Twice is a coincidence, thrice is a pattern!!

 

I have blogged before about the power of three, but I am reminded today that while something happening twice maybe couse for attention when it happens next it falls to responsible people to respond.

The subject in question is the requirement for and expectations of the new infrastructural services that are required to deliver the regulatory change the politicians have mandated following the financial crash of 2008. With regulators having placed the emphasis on reporting, risk management and transparency there are huge requirements to capture data, store data and transmit data and the often new organisations required to service that need. This all requires new technology creating new links and new business relationships.

Examples are Trade Repositories, Central Clearing Counterparties, information providers, data issuers, etc. I am being slightly circumspect about names given what I am about to say.

All this new infrastructure is being demanded by a collection of unco-ordianted and unsympathetic regulations that frequently impact far beyond their immediate jurisdictional borders.

Item #1: A deadline in April was extended at the last minute. This I understand was because a key part of the infrastructure failed catastrophically when faced with the stress of market participants all demanding service at the same time. While it had not been an easy run up to the deadline, it was only when the full volune of activity hit that the system caved in. I guess in the terminology the "unit tests" had been passed as individual firms had done their preparation. Maybe even a "system test" had been undertaken in the preceding weeks before the deadline as more users tried to work it from end to end, but it was only as many firms reached the proverbial 11th hour that activity peaked and the weakness was exposed. Strike 1!

Item #2: Today as new rules cut in for the OTC market, it would appear that dealing has been curtailed at a number of firms as their systems failed to acquire the necessary data that confirmed they could trade with individual clients. The scuttle is that the website/server delivering data failed. Sounds a bit like Strike 2!

So what /when will we encounter the third instance?

The nearest similar example I can think of was when we created the Euro. I was project managing an Investment Bank's response and recall we had at least two industry-wide rehearsals in the run up to 1 January 1999. This was across Europe and not the whole world and it was a clear single date, but the principle is that we practiced and tested it beforehand. Lo and behold it went with nary a hitch.

I doubt anyone could co-ordinate such a rehearsal for these Dodd Frank / EMIR / etc  deadlines so we have to look for better answers. One approach might be to undertake more, smaller phases of implementation, but the risk there is creating competitive inequalities between those that have had to comply and those that are yet to comply.

The last which I think is a little anti-capitalist, but may be needed at least in part, is to rethink the model that all this infrastructure has to be provided by private enterprise, in competition with each other. Maybe some of it is so important that a supra-governmental agency may be required? This may be the suggestion that cannot be made in the open and would require a number of politicians to start co-operating for the greater good - now there is an idea! - but there are examples where similar efforts have worked, albeit on a smaller, more national level.

Those who are old enough to remember could look back to Taurus and Crest in the UK which may provide some illustrative lessons. I am sure there are other examples.

Any other thoughts?