August 11, 2004

" turned over the entire gross domestic product every three days..."

Jonathan Rauch has a great piece on the DTCC, the Depository Trust & Clearing Corporation, and its preparations for disaster.

...In the 1970s, the financial sector set out to centralize and automate settlement. Today, a single private clearinghouse settles U.S. securities trades, with as many as 4.5 _billion_ shares changing hands on a peak day. That clearinghouse is DTCC.

Centralization is efficient but carries risks of its own. ....Something to think about: DTCC settled $923 trillion in securities transactions last year. In other words, it turned over the entire gross domestic product every three days...

The DTCC managed to keep going on 9/1, but there was luck involved. And the only backup was also in Manhattan. If DTCC were knocked out, our economy might just be toast. Since 9/11 it has radically decentralized itself.
..."Before 9/11," says Paretti, "this room was full, because we had all the bodies here." Where are they now? He points to a large-screen TV. It shows video feeds from three command centers. One is where we're standing. The others are -- well, somewhere. DTCC now runs several remote command centers, all of them in secret locations, some more than 1,000 miles away, and each fully staffed and capable of running the whole settlement system. Any center can independently take control if others cease to respond...

... "It's been an entire culture change," Considine says. Throughout the company, systems that for decades relied on central control are being reorganized for independent movement and judgment. Hubs are giving way to networks. It is not just terrorists who are adopting cell structures... (Thanks to Jay Manifold)

One of the interesting things about 9/11 is that, due to the Y2K worries, most of the financial institutions that were affected had pretty good back-up systems, and could switch operations to branch offices. And I'm sure they have all improved on them since.

Posted by John Weidner at August 11, 2004 7:43 PM
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