by Craig Donner
The Depository Trust Company (DTC) has implemented a new comprehensive liquidity efficiency enhancement plan that has helped to move billions of dollars back into the financial system earlier in each trading day.
The plan centers on maximizing customer access to intraday liquidity at DTC. It gives firms new tools and resources to automate the withdrawal of their excess Settlement Progress Payments (SPP) and Principal and Interest (P&I) allocations before the end-of-day settlement and enhances transparency around the amount of funds they have available.
SPPs are payments customers send to DTC when they have insufficient collateral or have reached their net debit cap. The SPP, which reduces a member’s net debit by creating a credit in its settlement account, allows the firm to continue receiving deliveries. P&I allocations include dividends for equities, bond interest and redemptions.
“These steps will help firms more efficiently manage their intraday liquidity and also simplifies the process for accessing their excess capital earlier in the day,” said Susan Cosgrove, DTCC managing director, Clearance and Settlement/Equities. “While customers already had the opportunity to withdraw this money, we leveraged our technology to enhance transparency and automate the process for firms to receive their funds without the need for manual intervention. These enhancements will help reduce the cost of funding for brokers and banks and also mitigate risk by putting liquidity back into the Fed system earlier in the day.”
The first step of the multi-part plan involved extending the window to request excess SPP and P&I funds from 3:00 p.m. to 3:20 p.m. ET. The additional 20 minutes allows firms to take advantage of provisional credits that are released after the Largest Provisional Net Credits (LPNC) cutoff is taken by DTC at 3:05 p.m., which is essential for maximizing the amount of capital available for withdrawal.
DTC next leveraged the RMCI screen to display for firms their available SPP and P&I funds, doing away with the need for them to manually calculate these numbers. The goal is to keep customers informed of their excess liquidity and make the information easily accessible to facilitate earlier withdrawals.
A critical part of the plan was establishing the new Push Profile service to automate the withdrawal of excess funds, eliminating the need for firms to request these monies each day or wait until the end-of-day settlement process is completed.
As part of this service, customers can choose to input a profile into the system to establish a standing withdrawal request to “push” available SPP/P&I credits to them at 3:15 p.m. ET. They also have the flexibility to set a “minimum credit amount” to leave a balance in their account to pay for transactions that may be received until 3:30 p.m., as well as a “minimum wire amount” to avoid receiving smaller payments. However, to ensure maximum flexibility, firms still have the option to use the legacy system to manually request their funds.
To help customers make informed decisions about whether to elect the Push Profile, DTC created a new Cash Payment Report Card that shows each firm’s daily total of SPP payments and P&I allocations, total excess SPP and P&I allocations available for withdrawal to a zero balance, total amount of SPP and P&I withdrawn, and remaining excess SPP and P&I available for withdrawal.
“We understood that enhancing transparency to make it easy for our customers to access their information would ultimately be the key to the success of this initiative,” said Cosgrove. “Many of the new tools we created are designed to keep customers apprised of their excess liquidity and help guide their decision making.”
Building on past efforts
This initiative builds on DTC’s efforts over the past two years to simplify the SPP return/P&I withdrawal process and promote intraday liquidity management best practices.
In 2009, DTC implemented a process that allowed members to request and receive a portion of their SPP intraday and then merged it with the P&I withdrawal process to create a single simplified and automated function.
“These initiatives have generated positive feedback from our customers, and we’ll continue to explore new opportunities to help firms enhance their liquidity,” Cosgrove said. @
[To learn more about the Push Profile service and the other liquidity efficiency enhancements, contact Jack Manuel at firstname.lastname@example.org or 212.855.5921 or your DTCC Relationship Manager.]