respond to all of the Covid challenges, our industry also must address an evolving regulatory agenda.  Some such issues were ongoing before Covid, and some are new.  And I predict the agenda will continue to grow over the next few years.

Even during the peak of the pandemic, our members continued to meet their regulatory and industry infrastructure obligations.  This included continued work to implement the Consolidated Audit Trail, including the successful launch of the trade data base last summer.  We continue to engage with the SEC and SROs on the development of the customer data base, notwithstanding our continued objection to the approach to collect PII which we believe risky and unnecessary.  We are eager to see the SEC finalize its data security proposal, which on the whole, we believe will improve the CAT.  But, we strongly object to the SRO proposed amendment to limit liability in the event of a breach.  Our members have all the responsibility and none of the authority with respect to CAT reporting, and it is unconscionable that we should bear liability for a risk over which we have no control.

Likewise, the wealth management industry, a major business for many of our members, worked diligently through the pandemic to implement the SEC’s Regulation Best Interest by the June 30, 2020 enforcement date.  SIFMA’s implementation working group found that member firms were spending considerable dollars and labor to meet the deadline, even while operating remote.

The industry continued the long march toward moving away from Libor as a benchmark.  In 88 days, on January 1, 2022, US banks will no longer be permitted to use Libor for new contracts. On that same day, non-USD LIBOR tenors will cease publication and legacy contracts will have to move to fallback rates.  And Libor will end for USD legacy contracts on June 30, 2023.  This transition continues to require elaborate planning and development by the industry. Between March 2020 and this past July, the industry has taken numerous steps to operationalize SOFR in the cash and derivatives markets.

Last fall, SIFMA, ICI and DTCC began discussing the concept of accelerating the settlement cycle to T+1, three years since the completion of T+2. These discussions evolved to the Board direction to study concept in detail, identify issues and problems, and develop solutions.  After nearly six months of investigation and analysis by the three organizations and our colleagues at Deloitte, we are preparing to develop a timeline for moving forward, recognizing that this effort will be hard and must be deliberate to avoid creating unnecessary risk or impeding important market practices and businesses.

SIFMA and our members continue our robust cyber resiliency training, exercises and planning.  Cyber-attacks did not stop for Covid, and in fact increased.  From Wanna Cry to SolarWinds to increasingly bold ransom attacks, the threat remains high.  The industry’s work over the last decade has evolved and grown, serving the industry well.  But the threat remains.  This fall we will host our sixth biannual industry exercise Quantum Dawn VI with more than 100 industry participants and multiple official sector participants from across the globe.

Looking forward, we expect further regulatory activity across many market and product sectors.  There remains a pending SEC rulemaking governing the treatment of digital securities by broker-dealers.  And increasing consumer and regulatory interest in crypto and digital assets will definitely lead to new rules and requirements for broker-dealers, banks and asset managers.

SEC Chair Gensler has directed the SEC staff to undertake a review of both fixed income and equity market structures, including a review of Reg NMS.  In addition the Treasury Department and Federal Reserve have also indicted an interest to review the existing Treasury market structure.  And regulators domestically and globally have signaled an interest in revisiting prior money market structure issues.  Whether and what proposals may be made will be of significant interest to SIFMA and our members.

Lastly, I want to note that we are watching closely as Congress deliberates tax and spending policy and the question of raising the debt limit.  And while the final composition and fate of the budget tax and spending bills remains unclear, we are engaging with Congress on specific tax proposals that could have negative consequences for investors and capital formation and prove unnecessarily burdensome on financial institutions. Further, legislators will have to decide how and when to address the nation’s ability to meet its obligations.  Defaulting on our debt would have severe negative consequences for the markets and the economy.  It would also raise serious operational issues.  While we believe Congress will ultimately address the question, SIFMA has been reviewing our playbooks in the event of a missed payment or other disruption in the Treasury market.

About 575 days ago, I was driving down Western Avenue in NW Washington DC and noticed a sign in a front yard that said, “what a year last week has been.”  That sign is still up, and the last year and half seems like a lot more than that.  But when you look at all this industry has accomplished in the space of that week, and the weeks that followed, it is really quite impressive.  And a lot of the people behind that effort are in this room today.  As we look forward to what I believe will be a very robust agenda over the next few years, impacting many products, sectors and market operations, I am confident our industry is well prepared.

With that, thank you for making this event a success and I hope you will find the next three days as beneficial as we at SIFMA will.

It is now my pleasure to introduce the Operations Leadership panel, moderated by Graeme McEvoy.  Graeme is a managing director in the Global Operations division at Morgan Stanley, based in New York.  He is the Global Head of Institutional Securities Group Operations, responsible for the operational support of the Trading and Sales functions of the firms ISG business lines.  Alongside his Morgan Stanley responsibilities, he is a director of the Depository Trust and Clearing Corporation (DTCC), co-chair of the SIFMA Operations and Technology Steering Committee, a Governor of Clifton College in the UK as well as a Trustee of the Clifton College Development Trust.  Graeme previously spent 12 years at Goldman Sachs and worked in London, Zurich and New York.

Please join me in welcoming Graeme.

Kenneth E. Bentsen, Jr. is president and CEO of SIFMA, the industry trade group representing securities firms, banks and asset management companies. He is also chairman of the Global Financial Markets Association (GFMA), of which SIFMA is the U.S. regional member.