DTCC launches equity derivatives confirmations service
02 December 2004 | 542 views | 0
The Depository Trust & Clearing Corporation (DTCC) has successfully launched its global OTC equity derivatives matching and confirmation service with five major dealers, and several other firms are lining up to begin using the service shortly.
The service is expected to reduce both the costs and risks for the industry by eliminating slow and costly manual confirmation processing of these securities and is the world's first automated, global central matching and confirmation utility for OTC equity derivatives.
The equity derivatives service was developed in consultation with the dealer community and includes all relevant life cycle events involving share options and index options, including new trades, full and partial terminations, increases, and amendments. In addition, DTCC is also preparing for the introduction of interest rate derivatives matching and confirmation early next year, beginning with interest rate swaps and "swaptions" (options on swaps).
The equity derivatives service joins DTCC's highly successful credit default swaps matching and confirmation service, launched in late 2003.
The OTC equity derivatives service officially went live in late November following several weeks of testing with five major dealers previously announced. In addition, four other dealers are actively preparing to go live very shortly, some possibly before year-end.
According to Peter Axilrod, managing director, DTCC Business Development, DTCC expects to expand its equity derivative confirmation and matching service in the first part of 2005 to include total return swaps and variance swaps, fulfilling a commitment to the equity derivative community. This has also generated significant interest from major hedge funds in Europe and North America.
"We have over 40 major hedge funds either live on our credit default swap matching service or testing in preparation to go live," said Axilrod. "These funds are now subscribing to the equity service, and we expect this process to accelerate quickly over the near term."
"It was important to us to have rapid development and launch of a service that could include not only real-time matching of new trades but also all important post trade events, and we look forward to gaining significant cost savings and straight through processing benefits from it," said Martin Ryan, executive director, Morgan Stanley.
"We are delighted that DTCC was able to rapidly develop and launch this service for real-time matching of OTC equity derivatives," said Stefan. J. Bakunowicz, vice president, Equity Derivatives, JPMorgan Chase. "We have been testing the system for several weeks and are very comfortable with its operation and it ability to match these trades in real-time."
"The OTC derivatives market is growing rapidly, and equity derivatives is an area that hasn't ever had any real process automation," said Joe Elmlinger head of Global Equity Derivatives of Citigroup. "DTCC has put time and effort into developing a system that works for the industry in matching and confirming equity derivatives globally, and we are very pleased with the way the system is working so far."
"This is a significant milestone in our efforts to streamline and automate the OTC derivative confirmation process, and we look forward to broader industry participation to fully realize the benefits," said Dave Berry, global head of Equity Derivative Operations at Goldman Sachs.
As with DTCC's credit default swaps confirmation and matching service, firms can use the service through mainframe-to-mainframe links, through a spreadsheet upload process, or through by simply filling out a form in a browser over the Internet. All connections are secured through use of a private network or via a digital certificate issued by DTCC.