US post-trade processing firm The Depository Trust & Clearing Corporation (DTCC) is to offer real-time trade guarantees for continuous net settlement-eligible trades and boost its processing capacity for equities clearing to 500 million transactions a day. This follows a capacity boost to 450 million transactions from 280 million in October last year.
The firm said it is making the changes to mitigate risk across the industry and ensure greater certainty for market participants.
DTCC’s equity clearing subsidiary, National Securities Clearing Corporation (NSCC), will apply trade guarantees on the trade date instead of T+1. The guarantee will be applied upon comparison for non-locked-in trades or validation for locked-in trades. NSCC expects to file a rule change with the US Securities Exchange Commission in Q1 seeking approval for the real-time guarantee.
DTCC expects the move to a real-time guarantee to change clearing fund requirements. However, in light of the current economic climate, the firm is reviewing its collateral management methodologies and calculations to ensure adequate coverage to protect the industry while minimising expenses for member firms.
“A real-time trade guarantee significantly enhances DTCC’s already robust risk management process and gives financial firms greater certainty that their trades will settle,” said Michael C. Bodson, DTCC’s executive managing director of business management and strategy, in a statement. “Recent market events, including firm failures like Lehman Brothers and Madoff Securities, underscore the importance of a real-time trade guarantee – and the value of a central infrastructure provider like DTCC that can manage risk from a central vantage point across asset classes.”
According to DTCC, the increase in capacity to 500 million transactions per day ensures the ability to handle unexpected spikes in trading volume. In Q4 2008, NSCC experienced a 33% jump in equity volume to nearly 170 million total transactions from the average daily volume of 128 million for 2008. On 10 October, NSCC processed a peak record 315.6 million total transactions.