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DTCC Proposes New Vision For U.S. Settlement
Recommendations Presented at Securities Industry Association T+1 Conference
New York, January 16, 2002 - The world's largest financial services post-trade infrastructure organization today announced that it is proposing to construct a new settlement model that will streamline securities settlement, reducing costs and risk for the financial services industry.
In a soon-to-be released White Paper, Straight-ThroughProcessing: A New Model for Settlement, The Depository Trust & ClearingCorporation (DTCC) has proposed a new vision for settlement that would redesignthe current system to provide customers with more centralized methods ofcontrolling their securities transaction processing earlier in the settlementcycle. In addition to a new approach to transaction inventory management, thenew model also puts forth new solutions for managing the central settlementsystem.
"Our vision for transforming settlement will resultin a more streamlined, safer and cheaper settlement system - one that will beready for STP and T+1 and for greater integration with other settlement systemsaround the world," said Donald F. Donahue, managing director, CustomerMarketing & Development Group, who presented highlights of the new model atthe SIA T+1 Conference today. "It will also prepare the industry forincreasing volumes ahead."
Settlement is the final step in completing a securitiestransaction, and includes the transfer of ownership in a security and theassociated transfer of payment for the transaction. The White Paper proposessimplifying the current settlement system so that users have more centralizedcontrol over their transaction inventory and settlement processing. In addition,it is designed to facilitate deeper integration with settlement systems in othercountries, as well as with other systems in the U.S.
"This new model would benefit customers significantlybecause it would give them more centralized control, and thereby more assuredsettlements," Donahue said. "The industry would have a unified meansof managing settlement, which would enable individual participants to controlthe order and timing of their deliveries processing through the central system.This translates to lower risk and improved efficiency."
Currently, many firms manage their transaction processingwith late-cycle interventions - withholding or "exempting" tradesfrom more automated processes, reintroducing them when they are ready forsettlement, and then, on occasion, reversing or "reclaiming" unknowntransactions before or after settlement has occurred. This disrupts automatedprocessing and contributes to the incidence of failed trades, which increasescosts and risk for customers and the industry as a whole.
The White Paper identifies a number of important benefitsof the new model:
- Inventory management -- A new Inventory Management System (IMS), which DTCC would build and operate, would be a single point of entry for all trade-related input into the settlement system from participants, matching utilities, vendors and other entities -- including trade-related input from the Continuous Net Settlement (CNS) system of the National Securities Clearing Corporation (NSCC). In addition, IMS would facilitate the processing of cross-border transaction settlements requiring interactions with other settlement systems, as participants would be able to prioritize deliveries to synchronize with time zone differences.
- System management - The new model proposes to improve overall management of the central settlement system itself in two important ways. First, look-ahead processing would reduce transaction blockages by applying risk management controls to the net of selected receive and deliver transactions (primarily Money Market Instrument transactions) in each security that is settling, instead of evaluating them individually. Second, combining DTC's and NSCC's settlement systems would eliminate costs of redundant systems, lower intra-day funding requirements for participants and their settling banks, possibly facilitate an earlier settlement and reduce risk for DTCC.
The paper will be distributed to DTCC memberbroker/dealers, banks, mutual fund companies, insurance carriers and otherinterested parties later this month, and it will subsequently become availableon the company's Web site at www.dtcc.com.
During the next few months, DTCC will compile and analyzethe comments it receives from the industry on the White Paper, and developpreliminary product specifications as well as processing and systemrequirements. The company will establish a business case for each element of theproposed new model and acquire the appropriate level of sponsorship amongcustomers, industry groups and others.
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.