The Depository Trust & Clearing Corporation (DTCC) announced today that it has launched a new automated, global over-the-counter (OTC) equity derivatives cash flow matching and netting service (CFM), with all of the 14 major dealers (G14) live on the platform.
The creation and use of the CFM system was part of a commitment the G14 made to global regulators in their March 1, 2010 letter to the US Federal Reserve to strengthen the operational infrastructure of the OTC derivatives market.
DTCC’s Deriv/SERV subsidiary was selected as the vendor and launched the service in collaboration with major market participants. The CFM system is the first of its kind in the OTC equity derivatives space. The initial service supports various equity derivative products, such as vanilla options and swaps traded between the G14 dealers.
“DTCC is focused on partnering with users of OTC derivatives markets, service providers, law makers and regulators to achieve our collective goal of reducing risk and protecting the soundness of the financial system,” said Stewart Macbeth, managing director, DTCC and general manager of the Trade Information Warehouse. “In launching this new service, DTCC is working to help the industry attain a greater degree of accuracy, certainty and operational efficiency in the processing of OTC equity derivatives payment obligations. We’ve seen the value that our Trade Information Warehouse’s automated netting and settlement functionality has brought to the OTC credit derivatives market and we believe the Equities Cash Flow Matching service can now also deliver similar benefits to another OTC derivatives asset class.”
How the Service Works
Payments must be made between counterparties of an OTC equity derivatives trade either at the time of the transaction, or periodically for equity swap trades, or at the maturity of an option or variance swap. Market participants can use Deriv/SERV’s cash flow matching system to reconcile their payments ahead of the payment date. Upon calculating the amounts due to their counterparty, a market participant can submit cash flow information to the platform either through a MQ computer-to-computer link or via the web. Cash flow information includes payment details (payer, payment amount, payment type, payment date) and selected trade confirmation details. The CFM system provides many tools for reconciling and resolving payment discrepancies. It also provides participants with automated messaging and on-line web reporting of the matching status and progress.
D.C.