dtc settlement workshop bank depository user group october 15 2007 stephen wasserman n.
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DTC Settlement Workshop Bank Depository User Group October 15, 2007 Stephen Wasserman. Topics to be reviewed. DTC Link with Euroclear Bank Capability to settle in Euros within DTC ATP Redesign Settlement ISO 15022 Message Formats Stock Loan and Repo Enhancements Fed Pledge Enhancements

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DTC Settlement Workshop Bank Depository User Group October 15, 2007 Stephen Wasserman


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    1. DTC Settlement WorkshopBank Depository User GroupOctober 15, 2007 Stephen Wasserman

    2. Topics to be reviewed • DTC Link with Euroclear Bank • Capability to settle in Euros within DTC • ATP Redesign • Settlement ISO 15022 Message Formats • Stock Loan and Repo Enhancements • Fed Pledge Enhancements • ID Net • 144A Equity QIB Tracking Service

    3. DTC Link with Euroclear Bank • DTC to open an omnibus account at Euroclear Bank (ECB). • Facilitates the efficient processing of cross-border securities transactions between DTC Participants and ECB Participants. • Opening of DTC account at ECB enables more efficient inventory positioning by participants of DTC and ECB (as needed) in order to settle securities at ECB and DTC. • A free-of-payment interface. • Accommodates dual listing of certain foreign and domestic securities on both U.S. and European trading platforms.

    4. DTC Link with Euroclear Bank(cont.) • This arrangement will enable DTC participants to settle trades in foreign issues in U.S. dollars executed on a U.S. domestic market through the normal clearance and DTC book-entry settlement processes. • Filed with SEC in September 2007. Pending approval.

    5. Capability to settle in Euros within DTC • DTCC implemented changes to expand the core NSCC and DTC transaction processing systems to accommodate trades originating from non-U.S. marketplaces, including trades not in U.S. dollars (e.g., trades in euros originating from the NYSE Euronext platform). • NSCC’s trade input and trade netting facilities will be enhanced to accept non-U.S. dollar trades from new or existing trading platforms. • DTC’s transaction input, processing and settlement facilities will be enhanced to allow transaction processing and settlement in an expanded range of non-U.S. currencies.

    6. ATP Redesign • ATP (Account Transaction Processor) is DTC’s books-and-records supporting participants’ depository position and controlling all security and money movements • Purpose – reduce maintainability risk, add new functionality (e.g., Trade Linkage, Bulk Pledge) and flexibility • Technical design to be completed in 2007 • Expected implementation in 2010

    7. Settlement ISO 15022 Message Formats • DTC will offer ISO 15022 formats for all settlement-related inbound and outbound interactive messages. • Some existing and most new functionality will be offered only via ISO 15022 messaging. • Increases standardization, flexibility and functionality to the industry. • Currently, participants can send in authorization/exemption commands (e.g., ID, CNS), payment orders and deliver orders via 15022 messages and receive real-time output of both the day and night cycle.

    8. Settlement ISO 15022 Message Formats (cont.) • Collateral pledges and remaining settlement-related transactions formats are targeted to be available by year-end 2007. • Participants that plan to use ISO messaging should budget for this effort in 2008.

    9. DTC’s Stock Loan and Repurchase Agreement (Repo) Enhancements • Changes to DTC’s Stock Loan/Repo process are to mitigate processing errors. • New warning messages for corrective action when incorrect reason codes are submitted. • Example - when an incorrect reason code is submitted to reverse or reclaim an original transaction that has stock loan/repo reason code that reclaim request will be rejected. • DTC will amend its procedures to require participants to electronically acknowledge via PINS that they have reviewed their end of month balances for stock loan and repo accounts. • Pending SEC approval.

    10. Fed Pledge Enhancements • In January 2007, DTC activated a MQ interface between the depository and the Federal Reserve Banks. Allows deposits and withdrawals processed through DTC’s COLL function to flow directly into the Fed’s collateral system. • Effective November 8th , DTC will permit participants to send in their Federal Reserve Bank collateral loan pledges and release requests transactions using the MQ protocol. • New MQ-based input process will supplement the current PTS manual key-in environment. • Participants may take advantage of the new automated process to increase the volume of pledges and release requests to the Federal Reserve Banks.

    11. Fed Pledge Enhancements (cont.) • Pledges to the Federal Reserve Bank of New York averaged $130 billion/month for first half of 2007, volume spiked to $263.7 billion in September, more than double the first half average.

    12. Institutional Delivery Netting Service“ID Net”

    13. Objective Streamline the clearance and settlement of institutional trades by leveraging DTCC’s netting and settlement capabilities through a service known as “ID Net” Confidential and Proprietary Intellectual Property of DTCC and Omgeo.

    14. Current Flow for ID Trades SELLS BUYS One Investment Manager uses multiple brokers for block trades - Resulting in multiple deliveries BANK BANK BROKER BROKER CNS BANK BANK BROKER BROKER BANK BANK BROKER BROKER BROKER BROKER BANK BANK Confidential and Proprietary Intellectual Property of DTCC and Omgeo.

    15. CNS ID Net - Broker Deliveries / Receives Offset With CNS Positions BUYS SELLS BANK BANK BANK BANK CNS Positions NSCC OMNIBUS ACCOUNT NSCC OMNIBUS ACCOUNT BANK BANK BANK BANK Confidential and Proprietary Intellectual Property of DTCC and Omgeo.

    16. How does it work? • Optional service • Omgeo sends affirmed trades to DTCC • Omgeo automatically checks trades for eligibility • Equity, not Reg SHO, bank & broker eligible, etc. • Trades must be matched before 9 PM on T+1 • No change to the current process flow through affirmation • DTCC automatically re-directs eligible ID Net trades to NSCC’s omnibus settlement account • Broker side of institutional trades will offset against their CNS positions and will be margined Confidential and Proprietary Intellectual Property of DTCC and Omgeo.

    17. How does it work? • NSCC omnibus account acts as settlement “agent” for brokers and settles with banks on a trade-for-trade basis • Various PTS screens will be enhanced to inquire upon the original broker/dealer. • Banks need to authorize exemptions only, as opposed to DO processing. • Unsettled ID trades are redirected back to the original broker/dealer at 11:30 am on SD (as opposed to the omnibus accounts). • Reclaims go back to the broker Confidential and Proprietary Intellectual Property of DTCC and Omgeo.

    18. Benefits of ID Net • Encourages earlier affirmation • Increases certainty of settlement by prioritizing ID Net deliveries to banks • Reduces the potential for matched trades to fail • Reduces the aggregate value of settlements system wide through netting efficiencies • Potentially makes securities available at banks earlier in the day for lending • Effort made to minimize impact on banks Confidential and Proprietary Intellectual Property of DTCC and Omgeo.

    19. Next Steps • Rule filing to SEC recently submitted • Test pilot targeted for late November/early December • New service description to be published in October • Production implementation in Q1 – upon SEC approval Confidential and Proprietary Intellectual Property of DTCC and Omgeo.

    20. 144A Equity QIB Tracking Service • Looks to support equity securities privately issued under the SEC’s Rule 144A (both primary and secondary markets). Trading only open to QIBS and registered B/Ds. • Solution would allow for the book-entry settlement of securities through DTC, while ensuring only registered QIBs can invest. • DTC share movement would be between two “seg” accounts only. • Enforce that minimum holding and shareholder limits (SEC imposed 500 investors) of the 144A rule are met. • DTCC and Omgeo working with industry participants to validate proposed solution and gain consensus on business requirements.

    21. Questions ? swasserman@dtcc.com