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by Michael Scholl

DTCC’s Fixed Income Clearing Corporation (FICC) is overhauling the decades-old platform that clears the bulk of government securities trades, replacing it with a modern system that will mitigate the operational risk associated with such trades.

“We’re reducing risks by replacing legacy software and hardware with a rock-solid system that will be well supported by DTCC,” said Murray Pozmanter, DTCC managing director and general manager, Clearing Services.

The platform, the Government Securities Division’s (GSD’s) Delivery-versus-Payment (DVP) system, processes and nets all GSD trades except for General Collateral Finance (GCF)® repurchase agreements, which are processed separately.

The new platform is scheduled to become operational in the middle of 2012, and the transition will be transparent to the industry.

“Customers will not have to make any changes to their own systems to accommodate the new DVP platform,” said Pozmanter. “The benefits of the upgrade, including reduced operational risk, will be primarily behind the scenes, and the web frontend will be a clone of its current version. It’s like having the same dashboard in your car, but with a far more powerful engine.”

Right timing

The DVP platform has been a reliable industry warhorse for more than 25 years. However, because it is based on an operating system that is dated, the platform now poses operational risk to the industry.

“Given the convergence of the industry’s heightened focus on risk reduction and the availability of new technologies, we decided it was an opportune time to re-platform and update the entire system,” said Elke Jakubowski, DTCC vice president, FICC Product Management, noting that implementation of the new platform will significantly reduce operational risk for the industry.

DTCC started work on the DVP overhaul last year and will begin functional testing this year. As part of the revamp, the system will switch to a database server supplied by Oracle, retiring the current Hewlett-Packard (HP) TMX server. This change will reduce operational risk from a number of perspectives, according to Sal Matera, DTCC vice president, Applications Development and Maintenance.

He explained that the number of firms using TMX has declined significantly in the past few years, leading HP to announce it would stop supporting that server at the end of 2012. That announcement was the final nail in the coffin for the legacy DVP system.

Capacity and other benefits

The DVP rewrite will also raise the system’s capacity by eliminating the existing volume cap on handling trades. Increased capacity will give DTCC greater scalability as well as new opportunities to expand the business. For example, it could offer direct clearing to high-velocity trading firms and accommodate buyside trading under the GSD umbrella.

“These areas cover a large number of trades that we just don’t see right now,” Matera said. “If we bring in the clearing of these trades, the customers involved will come under the protection of the GSD, which is a central counterparty and guarantees trades.”

Greater flexibility will be another benefit. “It’s extremely difficult to add new functionality to the existing system,” Matera said. “Once we are re-platformed, we should be able to deliver new functionalities more quickly.”

The new system’s programming language is another plus. “We’re getting rid of the old code and installing new code that conforms with what we already use elsewhere at DTCC, so that it can be seamlessly supported by the DTCC infrastructure,” said Jakubowski. @