The Depository Trust & Clearing Corporation (DTCC) plans to deliver a real-time trade date guarantee for equity and corporate and municipal bond transactions, as it looks to ease concerns among market participants over security of settlement.
The DTCC’s equity clearing subsidiary, National Securities Clearing Corporation (NSCC), will apply its guarantee for all Continuous Net Settlement (CNS) eligible trades on trade date upon comparison for non-locked-in trades or validation for locked-in trades.
Currently, the trade guarantee is applied at midnight of T+1, leaving a gap before NSCC steps in between the two sides and assumes the buyer’s credit risk and the seller’s delivery risk in the event of default.
The guarantee will reduce credit exposure for firms, protecting them from potentially unstable trading partners, as well as systemic risk across the industry.
Having received approval from the DTCC board, NSCC plans to file a rule change with the Securities and Exchange Commission (SEC) in the first quarter seeking approval for the real-time trade guarantee.
DTCC has also increased its equity clearing processing capacity to 500 million transactions per day to ensure it can handle unexpected spikes in trading volume.
“A real-time trade guarantee significantly enhances DTCC’s already robust risk management process and gives financial firms greater certainty that their trades will settle,” says Michael Bodson, executive managing director, business management and strategy, DTCC.
L.D.