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Excerpt from DTCC’s concept paper – “Trade Clearance Input”

Rationale for Reviewing the Current Clearing Firm Submission Practices

During discussions with the Industry Working Group (IWG), in which the proposals were developed, industry participants identified a number of opportunities to further address the risks that may be present in the current clearance submission land¬scape. In developing the proposed structure, the industry representatives also considered opportunities for stan-dardization of trade submission processes and for creating a platform on which future changes to trade submission processes may be built. These considerations were raised as important decision criteria in developing the proposed structure that is outlined in Section IV, Proposed Structure.


Risk to the Clearing Firm – Today, most correspondent clearing transactions are submitted to NSCC at the end of the trading day. Clearing firms that ultimately receive the transactions may not have the ability to per¬form sufficient risk management on that trading day. Further, if the firm disagrees with the transaction details it would have no time for recourse before the end of the processing day.

Risk to the Executing Firm – Executing firms hold intraday counterparty risk for any transactions that are not immediately submitted to NSCC. If a clearing firm defaults, or a trading relationship is deleted in real-time through NSCC’s trading relationship management system, any subsequent submissions involving the removed counterparty will be rejected.

Risk to NSCC – NSCC bears the ultimate risk when it acts as central counterparty to cleared transactions. If transactions are not submitted in a timely basis, NSCC’s risk management calculations may not fully represent each firm’s outstanding net obligations. NSCC’s ability to appropriately manage risk on the trades that it guar¬antees and to protect itself, its members, and the wider financial markets is enhanced when transactions are submitted in real-time.

Counterparty risk may be reduced when transactions are submitted to the National Securities Clearing Corporation (NSCC) on a real-time basis, according to findings detailed in The Depository Trust & Clearing Corporation (DTCC) concept paper – “Trade Clearance Input.”

The paper serves as a foundation for industry discussions on building standards around expedited trade processing, and is a part of on-going efforts by DTCC and the industry to further manage risk in the clearance and settlement process.

NSCC’s trade capture system receives and validates transactions from market centers then prepares them for netting and settlement. In recent years, NSCC, a subsidiary of DTCC, consolidated four separate legacy applications into a single engine, called Universal Trade Capture (UTC). UTC has streamlined and standardized the equity clearance process, allowing the industry to bet¬ter reconcile clearance transactions and manage their risk exposure.

In 2013, NSCC established an Industry Working Group tasked with discussing ways to address possible risks related to trade submission practices. In addition to a consensus of the potential risk reduction benefits of real-time trade submission, the group expressed the need to establish common clearance submission standards and practices across the industry. Such an approach is expected to create efficiencies and greater standardization on how market participants submit trades to NSCC. The proposed structure changes to trade submission practices are expected to set the stage for implementing future industry improvements in trade clearance.

“This concept paper was a collective effort driven by our clients who have a strong focus on enhancing and streamlining equity transaction processing,” said Bill Kapogiannis, DTCC Vice President in Equity Clearing. “This paper provides the industry with information on the important role that DTCC plays to help better protect and preserve the U.S. capital markets.”

Download the Concept Paper Trade Clearance Input