DTCC Wins Fed Approval for Trade Info Warehouse for OTC Credit Derivatives
February 10, 2010
Having approval from the Federal Reserve Board, the Depository Trust & Clearing Corp. is poised to become the de facto legally accepted global repository for over-the-counter credit derivative transactions.
DTCC said Wednesday that the Federal Reserve approved its application to establish a subsidiary called Warehouse Trust Company, which will be a member of the Fed.
The Warehouse Trust Company, which will operate a Trade Information Warehouse, will begin operations “once certain organizational conditions have been met, which are expected shortly,” said DTCC.
The Fed’s approval is the last regulatory hurdle the DTCC needed to overcome for the Warehouse Trust Company to be operational. As the umbrella organization for the U.S. clearing and settlement utilities, DTCC had already won approval for the Warehouse Trust Company from the New York State Banking Department in November.
The Fed’s oversight means that not only the Fed but foreign regulators can ask DTCC to provide data on just what credit derivative contracts have been traded and processed through DTCC. DTCC has made no secret of its desire to become the U.S’ only repository for OTC derivative contracts and already has achieved a global reach; it serves more than 1,000 dealers and 1,700 buy-side firms in 52 countries.
So far, European regulators have been promoting a European version of the Trade Information Warehouse rather than relying on a globally-operated warehouse in the U.S. But it remains to be seen whether such an initiative will be embraced by global derivative dealers.
The Fed’s approval “is an important step forward in furthering regulatory and industry objectives to bring greater transparency and added risk mitigation to the global OTC credit derivatives market,” said the DTCC in a statement. ”While the Warehouse Trust will be directly regulated by the Federal Reserve and the New York State Banking Department, it is also expected to be subject to a global cooperative oversight framework involving other U.S. and non-U.S. regulators market.”
DTCC also publicly releases weekly aggregate information on OTC credit derivatives, including open interest and turnover information for the top 1,000 names traded worldwide, available on its website at www.dtcc.com/products/derivserv/data/index.php.
Launched in 2006, the Trade Information Warehouse contains the primary record of each derivative contract and an electronic platform that provides an array of post-trade processing capabilities for credit default swaps for U.S. and international entities. Those capabilities include the netting and settlement of credit default swap CDS) payment obligations in multiple currencies, processing of credit events (such as bankruptcies) and so-called “successor” events such as mergers, acquisitions and reorganizations. As of the end of January, the information warehouse included data on 2.3 million contracts with a gross notional value of $25.5 trillion.
Last November, Bolsas y Mercados Espanoles (BME), which operates Spain’s equities, fixed income and derivative trading markets became the first European marketplace operator to announce plans to offer a trade repository for OTC derivative contracts. At the time BME said that the repository to go live at the end of this year would meet the objectives of European regulators to create a warehouse for OTC contracts in the European Union. BME officials could not be reached on deadline as to discuss the status of their project.
