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DTCC: Real-Time Trade Matching for Mortgage-Backed Securities Goes Live

GSCC's Successful RTTM System Has Been Adapted for MBSCC Transactions

New York, October 3, 2002 - The Depository Trust & Clearing Corporation (DTCC) took another major step in support of the industry's move to a straight-through processing environment with the successful launch on September 27 of a new Real-Time Trade Matching (RTTM) system to process mortgage-backed securities.

The implementation, which was seamless, represents a major milestone for customers of MBS Clearing Corporation (MBSCC). It now enables them to compare trade terms on a timelier basis and replaces the twice-daily trade match process that previously existed for mortgage-backed trades prior to RTTM. On an average day, MBSCC compares approximately 6,000 trade sides with a par value in excess of $200 billion.

"RTTM reduces the costs and risks associated with a prolonged period of time between trade execution of a mortgage-backed security and achievement of a legal and binding confirmation, increasing certainty and eliminating the manual and error-prone verbal checkout process," said Tom Costa, president and chief operating officer of GSCC/MBSCC (Government Securities Clearing Corporation and MBSCC). The two companies became DTCC subsidiaries in January.

"With RTTM, buyers and sellers of mortgage-backed securities can identify and resolve trade execution differences within minutes after submission, reducing both execution and market risk," he continued.

The September 27 implementation included the retirement of the existing MBSCC batch trade matching facility, as well as the replacement of the current Terminal Service. Customers now have the ability to submit trades through a new RTTM Terminal Service, Interactive Messaging, and the existing File Transmission Service, with matching occurring in real-time rather than awaiting execution of a batch process.

MBSCC has been working with customers since April to test their systems in conjunction with the RTTM service and also hosted RTTM training sessions for customers.

One customer, Jack Fondacaro, vice president, Lehman Brothers, Inc., said, "RTTM provides us with the opportunity to be more efficient in executing MBS trades and managing market risk by resolving differences in a more timely manner. It definitely helps eliminate the uncertainty of whether trades are matched during the hours immediately prior to the net-out."

This RTTM initiative for mortgage-backed securities is the latest move by GSCC/MBSCC to steadily expand its technology and to capitalize upon synergistic opportunities afforded as newly integrated clearing organizations. GSCC first implemented RTTM for Government securities in 2000 with a vision of using that platform as a model for providing standardized services for other fixed income securities. Currently, about 82% of all transaction activity is being submitted to GSCC interactively or by multi-batch with an average daily value of approximately $ 1.2 trillion.

In addition to its work on mortgage backed securities, GSCC/MBSCC has been collaborating with another DTCC subsidiary, National Securities Clearing Corporation (NSCC), to develop RTTM services for NSCC fixed income products involving corporate and municipal bonds and Unit Investment Trusts (UITs). This is slated to begin customer testing in late 2003.

"RTTM is one example where GSCC, MBSCC and NSCC have been able to significantly reduce the clearing corporations' and customers' development risks and one-time or recurring costs by leveraging off the GSCC network, application protocol interface and real-time matching application," Costa said.

Equally important to the industry is the fact that a centralized real-time matching system is a core requirement for building a straight-through processing infrastructure for the fixed income market.

"We're committed to leading the industry to achieve the benefits of STP," Costa continued. "We're well on our way with our RTTM platform since it will provide a real-time, standardized approach to fixed income across all the clearing corporations - with a common interactive messaging format for trade input, based on the SWIFT/ISO 15022 standards [an accepted standard for financial messaging worldwide], a single pipeline for expanded access to services offered by various clearing corporations using a single communications link, and a standardized application for matching transactions."

About DTCC: The Depository Trust & Clearing Corporation (DTCC), with operating facilities in multiple locations in the U.S. and overseas, is a holding company for six subsidiary businesses - a depository and five clearing corporations - as well as the co-owner with Thomson Financial of a global joint venture called Omgeo. Through its subsidiaries, DTCC provides clearance, settlement and information services for equities, corporate debt, municipal debt, government securities and mortgage-backed securities in the U.S., and emerging markets debt trades globally. It is also a leading clearinghouse for mutual funds and insurance products, linking funds and carriers with distribution networks. In addition, DTCC provides custody and asset servicing for more than two million securities from the U.S. and 84 other countries. For more information on DTCC, see www.dtcc.com.

MBS Clearing Corporation (MBSCC), a subsidiary of DTCC, is the sole provider of automated trade comparison, confirmation, risk management, netting and electronic pool notification to participants in the mortgage-backed securities market. MBSCC compared more than $34 trillion in par value transactions in 2001, and its Electronic Pool Notification system provided information on 9.1 million mortgage-backed securities pools representing almost $6.5 trillion in par value in 2001. For more information, check MBSCC's web site at www.mbscc.com.

The Government Securities Clearing Corporation (GSCC), a subsidiary of DTCC, is the leading provider of centralized trade comparison, netting and settlement services in the U.S. Government securities industry. It processed over $353 trillion in securities transactions in 2001. GSCC's services provide risk management, financial benefits and operational efficiencies to industry participants, who include the nation's major brokers, dealers and banks, as well as a wide range of other entities that trade U.S. Government securities. For more information, check GSCC's web site at www.gscc.com.