DTCC Connection

Sep 01, 2011 • DTCC Connection

Obligation Warehouse Adds New CNS-Eligibility Functionality

by Craig Donner


National Securities Clearing Corporation (NSCC) has added new functionality to the Obligation Warehouse (OW) to check all ex-clearing equity trades and other open obligations for eligibility with its Continuous Net Settlement (CNS) system.


The OW database is scanned each day at 5:00 p.m. ET for compared obligations that have become CNS-eligible and have a settlement date of the next day or older. These obligations are closed out and sent to CNS for netting, NSCC's counterparty guarantee and settlement processing. The OW also sends real-time interactive MQ messages to both parties of the obligation informing them of this action.


"By checking for CNS eligibility on a daily basis, we're able to make the settlement process more efficient and lower risk by reducing the number of fails in the system," said Murray Pozmanter, DTCC managing director and general manager, Clearing Services. "Prior to the launch of OW, eligible failed obligations were routed to CNS only once a quarter when all open fails were reconfirmed and repriced in our legacy system. With the new functionality, we sent nearly 1,000 obligations to CNS on the first day it was introduced."

OW capabilities

The OW, which launched in March 2011, replaced NSCC's legacy Reconfirmation and Pricing Service (RECAPS). The OW allows broker/dealers to submit exclearing and other non-CNS obligations


for automated real-time comparison and tracking of failed obligations. The OW enhances transparency of ex-clearing and non-CNS fails by consolidating and storing these transactions in a central location. NSCC members participating in OW now have the ability to view virtually all of their failed trading activity in the U.S. marketplace for equities, corporates, municipals and unit investment trust securities.


First RECAPS with new functionality

In late August, NSCC achieved an important milestone when it successfully performed and completed the third round of RECAPS under OW - and the first with the new CNS-eligibility check. NSCC conducted an industry-wide test of RECAPS earlier in the month to ensure that the internal systems of its customers could incorporate the new functionality.


"The introduction of the CNS eligibility check was essentially seamless," Pozmanter said. "We purposely phased the implementation of OW to give firms the flexibility they needed to transition to the service and mitigate the risks. We will add more functionality in the coming months to make adjustments for certain mandatory corporate action events, which will further improve the processing of ex-clearing trades and other open obligations."@


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