DTCC Creates Settlement Roadmap

Terry Flanagan

Depository Trust & Clearing Corp., the central securities depository of the U.S., has embarked on a number of initiatives aimed at reducing risk in the clearing and settlement process.

In 2013, the Financial Stability Oversight Council designated DTCC’s U.S. depository and clearing subsidiaries—Depository Trust Co., National Securities Clearing Corp. and Fixed Income Clearing Corp. as ‘Systemically Important Financial Market Utilities’. Those designations underscore the critical role market infrastructure play in protecting capital markets.

“The initiatives are in various stages of development,” Dan Thieke, managing director and general manager of DTCC’s settlement & asset services business, told Markets Media. “We are trying to provide our customers with a clear roadmap of initiatives which will help reduce risk, create efficiencies, and add value to our customers.”

In 2013, DTC began to roll out its plan to promote intraday settlement finality and reduce credit and liquidity risk associated with reclaims by a more include pre-settlement matching mechanism.

“The settlement matching initiative is fairly far along, where we are matching a significant portion of transactions at the depository,” Thieke said. “We are requiring the receiver of the delivery to effectively approve that delivery, and acknowledge the transaction, which we deem to be a match. It has lowered the number of reclaims that we’ve traditionally seen. It is also helping us align to CPSS-IOSCO Principle 8, which focuses on settlement finality.”

Also in 2013, DTC published a detailed plan for enhancing its settlement processing for money market instruments, which will improve intra-day finality and reduce credit and liquidity risk in the MMI market. “MMI Settlement Processing is in the pre-development stage,” said Thieke. “We have defined the process and are performing simulations to determine the impact on our settlement throughput. As we get through the simulation period, and assuming favorable results, we will begin the development effort.”

DTCC is working on shortening the settlement cycle to drive the current U.S. model from T+3 to T+2. That will reduce settlement risk by one day and reduce the margin requirements for firms at NSCC.

“Settlement Matching was designated as a building block for shortening the U.S. settlement cycle,” Thieke said. “The fact that we’re almost competed with that bodes well for our effort to shorten the settlement cycle.”

In the category of collateral management, DTCC has launched two initiatives. Margin Transit is aimed at streamlining the margin call process through a utility which will provide a central location to process and report on margin calls.

Secondly, In May 2014, Euroclear and DTCC embarked on a joint venture to deliver a collateral processing infrastructure to deliver straight-through processing to the settlement of margin obligations, and on piloting a Collateral Management Utility to address the problem of sub-optimal collateral mobility and allocation at a global level. “We are working with Euroclear to develop a joint collateral service which will create a central location where available collateral can be identified and repositioned as needed,” said Thieke.

Related articles

  1. $63.8bn of shares were executed in the Closing Cross in 2.04 seconds in Russell's annual reconstitution.

  2. Auerbach Grayson Launches U.S. Equities Trading Business
    Daily Email Feature

    FTX US Boosts Equities Business

    The US regulated cryptocurrency exchange has acquired Embed Clearing.

  3. Bats IPO Boosts Exchange Competition

    FESE members have been developing and publishing their playbooks on outage protocols.

  4. Equity, Fixed Income ETFs See Inflows

    EFAMA said concerns about rising inflation and monetary policy hit bond funds in the first quarter.

  5. MFA analysis shows that shorting carbon-heavy stocks is an effective mechanism to hedge climate risk.