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The Clearing Corporation and The Depository Trust & Clearing Corporation
Announce Credit Default Swap (CDS) Clearing Facility
Linked To DTCC's Trade Information Warehouse
Collaboration to Deliver Central Counterparty Services
and Added Risk Management Benefits
to the OTC Derivatives Market
Chicago and New York,
May 29, 2008 –
Clearing Corporation (CCorp), and The Depository Trust & Clearing Corporation
(DTCC) have signed an agreement that facilitates central counterparty services
(CCP) for the over-the-counter (OTC) derivatives marketplace.
Under the agreement, CCorp members will benefit from CCorp's netting and risk
management processes and will leverage the asset servicing capabilities of
DTCC's Trade Information Warehouse (Warehouse). The Warehouse is the
industry's only global repository and centralized post-trade infrastructure
for servicing OTC credit derivatives (CDS) contracts throughout their
multi-year lifecycles. The agreement with DTCC will allow CCorp members to
utilize CCorp as the central counterparty (CCP) guarantor for OTC contracts in
credit derivatives while continuing to utilize the Warehouse as the
"golden" record for net open positions and for post trade event processing.
The initiative is targeted to launch in 3rd quarter 2008 and will be fully
implemented in several product specific phases in 2008-2009.
"Through the use of multilateral netting, margin collateral, and daily
marking-to-market of positions, CCorp's clearing facility will improve capital
efficiency, increase regulatory transparency, lessen direct counterparty risk
and reduce systemic risk relating to the multi-trillion dollar market in
credit default swaps" said Michael C. Dawley, Chairman of CCorp.
CCorp's CDS clearing initiative will be open to all qualified clearing
participants that satisfy CCorp's requirements relating to credit worthiness
and experience in the CDS market. At present, CCorp's clearing participants
hold a significant portion of the positions in this marketplace.
At first, the clearing initiative will support CDX North American High Yield
and Investment Grade indices. CDS products such as iTraxx indices, index
tranches, and single name products are scheduled for subsequent roll outs
throughout 2008 and 2009.
"We are pleased that CCorp is utilizing the Trade Information Warehouse and
its operational efficiencies to develop a solution that helps market
participants reduce their counterparty risk exposure," said Peter Axilrod,
Managing Director, Business Development, DTCC. "We believe there is great
benefit in the Warehouse's ability to link with CCorp and other complementary
service providers because it enables industry members to avoid duplicating
costs and to maximize operational and risk management investments."
In the initial phase, joint CCorp and DTCC Warehouse members whose OTC credit
derivative trades are stored in the Warehouse can elect to replace their
bilateral agreements with a new CCP guaranteed trade backed by the CCorp.
Value-added services provided by CCorp in its role as a CCP include
multilateral netting of contracts, trade guarantees, collecting
forward-looking margin to protect against adverse price moves and performing
daily marking-to-market of cleared positions to collateralize losses. The
Warehouse then provides further post-trade asset management services including
credit default management and centralized net settlement of quarterly payment
obligations between counterparties, which is offered in partnership with CLS
Bank International.
Today, the Trade Information Warehouse provides the industry with a robust
global and centralized post-trade processing platform and automated repository
for over 3 million contracts, with more than 10,000 new contracts on average
flowing into the Warehouse from Deriv/SERV's matching and confirmation system
on a daily basis. Recognized as the industry standard for post-trade
processing of OTC derivatives contracts, market participants indicate that
more than 95% of credit derivatives trades are matched and confirmed on
Deriv/SERV's platform. Deriv/SERV's customer base includes 25 global dealers
and more than 1,100 buy-side firms in 31 countries.
About The Clearing Corporation
The Clearing Corporation provides clearing services for global exchange and over-the-counter (OTC) traded derivatives. As an independent derivatives clearinghouse, The Clearing Corporation is in a unique position to provide innovative and customer-focused OTC and exchange-traded derivatives clearing services. The Clearing Corporation is a stockholder-owned, Delaware corporation, now in its 83rd year of business and serves numerous clients in a variety of markets. Additional information on The Clearing Corporation is available at
www.clearingcorp.com.
About the Depository Trust & Clearing Corporation
The Depository Trust & Clearing Corporation (DTCC), through its subsidiaries, provides clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, money market instruments and over-the-counter derivatives.
In addition, DTCC is a leading processor of mutual funds and insurance transactions, linking funds and carriers with financial firms and third parties who market these products. DTCC's depository provides custody and asset servicing for 3.5 million securities issues from the United States and 110 other countries and territories, valued at $40 trillion. Last year, DTCC settled more than $1.8 quadrillion in securities transactions. DTCC has operating facilities in multiple locations in the United States and overseas. DTCC's family of services for the OTC derivatives market are provided through its wholly owned subsidiary, DTCC Deriv/SERV LLC. For more information on DTCC, visit
www.dtcc.com.
Contacts:
The Clearing Corporation
Andy Merrill or Tripp Kyle
Finsbury Group
+1-212-303-7600
ccorp@finsbury.com
The Depository Trust & Clearing Corporation
Judith Inosanto
+1-212-855-5425
jinosanto@dtcc.com
or
Melanie Best
+1-212-855-5127
mbest@dtcc.com
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