The Depository Trust & Clearing Corporation (DTCC) has introduced a number of major enhancements to its credit default swaps matching service to handle credit default swaps indices (such as iBoxx and DJ CDX), as well as credit default swaps on Asia-Pacific corporate credits and sovereign credits.
The move is expected to increase volumes through the system and continue to build "critical mass" in DTCC's OTC derivative services.
Up to now, DTCC's service provided automated matching and confirmation only for single reference entity credit default swaps issued on North American and European credits. The matching of trades involving indices, as well as Asia-Pacific corporates and sovereigns, is expected to continue to increase the number of transactions that can be matched through the system, with the largest number of transactions expected to be generated by trading in the indices.
"As of the end of April, we had 23 organizations using our credit default swaps matching service," said Peter Axilrod, managing director, DTCC New Business Development. "We have seen seven buy-side firms go live or sign subscription agreements since announcing the first buy-side firms going live in March, and we have an additional 10 or 12 firms we expect to bring on to our system in the next few months."
He noted that all the top 15 dealers in credit default swaps were currently either live or subscribed to use the DTCC service.
Axilrod also noted that in July, DTCC was planning on rolling out an additional enhancement to the automated credit default swaps matching service: the ability to do assignments and partial terminations of swaps. Buy-side firms especially are expected to make use of those two new features, since many times they wish to partially terminate or assign particular swaps to other firms.
"We are pushing ahead rapidly to continue to expand our services in OTC derivatives," Janet Wynn, general manager for DTCC Deriv/SERV, said. "Once we have completed these enhancements to our credit default swaps service, we will be looking to introduce some new services in the second half of this year. The specific services we introduce will be driven by decisions by our advisory board, but the main interest expressed at this point seems to be in services for equity options and interest rate swaps."
Wynn noted that while most dealers using the credit default swaps service and the payment reconciliation service had connected to DTCC using mainframe-to-mainframe connections, buy-side firms were using not only mainframe-to-mainframe, but also two alternate methods using a Web-enabled front end. The first method allows firms to upload appropriately formatted spreadsheets with the details necessary for an automated match. The other method allows firms to either individually fill in each field online, or to simply affirm (or modify) what their counterparty has sent in to the system.
"We have buy-side firms using all three methods," said Axilrod. "The Web front end essentially allows buy-side firms to begin using the system with virtually no programming required, yet allows them to get the benefits of fully automated matching and confirmation."
Axilrod noted that DTCC has also recently rolled out several more minor enhancements to its payment reconciliation service. The service allows payments to be automatically matched before the quarterly date when all credit default swaps payments are made. Over 100,000 individual payments are made on that day through DTCC's system, and payment reconciliation allows those payments to be accurately matched ahead of time.
The enhancements include adding an additional reconciliation cycle, reporting exceptions from cycle to cycle, and calculating netted credit or debit amounts on a bilateral basis. Both the credit default swaps matching service and payment reconciliation service are provided by DTCC Deriv/SERV L.L.C., a wholly owned subsidiary of DTCC.