The Depository Trust & Clearing Corporation (DTCC) has launched its Trade Information Warehouse, creating a centralised and secure global infrastructure for the post-trade processing of over-the-counter (OTC) derivatives.
The warehouse is made up of two components:
1) a comprehensive trade database containing the “official legal record” for all contracts eligible for automated Deriv/SERV confirmation, and
2) a central support infrastructure that automates and standardises post-trade processes (such as payments, notional adjustments and contract term changes) over the life of each contract, which can extend five or more years.
Initially, the warehouse will support credit derivatives, and then extend to other OTC derivatives products including rates, equities, FX and commodities, depending on market demand and input from the senior group working with DTCC in guiding the initiative.
“The trade warehouse is a ‘just in time’ technological solution necessary to support our vibrant OTC derivatives markets,” says Robert E. Diamond Jr., the President of Barclays PLC. “My thanks to DTCC and all industry participants who worked tirelessly to implement the warehouse in record time.” The credit derivatives market more than doubled annually through mid-2006, when the notional amount of credit derivatives reached USD26.0 trillion up from USD12.4 trillion in mid-2005. “The warehouse represents the launch of a very innovative and important industry solution to improve process, efficiency and risk control in the global credit derivatives markets,” adds Dick Weil, the Chief Operating Officer of PIMCO. “It was made possible by some exceptional cooperation between dealers, investment managers and regulators.”
The warehouse will automate many processes that occur throughout a contract’s life cycle, which today involve significant manual effort. This includes bilateral contract and cash flow reconciliation. Other post-confirmation processes, such as credit event processing and assignment processing, will be made much more efficient. From a risk management perspective, the warehouse will help firms ensure accurate balance sheet information for corporate and regulatory reporting purposes, support accurate collateral management, and promote correct and complete payments.
Today, 80 percent of credit derivatives traded globally are electronically confirmed through Deriv/SERV, up from 15 percent in 2004. The warehouse builds on Deriv/SERV by using confirmed trade details as input for the warehouse, so that post-trade processing flows automatically from up-to-date trade terms.
The launch, means that all new trades and post-trade events submitted to Deriv/SERV for electronic confirmation will automatically be loaded into the Trade Information Warehouse. The warehouse will assign a unique reference identifier for each contract, and maintain the “current state” contract terms, taking into account assignments, terminations and amendments.
In 2007, the warehouse will expand to support central payment calculation, and a central settlement capability through links with a central settlement provider to streamline payment settlement. Also in 2007, the warehouse will offer customers the flexibility of electronically reconciling (“tying out”) complex or non-standard contracts that cannot be legally confirmed through Deriv/SERV, replacing the customary telephone-based approach.