The Depository Trust & Clearing Corporation has announced it will support all central counterparty solutions for credit default swaps in a non-discriminatory manner with its Trade I
The Depository Trust & Clearing Corporation has announced it will support all central counterparty solutions for credit default swaps in a non-discriminatory manner with its Trade Information Warehouse, whose capabilities include central net settlement and asset servicing.
Through its DTCC Deriv/SERV subsidiary, the company is currently working with ICE Trust/The Clearing Corporation, CME/Citadel, Liffe/LCH, and Eurex to facilitate their efforts to provide CCP services trade guarantees for credit default swaps.
DTCC says the Trade Information Warehouse, as a central registry and post-confirm infrastructure for credit derivatives, is optimally equipped to support any and all CCPs established in the CDS market. Virtually all dealers and buy-side participants along with 15 third-party service providers in the global CDS market are already linked to the Warehouse.
‘From the outset of our involvement in the OTC derivatives market in 2003, DTCC has been committed to bringing automation, certainty and reduced risk to trading in CDS and other derivatives instruments,’ says Peter Axilrod, managing director, business development and Deriv/SERV at DTCC.
‘By utilizing the Warehouse’s post-trade processing infrastructure rather than investing valuable resources to build their own, CCPs can achieve the objectives of CCP clearing – that is, to mitigate and mutualize counterparty risk and increase market liquidity – at the lowest cost and the greatest efficiency to their CCP members. Our support of CCP providers will give the industry standard centralized asset servicing across both cleared and bilateral trades.’
Warehouse services include: maintaining the official version of each registered contract; publishing on a weekly basis data on notional amounts of contracts outstanding and contract turnover; calculating all amounts due on most types of registered contracts; providing for centralized, multilateral net settlement of these amounts for participating firms through CLS Bank International, DTCC’s strategic partner in providing central settlement of CDS contract fees and coupon payments; central processing of credit events and, based on International Swaps and Derivatives Association auction results, calculation of net cash settlements due; central processing of successor events and corporate actions; and bulk novations when counterparties are merged or acquired, as in Bear Stearns’ acquisition by JPMorgan Chase.
The Warehouse also serves as the source of contracts for, and repository of the results of, the industry’s portfolio compression and tear-up processes, as well as the source of contracts for automated novation consent services.
CCPs that make full use of the Warehouse services will become Warehouse participants whose contracts with their own clearing members will be registered in the Warehouse like any other trades.
The Warehouse can expedite the start-up of any CCP by carrying out bulk novations to the CCP of existing trades originally contracted on a bilateral basis.