The US Depository Trust & Clearing Corporation (DTCC) and CLS Bank International (CLS) have launched a central settlement service for OTC credit derivatives transactions. DTCC and CLS formed their partnership to build the central settlement solution in December 2006.
The firms claim that the service, provided through DTCC’s Trade Information Warehouse, is the OTC derivatives industry’s only automated solution for calculating, netting and issuing payments between counterparties to bilateral contracts. They add that the new service greatly reduces operating risks for users by replacing manually processed bilateral payments with automated, netted payments.
In the first quarterly central settlement cycle for the new service on 20 December 2007, the amount of trading obligations requiring financial settlement was reduced by 98%, from $14.3 billion gross in aggregate US dollar terms to $288 million net. Gross settlements by the 14 participating OTC derivatives dealers were consolidated from 340,000 to 123 net settlements. Payments were made in five currencies: US dollar, euro, Japanese yen, British pound and Swiss franc. The companies plan to expand the number of currencies in which payments can be made.