ID Net, a joint service offering of The Depository Trust Company (DTC) and National Securities Clearing Corporation (NSCC), extends the benefits of netting to institutional trade settlement, allowing broker/dealer users to combine their affirmed institutional equity trades with other trades that they may have in NSCC’s Continuous Net Settlement (CNS) system.
ID Net was developed by DTCC in collaboration with its global joint venture company, Omgeo LLC, at the request of, and in consultation with, industry participants, including a working group of broker/dealer and bank customers.
ID Net is a voluntary service. To subscribe, broker/dealers must be participants of both NSCC and DTC, and banks must be DTC participants.
All ID Net customers are required to enter into separate "ID Net Subscriber" agreements with NSCC and/or DTC, as applicable, governing their use of the service.
Unlike exchange trades and most prime broker trades, institutional delivery transactions do not typically flow through NSCC’s CNS automated book-entry accounting system. Instead, they generally settle on a trade-for-trade basis at DTC. The ID Net service essentially separates an affirmed/matched institutional trade into two parts, allowing the broker to combine its institutional trades with its other trades in CNS, while the bank, acting as custodian for the investment manager’s client, continues to settle on a trade-for-trade basis.
As a result, ID Net streamlines clearance and settlement, cuts customer costs and reduces fails associated with affirmed institutional equity trades, benefiting all parties involved in institutional trading. For instance, the DTC Institutional Delivery (ID) settlement fee for participants has been cut in half to only 2½ cents for all ID Net eligible trades, with brokers potentially reaping additional savings through reductions in CNS and Inventory Management System (IMS) costs. Other benefits include:
Although not considered participants in the service, investment managers and their clients ultimately benefit from ID Net when participants – the settling broker/dealers and banks – subscribe to the service.
Each transaction is confirmed and affirmed/matched through Omgeo’s TradeSuite system, which distributes the affirmed confirmation to appropriate parties of the trade. Omgeo then sends eligible trades to the ID Net service, which nets them with the subscribing broker’s other CNS activity, reducing that firm’s total value of settlement. Simultaneously, the custodian bank either receives from or delivers to the broker shares vs. payment on a trade-for-trade basis via two new omnibus accounts created by NSCC.
Upon receipt of the affirmation of an eligible trade from Omgeo, ID Net automates the following steps:
The ID Net process flow has been designed to minimize IT development. Banks are provided with Machine Readable Output (MRO) containing the original receiving or delivering broker in the same fields that they read today. Optionally, banks may program to read the Third Party field to determine if the trade was processed through ID Net.
NSCC reports ID Net trades to broker/dealers at the end of the night cycle on the CNS Miscellaneous Activity Report.
Eligibility for ID Net Processing
Only equity or Unit Investment Trust (UIT) CUSIPs eligible for CNS – which have also been affirmed before 9 p.m. on T+1 – are being processed through the ID Net service. Corporate and municipal bonds are currently excluded. Also excluded are transactions settling on the distribution day of a new issue; in issues undergoing a mandatory or voluntary reorganization; in CUSIPs with a CNS buy-in.
However, even leaving out these trades, it is estimated that more than 250,000 trades a day are potentially eligible for the ID Net service.
Additional Information for Custodian Banks:
Additional Information for Broker/Dealers:
For more information, contact John Kiechle at 212.855.3900 (firstname.lastname@example.org) or DTCC Relationship Management at 1.800.422.0582.
Last updated April 26, 2010