The Depository Trust & Clearing Corporation (DTCC) has received an approval from Federal Reserve Board to establish a DTCC subsidiary that is a member of the Federal Reserve System, to operate the trade information warehouse for over the-counter (OTC) credit derivatives.
The new DTCC subsidiary will be called the Warehouse Trust. Its regulation is considered as an important step forward in furthering regulatory and industry objectives to bring transparency and added risk mitigation to the global OTC credit derivatives market.
While the Warehouse Trust will be directly regulated by the Federal Reserve and the New York State Banking Department, it is also expected to be subject to a global cooperative oversight framework involving other US and non-US regulators.
The trade information warehouse provides an array of automated downstream processing services for recorded contracts, including the netting and settlement of credit default swap (CDS) payment obligations in multiple currencies (through a partnership with CLS Bank International), processing of credit events (such as bankruptcies) and ‘successor’ events such as mergers, acquisitions and reorganizations. Currently, the warehouse contains virtually all OTC credit derivatives traded worldwide.
Peter Axilrod, managing director for new business development at DTCC, said: “In establishing the Warehouse Trust as a regulated entity, our aim is to ensure that regulators, wherever they are located, have unfettered access to the information they need to assess risk exposure in this global market, and that industry participants have the assurance of that regulatory oversight over the critical infrastructure that supports their market activities.”
Stewart Macbeth, managing director and head of the warehouse at DTCC, said: “Certainly, the warehouse is a critical component of the global credit derivatives market’s infrastructure. As a regulated entity, our aim is to work with global groups, such as the OTC Derivatives Regulators’ Forum, in this critical area of global concern.
“The industry, working with DTCC, has provided regulators with voluntary access to OTC credit derivatives trade records for the past year. We look forward to collaborating with both members of the OTC derivatives community, lawmakers and regulators to ensure that the global infrastructure that is already in place continues to meet the evolving needs of all relevant parties.”
The warehouse, established in 2006 in collaboration with members of the OTC derivatives industry and regulators, now has a global customer base that includes all the major credit derivatives dealers and more than 1,700 buy-side firms in 52 countries.