DTCC Connection

Jul 01, 2010 • DTCC Connection

FINRA Offers Guidance to Industry on Obligation Warehouse

by Craig Donner


The Financial Industry Regulatory Authority (FINRA) has informed its members that the use of National Securities Clearing Corporation’s (NSCC) enhanced fail reconfirmation and pricing service, known as Obligation Warehouse (OW), is in conformance with its rules.


The OW will significantly enhance the Reconfirmation and Pricing Service (RECAPS), which NSCC customers must use under NASD Rule 11190(a). The rule requires members of a registered clearing agency to participate in a fail reconfirmation and pricing service. NSCC sought an interpretation of the rules from FINRA to ensure that the OW falls within the scope of the regulation and that firms would have to use it when the service launches in early 2010.


“FINRA members that are participants in NSCC would be required under NASD Rule 11190(a) to participate in such a fail reconfirmation and pricing service,” according to a recent letter the regulatory body sent to NSCC.


“The industry has been looking forward to this guidance from FINRA so firms have a clear path forward in preparing for the launch of the OW,” said Susan Cosgrove, DTCC managing director, Clearance and Settlement/Equities. “The ruling provides clarity and also gives ops departments greater leverage to work within their own institutions to secure the resources to develop the new functionality for the OW. It brings us one step closer to transforming the processing of ex-clearing trades and other open obligations, which will mark an important milestone for the industry.”


Enhanced features

Much of industry interest in the OW revolves around its broad range of enhancements and new functionality, including allowing broker/dealers to submit ex-clearing trades and other obligations for automated real-time matching and confirmation. The service will also automate the management of ex-clearing and non-Continuous Net Settlement (CNS) fails and consolidate and store the transactions in a central location.


“The OW will eliminate the manual processing of ex-clearing trades and replace it with a real-time automated service that will electronically manage these transactions and communicate a successful match to each side of the obligation,” said Thomas Sakaris, DTCC vice president, Clearance and Settlement/Equities. “It will deliver the processing efficiencies, risk mitigation and reduced costs that the industry has long sought – and will solve problems that have plagued firms for many years.”


Increased transparency

Sakaris also pointed out that the OW will enhance transparency of the equities market by fully capturing, for the first time, virtually all trading activity in NSCC-eligible securities in a central location from trade date until settlement.


“Ex-clearing trades are essentially invisible to all but the firms involved in each particular transaction because they are managed bilaterally between the trading parties,” Sakaris said. “The OW will bring greater transparency to the marketplace by giving the industry and regulators a complete view of virtually all open obligations traded in the U.S. for equities, corporates, municipals and unit investment trust securities – and, importantly, a central vantage point to monitor and mitigate systemic risk.” @


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