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The article appears in the Securities Industry and Financial Markets Association’s (SIFMA) SmartBrief, a daily email newsletter for investment bankers, broker/dealers and mutual fund professionals, which provides summaries of the day’s most important securities news.

Below is an excerpt from Cosgrove’s article. To read the entire article, visit


The challenge of processing broker-to-broker obligations confirmed and settled outside a clearing corporation (known as ex-clearing) has intensified in recent years as financial firms’ need for real-time information has increased. At the same time, some in the industry have raised the red flag because these transactions, which are confirmed and settled directly between brokers using highly manual and error-prone processes, potentially create operational and counterparty risk.

Just how much risk these trades pose is somewhat of a mystery. The problem is that, unlike the overwhelming majority of transactions in equities, corporates, municipals and unit investment trust securities executed in the U.S. markets, which are processed through and guaranteed by DTCC’s clearing agency subsidiary, National Securities Clearing Corporation (NSCC), ex-clearing trades are visible only to the trading parties.

The issue is not ex-clearing trades per se, but rather that these obligations are matched and confirmed manually, through phone calls, faxes and emails, and are not held in a central location, which would reduce operational risk.

To modernize these decades-old practices, DTCC recently launched the Obligation Warehouse (OW). Working collaboratively with industry partners, including the Securities Operations and Data Management Sections of SIFMA, DTCC has created a more efficient and cost-effective system for processing ex-clearing trades and certain other open obligations. The service also delivers real-time capabilities for NSCC members participating in the OW to view virtually all of their failed trading activity in the U.S. marketplace for equities, corporates, municipals and unit investment trust securities.

In building the OW, DTCC leveraged existing systems and enhanced its current fail clearance system, known as the Reconfirmation and Pricing Service (RECAPS), to automate the matching and confirmation of ex-clearing trades. We also created new tools to track, manage and resolve certain unsettled obligations in real time…and added functionality to store these obligations in a central location until settlement, marking the first time this information has been captured in a single place.

What the OW accomplishes for the industry is significant. In fact, it represents a giant leap forward in helping financial firms better manage and address the risks and costs associated with their ex-clearing trades and fails. The OW meets the unique needs of our customers while also offering a solution for certain inefficiencies and risks associated with ex-clearing activity. @