A look at the business and technology implications of Title VII on financial services firms

During the financial crisis, the role played by some over-the-counter (OTC) derivatives in perpetuating the crisis came under increased criticism from regulators and government bodies. Post-crisis, OTC derivatives were blamed for propagating the crisis due to the opaque nature of the OTC derivatives market; the faulty ratings which were awarded to OTC products like collateralized debt obligations; the proclivity of financial institutions to indulge in excessively risky derivative trades; and the lack of regulation of the OTC derivatives market.

The Dodd-Frank Act was signed into U.S. law on 21 July 2010 as a step towards addressing the crisis-exposed loopholes in the financial system and to prevent a similar crisis in the future. Title VII of the Act laid out provisions for enhancing the regulation of the OTC derivative markets. Though rules for implementing its provisions have been slow to develop, financial services institutions need to prepare for the reality of compliance with heightened regulatory standards.

In response to Title VII, affected firms need to take measures to align their business processes and technological capabilities to comply with the new regulatory landscape. This paper takes a close look at the provisions of Title VII and examines the different business and technology implications on exchanges, clearing houses, and market participants. In addition, a business and technology roadmap is included which market participants may adopt to align their businesses with the new regulatory standards.