DTCC Deriv/SERV's Trade Information Warehouse Goes Live

DTCC Deriv/SERV's Trade Information Warehouse Goes Live

November 14, 2006

Global Infrastructure Will Reduce Risk for OTC Derivatives

    LONDON, Nov. 14 /Xinhua-PRNewswire/ -- The Depository
Trust & Clearing Corporation (DTCC) announced today the
launch of its Trade Information Warehouse, creating a
centralised and secure global infrastructure for the
post-trade processing of over-the-counter (OTC)
derivatives.

    The warehouse is made up of two components: 1) a
comprehensive trade database containing the "official
legal record" for all contracts eligible for automated
Deriv/SERV confirmation, and 2) a central support
infrastructure that automates and standardises post-trade
processes (such as payments, notional adjustments and
contract term changes) over the life of each contract,
which can extend five or more years.

    Initially, the warehouse will support credit
derivatives, and then extend to other OTC derivatives
products including rates, equities, FX and commodities --
depending on market demand and input from the senior group
working with DTCC in guiding the initiative. 

    "The trade warehouse is a `just in time'
technological solution necessary to support our vibrant OTC
derivatives markets," said Robert E. Diamond Jr.,
President of Barclays PLC.  "My thanks to DTCC and all
industry participants who worked tirelessly to implement the
warehouse in record time."

    Current environment:  A high degree of manual
processing 

    Today's OTC derivatives environment requires continuous
bilateral reconciliation for each contract.  In other words,
each trading party must continually "sync up" with
each of its counterparties over the life of each contract,
keeping track of post-trade events, such as assignments,
amendments, terminations and notional adjustments. 
Processing is not standard across the industry, and the
work involves considerable manual processing relying on
faxes, emails and phone calls. 
   
    The credit derivatives market more than doubled
annually through mid-2006, when the notional amount of
credit derivatives reached $26.0 trillion up from $12.4
trillion in mid-2005.

    "The warehouse represents the launch of a very
innovative and important industry solution to improve
process, efficiency and risk control in the global credit
derivatives markets," said Dick Weil, Chief Operating
Officer of PIMCO.  "It was made possible by some
exceptional cooperation between dealers, investment
managers and regulators."

    The warehouse will automate many processes that occur
throughout a contract's life cycle, which today involve
significant manual effort. This includes bilateral contract
and cash flow reconciliation.  Other post-confirmation
processes, such as credit event processing and assignment
processing, will be made much more efficient. From a risk
management perspective, the warehouse will help firms
ensure accurate balance sheet information for corporate and
regulatory reporting purposes, support accurate collateral
management, and promote correct and complete payments.

    "The implementation of the warehouse marks a
milestone in the evolution of the OTC derivatives
marketplace," said Thomas A. Russo, Vice Chairman,
Lehman Brothers.  "Our industry has come together in
record time to put in place a common operational platform
to manage credit derivative contracts over their life
yielding standardization, efficiency and risk
reduction."

    Building on Deriv/SERV's foundation

    Today, 80% of credit derivatives traded globally are
electronically confirmed through Deriv/SERV, up from 15% in
2004.  The warehouse builds on Deriv/SERV by using confirmed
trade details as input for the warehouse, so that post-trade
processing flows automatically from up-to-date trade terms.


    "The trade warehouse is the successful result of a
truly cooperative, global effort on the part of both
financial services firms and their regulators," said
Dr. Hugo Banziger, Chief Risk Officer, Deutsche Bank. 
"The warehouse demonstrates their common interest to
work together to bring about growth and stability to our
financial markets."

    Warehouse launch plan and development

    With today's launch, all new trades and post-trade
events submitted to Deriv/SERV for electronic confirmation
will automatically be loaded into the Trade Information
Warehouse. The warehouse will assign a unique reference
identifier for each contract, and maintain the
"current state" contract terms, taking into
account assignments, terminations and amendments.

    "Our goal is to provide a safe, efficient
processing environment globally -- modelled on the
automated central asset servicing that central securities
depositories provide for equities, fixed income and other
securities," said Peter Axilrod, managing director,
DTCC Business Development. "The Trade Information
Warehouse provides the underpinnings to support the entire
post-trade life cycle for OTC derivatives in a paperless
environment." 

    In 2007, the warehouse will expand to support central
payment calculation, and a central settlement capability
through links with a central settlement provider to
streamline payment settlement. Also in 2007, the warehouse
will offer customers the flexibility of electronically
reconciling ("tying out") complex or non-standard
contracts that cannot be legally confirmed through
Deriv/SERV, replacing the customary telephone-based
approach.

    The warehouse is designed with a flexible, but secure,
open architecture capable of being extended, and allowing
other service providers to connect to the warehouse.  As a
result, the warehouse will be able to offer additional
efficiencies in portfolio management, bilateral margining
and other post-trade processes, both directly and through
links with other providers.

    "We developed the warehouse in close collaboration
with leading dealers and buy-side firms over an aggressive
ten-month timeframe," said Bill Hodgson, vice
president, DTCC Business Development, who led development
from London. "This has been a cross-border
collaboration -- from developing business requirements, to
designing an operating model, to setting processing
standards, to testing.  We anticipate that a wide range of
industry service providers will be connecting to the
warehouse and offering complementary services."

    Background on the warehouse project

    DTCC announced in February its plans to build the
warehouse.  Since then, DTCC has been working aggressively
with senior personnel from 19 leading global dealers and
the buy-side community (including traditional asset
managers and hedge funds) to develop this industry
infrastructure solution. The project is being overseen by a
Senior Oversight Group, which has been established by the
OTC Derivatives Operations and Planning Committee of DTCC's
Board to make implementation recommendations to the Board
Committee.

    Major credit derivatives dealers pledged their
commitment to the warehouse project, calling it "a
material step forward in reducing operational risk and
increasing operational efficiency in the credit derivatives
market," in a letter to the Federal Reserve Bank of New
York on 10 March 2006.  Financial regulators have also
publicly stressed the importance of a global infrastructure
for the credit derivatives market and the Trade Information
Warehouse. 

    Testing of the warehouse's functionality began in
September.  In addition, backloading, which involves
populating the warehouse database with trade data on
existing contracts, has started and will continue through
2007.  

    About DTCC

    The Depository Trust & Clearing Corporation (DTCC),
through its subsidiaries, provides clearance, settlement and
information services for equities, corporate and municipal
bonds, government and mortgage-backed securities, money
market instruments and over-the-counter derivatives. In
addition, DTCC is a leading processor of mutual funds and
insurance transactions, linking funds and carriers with
their distribution networks. DTCC's depository provides
custody and asset servicing for more than 2.5 million
securities issues from the United States and 100 other
countries and territories, valued at $31.2 trillion. Last
year, DTCC settled more than $1.4 quadrillion in securities
transactions. DTCC has operating facilities in multiple
locations in the United States and overseas.  DTCC's
derivatives services are offered through DTCC Deriv/SERV
LLC, a wholly owned subsidiary of DTCC.  For more
information on DTCC, visit http://www.dtcc.com .

    For more information, please contact:

    In the UK:

     Stuart Z. Goldstein
     Tel:   [phone]
     Email: [e-mail]

     Freida Moore
     Citigate Dewe Rogerson
     Tel:   [phone]
     Email: [e-mail]

    In the US:

     Lisa Argento
     Tel:   [phone]
     Email: [e-mail]

     Judy Inosanto
     Tel:   [phone]
     Email: [e-mail]

SOURCE  DTCC - The Depository Trust & Clearing
Corporation