2019 Viewpoints: John P Davidson President & Chief Operating Officer, OCC

Please outline the three most important macro trends that you believe will impact the market infrastructure industry in 2019?

The first important macro trend that I believe will impact the market structure industry in 2019 is political event risk. Particularly in Europe and the Americas, I believe political event risk will continue to drive market volatility spikes and associated volume. The second trend will be market fragmentation and algorithmic trading. This will drive transaction volume and increase the complexity of meeting audit trail requirements. The third trend will be cybercrime and the potential for activities by nation-state actors. This will require continued high levels of focus and expenditures on all forms of information security.

The WFE’s Sustainability Principles (launched in October 2018) and annual ESG survey show us that more and more exchanges and CCPs are taking a leadership role in promoting the sustainable finance agenda. How is your business taking a more sustainable approach to the financial system?

The role of a central counterparty like OCC is to protect the financial integrity of the markets in aggregate as well as in detail, not to promote a particular set of products or investment styles and priorities.  Since 1973 OCC and its participant exchanges have facilitated the growth and widespread utilisation of risk transfer products, which are a key element of what is now known as 'sustainable finance'.  More recently there are a growing number of ‘exchange traded funds’ with specific ESG goals - options on exchange traded funds are one of the largest and fastest growing products in the US listed derivatives markets.

In your view, what’s the technology most likely to disrupt global capital markets in the next 12 months?

I view technology much more as an enabler of efficient and effective capital markets than as a disrupter. 'Disruption' from new technologies is much more prevalent with respect to consumer financial products than in the capital markets. The US has the deepest and most liquid capital markets in the world in significant part because it has the best and most innovative technology from a plethora of highly competitive users and providers.

What are the key strategic initiatives you’re working on at the moment? 

The key strategic initiative for OCC in 2019 and beyond is our Renaissance Initiative, a multi-year investment to modernise our critical risk management, core clearing, and data systems. Our goal is to deliver numerous improvements to our capabilities, including improved extended hours risk management, industry-standard futures processing, and easier and more timely access to clearing data, over the life of the project with the final aspects in production parallel by the end of 2021. When completed, the Renaissance Initiative will provide OCC with the ability to operate clearing, data and risk applications based on a modular architecture, improve real-time and extended hours risk management capabilities, drive operational efficiency through process reengineering and automation, and improve information transparency and service to our clearing firms while increasing product development agility and reducing time-to-market.