Transcript Document

DTCC Deriv/SERV
Trade Information Warehouse
DTCC Confidential
Transformation of Credit Derivatives Market
• Rapid, multi-dimensional growth on a global scale
 Trading volumes; new products; new market participants;
secondary market development
• Rapid spread of automated trade confirmation
 Bulk of all trading is now confirmed on an automated basis
– both inter-dealer and dealer-to-customer
Trends create both concern around post-trade processing and
opportunity to mitigate
DTCC Confidential
Growth in Credit Derivatives Market
(Notional Value Outstanding)
$US Trillions
18
16
14
12
10
8
6
4
2
0
DTCC Confidential
4Q 01 2Q 02 4Q 02 2Q 03 4Q 03 2Q 04 4Q 04 2Q 05 4Q 05
Spread of Automated Confirmation through Deriv/SERV
All major dealers
Global buy-side take-up*
* Includes 2nd tier dealers
globally
use Deriv/SERV
450
400
350
300
250
200
150
100
50
0
DTCC Confidential
2004
Current
Current Bilateral Administration Environment
Parties must constantly “sync up” during contract life
• Payments, events, margining, etc.
• Many manual and duplicative reconciliation/resolution processes
(internal and between firms)
Each party is hostage to its counterparties’ processing
• You’re only as good as your counterparty – your records may be
right, but if your counterparty disagrees or doesn’t know, you have
a problem
• Operating models vary across firms: different processes for
different counterparties
DTCC Confidential
Central Trade Information Warehouse
Two primary components:
• A comprehensive, centralized trade database with
the most up-to-date record of each contract
• A central processing capability to standardize and
automate “downstream” processing of payments
and other post-confirm processes
Processing flows automatically from the electronic
confirmation environment
DTCC Confidential
Model for Warehouse
• Central asset servicing through central securities
depositories or listed derivative clearing houses
But
 NO book-entry DVP services and
 NO central counterparty (CCP) credit intermediation
Complexities of OTC derivatives demanded a
multitude of unique and innovative servicing
solutions.
DTCC Confidential
Warehouse Schematic – 1st Phase
Market Participants
ECNs, e-Checkout
Services, AffirmXpress
Deriv/SERV
Automated Confirmation
Trade Warehouse
•Contract Maintenance
•Event Processing*
•Payment Calculation
•Bilateral Netting
Automated Funds Transfer
Central Funds
Settlement Agents
* Events include credit events, assignment consents
DTCC Confidential
Back Loading
External Data Sources
(notional factors, etc.)
Warehouse Schematic – Potential Build Out*
*Assuming market participant support
Market Participants
ECNs, e-Checkout
Services, AffirmXpress
Deriv/SERV
Automated Confirmation
Other Automated
Confirm Services
Trade Warehouse
•Contract Maintenance
•Event Processing*
•Payment Calculation
•Margin Calculation
•Bilateral Netting
Automated Funds Transfer
Central Funds
Settlement Agents
Back Loading
External Data Sources
(add pricing, resets, etc)
Automated Collateral Transfer
Central Securities
Depositories
* Events include credit events, assignment consents, corporate actions
DTCC Confidential
Core Principle – Extensible Design
Credit
Derivs
Rates
Derivs
Contract
Maintenance
Release 1
2nd half ’06
  
Event
Processing
Release 1-2
2nd half ’06   
(both)
Release 2-3
2nd half ’06;   
1st half ’07
Assets 
Functions
Full Payment
Processing
(bilateral net)
Full Margin
Processing
(bilateral net)
DTCC Confidential




Equity
Derivs


FX
Derivs


Commodity
Derivs





Participant Cost Savings
Processes eliminated:
Overhead reduced:
• Verbal or ad hoc trade checkouts
• Reduced nostro fees
• Portfolio substantiation/tie-outs
• Efficient collateral processing
• Bilateral cash flow reconciliation
• Standardized, automated
processing for credit (and other)
events
• Assignment e-mail processes
• Margin disputes, delays
• Investigation of breaks with
respect to the above
DTCC Confidential
• More efficient portfolio
management (tear-ups, position
netting, etc.)
Participant Risk Reduction
Correct balance sheet:
Achieves immediate contract
transparency
Reduces risk in:
• Reporting (corporate, regulatory,
etc.)
Other risk reduction:
• Credit event management
(especially multiple credit event
scenarios)
 Ad hoc reconciliation
eliminated
 Fully transparent data set
 Standard messaging
• Market risk management
• Similar for other events
• Counterparty credit risk
management
• Payments always correct and
complete
• Collateral always correct and
complete
DTCC Confidential
User Oversight
Global Senior Oversight Group
• Established by OTC Derivatives Operations & Planning
Committee of DTCC Board
• Dealers – Senior personnel from the 14 major dealers
 All committed to their European and North American regulators to
support this project and undertake other actions regarding reducing
operational risk in the credit derivatives market
 Other dealers are eligible to participate if they make the same
commitments
• Buy-Side – Senior personnel from Europe and North America
 Where possible, nominated by hedge fund and traditional and asset
manager trade associations
DTCC Confidential