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DTCC Deriv/SERV Trade Information Warehouse

DTCC Deriv/SERV Trade Information Warehouse. Transformation of Credit Derivatives Market. Rapid, multi-dimensional growth on a global scale Trading volumes; new products; new market participants; secondary market development Rapid spread of automated trade confirmation

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DTCC Deriv/SERV Trade Information Warehouse

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  1. DTCC Deriv/SERV Trade Information Warehouse

  2. Transformation of Credit Derivatives Market • Rapid, multi-dimensional growth on a global scale • Trading volumes; new products; new market participants; secondary market development • Rapid spread of automated trade confirmation • Bulk of all trading is now confirmed on an automated basis – both inter-dealer and dealer-to-customer Trends create both concern around post-trade processing and opportunity to mitigate

  3. Growth in Credit Derivatives Market(Notional Value Outstanding) $US Trillions

  4. Spread of Automated Confirmation through Deriv/SERV All major dealers globally use Deriv/SERV Global buy-side take-up* * Includes 2nd tier dealers

  5. Current Bilateral Administration Environment Parties must constantly “sync up” during contract life • Payments, events, margining, etc. • Many manual and duplicative reconciliation/resolution processes (internal and between firms) Each party is hostage to its counterparties’ processing • You’re only as good as your counterparty – your records may be right, but if your counterparty disagrees or doesn’t know, you have a problem • Operating models vary across firms: different processes for different counterparties

  6. Central Trade Information Warehouse Two primary components: • A comprehensive, centralized trade database with the most up-to-date record of each contract • A central processing capability to standardize and automate “downstream” processing of payments and other post-confirm processes • Processing flows automatically from the electronic confirmation environment

  7. Model for Warehouse • Central asset servicing through central securities depositories or listed derivative clearing houses But • NO book-entry DVP services and • NO central counterparty (CCP) credit intermediation Complexities of OTC derivatives demanded a multitude of unique and innovative servicing solutions.

  8. Warehouse Schematic – 1st Phase Market Participants ECNs, e-Checkout Services, AffirmXpress Deriv/SERV Automated Confirmation • Trade Warehouse • Contract Maintenance • Event Processing* • Payment Calculation • Bilateral Netting Back Loading External Data Sources (notional factors, etc.) Automated Funds Transfer Central Funds Settlement Agents * Events include credit events, assignment consents

  9. Warehouse Schematic – Potential Build Out* *Assuming market participant support Market Participants ECNs, e-Checkout Services, AffirmXpress Deriv/SERV Automated Confirmation • Trade Warehouse • Contract Maintenance • Event Processing* • Payment Calculation • Margin Calculation • Bilateral Netting Other Automated Confirm Services Back Loading External Data Sources (add pricing, resets, etc) Automated Collateral Transfer Automated Funds Transfer Central Funds Settlement Agents Central Securities Depositories * Events include credit events, assignment consents, corporate actions

  10. Core Principle – Extensible Design

  11. Participant Cost Savings Processes eliminated: • Verbal or ad hoc trade checkouts • Portfolio substantiation/tie-outs • Bilateral cash flow reconciliation • Assignment e-mail processes • Margin disputes, delays • Investigation of breaks with respect to the above Overhead reduced: • Reduced nostro fees • Efficient collateral processing • Standardized, automated processing for credit (and other) events • More efficient portfolio management (tear-ups, position netting, etc.)

  12. Participant Risk Reduction Correct balance sheet: Achieves immediate contract transparency Reduces risk in: • Reporting (corporate, regulatory, etc.) • Market risk management • Counterparty credit risk management Other risk reduction: • Credit event management (especially multiple credit event scenarios) • Ad hoc reconciliation eliminated • Fully transparent data set • Standard messaging • Similar for other events • Payments always correct and complete • Collateral always correct and complete

  13. User Oversight Global Senior Oversight Group • Established by OTC Derivatives Operations & Planning Committee of DTCC Board • Dealers – Senior personnel from the 14 major dealers • All committed to their European and North American regulators to support this project and undertake other actions regarding reducing operational risk in the credit derivatives market • Other dealers are eligible to participate if they make the same commitments • Buy-Side – Senior personnel from Europe and North America • Where possible, nominated by hedge fund and traditional and asset manager trade associations

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