News from the DTCC Complex: DTCC Cuts Fees Again for 2008
DTCC has cut fees for the second time in 2008, with the new prices taking effect July 1. These latest cuts, reflecting surging volumes and DTCC’s tight financial management during the first half of the year, come on top of the organization’s largest-ever fee reductions announced in January.
“With the latest fee reductions, it is an opportune time to address a misperception some firms have about the net cost of doing business with DTCC,” said Michael Bodson, DTCC executive managing director, Business Management and Strategy, noting that this topic is particularly relevant given tough market conditions.
There are two components to customer costs. “While fees represent the initial billing for services, the actual cost borne by our customers is the net amount paid after rebates and discounts,” said Bodson. “Fees are a means of tracking usage and allocating our costs to customers.”
He added, “When DTCC reduces the fees charged for services, it reflects our efforts to keep customer costs aligned with actual usage of the services.” The combined January and July reductions, projected to total approximately $222 million in 2008, are consistent with this objective.
Bodson explained that DTCC continually reduces the costs of its core services by controlling the fixed cost associated with its processing capacity and seeking to put through higher levels of usage via volume increases or product expansion, which yields unit savings thanks to economies of scale, and by reducing absolute costs through rigorous internal expense controls.
Study Shows EuroCCP Has Lowest Clearing Costs in Europe
A study published on July 1 by DTCC’s EuroCCP subsidiary has found it offers the lowest costs for clearing in Europe based on tariffs disclosed by all service providers, as required under the European Code of Conduct for Clearing and Settlement.
A comparative analysis conducted by EuroCCP found the average cost for clearing paid by financial firms was 26 eurocents, whereas EuroCCP’s anticipated average cost will be 2.9 eurocents per transaction. EuroCCP’s highest cost is 6 eurocents per transaction.
“This research further underscores EuroCCP’s value proposition,” said Diana Chan, chief executive officer of EuroCCP. “The trading platforms and exchanges who use EuroCCP will benefit by offering a more competitively priced combined trading and clearing environment. Financial firms who use EuroCCP will gain advantage from our ‘at cost’ business model that returns excess revenue to our customers and that continually drives down fees. EuroCCP clears for multiple trading venues so financial firms can not only net down the number of settlement obligations but also reduce the amount of collateral needed.”
The study found, based on publicly disclosed tariffs and information, that if EuroCCP were used to clear all trades in Europe today, the annual cost savings to financial institutions “would be nearly €350 million (£277) in 2008.”
“We are committed to leading the way by being the low-cost pan-European clearing and settlement provider to multilateral trading facilities (MTFs) as well as exchanges, offering them unparalleled efficiency, capacity, safety and business resiliency,” said Chan.
EuroCCP has already been chosen by Turquoise and SmartPool, two new multilateral trading facilities that are expected to gain significant market share once they launch this fall. Both of these trading platforms offer a value proposition based on lower aggregate trade execution and clearing expense. EuroCCP has a non-exclusive relationship with the platforms it will support and is actively engaged in discussions with other MTFs as well.
Global Banks Will Work with DTCC to Automate Syndicated Loan Processing
Five global banks are currently supporting DTCC’s launch of Loan/SERV, a new suite of services that will help automate and streamline the processing of syndicated commercial loans.
The banks, whose representatives will serve on the initial advisory committee for Loan/SERV, include The Bank of New York Mellon, Barclays Capital, Citi, Deutsche Bank and The Royal Bank of Scotland.
“As an agent bank in the syndicated loan market, we know firsthand the future challenges the industry faces in processing and tracking syndicated loans,” said Atilla Karasapan, managing director, Citi. “If we intend to grow the market and boost efficiencies at the same time, we need an automated solution. We’re pleased to be consulting with DTCC and the other leading banks on this important initiative.”
DTCC’s Loan/SERV platform, offered by DTCC Solutions LLC, will start with the introduction of two services in 2008, including a Loan Commitment Position Reconciliation service, which will enable agents to reconcile lender positions on individual loans every day. This is scheduled to launch in the third quarter of 2008. A second service, scheduled for release in the fourth quarter of 2008, will be an automated, secure communication network through which agent banks can transmit standard loan messages to market participants.
Global syndicated lending reached US$4.5 trillion in 2007, up 13.4% from 2006 and a 32% increase over 2005, according to industry estimates.
Four New Directors Join DTCC Board
On May 1, DTCC announced four new industry leaders are joining the DTCC Board of Directors. The new directors include: Mark Alexander, managing director and head of Global Operations, Merrill Lynch & Co.; Ian T. Lowitt, co-chief administrative officer, Lehman Brothers Holdings Inc.; Louis G. Pastina, executive vice president of NYSE Operations, NYSE Euronext; and Neeraj Sahai, managing director and global head of Securities and Fund Services, Citi.
The 2008 DTCC Board will be made up of 21 directors, serving one-year terms. Seventeen directors are representatives of clearing agency participants, including international broker/dealers, correspondent and clearing banks, mutual fund companies and investment banks. Two directors are designated by the preferred shareholders, NYSE Euronext and FINRA, and the remaining two are the chairman and chief executive officer and the president of DTCC. All of the Board members except those designated by the preferred shareholders are elected annually.
“Our Board represents some of the world’s leading banks, broker/dealers and mutual fund companies, and our new directors bring unique strengths and backgrounds to this role,” said Donald F. Donahue, chairman and CEO of DTCC. “Their extensive experience in global operations and risk management will provide valued insight and guidance to DTCC as we continue to grow our businesses.”
Individuals are nominated for election as directors based on their ability to represent DTCC’s diverse base of participants, and Board committees are specifically structured to help achieve this objective. In addition, to ensure broad industry representation and expertise on key industry subjects, industry representatives that are non-Board members serve on a number of DTCC Board committees.
Mark Alexander
Ian T. Lowitt
Mark Alexander
Mark Alexander is a managing director of Merrill Lynch and head of Business Infrastructure and Controls and the Direct Division for the Global Wealth Management (“GWM”) business. He is also head of Global Operations and Services for Merrill Lynch & Co., where he is responsible for worldwide operations and client services for Global Markets and GWM.
Alexander’s 17-year career at Merrill Lynch includes leadership positions in Global Private Client Services, Global Transaction and Custody Services, Operations for Europe, the Middle East and Africa, Global Equities Operations, Fixed Income Operations and Institutional Client Services.
Ian T. Lowitt
Ian T. Lowitt is an executive vice president of Lehman Brothers Holdings Inc. and has been co-chief administrative officer since October 2006. In this role, he is responsible for the global oversight of Corporate Real Estate, Expense and Sourcing Services, Finance, Operations, Productivity and Process Improvements, Risk Management and Technology.
Prior to his current role, Lowitt was the chief administrative officer of Lehman Brothers Europe. He has also served as global Treasurer and global head of Tax, and chairman of Lehman Brothers Bank FSB, the firm’s Delaware-based savings bank. Before becoming global Treasurer, he was the firm’s head of Strategy and Corporate Development.
Louis G. Pastina
Louis G. Pastina
Neeraj Sahai
Louis G. Pastina is executive vice president of NYSE Operations, NYSE Euronext. In this position, Pastina is responsible for the NYSE Cash Market Operations including the NYSE Trading Floor. In addition, he is managing the architectural upgrade to the NYSE trading systems.
He previously oversaw the development and implementation of the NYSE Hybrid MarketSM and coordinated all planning efforts to support it, from sales to operations.
Neeraj Sahai
Neeraj Sahai is the global head of Securities and Fund Services, Citi. Sahai is also a member of Citi’s Institutional Clients Group Management Committee, and Citi’s Global Transaction Services Management Committee.
Prior to assuming his current role, Sahai was chief financial officer of Global Transaction Services, overseeing finance, risk, control, treasury and strategy and M&A, among other areas of the business. Immed-iately prior to this assignment, he was head of Citi’s Audit & Risk Review group for Markets & Banking. He has been with Citi for more than 23 years.
DTCC and Markit to Form Strategic OTC Derivatives Partnership
Markit and DTCC on July 21 announced the formation of a new company that will combine the strengths of Markit’s front- and middle-office trade processing services with DTCC Deriv/SERV’s back-office leadership in post-trade confirmation and matching services. The new company will provide a single gateway for confirming over-the-counter (OTC) derivative transactions globally, allowing buy- and sell-side market participants to confirm trades and gain access to additional services provided by Markit and DTCC through a common portal.
The new company will comprise Markit’s Markit Wire platform (formerly SwapsWire), Markit Trade Manager, Markit Tie Out, and Markit PortRec. DTCC will contribute its Deriv/SERV matching and confirmation engine, and its AffirmXpress, MCA Xpress and Novation Consent services. This initiative should accelerate the adoption of electronic processing solutions across the rapidly growing $454 trillion OTC derivative market where approximately 50% of transactions are still confirmed on paper.
The new company, headquartered in London, will be jointly owned by DTCC and Markit, and governed by an 11-member board of directors representing the industry and managements at the respective parent companies. Michael Bodson, executive managing director for DTCC’s business management and strategy overseeing all DTCC business lines, will be chairman. Jeff Gooch, executive vice president of Markit, will be chief executive officer.
The DTCC-Markit agreement will become effective following completion of due diligence, regulatory filings and approval by relevant global regulators, including those in the U.K. and U.S. 