The Depository Trust & Clearing Corporation (DTCC) has called for maintaining a single trade repository for OTC derivatives contracts during testimony before a subcommittee of the House Financial Services Committee.
Larry Thompson, DTCC general counsel, said: “We are concerned that some in the OTC derivatives market may assume once a trade guarantee is provided through a central counterparty (CCP), there may be less need for a central registry to track the underlying position data. We reject this view, based on our long experience managing the risk flowing from the failure of a single member firm. At the critical juncture of a firm failure, knowing the underlying position data of multiple transactions in a timely manner will be significant in providing transparency to regulators-and in protecting confidence in the market itself. We believe the role of having a central repository should be reinforced as a matter of public policy.”
DTCC operates the Trade Information Warehouse – a repository and post-trade processing infrastructure for OTC credit derivatives. The warehouse handles the calculation, netting, and central settlement of payment obligations between counterparties, and automates the processing of credit events – situations where the protection against default provided by a credit default swap is activated.
In addition, DTCC’s Deriv/Serv matching engine, which electronically captures, confirms and matches over 95% of all credit derivatives traded globally, supplies the warehouse with more than 41,000 transaction sides daily. The warehouse connects and services over 1,400 global dealers, asset managers, and other market participants. Thompson noted that trade repository was designed to be extended to other OTC derivative asset classes.
“We believe maintaining a single trade repository for OTC derivatives contracts is an essential element of safety and soundness for two primary reasons,” said Thompson. “First, it helps assist regulators in assessing systemic risks, thereby protecting investors and financial markets. Second, as a practical matter, it provides the ability from a central vantage point to identify the obligations of trading parties, which can speed the resolution of these positions in the event of a firm failure, as we found last year in the case of Lehman Brothers.”
DTCC has publicly stated that it will support all efforts to create CCP services planned in the US and overseas, on a non-discriminatory basis.
“DTCC supports the role of central counterparties (CCPs) in OTC derivative trading to provide trade guarantees, but the CCPs do not preclude the need to retain the full details of the underlying trading positions in a central trade repository to support regulatory oversight and transparency in this market,” Thompson said.