ID Net Delivers Risk and Cost Benefits for Institutional Trades
With cost containment still a top priority for many firms across the industry, broker/dealers and custodian banks are increasingly turning to the ID Net service to reap the financial savings of institutional netting. ID Net allows brokers to combine their affirmed institutional equity trades with their broker-to-broker trades in NSCC’s Continuous Net Settlement (CNS) system.
The number of new customers for ID Net nearly doubled over the past year and continues to grow. The number of transactions flowing through the service has jumped to as many as 9,200 in a given day, up from about 500 to 700 in early 2009.
“The industry continues to look to the infrastructure to help solve new challenges – and ID Net is able to deliver on a number of critical fronts,” said Susan Cosgrove, DTCC managing director, Clearance and Settlement/Equities. “It allows firms to net their broker-to-broker trades along with their institutional trades, which helps improve their bottom line. It also offers a streamlined process, risk mitigation and a reduction in the number of fails for institutional trades.”
ID Net, which launched in 2008, is a joint offering of National Securities Clearing Corporation (NSCC) and The Depository Trust Company (DTC), in collaboration with Omgeo, DTCC’s global joint-venture company that provides post-trade processing services for the institutional marketplace.
Lower fees
Unlike exchange trades and most prime broker trades, institutional transactions do not typically flow through CNS’s automated book-entry accounting system. Instead, they generally settle on a trade-for-trade basis at DTC.
The ID Net service essentially separates an affirmed/matched institutional trade into two parts, allowing the broker to combine its institutional trades with its other trades in CNS, while the bank, acting as custodian for the investment manager’s client, continues to settle on a trade-for-trade basis.
A key benefit of ID Net is that the DTC Institutional Delivery (ID) settlement fee is only 2½ cents for all ID Net-eligible trades (vs. 5 cents for all other institutional trades), with some firms reaping additional savings through reductions in CNS and Inventory Management System (IMS) costs.
“While firms are already enjoying the financial benefits of ID Net, as industry participation continues to rise they will be able to more fully harness the service’s potential, including greater certainty that their institutional trades will settle,” said Stephen Wasserman, DTCC director, Clearance and Settlement/Equities. @
[To learn more about ID Net, contact Stephen Wasserman, DTCC director, Clearance and Settlement/Equities, at swasserman@dtcc.com or 212.855.3270.]