Issues & Initiatives

Money Market Instrument Finality through Optimization

DTCC, through its depository, The Depository Trust Company (DTC), plans to enhance its current settlement model to eliminate risks associated with intraday reversals of transactions in DTC’s MMI system that are the result of issuer failure. The proposed MMI settlement model will require changes to DTC’s “refusal to pay” procedures and to current market practices by investors, issuers, custodians, placement agents dealers and Issuing Paying Agents (IPAs). These changes will allow MMI transactions to be processed intraday without the risk of transaction reversal prior to end-of-day settlement. Phased-in implementation is planned for Q4 2016/Q1 2017.

As identified by CPSS-IOSCO, the new model will further align DTC and the industry with the committee’s recommendations as it pertains to intraday settlement finality for Depositories. It will reduce MMI systemic risk and provide MMI intraday settlement finality through the elimination of transaction reversals that may occur when an IPA refuses to pay for an issuer's maturing obligations at DTC. It will allow more transparency for all industry participants when settling MMIs at DTC with minimal changes for our clients. The new model offers a constructive solution to move towards increased intraday finality and reduced systemic risk associated with reversals from issuer failure without changing the processing throughput that we see today. A key change to the current model is that all transactions approved by receivers of MMI issuance and deliver order transactions, along with maturity presentments, income presentments and reorganization payments, will be "held" pending acknowledgement to process, which will be based on issuer funding as follows:

  1. Once the aggregate value of new issuance transactions that are approved by the receiver exceed the settlement value of the maturing obligations of an issuer.
  2. Once the IPA has indicated to DTC that it has been funded, for the difference between the value of the MPs and new issuances. This can occur in one of two ways:
    • The IPA has been fully funded for the total value of the maturing obligations of the issuer regardless of any offsetting issuance instructions being processed; or
    • The IPA has indicated to DTC that it has been partially funded directly from the issuer and the remaining financing will come from the receiver-approved issuance instructions processed by the IPA.
  3. Once the IPA has indicated to DTC that they will fully fund for the total value of income presentments and reorganization payments.

Benefits Improved Money Market process will bring benefits to the U.S. Market, including:

  • Mitigate the credit and liquidity risks to DTC, IPAs, Custodians and Dealers associated with intraday MMI transaction reversals.
  • Mitigate system risk/overriding controls and increase intraday settlement finality.
  • Maintain the current levels of intraday settlement throughput and client funding requirements.
  • Reduce risk control blockage within the system by no longer needing to make credits "provisional" e.g., withholding the two Largest Provisional Net Credits ("LPNC2") in the system. Currently, DTC holds an average of $150 billion of LPNC daily in the system across all clients.
  • Leverage existing infrastructure and technology to minimize the changes necessary to participant’s procedures or systems.
  • Increase transparency in the system for all clients and issuer funding for IPAs, Investors and their Custodians.
  • Maintain how and when non-MMI transactions are processed.

MMI Finality through Optimization Milestones

Testing Available................ Q3 2016

Phased-in Implementation ............................. Q1 2017/Q2 2017

For more information on MMI Finality through Optimization: please contact your Relationship Manager, Client Account Representative or Bob Cavallo, DTCC Director, Settlement Product Management at rcavallo@dtcc.com or (212) 855-1483.

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