DTCC Deriv/SERV

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DTCC Deriv/SERV Trade Information Warehouse
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Transformation of Credit Derivatives Market

• Rapid, multi-dimensional growth on a global scale
• Trading volumes new products new market
  participants secondary market development
• Rapid spread of automated trade confirmation
• Bulk of all trading is now confirmed on an
  automated basis both inter-dealer and
  dealer-to-customer

Trends create both concern around post-trade
processing and opportunity to mitigate
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Growth in Credit Derivatives Market(Notional
Value Outstanding)
US Trillions
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Spread of Automated Confirmation through
Deriv/SERV
All major dealers globally use Deriv/SERV
Global buy-side take-up Includes 2nd tier
dealers
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Current Bilateral Administration Environment

• Parties must constantly sync up during contract
  life
• Payments, events, margining, etc.
• Many manual and duplicative reconciliation/resolut
  ion processes (internal and between firms)
• Each party is hostage to its counterparties
  processing
• Youre only as good as your counterparty your
  records may be right, but if your counterparty
  disagrees or doesnt know, you have a problem
• Operating models vary across firms different
  processes for different counterparties

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Central Trade Information Warehouse

• Two primary components
• A comprehensive, centralized trade database with
  the most up-to-date record of each contract
• A central processing capability to standardize
  and automate downstream processing of payments
  and other post-confirm processes
• Processing flows automatically from the
  electronic confirmation environment

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Model for Warehouse

• Central asset servicing through central
  securities depositories or listed derivative
  clearing houses
• But
• NO book-entry DVP services and
• NO central counterparty (CCP) credit
  intermediation

Complexities of OTC derivatives demanded a
multitude of unique and innovative servicing
solutions.
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Warehouse Schematic 1st Phase
ECNs, e-Checkout Services, AffirmXpress
Market Participants
Deriv/SERV Automated Confirmation

• Trade Warehouse
• Contract Maintenance
• Event Processing
• Payment Calculation
• Bilateral Netting

Back Loading
External Data Sources (notional factors, etc.)
Automated Funds Transfer
Central Funds Settlement Agents
Events include credit events, assignment
consents
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Warehouse Schematic Potential Build Out
Assuming market participant support
ECNs, e-Checkout Services, AffirmXpress
Market Participants
Deriv/SERV Automated Confirmation

• Trade Warehouse
• Contract Maintenance
• Event Processing
• Payment Calculation
• Margin Calculation
• Bilateral Netting

Back Loading
Other Automated Confirm Services
External Data Sources (add pricing, resets, etc)
Automated Collateral Transfer
Automated Funds Transfer
Central Securities Depositories
Central Funds Settlement Agents
Events include credit events, assignment
consents, corporate actions
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Core Principle Extensible Design
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Participant Cost Savings

• Processes eliminated
• Verbal or ad hoc trade checkouts
• Portfolio substantiation/tie-outs
• Bilateral cash flow reconciliation
• Assignment e-mail processes
• Margin disputes, delays
• Investigation of breaks with respect to the above

• Overhead reduced
• Reduced nostro fees
• Efficient collateral processing
• Standardized, automated processing for credit
  (and other) events
• More efficient portfolio management (tear-ups,
  position netting, etc.)

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Participant Risk Reduction

• Correct balance sheet
• Achieves immediate contract transparency
• Reduces risk in
• Reporting (corporate, regulatory, etc.)
• Market risk management
• Counterparty credit risk management

• Other risk reduction
• Credit event management (especially multiple
  credit event scenarios)
• Ad hoc reconciliation eliminated
• Fully transparent data set
• Standard messaging
• Similar for other events
• Payments always correct and complete
• Collateral always correct and complete

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User Oversight

• Global Senior Oversight Group
• Established by OTC Derivatives Operations
  Planning Committee of DTCC Board
• Dealers Senior personnel from the 14 major
  dealers
• All committed to their European and North
  American regulators to support this project and
  undertake other actions regarding reducing
  operational risk in the credit derivatives market
• Other dealers are eligible to participate if they
  make the same commitments
• Buy-Side Senior personnel from Europe and North
  America
• Where possible, nominated by hedge fund and
  traditional and asset manager trade associations