Thomas Murray has maintained The Depository Clearing Company’s (DCC) rating as A+, which means low risk. The outlook is Stable. The rating is made up of the following components:
The overall rating of ‘A+’ reflects the significant effort made by DCC during the past year in minimising risk. As a result, three of the six risk components have been upgraded. Liquidity Risk and Counterparty Risk have been upgraded from ‘A’ to ‘A+’ and Financial Risk has been upgraded from ‘A+’ to ‘AA-‘.
The key contributing developments have been as follows:
DCC has developed an Enhanced Speedy Settlement Scheme (ESSS) with Citibank, ING and Deutschebank and further expansion of the scheme is planned. The ESSS arrangement involves DCC establishing security sub-accounts with custodians, to support near immediate direct transfer of securities between DCC and custodian clients on the book of the custodian. The success of the scheme is demonstrated by the reduced volume of transfers via the registers which as a consequence makes FOP transfers less dependent on the registrars and significantly reduces the time and cost of transfer for securities. Nevertheless it is seen as a temporary arrangement that provides a more efficient method of transferring securities for US overseas investors pending their acceptance of the safer and more effective DVP transfer arrangements.
USD and RUB settlement of the RTS classic market for quote driven and non-anonymous trades, and off-exchange OTC transactions has been rationalised through DCC’s DVP net cash settlement multiple batch process. In comparison to FOP settlement, the DCC DVP and RTS CCP DVP settlement arrangements offer higher settlement efficiency and a lower cost and simpler settlement process and also reduce liquidity and counterparty risk. Furthermore, DCC DVP and RTS CCP DVP usage has been increasing.
DCC has continued to provide strong financial management during a period of difficult global financial conditions, maintaining a net profit similar to that achieved in the previous year and increasing its capital through retained earnings. The system redevelopment project, DEPO/X became operational on 14 Dec 2009 and there are no other planned investment commitments that might make a claim on DCC’s financial resources. The level of DCC’s capital, its ongoing profitability and strong cash reserves position together with a USD 50 million insurance coverage, has demonstrated that DCC is financially strong and accordingly Financial Risk has been upgraded from A+ to AA-.
Other key developments contributing to DCC’s improved risk profile over the last twelve months were:
(i)the successful testing of the upgraded DRP arrangements in October 2009 that included some participants and the settlement chamber;(ii)the successful introduction of DEPO/X which offers new functionality to execute instructions on-line, increases system flexibility through customisation, and increases the system capacity through a scalable platform; and(iii)the review of all business processes and subsequent mapping of process risks through a set of documented control measures. This is planned to lead to ISO9000/9001/2000 accreditation.
Although the outlook is regarded as ‘Stable’, which indicates that there are no imminent developments that may change the A+ rating at this stage, DCC has other activities underway that are likely to have a positive impact towards reducing its risk profile in the future. These include:
(i)a comprehensive programme to improve governance around the internal risk management framework and tighten internal controls(ii)the initiation of a project to develop a BCP response capacity based upon British Standard 25999; and(iii)a market inclusive approach underway to support the further development of SWIFT type message formats in Russia.
D.C.