DTCC Connection

Jan 02, 2012 • DTCC Connection

Obligation Warehouse Changes Landscape for Ex-Clearing Trades

by Bari Trontz


In 2011, U.S. financial firms finally bid farewell to the highly manual, riskprone environment they previously worked in while managing the matching of their broker-to-broker ex-clearing trades. The industry also gained, for the first time, a central repository for open broker-to-broker obligations.


The changes stem from the March rollout of Obligation Warehouse (OW), a service that broke new ground in equities clearing. OW automates the matching and confirmation of ex-clearing trades, allowing members to track, manage and resolve their failed obligations in real time, and to view in one central location all their failed trades (for U.S. equities, corporates, municipals and unit investment trusts). Additionally, National Securities Clearing Corporation’s (NSCC) Reconfirmation and Pricing Service (RECAPS), which marks to the market and re-nets open, failed obligations, became a service within OW.


With these tools, members can better manage the risks and costs associated with ex-clearing trades and other open failed obligations. OW also strengthens systemic risk management by giving firms and regulators a complete view of all open obligations in the U.S. marketplace for U.S. equities, corporates, municipals and unit investment trusts.


“Obligation Warehouse has transformed how members manage their ex-clearing trades,” said Murray Pozmanter, DTCC managing director and general manager, Clearing Services. “It provides a robust platform and innovative tools that enhance transparency for members and regulators in this segment of the market, creating an environment that mitigates risk, increases efficiency and reduces costs.”


Ex-clearing gets automated

OW helps firms track and process exclearing trades (which are confirmed outside of DTCC) and communicate a successful match to each side of the obligation. It provides a real-time tool for managing post-trade operations for trade comparison, and also delivers an automated platform for managing fails.


The automation eliminates the manual processes, including phone calls and faxes, which financial firms traditionally used and, therefore, reduces error, risk and costs.


OW is an offering of DTCC’s U.S. equities clearing subsidiary NSCC.


Collaborative effort

To develop the new system, NSCC worked collaboratively with the industry to research and identify the specific needs of market participants surrounding the processing of broker-to-broker ex-clearing trades.


NSCC and its member firms, service bureaus and the Securities Industry and Financial Markets Association’s Securities Operations and Data Management sections served as the key contributors in formulating the business requirements and executing the development of OW.


Steady progress in 2011

OW completed its first RECAPS cycle in June for open, matched failed obligations. RECAPS is now performed on a monthly basis, rather than the previous quarterly cycle, providing even further benefits to members.


In August, NSCC enhanced OW to review obligations on a daily basis for eligibility with its Continuous Net Settlement (CNS) system and automatically close the obligations and move them to CNS for settlement.


Checking for CNS eligibility on daily basis at 5:00 p.m. ET supports a more efficient and less risky settlement process by making the NSCC guarantee available when the security becomes eligible for CNS.


In November, NSCC further expanded OW to make adjustments for specific mandatory corporate actions events. OW now automatically applies the mandatory corporate action to the open obligations in that security by closing, transforming and opening a new obligation in the new security. Additionally, the cash proceeds from the mandatory corporate action are sent to NSCC settlement.


Today, all full-service NSCC broker/dealer members are users of OW.


Outlook for the new year

In 2012, DTCC is focused on enhancing the customer experience and continuously improving OW to better serve its users. To achieve this, DTCC is encouraging open dialogue with customers via their DTCC relationship management representatives to tailor adjustments that will improve their user experience.


Scheduled for the first quarter are enhancements to the OW web browser, including:


  • Configurable screens;
  • Fewer clicks per action;
  • Ability to save frequently run queries and schedule queries;
  • Ability to download results into an Excel format.

Additional functionality that will roll out in 2012 includes:


  • Pair-off of obligations with like trade details;
  • Links to the Envelope Settlement System (ESS) for automating the processing of these obligations in the OW;
  • Comparison-only submissions for matching specific asset classes;
  • Enhanced metrics for improved internal reporting and for customer records.

“We are committed to providing our customers with the most effective tools to manage their broker-to-broker exclearing trades and to track, manage and resolve their failed obligations in real time,” said Pozmanter. “By continually identifying and implementing improvements to the system, OW’s ability to further mitigate risk, advance processing and enhance efficiencies for our clients increasingly grows.” @


[To learn more about Obligation Warehouse, contact Janice DiTore at 212.855.7659 or jditore@dtcc.com.]


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