U.S.A.: Prospective changes : New matching scheme : Update
Further to our Marketflash M12063, dated 7 December 2012, outlining an initiative launched by the Depository Trust & Clearing Corporation (DTCC) to set up a matching scheme, we hereby provide an update to the information.
Background
The DTCC recently released details of how its depository subsidiary, the Depository Trust Company (DTC), will introduce settlement matching, bringing significant enhancements to the settlement process, further reducing settlement risk and promoting intraday settlement finality.
In a paper entitled “Increasing Certainty and Promoting Intraday Settlement Finality: A Service Description for Settlement Matching”, the DTCC outlined the processing changes it will make in 2013 and 2014 to implement settlement matching for all its clients. These processing changes at the DTCC will be subject to appropriate regulatory rule filings and approvals.
Settlement matching will be supported in one of two ways:
- Affirmed institutional transactions will be sent to the DTCC in a straight-through processing (STP) manner and will automatically trigger the settlement match, otherwise known as “passive matching”. In addition, the DTCC will leverage current exemption functionality to enable receivers to pause or prevent settlement and participants to make appropriate credit decisions.
- Unaffirmed institutional trades and other transaction types (such as stock loan and stock loan returns, future dated and same day delivery orders and payment orders) will be matched leveraging the current Receiver Authorisation Delivery (RAD) process.
Implementation plans
For unaffirmed institutional transactions and the above-mentioned other transaction types:
- Beginning in July 2013, the DTCC will lower the current RAD thresholds as follows:
- From USD 15 million to USD 7.5 million for securities; and
- From USD 1 million to USD 500,000 for payments.
DTC participants are encouraged to automate their RAD interaction with the DTCC if this is not already in place.
- Beginning in January 2014, the DTCC will require all transactions to be authorised in the RAD system. Specifically, the DTCC will lower the RAD thresholds from USD 7.5 million and USD 500,000, for securities and payments respectively, to zero.
Note: The RAD system enables DTCC participants to review and either approve or cancel the transaction, avoiding reclamations. The RAD system’s value thresholds, which currently limit the transactions it processes, will be lowered to zero in two stages in 2013 and 2014 so that all non-institutional and unaffirmed transactions will be processed through the RAD system.
For affirmed institutional transactions:
- Beginning in Q1 2014, the DTCC will support passive matching for all affirmed institutional trades to promote both trade affirmation and STP settlement. DTC participants should ensure that they are able to leverage new reporting as well as receiver exemption from passive matching.
Our comments
This initiative would help to address uncertainties as to settlement finality, at least as far as DTC-eligible securities are concerned, and the phased approach should mitigate any possible disruption of the market. We are very supportive of this initiative and look forward to its implementation.
We continue to monitor developments under this initiative very closely and will provide further details as to possible impacts on our customers as they become available.
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