by Craig Donner
National Securities Clearing Corporation (NSCC) recently completed development of its new equity trade capture system and has begun internal testing in preparation for the launch early next year.
Trade capture is considered the first step on the road to clearing a trade. The process takes in data from the major U.S. exchanges and virtually all other equity trading venues, edits the information and produces contract reports that are transmitted to the
firms for reporting and reconciliation needs. The new system, called Universal Trade Capture (UTC), will replace the multiple applications currently used by NSCC with a single system that introduces a standardized input record from all marketplaces and standardized real-time output messages to participants.
UTC’s ability to normalize, or standardize, data into a common output format is one of the system’s main features and is generating a great deal of interest among financial firms, many of which are forced to run their own internal conversion programs or outsource the function to third parties – increasing the cost of the post-trade process.
“UTC will deliver an immediate cost savings to our members by providing a single, standardized real-time record for every equity trade, regardless of the market of execution,” said Susan Cosgrove, DTCC managing director, Clearance and Settlement/Equities. “Under our legacy systems, the lack of standardization across execution platforms forces us to produce and send four different types of reports to our members, depending on where the execution occurred, as batch files. By providing normalized, real-time data, we’ll help firms enhance their own internal operations, mitigate operational risk and reduce processing costs.”
UTC will support maximum flexibility by providing a new standardized input record while continuing to support trade submission using proprietary formats. UTC will translate existing market inputs into the common format via DTCC’s Common Data Transfer System (CDTS) and provide real-time message output as a FIX standard message using MQ or the FIX engine. Firms will also have the option of receiving a new universal intra-day machine readable output (MRO) file or the legacy MRO files.
Dovetails with accelerated guarantee
The move to a real-time messaging system is significant because it dovetails with NSCC’s proposal to accelerate its trade guarantee for all Continuous Net Settlement (CNS) eligible trades, including equity, corporate bond and municipal bond transactions. UTC is also designed to support changes in market structure, especially the growth of high-frequency trading, by delivering real-time output to members.
“As the markets have evolved, firms want data immediately in hand to begin reconciliation and also to streamline their purchase and sales processes,” said William Kapogiannis, DTCC director, Equities Clearance and Settlement Product Management. “And in an environment where financial firms are concerned about the solvency of their trading partners, real-time output will let our members know that their trades have been novated and guaranteed by NSCC within minutes of execution. As a result, we’ll be mitigating counterparty risk and providing stability and certainty to the financial system – not to mention giving our customers the greater peace of mind they’re looking for during these difficult economic times.”
User specs published
NSCC recently published the record formats for UTC as well as the new messaging specifications document so firms could begin their own internal development. The information is available online through DTCC Learning at http://dtcclearning.com/learning/clearance. NSCC members will need to register for a username and password to access the site, which also contains other learning content and resources on UTC.
In the weeks ahead, NSCC will continue integration testing of UTC, including performing a front-to-back functional review to ensure the service is fully integrated. Customer testing is expected to begin in 4Q 2010 and continue indefinitely as firms transition at their own pace to UTC.
“The key word I’d use to describe our launch of UTC is flexibility,” said Cosgrove. “Our plan is to avoid a ‘Big Bang’ implementation by transitioning the exchanges to the new format one at a time. We’re also giving our customers the flexibility to receive output in the format that best meets their needs – without hard mandates that would place unnecessary burdens on our members in the midst of an economic downturn.” @
[To learn more about the Universal Trade Capture (UTC) system, contact William Kapogiannis at email@example.com or 212.855.5667.]