New Global Data Base for Credit Derivatives To be Unveiled by DTCC
A new global data base for credit derivative transactions is set to be announced today by Depository Trust & Clearing Corporation, the financial industry-owned clearing house for US securities transactions. This so called “trade information warehouse” could be up and running by mid-year, according to Peter Axilrod, managing director of business development at DTCC. The Financial Times of London has more information on this development in an article written by Richard Beales entitled Opening the Information Warehouse. The article goes on to include the following section:
Michael Bodson, global head of operations at Morgan Stanley and chairman of DTCC’s derivatives planning committee, said: “We view the maintenance and support of [over-the-counter] derivatives contracts over their life as the next big issue facing the industry.” The simplest credit derivative, a credit default swap, is a form of insurance, or protection, against a company’s failure to make payments on its debt. The commonest contracts last five years, during which time the buyer of protection makes regular payments to the seller.
The idea of the database is to hold a “golden copy” of every trade and to automate and simplify the payments that pass between market participants while the contracts are in force. Currently there is no centralized process, and payments are calculated and agreed by the parties to each trade. Guido Buehler, global head of fixed income operations at UBS and a member of DTCC’s derivatives planning committee, said the organization was beginning with credit derivatives because of the market’s rapid growth and because, unlike in other markets, the bulk of participants already use DTCC’s automated trade confirmation service. “In addition to all of the leading dealers, over 200 traditional and non-traditional asset managers worldwide already use the service,” he said.
DTCC plans eventually to extend the system to other types of OTC derivatives. A central database of trades should help dealers and investors keep track of their positions, even if counterparties transfer their interests in trades to third parties – a particular problem in the credit derivative market until recently.