Five Investment Banks To Use DTCC Deriv/SERV Matching Service

The Depository Trust and Clearing Corporation (DTCC) says five major investment banks have signed up to use its OTC equity derivatives matching and confirmation service, Deriv SERV. The new service, to be launched next month, will provide for automated real

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The Depository Trust and Clearing Corporation (DTCC) says five major investment banks have signed up to use its OTC equity derivatives matching and confirmation service, Deriv/SERV.

The new service, to be launched next month, will provide for automated real-time matching and confirmation of OTC equity index options and share options and will permit participating firms to process new trades, full or partial terminations, increases, amendments and exits of trades in an automated fashion. DTDCC says the new service aims to reduce both the cost and risk currently involved in these transactions by providing the ability to instantly correct any mismatches.

The firms who have signed agreements as the first participants for the new service are Citigroup, Deutsche Bank, Goldman Sachs, JPMorgan Chase, and Morgan Stanley. All five are currently users of DTCC’s existing credit default swaps matching and confirmation service, as well as DTCC’s payment reconciliation service for credit default swaps.

DTCC says the new service marks the next major step in DTCC’s automated matching, confirmation and settlement services serving the OTC derivatives marketplace globally. DTCC adds that it is planning to launch an interest rate derivatives matching and confirmation service for interest rate swaps and swaptions before the end of the year, as well as major enhancements to its payment reconciliation system for credit default swaps that will not just reconcile payments, but allow for the netting and settlement of matched payments in multiple currencies through DTCC via the organization’s existing connections with, among others, the US FedWire and SWIFT payments systems.

“We are constantly driving to reduce operational risk and increase efficiency in our business, signing up to DTCC for electronic trade confirmation for equity derivative transactions is another step forward for us toward achieving these goals,” says Dave Berry, global head of Equity Derivative Operations at Goldman Sachs.

“DTCC have shown great flexibility in adapting their credit default swap service, allowing us to leverage existing technology for equity and index options,” adds Martin Ryan, executive director, Morgan Stanley & Co. International Limited. “We look forward to DTCC continuing to expand their product coverage in future, as we consider this to be a major advance in managing risk and increasing STP.”

“We found the credit default swap matching and confirmation service provided by DTCC to be a significant step forward for our firm and the industry, and we are pleased to be one of the first firms to sign up for this new service covering equity derivatives,” says Joe Willing, managing director, JPMorgan Chase Bank.

“For DTCC, the introduction of this new automated matching service for equities with the participation of these major global organizations marks another significant step in our very aggressive schedule of service introductions for the OTC derivatives market,” says Peter Axilrod, managing director, DTCC Business Development. “This is just the beginning in building the community of users for this service, and in our launching even more services for OTC derivatives. Our plan is to roll out a series of automated services over the next year or so that will provide a completely new, highly flexible, automated infrastructure for the matching, confirmation and settlement of over-the-counter derivatives on a global basis.”

DTCC introduced a service for matching and confirming credit default swaps in late 2003. As of the end of July, that service had 32 firms using it to match and confirm credit default swaps trades globally. The participants included all 15 top dealers in credit default swaps, as well as a number of major hedge funds and other buy-side firms, and has attained what is generally termed “critical mass” by handling a majority of the credit default swaps globally. The credit default swaps matching service was enhanced this year to handle assignments (novation) and partial terminations, Asian corporate credit, sovereign credit and indices, in addition to swaps involving North American and European corporate credit.

“We’ve been extremely pleased with the rapid adoption of our service by a wide range of firms,” says Axilrod. “We believe it has helped the industry reduce risk and cost dramatically on these types of contracts, and gain significantly more control of investments in an area that is growing so rapidly.”