The Depository Trust & Clearing Corporation (DTCC) plans to launch Obligation Warehouse (OW) to automate the matching and confirmation of broker-to-broker trades that are currently confirmed and settled directly between the trading parties rather than through DTCC (known as ex-clearing). It will also give member firms real-time access to track, manage and resolve their failed obligations.
The service, an offering of DTCCs clearing agency subsidiary, National Securities Clearing Corporation (NSCC), is expected to be fully functional by June 2011, with implementation beginning in March 2011 following the Securities and Exchange Commissions (SEC) recent approval of NSCCs related rule filing.
The OW represents a giant leap forward in helping financial firms better manage and address the operational risks and costs associated with processing broker-to-broker ex-clearing trades, as well as failed obligations, says Susan Cosgrove, managing director of Clearance and Settlement/Equities at DTCC. It will create a more efficient and cost-effective system that will transform the processing of these transactions, while also delivering real-time capabilities to view virtually all failed trading activity in the U.S. marketplace for equities, corporates, municipals and unit investment trust securities.
While most equity, bond and UIT trades are fed directly to NSCC for clearing from the various US marketplaces and trading platforms, currently amounting to an average of more than 80 million daily transactions, there are an unknown number of trades that brokerage firms confirm and settle directly with their counterparties, DTCC says. Fails in those trades have never been tracked in a central location prior to the development of OW.
OW leverages NSCCs existing systems and enhances its current fail clearance system, known as the Reconfirmation and Pricing Service (RECAPS), to automate the matching and confirmation of broker-to-broker ex-clearing trades and replacing the highly manual and error-prone processes, including phone calls and faxes, currently used by financial firms to manage these transactions.
In addition, OW will track, store and maintain certain unsettled obligations in a central location, and make these obligations available for RECAPS processing until they are settled, cancelled or otherwise closed in the system.