DTCC to Integrate Omgeo into Business Structure

Terry Flanagan

Depository Trust & Clearing Corporation (DTCC) is acquiring full ownership of Omgeo, the post-trade processing company in which it holds 50 percent ownership, and will integrate it into its existing business in order to foster collaboration among investment managers, broker-dealers and custodian banks, and to further reduce industry risk and cost as the post-trade processing and regulatory environment continues to evolve.

“Right now, our main focus is on closing the transaction and continuing to provide the best possible service to Omgeo clients,” said Andrew Gray, DTCC managing director, core business management and chairman of the Board of Managers for Omgeo. “Once Omgeo is part of the DTCC structure, we will work toward unifying the strategy surrounding key industry initiatives and facilitate increased collaboration among market participants.”

The transaction will enable DTCC and Omgeo to drive a single, global strategy for post-trade processing and settlement. “The addition of Omgeo’s global buy-side client community – when added to DTCC’s strong broker-dealer and bank community, in addition to an institutional investor base for mutual fund services – will enable DTCC to build on its services for this critical client segment,” Gray said.

It will also facilitate a unified strategy around key industry initiatives including the move to trade date affirmation, settlement matching in The Depository Trust Company (DTC), and the adoption of shorter settlement cycles in various markets.

“Omgeo believes, and research demonstrates, that the faster trade counterparties confirm the economic details of trades, the faster trades can move to settlement while lowering trade failure cost and risk,” said Marianne Brown, president and CEO of Omgeo.

This industry best practice is known as same day affirmation, or SDA. SDA refers to the verification of trades on the same day they are executed (T+0).

According to an Omgeo study, securities trades verified on the day of execution have a much higher chance of settling on time and are less likely to fail. In fact, settlement efficiency in countries with SDA rates of over 90 percent – India, Taiwan, Hong Kong, Japan, Singapore and Korea – is 26% higher than in countries with SDA scores of less than 70 percent – Brazil, Italy, South Africa and the United States.

Central matching is a key enabler of SDA. With Omgeo Central Trade Manager (Omgeo CTM), a central matching platform for domestic and cross-border equity, fixed income, contract for difference and exchange traded derivative trades, users achieve an average SDA rate of 94 percent.

Firms matching trades locally, instead of using a central matching service, achieve SDA rates ranging from just 36 percent in the U.S. domestic market to up to 72 percent for cross-border and non-U.S. domestic transactions.

“Omgeo continues to enhance Omgeo CTM to meet evolving client needs to reduce risk and overall cost in the financial markets while promoting industry best practice through incentive-based pricing,” Brown said.

Earlier this year, Omgeo announced pricing changes to incent clients to verify trades on the same day they are executed (SDA) via Omgeo CTM and OASYS-TradeMatch. Clients who leverage these services can reduce their Omgeo transaction costs by up to 15% by becoming more efficient in their confirmation process. Omgeo was able to offer these pricing changes as a direct result of cost efficiencies gained within the firm from ongoing investments in infrastructure and technology, Brown said.

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