November 2, 2011

DTCC takes next step to become the worlds OTC trade repository

The first step for DTCC was to win an RFP process run by ISDA and it’s member firms, to select an organization to provide a Trade Repository service, meaning a huge database of every single ISDA OTC contract in each asset class.

DTCC won that process hands down, even picking up the rates service from TriOptima who withdrew having won a previous RFP. This means DTCC is the chosen provider for Rates, Credit, Equities and FX. DTCC also won a joint mandate with EFETnet, a European platform for commodities, to provide a service for that asset class.

Having won the mandates, DTCC is now formally applying to the CFTC to operate the service, formalizing the opportunity.

Unfortunately, there isn’t plain sailing yet, as not everyone agrees with the situation:

      * ICE will operate their own Trade Repository for the CDS they execute and clear
      * CME will also operate a TR for their IRS & CDS trades
    * REGIS in Spain already offer a voluntary TR service

And the final issue which is bigger, is that the CFTC requires DTCC to be given an indemnity by each foreign regulator of trades in the Repository, to allow DTCC to use and publish the data without fear of breaching foreign regulations or rules. So far this has caused an impasse, as regulators don’t believe they are able to offer indemnities, it’s not the way they operate.

Maybe the US will find a solution, and DTCC will forge ahead with the support of ISDA, but don’t underestimate the possibility of a European move to create a similar infrastructure to ensure European trades are reported on European soil somewhere.

Similar to the concerns over multiple CCPs fragmenting the clearing market, the same fragmentation could occur in Repositories, making it difficult for regulators to achieve a picture of all the OTC business for a single firm in one place.

The other related move is to label all capital markets trades with the new unique Legal Entity Identifier, meaning a legal entity reporting trades to one or more repositories, will at least use the same LEI for both services.

Whether there will be regional TRs or a single mother of all TRs remains to be seen, either way most firms who use OTC products will need to plan for 2012 to directly report to TRs, or at least ensure they outsource the problem and take ownership of he regulatory targets to achieve timely reporting.

Update: I spoke too soon:

DTCC will split their Repositories in two, and operate a US and non-US service, perhaps relocating the latter to London, from a regulatory point of view.

DTCC Press Release

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