DTCC Submits Filings To Establish Warehouse As a Regulated Trust Company
DTCC announced on May 28 that it has filed applications to establish a limited-purpose trust company that will house the functions of DTCC’s Trade Information Warehouse for credit derivatives. The Warehouse today serves as the world’s central repository for over-the-counter (OTC) credit derivatives, containing the bulk of all credit derivatives traded worldwide.
The new company, to be called The Warehouse Trust Company LLC, has filed applications for membership in the Federal Reserve system and with the New York State Banking Department (NYSBD) to form a limited-purpose trust company and will become a wholly owned subsidiary of DTCC Deriv/SERV LLC, which operates DTCC’s automated services for OTC derivatives.
It is expected that in the new company, the Trade Information Warehouse for credit derivatives will become subject to a collaborative global regulatory scheme involving interested regulators in Europe as well as the U.S. The new trust company will also establish a subsidiary in Europe to facilitate the offering of regulated Warehouse services in Europe.
Response to regulators globally
“In filing this application to create The Warehouse Trust Company, DTCC is responding to the expressed intentions from regulators globally to bring added risk protection and regulatory oversight to the credit derivatives market,” said Donald F. Donahue, DTCC chairman and CEO. “Our goal, as the operator of the only global trade repository for credit default swaps, is to align our infrastructure in a manner that is consistent with concerns of regulators and market participants and will allow us to continue, and possibly expand, the vital role we play in bringing greater certainty, transparency and reduced risk in the post-trade of OTC derivatives and the servicing of these instruments throughout their lifecycle.
“DTCC’s launch of the Warehouse in 2006, after some years operating the industry’s automated confirmation service for credit derivatives, where these contracts are held in an automated environment, was instrumental in mitigating risk associated with multiple credit events in 2008 and this year,” Donahue continued. “Throughout this period, we have worked closely with customers and regulators globally to strengthen the market’s infrastructure and create greater transparency. Recognizing that these instruments are traded globally, we have, throughout this process, taken a very active approach in communicating with regulators in the U.S. and Europe and have provided them with key market data as needed.”
Enhancing transparency
To address regulatory and industry concerns about the need for more transparency in the market, DTCC has, since November 2008, been publicly posting weekly data on its website, www.dtcc.com, on open interest and turnover statistics for all credit default swaps (CDS).
These data include specific information for each of the top 1,000 single-name reference entities and for the various CDS indices as well as aggregated data on a gross and net notional basis.
Supporting CCP services
As a market-neutral utility, DTCC has been working with all proposed central counterparty (CCP) solution providers as the market moves towards complying with global regulators’ calls for a process to guarantee the completion of trades in the CDS market.
“We are committed to providing equal access to all CCP providers, so they can leverage our trade repository in delivering their own services more cost-efficiently,” said Peter Axilrod, DTCC managing director, Business Development and DTCC Deriv/SERV. “Linking to the Warehouse’s central infrastructure will not only accelerate implementation of CCP processing for OTC derivatives, but will also allow these service providers to focus their development more clearly on margining and risk management without any extraneous operational concerns.”
By connecting to the Warehouse, market participants will be assured that lifecycle events for cleared and non-cleared transactions are pro-cessed identically and simultaneously, removing the risks that would be created by non-identical or non-simultaneous processing of these events. Market participants can also integrate their own operations with CCPs more efficiently by using the same infrastructure. This will help avoid the potential risks associated with trying to incorporate two separate, and perhaps inconsistent, operational infrastructures. @