DTCC Introduces Real-Time Matching For Corporate Bonds

The Depository Trust & Clearing Corporation (DTCC) says it has introduced real time trade matching (RTTM) services for corporate and municipal bonds and unit investment trusts. The US CSD says the new service is the last phase of a plan

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The Depository Trust & Clearing Corporation (DTCC) says it has introduced real-time trade matching (RTTM) services for corporate and municipal bonds and unit investment trusts.

The US CSD says the new service is the last phase of a plan by its subsidiary, the Fixed Income Clearing Corporation (FICC), to reduce risk in the settlement of U.S. Treasury securities, mortgage-backed securities, and corporate and municipal bonds and UITs processed by another DTCC subsidiary, the National Securities Clearing Corporation (NSCC).

DTCC says FICC has now achieved its goal of providing a single pipeline, a common processing platform and a standardized message format for the US fixed income markets.

DTCC says RTTM reduces execution and settlement risk as well as costs because it allows customers to maximize the volume of trades that match on trade date, and ensures that trades are locked in and ready for settlement moments after they have been submitted. The CSD adds that it also allows firms to fix any processing problems the same day when an error occurs, rather than waiting for the following morning, as in the previous batch processing system.

“Bringing RTTM to this marketplace,” says Richard Macek, chief executive officer of FICC, “represents an important milestone for DTCC in the industry-wide efforts we’ve been leading to implement straight-through processing to reduce risk and streamline processing for our customers.”

To date, some 250 firms are submitting corporate and municipal bond and UIT transactions to FICC’s RTTM service, with an average daily value of approximately $13 billion.

RTTM technology was pioneered in US Government securities in 2000, and was adapted for mortgage-backed securities in 2002.

DTCC says that at the moment 97% of all US government securities trades – representing an average of about $1.8 trillion a day – are now submitted in real-time, while about 74% of mortgage-backed securities trades – representing an average daily value of $211 billion – aresubmitted in real time.

“From the beginning,” says Tom Costa, FICC’s president and chief operating officer, “FICC recognized that real-time trade matching capabilities would help the industry significantly reduce execution and market risk and promote safe and efficient settlement. We’ve been able to leverage our investments and technology to bring this innovative solution to customers, which is a powerful demonstration of synergies across the clearing corporations.”

FICC began operations in January 2003, following the merger of two DTCC subsidiaries, the Government Securities Clearing Corporation (GSCC) and the Mortgage-Backed Securities Corporation (MBSCC).

“The success of RTTM brings a multitude of benefits to the industry,” continues Costa, “not the least of which is supporting the industry’s business continuity efforts. Real-time reporting and the safe storage of data translate into rapid recovery of data to the point-of-failure in the case of a major business disruption or a power outage like the one we experienced last summer.”

DTCC further claims that RTTM’s real-time processing capabilities will enable customers to comply with the new price reporting requirements implemented by the Municipal Securities Rulemaking Board (MSRB). These make the submission of municipal trades within 15 minutes of their execution mandatory, from early 2005.

FICC also is working on plans to support an interface between the RTTM system and the National Association of Securities Dealers’ Trade Reporting and Compliance Engine (TRACE) for the real-time reporting of corporate bond transactions.

The RTTM service for corporates, municipal bonds and UITs takes over the matching function that was formerly provided by NSCC’s Fixed Income Transaction System, or FITS. Customers are able to submit their real-time trades to RTTM using one of two new methods; they may use either FICC’s new RTTM Web application, which was also introduced with the RTTM rollout for corporates, munis and UITs, or Interactive Messaging, via mainframe connections. In addition to these two new methods, members may continue to use existing proprietary batch input for submitting trades to RTTM. However, the existing batch interfaces will eventually be eliminated.

DTCC says FICC’s new RTTM Web application is a secure, browser-based trade entry/management tool that incorporates search capabilities, statistical reporting, and exception processing. Customers can enter trade-related activity and, regardless of input method, obtain the real-time status for all transactions received and/or updated by the RTTM system. It replaces the FITS functionality on NSCC’s PCWeb Direct that customers previously used for these activities.

FICC is planning to introduce RTTM Web for mortgage-backed securities later this summer, and will, ultimately, extend the capability to government securities. RTTM Web for MBS is currently in beta testing with some firms.

Costa notes that the steady expansion of RTTM services since 2000 has required close coordination among DTCC and a number of industry organizations and working groups. He says the Securities Industry Association (SIA), The Bond Market Association (TBMA), the Regional Municipal Operations Association (RMOA), the Cashier’s Association of Wall Street, Inc. and a DTCC/RTTM User Group have all helped to identify what the essential service features for RTTM should be according to product type.