DTCC Streamlines Trade Capture

Terry Flanagan

Depository Trust & Clearing Corp., the central securities depository for the U.S., is working with industry participants via its National Securities Clearing Corp. subsidiary to reduce risk in the clearing and settlement process. One initiative revolves around the trade-capture process.

By streamlining the capture of trade details as near to execution time as possible, disparities can be identified and rectified earlier, thereby speeding the settlement process. NSCC’s trade capture system receives and validates transactions from market centers, then prepares them for netting and settlement.

“It’s the application that receives trade details post-execution from the various trading venues,” said Bill Kapogiannis, vice president in the equities product management group at DTCC. “We take these trade details into our system, validate the transactions and report them back to the Street to, give them a confirmation of their purchase of sales and securities across all market venues. And we feed those details into our downstream processing systems like our risk management system, and then ultimately prepare them for settlement through our settlement system.”

In recent years, NSCC consolidated four separate legacy applications into a single engine, called Universal Trade Capture. UTC has streamlined and standardized the equity clearance process, allowing the industry to better reconcile clearance transactions and manage their risk exposure.

“Before that we had separate systems that interfaced with the various market places, which all had different record formats and ran in batch versus real-time,” said Kapogiannis. “We standardized the interfaces across all market centers so all of them communicate the trade details with one standardized FIX protocol format. We moved from batch to real-time, so we take in real-time messages and report real-time messages out to the Street now.”

In 2013, NSCC established the IWG to discuss ways to address the possible risks that may be related to trade submission practices. A key finding was that counterparty risk might be reduced if transactions are submitted to NSCC in real-time. Effective in February 2014, NSCC’s rules require that all original trades be submitted to NSCC in real-time.

As a result, equity trade capture transmissions from exchanges must be sent to NSCC immediately following execution. Currently, over 95% of clearance submissions are received in real-time, primarily from exchanges and alternative trading systems, such as dark pools. Only a small portion of transactions are still submitted to NSCC at the end of the day through NSCC’s Correspondent Clearing service.

“There’s been a lot of focus on market structure in general in building standards, which relates to the processing, capturing, and reporting of trade details out to the Street,” said Kapogiannis. “If we’re capturing trades at near execution time, we can validate and risk-manage those transactions on a real-time basis. And then also provide that information out to our clients so they can risk-manage either their business and/or the business that they clear for their corresponding clients.”

It also serves as a foundation for industry discussions on building standards around expedited trade processing. “There are initiatives to move to T+2 and ultimately to T+1 settlement,” said Kapogiannis. “It really starts with the trade capture process, sthe sooner that the CCP can validate those trades and report them back, the sooner you can prepare those items for settlement.”

Feature image via Rawpixe/Dollar Photo Stock

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