The Wall Street Journal had an excellent article today detailing the “DTCC” or Depository Trust & Clearing Corporation – a project intended to store trade data across brokers and regulatory bodies in one centralized location. Planned to launch in December of this year, the DTCC has been collaborating with the SWIFT to provide transparency to OTC derivatives, especially in this case, Forex. Ultimately I wouldn’t be surprised to see forex trading to go onto exchanges at some point. It’s a much more efficient and a more level playing field for traders when brokers don’t make the market and must all clear to the same exchange with the same data.
Depository Trust & Clearing Corporation:
Testing is well underway for a long-awaited repository service that will store trade data for the $4-trillion-a-day global foreign exchange market, says the DTCC (Depository Trust & Clearing Corporation), which expects to go live with the new system on schedule in December.
DTCC has been working with the SWIFT (Society for Worldwide Interbank Financial Telecommunication), to build the trade repository as part of a looming regulatory overhaul of global financial markets.
In the wake of the next global financial crisis, the Group of 20 leading economies pledged three years ago to bring trading of over-the-counter derivatives onto exchanges or approved electronic platforms before the end of 2018. They also agreed to improve overall market transparency by reporting trade data to a global trade repository.
In an interview with Dow Jones Newswires, David Thomas, who is managing the project for DTCC, said it remains on course to meet this deadline.
“We’ve had around 22 firms in doing some form of testing and the majority of submissions are now successful,” he said.
The software can only go live once a steering committee within the company determines that enough leading foreign exchange banks and dealers are convinced DTCC’s system is up to the task, Mr. Thomas said, without specifying how many that would be.
DTCC cannot decide the “exit criteria” for individual firms, he said, referring to when they are ready to move out of testing. “They need to decide that themselves,” he said, adding that several working groups are meeting weekly to iron out any wrinkles and that DTCC hosts a daily call with users testing the system to enable them to raise any issues.
“What we are doing is facilitating a common understanding amongst those firms (in testing) to try and come up with something which is generally [accepted by the industry],” Mr. Thomas said.
The task is particularly challenging because the huge volume of trades and the global nature of the foreign exchange business means the DTCC has to contend with different regulatory regimes.
The U.S. Treasury, for example, has indicated the new rules would not apply to OTC currency derivative transactions like foreign-exchange swaps and forwards but has yet to confirm that. A final decision is expected by the end of the year.
If these transactions are exempt, related trades would not be reported to the repository on a real-time basis but would be available to central banks. These would have final say over whether and how to make the information public, Mr. Thomas said.
By contrast, real-time trade data collected on foreign-exchange options, currency swaps and non-deliverable forwards will immediately be available online through a specially built website, he said.