The U.S. is too small to meet the growth objectives of its dominant securities depository - or to satisfy its ambitious, expansion-minded CEO.
By Jacqueline S. Gold
September 2001
Institutional Investor Magazine
Jill Considine is one determined woman. When she started out in banking three decades ago, she aspired to a job in commercial lending, the fast way up the corporate ladder. But her first employers, Bankers Trust Co. and Chase Manhattan Bank, shunted her into computer programming, a career dead end.
She won high marks on performance evaluations, but one of her bosses at Chase put her in her place when he wrote that he expected her to be doing the same job in five years. Why? she asked. Simple, he responded: She was not a man.
The snub fueled Considine’s determination to master - and climb out of - operations. And she did, starting with a globe-trotting assignment in the mid-1970s helping to automate Chase’s international branches. Soon her general management skills began attracting attention, and in the early 1980s she was tapped as CEO to turn around the floundering First Women’s Bank of New York. She then served as New York State’s top banking regulator and as president of the New York Clearing House Association.
Today, as chairman and chief executive of Depository Trust and Clearing Corp., Considine is determined to take on the world. Literally. Under Considine, the New York-based DTCC has begun to throw off its second-class-citizen, back-office mentality and adopt a more commercial, competitive posture. Her mission is to turn this thoroughly domestic backroom operation into a global force in securities processing, serving a world moving inexorably toward more unified trading markets. Just a few years ago, DTCC’s chances of attaining such a goal might have seemed about as likely as a computer programmer rising to international banking prominence. But Considine is ambitious, and market participants take seriously her chances.
“The playing field is no longer the U.S.; it’s the world,” declares Considine.
And she’s doing what it takes to go global, says Ronald Kessler, director of operations at A.G. Edwards & Sons and a DTCC director: “She is effecting real cultural change. She is changing the organization from a stodgy utility that was guaranteed its business and is running it like a private company.”
Certainly, Considine, 56, presides over a mighty enterprise. Before the establishment of DTCC’s subsidiary, Depository Trust Co., in 1973, Wall Street had fallen almost fatally behind in its ability to process stock certificates and related posttrade paperwork. Today, with its book-entry securities system well entrenched and its 1999 merger with National Securities Clearing Corp. complete, the highly automated DTCC accounts for the movement and final settlement of virtually all securities traded by U.S. financial institutions. Take away its so-called central counterparty function, and the Nasdaq Stock Market, the New York Stock Exchange and most every other financial market in the U.S. would grind to a halt.
As a not-for-profit entity owned by 152 of the more than 2,000 financial institutions that use it, DTCC has a strong and protected franchise, responsible for handling an average of 11 million trades, worth $421 billion, each day. Last year it boosted revenue by 18 percent, to $914 million, and paid rebates, or dividends, totaling $252 million to its customers, which include the National Association of Securities Dealers, the NYSE and major banks and broker-dealers.
But those owners and users of DTCC have long since looked beyond the U.S. in their relentless quest to broaden their reach and boost their profits. Outside their home market, though, they have been frustrated by the welter of competing exchanges and clearing and settlement operations, which drive up their operating costs and retard the development of trading across borders and time zones.
The movement toward multinational market consolidation that began in earnest with last year’s merger of the Amsterdam, Brussels and Paris bourses into Euronext has lost momentum in the market downturn. But from Considine’s standpoint, that only provides a bigger opening for a global strategic offensive, as securities firms become ever more conscious of their costs.
Outside the U.S. the costs are high indeed. On average, notes Considine, equity trades in the U.S. take three days to clear and settle at a cost of about 3 cents per transaction. In Europe the average is 50 cents, and closings can take five to 20 days. One reason for the discrepancy is that Europe - and the rest of the world - lacks a centralized settlement infrastructure. The assumption among big American exchanges and broker-dealers is that as markets globalize, the world will need something along the lines of DTCC. And Considine is positioning her organization to step in if Europe, which has 25 independent clearing organizations, can’t figure out how to get its fragmented house in order.
“The rapid growth of the capital markets in the U.S. over the last 30 years is largely due to the existence of a central counterparty,” says Considine, who points out that there were once seven equity clearing organizations in the U.S.; they merged over time into what is now DTCC. “Our experience could be helpful,” she adds slyly.
Considine has begun her international campaign cautiously and diplomatically, to avoid ruffling the feathers of Europe’s entrenched powers. This year she helped organize CCP 12, an association of the world’s 12 largest central counterparties, to explore such issues as the need for common clearing standards.
But her actions go beyond theoretical niceties. In June DTCC applied to the U.K. Financial Services Authority for permission to set up shop in London, initially to provide clearing and settlement for Nasdaq Europe. Considine expects to have the business running by year-end, serving as a base for further expansion and a showcase for DTCC’s operating methods. DTCC has inked a similar cross-border settlements deal with Nasdaq Japan and the Osaka Stock Exchange. Nasdaq’s overseas expansion may be a disappointment so far, but DTCC’s motives are clear.
Considine has also been forging alliances on the Continent. With the major European clearing bodies - Luxembourg-based Clearstream International, which has close ties to the Deutsche B,rse; and Brussels-based Euroclear, which serves the Euronext markets - DTCC is developing a messaging hub for issuance and settlement of commercial paper denominated in euros. That’s at the periphery of the securities-clearing battleground, but Considine regards it as an effective, incremental step toward winning over Europe.
DTCC is also targeting a new class of customer - institutional investors - through Omgeo, a posttrade-processing joint venture with Canadian information-serivces giant Thomson Corp. that opened for business in May. Omgeo’s aim is to help institutions meet the new international standards for automated straight-through processing, or STP, which is in turn a prerequisite for the global push to settle transactions one day after the trade date, or T+1.
How threatening is all of this DTCC activity? Most European securities-processing executives agree on the need for consolidation and rationalization. But they prefer - and expect - to maintain control of clearing functions.
“Consolidation is on its way, but it will take more time than people realize,” says Pierre Slechten, head of custody and information services for Euroclear, which like much of the European counterparty community is working with DTCC but wary of its ultimate ambitions.
Still, says Sir David Walker, a senior adviser at Morgan Stanley International in London and treasurer of the Group of 30, an association that promotes efficiencies in financial markets, “It’s almost a reproach to the Europeans to think of what we could have if we got our clearance and settlement act together. If we don’t move swiftly, there’s a perfectly functioning organization across the Atlantic that can do it.”
YOU CAN TAKE THE WOMAN OUT OF OPERATIONS, but you can never get operations out of her system. The original programming job that Considine took in 1970, at Bankers Trust, turned out to be as much a blessing as a curse. She hated being herded into what was then an organizational backwater, but before long technology backgrounds would become highly valued in banking, and Considine would ride the trend.
She landed that first job after returning from a postcollege sojourn through Europe to Turkey and Israel. She believes she was placed in programming because of her science background: She had earned a biology degree from St. John’s University.
In 1971 Considine joined Chase as a data-processing trainer. Soon she worked her way into international operations and a series of assignments that took her to Brazil, Germany, Greece, Iraq, Italy, Kuwait, Singapore and the U.K.
In 1981, hoping to slow down and devote time to raising a family with husband Martin Rettinger, a now-retired New York Supreme Court judge, she moved into Chase’s trust department. She found the pace too slow, and when a headhunter called about a job back at Bankers Trust as head of loan administration, overseeing a $15.5 billion commercial loan portfolio and a staff of 95, she jumped at the chance to move.
In 1983 she got headhunted again, this time for a job that would raise her profile and open doors: president and CEO of First Women’s Bank of New York. Formed in 1973 at the height of the women’s movement, the bank had one branch, 40 employees, $32 million in assets and a balance sheet in complete disarray. The bank had been too willing to lend to people who had been rejected by the big local commercial banks, on the assumption that they had been discriminated against. Not surprisingly, many of those applicants turned out to be terrible risks.
Considine crafted a turnaround strategy based on small-business lending. She raised capital and produced a profit. And she networked. “I would just call anyone I could for help,” she says. “Instead of paying consulting fees, I bought them lunch.” Her confidants were people like Citibank’s then-chairman, Walter Wriston, and Chase’s president, the late Thomas Labrecque. “Jill is an extremely able person who has been there and done that,” says Wriston. He was impressed by Considine’s “sound and detailed knowledge of the way the markets work.”
Still, Considine found it difficult to impose business disciplines on a bank and a board that were more interested in social activism. So feminist was the culture that Considine ran into serious resistance when she proposed appointing a man, Eric Spector, as chairman of the board. She prevailed on that point but stayed only a year and a half, until 1985, when New York’s governor, Mario Cuomo, appointed her state banking superintendent.
With interstate banking beginning to take off, savings and loans collapsing and the big New York banks struggling with bad real estate loans, Considine soon had her hands full. (Loan problems eventually got the best of First Women’s Bank, and Considine’s agency closed it in 1989. Considine recused herself from that proceeding.)
Considine made a lasting policy impact. In 1988 she allowed state banks to sell annuities, and in 1990 she permitted J.P. Morgan & Co. to earn 25 percent of its revenues from securities activities. The former rule was later upheld by the U.S. Supreme Court; the latter became one of the nails in the coffin of the Glass-Steagall Act, which since the 1930s had kept commercial and investment banks out of each other’s businesses.
“She’s a very competent lady. She worked hard, and she did well,” says Cuomo, now a partner in the New York law firm Willkie Farr & Gallagher.
Worked hard, indeed. The birth of her only child in July 1985 has become part of state regulatory lore. “Her deputy brought documents to the delivery room for her to sign, which she did - as soon as her baby was comfortably sleeping,” says Elizabeth McCaul, New York’s current banking superintendent. McCaul, a mother of six, says that she took inspiration from “Jill’s determination to be a mother and a career woman. At the time, women were discouraged from being both.”
As her daughter approached school age, Considine felt financial pressure to return to the private sector. In June 1991 she joined American Express Co.'s international banking subsidiary, American Express Bank, as chief administrative officer.
The New York Clearing House Association recruited Considine as its president in 1993 - and brought her back to the back office in a big way. Owned by 11 major banks, the NYCHA mainly shuttles checks between members and runs the Clearing House Interbank Payments System, or Chips. The latter is the world’s largest electronic network for U.S.-dollar-denominated funds transfers, handling a daily average of 242,000 transactions worth $1.2 trillion.
Considine brought a commercial focus to an organization that for years had functioned more like a fraternal debating society than a world-class processing body. She spun off three businesses, each with its own management and shareholders: ChipCo, to run Chips; Electronic Payments Network, to process automatic payments such as payroll deposits; and Small-Value Payments Co., to promote check-clearing innovations.
Considine impressed a powerful board of bank CEOs with her operational know-how as well as her ability to inspire her troops and communicate critical industry issues. “She knew political people in Albany and Washington, and she could express the views of the clearinghouse particularly well,” says J. Carter Bacot, former chairman of the Bank of New York. “She’s very capable, a good manager and very articulate.”
Considine arrived at DTCC in roundabout fashion. Representing NYCHA on Depository Trust Co.'s board, she served on the committee searching for a CEO to lead the company after its merger with NSCC. When no compelling candidates surfaced, Considine put her hat in the ring.
She faced immediate challenges. DTCC’s workforce of 3,100 had to be roused from a comfortable, nine-to-five existence devoted primarily to making sure that systems were working properly. But as she moved into the job in 1999, she says, two priorities were most pressing: “No. 1, to make certain that we got through Y2K, and second, putting the depository and clearing corporations together.” The year-2000 changeover, a project that DTC had begun in 1997, went off without a hitch; the postmerger integration is a never-ending story.
It’s not just about systems and flow charts. Considine is after a complete makeover, instilling the kind of commercial vitality that her spinoffs brought to NYCHA. Omgeo sets that tone.
A 50-50 partnership with Thomson, Omgeo is DTCC’s first for-profit offshoot. Its 600 people in 16 offices around the world face an immediate competitive test against axion4gstp, the Zurich-based trade-matching vendor endorsed by the Global Straight Through Processing Association, which led the industry’s STP initiative. (That rivalry pits DTCC against another financial utility in transition, Swift, which is a part-owner of axion4. See story, page 147.)
DTCC originally sought to play a role within the Gstpa framework. But after axion4 got the nod, DTCC rebounded in April 2000 with an agreement to merge its TradeSuite processing business with the Thomson Financial Electronic Settlements Group, which had a global presence and contacts on the buy side. Says Considine: “We really needed to go after the market a lot more aggressively. We had to think of how we could really bring value to our customers. Omgeo was the next step.”
And it symbolizes the new attitude at DTCC. “You get the sense when you walk the halls that it’s a whole new ball game. Jill Considine has created a whole new mind-set,” says Joseph Anastasio, a former J.P. Morgan Securities executive and NSCC board member who is now executive partner of New York consulting firm Capco.
Thompson Swayne, an executive vice president at J.P. Morgan Chase & Co. and one of DTCC’s 22 directors, attributes the “dramatic cultural change” in part to Considine’s introduction of a performance measurement and review system.
Adds Dennis Dirks, a 29-year veteran of DTC now serving as Considine’s chief operating officer: “She brought a tremendous amount of focus and direction. She has a tremendous amount of international experience, and she taught the management team that there was a lot more going on in the world than just the domestic clearance and settlement industry.”
That worldview represents the biggest shift in strategic thinking. From that international perspective, the push by DTCC and the rest of the U.S. securities industry to achieve T+1 settlement by 2004 is critical. But domestic T+1 is not the endgame. If other markets still require days or weeks to settle trades, then the people Considine answers to at Citigroup, Merrill Lynch & Co. and elsewhere won’t get all that they want in the way of execution and settlement efficiencies.
Considine is tactically - and, she believes, tactfully - promoting “regulatory and legal harmony” by suggesting that her counterparts in the new CCP 12 group adopt common rules, procedures and technical interfaces that would ensure reliable and economical cross-border trading and clearing.
That’s the carrot; Considine also has a stick. There has been much talk and little progress toward a unified central counterparty for Europe. If CCP 12 amounts to more of the same, which seems a distinct possibility, then DTCC will be ready to take direct action from its new London outpost.
For now, the Europeans appear to be taking little offense. Albert Bressand, managing director of Prométée, a Paris-based think tank that has been influential on cross-border trading issues, sees DTCC as a positive influence. “DTCC should not replace the little companies that already exist, but it can be the impetus to Europe to tie into a global solution,” Bressand argues.
EUROCLEAR’S SLECHTEN BELIEVES THAT DTCC won’t be able to impose its will on Europe. He sees consolidation in clearing and settlement proceeding on two distinct tracks, in contrast to the U.S., where clearing and settlement have been combined in DTCC. “Europe is much more complex,” Slechten says. “It is still a multicountry, multicurrency environment, despite the euro.”
He predicts that in five years consolidation among clearing agencies will leave only two survivors: London Clearing House and Clearnet (a Euronext subsidiary in which Euroclear owns a stake). The settlement shakeout will take longer. “We have a lot of work to do in Europe to harmonize the way settlement is done, especially when it comes to taxes,” Slechten says.
One impediment facing DTCC, he maintains, is that it is not a bank, so its ability to manage a multicurrency environment is limited. Euroclear, built to the specifications of a fragmented Europe, owns a bank and can deal in 43 monetary systems. “The correct role for DTCC is to act as a conduit for American customers to the European market,” says Slechten.
Considine views such talk as shortsighted, and it brings out her combative side: “Although intellectually Europeans may understand the growth potential, they don’t quite get it in their hearts and guts what one capital market may actually mean in terms of volume and how to handle that volume.”
It’s a forceful argument, and it may compel the Europeans to listen - even if they prefer not to go where Considine is leading them.
