Central Settlement automates the exchange of payments in multiple currencies due on bilaterally netted, over-the-counter (OTC) credit derivatives contracts held at the Warehouse.

Overview

DTCC's Trade Information Warehouse is the first and only centralized global repository for the OTC credit derivatives market. With the Central Settlement service's link to the Warehouse's lifecycle processing function, the Warehouse calculates quarterly coupon and other payments (such as upfront fees, credit event payments) due between counterparties of a transaction based upon legally binding records kept in the Warehouse's central repository. Payments between counterparties are then netted on a bilateral basis prior to sending settlement instructions to DTCC's partner, CLS, for payment in multiple currencies.

Who Can Use the Service

The Central Settlement service is available to any firm that is a participant in the Trade Information Warehouse, either directly as a participant, or through a participant as a correspondent firm. Authorized custodians and fund administrators can also be provided with access to accounts and modified reports by their participant customers.

As of December 30, 2009, 79% of all market participants settled through the Central Settlement service with DTCC and CLS. The industry has committed to the regulators to have 96% of settlement volume live on the service. The industry continues to strongly encourage as a best practice market participants to sign up for this service for the non-cleared transactions. It is also important to note that all central counterparties currently active (ICE US, ICE Europe and Eurex) are leveraging this Central Settlement service for cleared transactions as well.

Benefits

The principal benefits of Central Settlement are:

• Ensures timeliness and certainty of payments.
• Increases efficiency by simplifying the settlement process.
• Provides a full audit trail and link between trade confirmation and settlement, linking all bilateral nets back to the underlying gross payment cashflows and the associated trade record for each.
• Enhances control and promotes greater certainty by providing advance notification to participants and settlement agents of their settlement amounts.

How the Service Works

Through a link with the Warehouse's lifecycle processing functionality, DTCC provides continuous netting of Warehouse-generated payments and reporting of net and gross payment information to participants through the web interface or computerto- computer connection. This service also bilaterally nets payments by customer account, currency and counterparty.

In accordance with established cutoff times, DTCC locks down net payment amounts. It then creates payment instructions for CLS-eligible accounts. CLS provides the Warehouse with real-time information on the status of the cash flow instructions submitted and sends Warehouse settlement amounts to CLS Settlement Members that settle on behalf of Warehouse participants. Funds are transferred between the parties through CLS in any of the following nine currencies, depending on the terms of the contract: Swiss Franc, Euro, British Pound, Japanese Yen, US Dollar, Australian Dollar, Canadian Dollar, Hong Kong Dollar and Singapore Dollar.

Once settlement is completed, DTCC and CLS provide reports to Warehouse users and Settlement Members, respectively, and cash flows are marked “settled” in the Warehouse.

DTCC provides a series of search screens for Warehouse participants and Central Settlement participants to monitor and track both net and gross payments in detail, including both a 21-day cash-flow report and a history capability. DTCC also provides customized reports to third-party providers, such as custodian banks and CLS Settlement Members to assist in the tracking and reconciliation of the settlement amounts.

For More Information

Please contact CAG@markitserv.com.