This paper discusses why Dodd-Frank may be the impetus for companies to reassess their existing technology to become more competitive.

1. The Dodd-Frank Act –
WHITEPAPER
A Catalyst for Change
BY GARY CABLE
This paper discusses why Dodd-Frank may be the
impetus for companies to reassess their existing
technology to become more competitive.
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2. Executive Summary
On July 21, 2010, President Obama signed into law the Dodd–Frank Wall Street
Reform and Consumer Protection Act (Pub.L. 111-203, H.R. 4173), the most
significant piece of financial services legislation since the Great Depression.
This legislation places a number of stringent
requirements on financial companies to increase
transparency, clear more products on exchanges,
establish appropriate liquidity and hedging
mechanisms, and improve risk reporting and
compliance management. It may present an
excellent opportunity to reduce redundancy
of siloed systems, increase straight through
processing and help institutions be more
responsive in introducing new products and
President Obama signed into law the Dodd–Frank Wall Street Reform
and Consumer Protection Act (Pub.L. 111-203, H.R. 4173), services to emerging market opportunities.
As the implementation of Dodd-Frank is being determined by organizations
such as the SEC and CFTC, many CIOs are struggling to figure out how
they will consolidate the data and operations between disparate systems to
support the emerging requirements. These changes both pose challenges and
offer opportunity for IT organizations. They could actually be the impetus to
transform IT.
This research note first reviews the major provisions of the Dodd-Frank Act and
then considers how these new compliance requirements will affect financial
services organizations. Next, it considers the relative changes required for
technology organizations and concludes with some suggestions for positioning
technology to support Dodd-Frank.
THE DODD-FRANK ACT – A CATALYST FOR CHANGE / EXECUTIVE SUMMARY 2

3. The Business Objective of Dodd-Frank
Prior to the recent global crisis, departments within financial services companies had autonomy in
creating their own platforms – without coordinated ability to assess overall system functionality and
information Systems were built to address the needs of a specific asset class or legal entity and had
regional variations. Dodd-Frank will require them to look beyond their previous siloed implementations
and address risk and liquidity much more holistically.
Dodd-Frank will require
them to look beyond
their previous siloed
implementations and
address risk and liquidity
much more holistically
• Transparency & Accountability for Exotic Instruments, including the Exchange Trading, Payment,
Central Clearing, and Settlement of standard OTC products
• Making Risks Transparent, requiring hedge funds and private equity advisors to provide information
about their trades and portfolios necessary to assess systemic risk.
• Disclosure of information about underlying assets, along with data collection and publication through
clearing houses or swap repositories – with those trading mortgage-backed securities to retain at
least 5% of the credit risk.
• Unwinding of internal assignment of swaps and generation of back-to-backs between various legal
booking entities within a bank holding company to quickly sort out which entity controls and which
party has what rights in those assets
• Volcker Rule – risk-mitigating hedging activities and the determination of documented correlation
between the asset and the hedging instrument
• Credit Exposure from derivative transactions added to banks’ lending limits and a 15:1 leverage
requirement ensuring dealers and major swap participants have adequate financial resources
THE DODD-FRANK ACT – A CATALYST FOR CHANGE / THE BUSINESS OBJECTIVE OF DODD-FRANK 3

4. The Impact to Information Technology
Organizations
CIOs will need to look at the integration and consolidation of functions and data between disparate
systems. They will need to collate data to build an organization-wide and integrated view on risk and
provide flexible reporting so data can be shared with external regulatory bodies.
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• Overcoming siloed implementation of Regional-, Business Unit-, Asset Class- or Legal Entity-based
trading systems and migration to a centralized risk management environment
• Global visibility into Positions and Trades, Valuation Models, Risk Characteristics, Liquidity and Capital
Reserve information
• Migration of OTC instruments into the exchange-traded books of business for Credit Swaps Fixed
Income-based derivatives and off balance sheet instruments, derivatives which trade fuel, power,
emissions or other commodities, Currency Forwards, Spot and Options, Exotics and Strategies to
name a few
• Increased Straight-Though-Processing (STP) and reduced inter-entity transfer to reduce cost &
complexity, to reduce or eliminate back-to-backs and better track assignment of Swaps
• Global availability and validation of data of analytical models for consistent valuation, risk
identification and disturbance testing
• Evolution from the traditional Front-, Middle- and Back-office model to an environment that supports
global views of positions and trades and use of specialized business functions based on events
within the trade lifecycle
THE DODD-FRANK ACT – A CATALYST FOR CHANGE / THE IMPACT TO INFORMATION TECHNOLOGY ORGANIZATIONS 4

5. Leveraging Dodd-Frank – An Opportunity
for Change
Over the last decade most companies have sought out ways to improve their enterprise IT systems –
with the expectation that these enhancements would reduce costs by improving business processes.
Unfortunately, far too many of these IT initiatives have been shelved before they could yield the
desired outcome.
Financial organizations are beginning to see that Dodd-Frank will require IT organizations to implement
some of these projects that have taken a back-seat to other priorities over the past several years. Finally,
enterprise projects should get a priority.
• Leveraging Service Oriented Architecture (SOA) to support reuse, improve data provisioning,
expand STP, better support business process changes and reduce or eliminate costly and time
consuming batch processing and error prone manual intervention
• Implementing long needed data rationalization, consolidation and provisioning to improve
accuracy, reduce cost, better centralize and evaluate risk, support regulatory reporting and business
decision support processing
• Addressing legacy platform migration and consolidation, based on decades of tactical siloed
development to reduce operational costs and risk
Figure 1 — Redundant
Silos of Business FRONT OFFICE MIDDLE OFFICE BACK OFFICE
Functionality
Order Pricing/ Risk Collateral Clearing Settlement
Mgmt Rates Equities Mgmt
Order Pricing/ Risk Fixed Income Collateral Clearing Settlement
Mgmt Rates Rates Mgmt
US
Order Pricing/ Risk Collateral Clearing Settlement
Mgmt Rates FX Mgmt
Order Pricing/ Risk Collateral
Mgmt Rates Commodities Mgmt
Clearing Settlement
Order Pricing/ Risk Collateral Clearing Settlement
Mgmt Rates Equities Mgmt
Order Pricing/ Risk Fixed Income Collateral Clearing Settlement
EMEA
Mgmt Rates Rates Mgmt
Order Pricing/ Risk Collateral Clearing Settlement
Mgmt Rates FX Mgmt
Order Pricing/ Risk Collateral
Mgmt Rates Commodities Mgmt
Clearing Settlement
Order Pricing/ Risk Collateral Clearing Settlement
Mgmt Rates Equities Mgmt
ASIA-PACIFIC
Order Pricing/ Risk Fixed Income Collateral Clearing Settlement
Mgmt Rates Rates Mgmt
Order Pricing/ Risk Collateral Clearing Settlement
Mgmt Rates FX Mgmt
Order Pricing/ Risk Collateral
Mgmt Rates Commodities Mgmt
Clearing Settlement
THE DODD-FRANK ACT – A CATALYST FOR CHANGE / LEVERAGING DODD-FRANK – AN OPPORTUNITY 5

6. Enterprise Architecture Updates
SERVICES
Services Architectures can be used to decouple positions and trades from previously siloed
implementations and can be accessed via the Enterprise Service Bus (ESB). SOA-based security and
entitlements implementation can be used to allow controlled sharing of positions and trade information
without exposing restricted (e.g. client) information to implement centralized risk management.
VaR and Market Risk can be based more
on actual positions rather than requiring
simulations and multi-business unit, legal
entity or regionally-based roll-up of reporting
Controlled sharing of
information. positions and trade
Events and underlying information about trade
information without
pricing, tranches, securities availability, index exposing restricted
and basket composition changes, changes to
path-dependent derivatives, implied leverage
(e.g. client) information
on the book of business, etc. can be better to implement centralized
integrated, monitored and captured throughout
the trade lifecycle through SOA orchestration
risk management
and event management.
SOA also provides mechanisms that will support ring-fencing of legacy systems, provide an
abstraction layer between them and the user and allow for incremental migration rather than using a
‘big bang’ approach.
DATA
Updated Data Architecture and Governance will better identify, rationalize, consolidate, manage, secure
and provision data from multiple sources. This will be critical for both centralized risk management and
for regulatory reporting.
Identifying redundancy and ‘gold’ sources of data will provide immediate value through consolidation of
costs, ease of access and increased data quality. Implementing data provisioning will in turn help support
the analysis of the systems that produce and consume data.
THE DODD-FRANK ACT – A CATALYST FOR CHANGE / ENTERPRISE ARCHITECTURE UPDATES 6

7. Figure 2 — SOA diagram
Figure 2 – SOA diagram
CHANNELS
PORTALS
SALES AND TRADING OPERATIONS COMPLIANCE RISK CLIENT MANAGEMENT FINANCE
CHANNEL SERVICES
Single Sign-on, Session Mgmt, Context (State) Management, Cache Management, Personalization/Customization
APPLICATION SERVICES
SECURITY SERVICES
ENTERPRISE SERVICE BUS
BUSINESS SERVICES GLOBAL POSITIONS AND TRADES
Liquidity Order Pos Price/ Compliance Capital Collateral Mgmt Billing Equities Fixed Income FX Commodities
Mgmt Mgmt Mgmt Rates Monitoring Controls & Rates
Earnings Mgmt Reconciliations Stocks Fwd/Future Energy
Liquidity
Market Risk Queue Legal Controls Loan Processing Static Data Mgmt CDO/CDS
Monitoring Agreements Converts Spot Metals
Credit Risk Product Trade Enrichment Settlement Cap/Collar
Tax Controls Deriv Deriv Agri
Operational
Risk Collateral Reinv.
Service Mgmt, Message Brokering, Content Based Routing, Service Switching, Dynamic Transformation, Error Handling, Orchestration, Security Management
DATA MANAGEMENT AND PROVISIONING SERVICES
INTEGRATION
SERVICES Structured Data Persistance
Documents and Contracts Protocols
Data Movement External Data Provisioning
LEGACY SYSTEMS Access Services Monitoring
Data Stores
(Regional and Global)
THE DODD-FRANK ACT – A CATALYST FOR CHANGE / ENTERPRISE ARCHITECTURE UPDATES 7

8. Accelerated Implementation
Freeborders has considerable expertise working with IT organizations in all areas where Dodd-Frank will
have an impact. Our solution accelerators and services will provide companies with a “jump-start” on their
implementation of Dodd-Frank.
SERVICES
• IT Portfolio Inventory, Current State Solution accelerators
Assessment and SOA Maturity and services will provide
Benchmarking in preparation for legacy
modernization and platform migration to companies with a “jump-start”
meet regulatory requirements on their implementation of
• Business and Workflow Analysis, Business Dodd-Frank
Functional Decomposition and Capabilities
Mapping – to analyze and optimize
operations and develop Service Level Agreements (SLA) and Service Level Descriptions (SLD)
• Future State Visioning, Initiative Roadmaps and Architecture Blueprints – to prepare for
a successful migration
• Data Content, Source and Flow Analysis, Data Governance Models and Provisioning Use-case
Analysis – to establish a foundation for centralized risk reporting
• Program Development, Program and Project Management using our PMO in a Box tool kit for rapid
set-up and reporting to support large-scale, global programs
• Offshore Component-based Development to lower cost and accelerate development of interfaces,
reports and data solutions
SOLUTION ACCELERATORS
These are the tools and services that help your planning, deployment and operational challenges related
to Dodd-Frank and enterprise changes.
• LEAF™ — Business functions will need to be analyzed and documented to show a linkage between
those business functions and the IT capabilities required to support them. Service Level Descriptions
(SLD) will also need to be defined. Data consumption and production will also need to be traced back
to business and IT functions. The effort for this should not be underestimated and portfolio analysis
and capabilities mapping tools will help reduce the complexity. LEAF™, Freeborders’ Lightweight
Enterprise Architecture Framework, is an accelerator for IT Portfolio and Business Capabilities
Mapping can be used support the kinds of analysis to document and structure the information that
define “Where should or could I make change?”
• PMO in a Box — This accelerator provides you with structure, template and approach for consistently
managing your IT projects – planning, implementing, measuring and reporting. It provides the ability
to structure complex, global initiatives that are required to address the sweeping changes required by
Dodd-Frank.
THE DODD-FRANK ACT – A CATALYST FOR CHANGE / ACCELERATED IMPLEMENTATION 8

9. GARY CABLE ABOUT FREEBORDERS
Gary Cable is Freeborders’ Vice President Freeborders is a new generation Consulting
of Financial Services Business Consulting. and IT services company that enables IT and
He leads the IT Strategy and Enterprise Business leaders to leverage the power of
Architecture practice and is the creator technology to boost business results.
of Freeborders’ Lightweight Enterprise
Architecture Framework (LEAF). Privately held and based in San Francisco,
CA, Freeborders is recognized for offering
Gary holds a Masters Degree in Computer best practices in outsourcing by combining
Science from the Illinois Institute of its award-winning global delivery model,
Technology and has previously worked work CHINDUSSM, with its governance model
premier institutions such as R.R. Donnelley, ATLASSM. Freeborders provides a full suite
AT&T Bell Laboratories, WPP Group, O’Connor of services that encompass all phases of a
and Associates, Swiss Bank Corporation and project lifecycle including strategy, design,
UBS AG. development, testing, implementation
integration, and extended support.
Over the past decade, Gary has focused
on management consulting, strategy and Freeborders is rated at Level 5 of the SEI’s
technology delivery to organizations such as CMMI, and is ISO 27001certified.
SBC, General Motors, Swiss Re, Progressive
Insurance, BB&T, TD Bank North, JP Morgan
Chase, State Street Corporation, Credit Suisse CORPORATE HEADQUARTERS
and Deutsche Bank.
150 Spear Street
Suite 850
San Francisco, CA 94105
USA
Tel: +001-800-889-3567
Fax: +001-415-433-9300
LEARN MORE ONLINE AT
www.freeborders.com
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