DTCC Deriv/SERV Gains Momentum as Single Confirmation Platform for OTC Derivatives

Apr 18, 2007

The Depository Trust & Clearing Corporation Deriv/SERV has established itself as the only platform used by virtually all major global derivatives dealers to electronically match and confirm over-the-counter (OTC) credit derivatives, interest rate derivatives and equity derivatives.

Already the de-facto standard for automated processing of OTC credit derivatives, Deriv/SERV is gaining support for processing an expanded range of OTC interest rates and equity products, from both global dealers and buy-side participants.

"With volumes of OTC derivatives instruments expanding in the marketplace at a rapid pace and new products entering the financial arena with much greater frequency, automated services such as Deriv/SERV have become essential tools for both the dealer community and buy-side firms to remain efficient," said Ric Okun, Senior Vice President, PIMCO. "Deriv/SERV has been incredibly responsive to meet these recent demands ensuring market standards are applied uniformly through their highly transparent platform."

New equity products that were added to the service this month include Asia Ex-Japan (AEJ) share and index options, AEJ share and index swaps, and Japan share and index variance swaps. These additions further expand Deriv/SERV's equity coverage, which already included the major North American and European share and index options, swaps, variance swaps, as well as Japan share and index options. DTCC expects to be able to support by year-end virtually all major equity products for which there are ISDA® (International Swaps and Derivatives Association) standard Master Confirmation Agreements (MCAs).

Automated support for ISDA's new and revised definitions of the standard rates and reference terms for interest rates swaps transactions were also added to Deriv/SERV this month. Deriv/SERV matches and confirms a broad range of swaps and swaptions as well as all post-trade events for interest rates.

New credit products recently added to the service include credit default swaps (CDS) on single-named asset backed securities and CDS on loans. Deriv/SERV currently supports the complete universe of credit derivatives products and post-trade events for which there are standard ISDA MCAs.

"Collaborating with the dealer and buy-side community, DTCC is serving as a catalyst for large scale automation for OTC derivatives processing," said Peter Axilrod, managing director, DTCC Business Development. "In the past three years, the industry's commitment to improve efficiency and reduce operational risk has only grown as we further develop the Trade Information Warehouse with CLS, our central settlement partner, and expand the depth and breadth of the Deriv/SERV family of services."

Deriv/SERV has the largest community of users for automated post-trade processing in the market place with more than 800 dealer and buy-side customers in 30 countries. Broader dealer usage of the service along with these product additions allows Deriv/SERV's buy-side customers the ability to match and confirm a comprehensive range of OTC derivatives instruments and post-trade events on a single platform.

Global derivatives dealers and buy-side firms worldwide attribute Deriv/SERV as playing a key role in increasing automated processing rates, which is helping to minimize operational risk and strengthening the market's infrastructure. This has helped market participants achieve an 80% reduction in the backlog of unconfirmed credit derivatives trades in the market by June 2006-a major commitment made by the leading dealers to global regulators.

"Adding a broader group of OTC derivatives products to the matching and confirmation service makes our overall platform more robust as it will allow our customers to populate the Trade Information Warehouse with even more confirmed contracts," said Janet Wynn, managing director and general manager, DTCC Deriv/SERV. "This is especially beneficial as we look to move the Warehouse's functionality beyond credit derivatives." The Warehouse is designed to extend to other OTC derivatives products including interest rates, equities and commodities.

DTCC's launched its Trade Information Warehouse last November, to addressing industry concerns about the efficiency and certainty of post-trade processing for OTC derivatives contracts throughout their lifecycle, which can extend for years. Delivered in an aggressive 10-month timeframe, the Warehouse is a centralized and secure global infrastructure for processing OTC derivatives contracts. It consists of two components:

  • A comprehensive trade database containing the primary record of each contract;
  • A central technology infrastructure that automates and standardizes post- trade processing, such as record keeping, payment calculations and settlement, notional adjustments and contract term changes over a contract's life.
  • DTCC introduced its Deriv/SERV matching and confirmation service in December 2003 in response to the OTC derivatives community's need to strengthen its operational infrastructure and improve processing efficiency in a market environment with trading volume growing at exponential levels. First supporting credit derivatives, the service was expanded in December 2004 to accommodate equity derivatives and in August 2005 to support interest rate derivatives.

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