The ongoing global economic swoon has claimed a number of casualties. A lengthening roster of corporate entities, plus one sovereign, have declared bankruptcy, been nationalized or otherwise defaulted on their debt.
For buyers and sellers of the credit protection – counterparties to overthe- counter (OTC) credit derivatives – written on these entities, the defaults have precipitated the busiest period ever of credit event activity for the market. However, innovative procedures and electronic functionality developed by the industry, including The Depository Trust & Clearing Corporation’s (DTCC’s) Trade Information Warehouse (Warehouse) mean today’s credit event processing is much less labor-intensive and error-prone than several years ago.
In 2005 and 2006 the industry struggled to process the seven credit events that transpired over that period. By contrast, since early September 2008 there have been more than 20 – and still rising – credit events triggering payouts on credit derivatives contracts. The manual, bilateral procedures available in 2006 necessitated a 10-day wait between recovery auction and cash settlement, but today that interval has been cut in half, to five business days. The advances for the credit derivatives market in terms of efficiency improvements and risk reduction have been dramatic.
Download the Congressional Testimony: DTCC’s Trade Information Warehouse Streamlines Payouts on Multiple Credit Events