The Depository Trust and Clearing Corporation has announced the formal launch of its Trade Information Warehouse, designed to reduce risk and automate post-trade processes in the over-the-counter derivatives markets.
The launch of the initiative follows a ten-month collaborative effort between the DTCC and 19 sell-side and buy-side firms. The utility is designed to take trades submitted over the DTCC's existing Deriv/Serv platform and provide a central support infrastructure to automate and standardise post-trade processes such as payments, notional adjustments and contract term changes.
The DTCC claims that 80% of credit derivatives traded globally are electronically confirmed through Deriv/Serv, up from 15% in 2004.
Peter Axilrod, managing director, DTCC business development, says the utility is modelled on the automated central asset servicing that central securities depositories provide for equities, fixed income and other securities: “The Trade Information Warehouse provides the underpinnings to support the entire post-trade life cycle for OTC derivatives in a paperless environment.”
In 2007, the service will expand to support central payment calculation, he adds, and a central settlement capability through links with a central settlement provider to streamline payment settlement. Also in 2007, the warehouse will offer electronic reconcilliation of complex or non-standard contracts that cannot be legally confirmed through Deriv/SERV, replacing the customary telephone-based approach.
Initially, the warehouse will support credit derivatives, and then extend to other OTC derivatives products including rates, equities, FX and commodities, according to industry demand, says Axilrod.
The credit derivatives market more than doubled annually through mid-2006, when the notional amount of credit derivatives reached $26.0 trillion up from $12.4 trillion in mid-2005.
Thomas Russo, vice chairman, Lehman Brothers, says the launch of the warehouse is a milestone in the evolution of the derivatives marketplace.
"Our industry has come together in record time to put in place a common operational platform to manage credit derivative contracts over their life yielding standardisation, efficiency and risk reduction," he says.