The Depository Trust & Clearing Corporation (DTCC), through its subsidiary, The Depository Trust Company (DTC), will institute Settlement Matching for DTCC Participants beginning in 2013, bringing significant enhancements to the settlement process and further reducing risk for DTC and its Participants.
Settlement Matching will be introduced in a manner that promotes institutional trade affirmation and encourages straight-through processing (STP) by implementing a transaction matching component into DTCC’s existing settlement processes. DTCC will leverage existing infrastructure to provide clients with the ability to “authorize or match” transactions prior to settlement. This will eliminate the need for reclamation transactions and the accompanying credit and liquidity risk, a significant step in risk mitigation for the industry.
In addition to the inherent credit and liquidity risks, a number of other drawbacks come with the current settlement process including the inability to credit underlying customer accounts without risk of reversal, limited transparency of erroneous or disputed transactions, and costly manual intervention. Also, most reclaims are processed primarily late in the day making it difficult for the original deliverer to take corrective action or use the securities for other funding opportunities.
Settlement Matching will bring benefits to the U.S. market, including:
- Enhanced intraday settlement finality through the elimination of reclaim processing
- Improved straight-through processing capabilities
- Promotion of “best practices” for institutional trade matching, and
- Better positioning the industry for a shortened settlement cycle.
The Settlement Matching initiative follows on DTCC’s recent efforts to further reduce systemic risk and its heightened focus on risk management. It also aligns DTCC with the intraday settlement finality recommendations of the Committee on Payment and Settlement Systems of the International Organization of Securities Commission, collectively known as CPSS-IOSCO.
For more information on Settlement Matching: please contact your Relationship Manager or Jack Manuel, DTCC Director, Settlement Product Management at firstname.lastname@example.org or (212) 855-5921.
Settlement Matching Timeline:
Stage 1 - Reducing DTCC’s RAD Default Limits in Half: Implemented July 26,2013.
Stage 2 – Stock Lending profiles: Implemented October 25, 2013.
Stage 3 – Reducing DTCC’s RAD Default Limits to Zero: Implemented as follows;
Stage 4 – Subjecting Institutional Deliveries (ID) to Receiver Approval: Implementation schedule as follows;
- January 30, 2015: Clients will be able to view and modify their ID Trades profile setting prior to them becoming effective on February 5th.
- February 5, 2015: DTCC’s RAD default limit for ID receives will be set to $15 million.
- February 12,2015: DTCC’s RAD default limit for ID receives will be set to $25,000.
- February 26, 2015: DTCC’s RAD default limit for ID receives will be set to $0.01.