DTCC SUPPORTS SINGLE REPOSITORY FOR OTC DERIVATIVES CONTRACTS    

Posted June 9, 2009

NEW YORK – The Depository Trust & Clearing Corporation (DTCC) today called for maintaining a single trade repository for over-the-counter (OTC) derivatives contracts during testimony before a subcommittee of the House Financial Services Committee.

“We are concerned that some in the OTC derivatives market may assume once a trade guarantee is provided through a central counterparty (CCP), there may be less need for a central registry to track the underlying position data,” says Larry E. Thompson, General Counsel, DTCC. “We reject this view, based on our long experience managing the risk flowing from the failure of a single member firm. At the critical juncture of a firm failure, knowing the underlying position data of multiple transactions in a timely manner will be significant in providing transparency to regulators — and in protecting confidence in the market itself. We believe the role of having a central repository should be reinforced as a matter of public policy.”

Since last year, DTCC has now seamlessly processed or is processing, through its Trade Information Warehouse, more than 40 credit events, including the Lehman Brothers and Washington Mutual bankruptcies as well as the conservatorships for Freddie Mac and Fannie Mae. Because the industry had in place a robust, centralized infrastructure for the CDS market in the wake of last year’s financial turmoil, market participants were able to manage the multiple processing and operational challenges they faced with a greater degree of certainty and efficiency.

“We believe maintaining a single trade repository for OTC derivatives contracts is an essential element of safety and soundness for two primary reasons,” says Thompson. “First, it helps assist regulators in assessing systemic risks, thereby protecting investors and financial markets. Second, as a practical matter, it provides the ability from a central vantage point to identify the obligations of trading parties, which can speed the resolution of these positions in the event of a firm failure, as we found last year in the case of Lehman Brothers.”

DTCC has publicly stated that it will support all efforts to create CCP services planned in the US and overseas, on a non-discriminatory basis. “DTCC supports the role of central counterparties (CCPs) in OTC derivative trading to provide trade guarantees, but the CCPs do not preclude the need to retain the full details of the underlying trading positions in a central trade repository to support regulatory oversight and transparency in this market,” says Thompson.

DTCC recognizes and supports the public policy goals articulated in US Treasury Secretary Geithner’s May 13 Letter to the House and Senate Leadership on the need to promote transparency in the OTC markets. DTCC has been working closely with market participants and regulators to achieve that vision.  Since November 2008, DTCC has been publishing weekly on its website, key statistics and data from the Warehouse on the size and turnover in the CDS market.