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Depository Trust & Clearing Corporation Launches New Prime Broker Service for Government Securities and Repos

Central Counterparty Services Will Reduce Risk and Cost

New York, September 25, 2007 – DTCC's Fixed Income Clearing Corporation (FICC) subsidiary announced that it has developed new processing procedures to help prime and executing brokers reduce cost and risk in handling the U.S. Treasury securities trades and repurchase agreements (repos) they oversee or execute for their hedge fund clients.

Called Prime Broker Netting, the new service allows prime brokers to submit trades to FICC's Government Securities Division either on a "matching-only" or a "matching and netting" basis, even when the prime broker is acting simply as an agent for its hedge fund client.  FICC is the principal clearing agency for buy-sell trades and repo transactions in U.S. government securities.  It processes and nets transactions in these instruments valued at an average of $3.5 trillion daily.

Testing of the new service with prime brokers is expected to begin in September, with full service set to get under way in the fourth quarter of 2007, pending regulatory approval by the Securities and Exchange Commission (SEC).  FICC submitted a rule filing to the SEC in August in support of the technical changes needed to implement the new service.

Hedge funds typically trade U.S. Treasury securities through various "executing brokers" and then rely on their prime broker to oversee the clearance and settlement of the trades.  Because the prime broker is not necessarily a legal party to any of the trades, however, the trades are seldom transmitted to FICC for comparison and netting.  Instead, the transactions are settled on a trade-for-trade basis outside the clearing corporation, where they do not benefit from the risk reductions and lower costs that result from prior matching and trade netting.

"This innovation will lower settlement costs while reducing counterparty and settlement risk," said Murray Pozmanter, managing director, DTCC Clearance and Settlement Group.  "FICC will become the counterparty and can guarantee settlement of a large number of trades that now settle on a bilateral basis outside FICC.  Firms that now manage hundreds of separate trades, each with credit risk, will be able to net those trades down to a single position per security with FICC," he said.

To support prime broker netting, FICC is enhancing its correspondent clearing service to provide all its dealer netting members who are prime brokers the flexibility to "match" government securities  trades or to "match and net" the trades, both by customer and by product.  In other words, prime brokers will be able to designate for each of their customers whether buy/sells trades and repo transactions should be matched-only or matched and netted.

 "We expect to see a number of prime brokers submit buy and sell trades to us for matching and netting, while transmitting repos for comparison only," noted Lisa Meiselman, director, DTCC product management, Clearance and Settlement Group.  "Even if repo transactions are submitted to us for comparison only, there is still the benefit of reduced settlement risk."

About DTCC

The Depository Trust & Clearing Corporation (DTCC), through its subsidiaries, provides clearance, settlement and information services for equities, corporate and municipal bonds, money-market instruments, government and mortgage-backed securities and over-the-counter derivatives. In addition, DTCC is a leading processor of mutual funds and insurance transactions, linking funds and carriers with their distribution networks. DTCC's depository provides custody and asset servicing for 2.8 million securities issues from the United States and 100 other countries and territories, valued at $36 trillion. Last year, DTCC settled more than $1.5 quadrillion in securities transactions. DTCC has operating facilities in multiple locations in the United States and overseas. For more information on DTCC, visit www.dtcc.com.