New OTC Equity Derivatives Trade Repository Will Launch in 2010
DTCC and MarkitSERV are creating a global over-the-counter (OTC) Equity Derivatives Trade Reporting Repository that will house these instruments for major trading firms in this market segment. The goal is to complete the repository’s buildout by May, conduct industry testing in June and July, and make the first set of reports available to the public and regulators by the end of July.
This new repository will enable the major market participants to meet a commitment made to the New York Federal Reserve and other international regulators to have all OTC equity derivatives in a repository by July 31, 2010.
Currently, DTCC, MarkitSERV and the global OTC equity derivatives industry are awaiting regulatory response to their proposal for the type of information that will be reported from the repository. Although DTCC, MarkitSERV and the industry are moving forward with development, any recommended changes from regulators will be used to revise the system in time for the launch.
Background on new repository
In October 2009, the industry selected DTCC and MarkitSERV, a trade processing company jointly owned by DTCC and Markit, to create a global repository for OTC equity derivatives trades. Their selection followed a request-for-proposal (RFP) process managed by the International Swaps and Derivatives Association (ISDA®).
DTCC is leveraging the technology and processing knowledge gained from handling OTC credit derivative “gold” (matched, legally binding) and “copper” (one-sided) trade records in building the new repository, but the first phase of the equity repository will only provide reporting on one-sided positions. Additional capabilities and data may be added as necessary in the future. MarkitSERV will feed position data from participants directly into the equity derivatives repository. “The creation of this new repository is a natural extension of the services that MarkitSERV provides for OTC derivatives, including equities,” said Jeff Gooch, CEO of MarkitSERV.
In a separate RFP, the industry also selected DTCC to create a cash-flow matching service for OTC equity deriv-atives, which will reduce risk and settle-ment costs. This capability is scheduled to go live in the second half of 2010.
Other repositories
In June 2009, major dealers and trading firms struck a voluntary agreement with global regulators aimed at making the OTC derivatives market more transparent. The signatory firms pledged to create repositories for key asset classes, and indicated that they consider holding OTC derivatives data in a central repository as a “best practice” for the industry.
Today, the industry has repositories for three OTC derivatives asset classes. DTCC Deriv/SERV’s Trade Information Warehouse houses credit default swaps, while also providing asset serving and central settlement capabilities; Tri-Optima’s OTC Interest Rate Derivatives Trade Reporting Repository went live in December 2009 and began submitting data reports to regulators on January 15; and the OTC Equity Derivatives Trade Reporting Repository, which is the latest addition.
“The industry has committed to regulators that it will improve the transparency of OTC derivatives trading, and DTCC is helping achieve this objective. We are also helping to improve the processing and servicing of these contracts with capabilities like the cash flow service,” said Stewart Macbeth, DTCC managing director and head of the Trade Information Warehouse. @