DTCC Plans to Revolutionize New-Issue Processing
Read All About It
To read DTCC’s concept paper on the new-issue service, titled “Automating the Collection and Dissemination of Critical Information About Newly Issued Securities, see Presentations and White Papers. on dtcc.com
DTCC has announced a detailed plan for a centralized and automated service that will “revolutionize” the way new securities issues are processed after they’re prepared for pricing.
The current environment for processing new issues is highly paper intensive and manual, resulting in delays and errors that represent a growing area of risk for industry participants. DTCC’s new service will not only automate the capture and dissemination of information required for underwriting new issues, but will also help underwriters and other market participants, such as inter-dealer brokers and securities traders, meet new regulatory reporting requirements to ensure transparency in the trading of newly issued municipal bonds.
“This is one of the most significant automation efforts undertaken by the industry – and by DTCC,” said James Balbo, DTCC managing director of Asset Services. “It will totally revolutionize the traditional way of handling new issues, including equity IPOs, and how the underwriting process is completed.”
A snapshot of new-issue underwriting
The underwriting of new issues is a major business for the securities industry. In 2005, DTCC’s depository made 47,178 new issues – valued at more than $4.4 trillion – eligible for processing within the industry. About 55% of the issues were corporate bonds, 42% were municipal bonds and the rest were chiefly equities. The municipal bonds included 2,992 note issues valued at $46.8 billion and 16,841 bond issues valued at $470.5 billion.
The new service, first proposed only for municipal bonds, will eventually be expanded – at the urging of the securities industry – to cover all new issues including corporate debt, equities and other securities. “Our goal is to make the underwriting process far more efficient and to reduce information-gathering costs across the industry,” Balbo said.
The service will be available not only to DTCC’s depository participants but also to other industry parties, such as correspondent underwriters.
Background on the plan
According to DTCC’s action plan, critical information on new municipal bond issues is often not available in time to meet a 15-minute deadline for reporting trades because “current notification practices are decentralized and involve a variety of formats, manual processes, numerous intermediaries and redundant steps.”
At the urging of The Bond Market Association, the securities industry asked DTCC, as part of a major overhaul of its securities underwriting and corporate action processing platforms, to build a service that could overcome the problem. Meanwhile, the Securities and Exchange Commission (SEC) recently approved a decision by the Municipal Securities Rulemaking Board (MSRB) to postpone enforcement of the new-issue reporting requirements until the end of 2007, giving the industry time to initiate and use DTCC’s new service.
Industry perspective
“The major bookrunning services, which work on behalf of the lead managers of underwriting syndicates across all asset classes and handle most of the industry’s volume, are willing to participate in the new service,” noted Peter Inguanta, DTCC director, Product Management.
“Our clients are interested in us doing this,” added Cheryl Horowitz, a senior executive of i-Deal, one of the industry’s principal bookrunning services. “And anything we can do to help the industry be more efficient, we’ll do,” she said.
“Our new service will eliminate re-keying of data and help create an ‘electronic pipeline’ that can take and make delivery all across the industry,” Inguanta said. “We’ll be able to get the data much sooner than we do now, and we’ll be able to speed up the task of making an issue eligible at the depository,” he explained.
The data received in the information-gathering process on a new issue will be made available and disseminated to the industry, Inguanta said. The data will also be used to make the new issue eligible for DTCC’s depository.
In addition to The Bond Market Association, the Securities Industry Association and the Syndicates Operations Association, more than 100 firms, industry utilities and regulators worked on defining the business and functional requirements for the different asset classes to be included in the new service. @