U.S., European Depositories Are Branching Out
DTCC and Euroclear are finding automation opportunities in new sectors
March 2, 2009
Depository Trust & Clearing Corp. (DTCC) and Euroclear Bank operate settlement systems that are linchpins in the global equities and fixed-income markets. Now, they are extending their services into areas like syndicated loans, over-the-counter derivatives, alternative investments and carbon emission contracts.
The initiatives are designed to help members of the industry-owned utilities to reduce the operational risks inherent in manual processing. But another benefit is that financial firms will be able to centralize more of their processing work with fewer service providers, which in theory makes it easier--and less costly--to manage transactions and counterparty relationships across multiple asset classes.
"As an infrastructure service provider we can add value for our clients by streamlining their back-office processes," says Jo Van De Velde, managing director of product management for Euroclear Bank in Brussels.
Michael Bodson, executive managing director of business management and strategy for DTCC, says that the New York-based utility works closely with users "to develop new services that will enable the industry to reduce cost, increase automation and standardization, and lower risk."
With expansion comes competition and cooperation--as well as divergences that reflect the entities' operational structures. Euroclear Bank offers only depository services, while DTCC runs clearing subsidiaries in the U.S. and Europe and has an OTC derivatives arm. "We serve customers globally," says Bodson. "We don't just use our depository to do that, but instead use other subsidiaries as appropriate."
Syndicated Loan Battle
The syndicated loan market is one area where DTCC and Euroclear are likely to compete: DTCC's Loan-Serv, which is already live, and Euroclear's LoanReach target the same players and offer similar functionality. Both services enable agent banks to reconcile lender positions on individual loans on a daily basis rather than periodically or after a scheduled payment. The services also provide trade matching and confirmation modules.
Ten financial institutions, including Bank of New York Mellon Corp., BNP Paribas, European Credit Management, Société Générale and UBS Investment Bank, have signed up to test LoanReach, which will offer delivery-versus-payment settlement by year-end. Also in the pipeline are U.S. and European tax and income payment services. "One of the key differentiators," says Van De Velde, "will be our multicurrency settlement process and the ability to use the syndicated loans to collateralize transactions with central banks and other financial institutions." He also touts Euroclear's global reach.
Christopher Childs, VP of syndicated loans for DTCC, says that the utility already provides multicurrency settlement of global credit default swaps (CDS) and will not have any difficulties doing the same for loan contracts. "Global banks which have a U.S. presence in the loan market will prefer to do business with DTCC rather than relying on two services," he adds.
According to Childs, Loan-Serv will service Citigroup's and Deutsche Bank's U.S. books of business, with JP Morgan Chase & Co.'s to come shortly. He predicts that by the end of the second quarter--after DTCC completes a pilot program--JP Morgan, Barclays Capital, Deutsche Bank, Royal Bank of Scotland and Bank of New York Mellon will all post their European portfolios. "We anticipate having more than half of the agent banks working through us," adds Childs.
OTC Cooperation
