DTCC starts testing of new Forex Repository

The Depository Trust & Clearing Corporation (DTCC) began user testing of its new Global Trade Repository service for Foreign Exchange on May 1 and is planning full production by the fourth quarter, including regulatory and public reporting. The repository is the last of five planned global repositories for OTC derivatives being developed and operated by DTCC.

Since the financial crisis of 2008 regulators hope that having access to a central pool of trade information will enable them to better monitor systemic risk within the over-the-counter market.

The OTC foreign exchange (FX) trade repository service will be delivered in two phases to facilitate testing and provide greater flexibility for firms who plan to use the repository service to meet regulatory reporting requirements.

The first phase, which began May 1, will cover testing for data submission of primary economic terms, confirmation data and snapshot reporting for FX forwards, Swaps Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Read this Term and derivatives by firms. These capabilities bring FX to a consistent level to that of other derivative asset classes supported by DTCC. The second phase, which is expected to start around July 1, will add testing for further message types and extend reporting, and full production is expected to be available in October.

For foreign exchange products, DTCC is working on establishing aggregate public data reporting capabilities and is working with the OTC Derivatives Regulators' Forum (ODRF), central bank-sponsored Foreign Exchange Committees and the Global FX Division of the Global Financial Markets Association (GFMA). DTCC plans on publishing aggregated data on OTC foreign exchange trades, such as by volume, currency, product type, and tenor, in a form that will be both timely and meaningful and provide the public with enhanced transparency in this market. Both the public and regulatory data are expected to be made available in the fourth quarter of 2012.

"The rollout of the FX repository caps a busy year for DTCC of designing, developing and implementing global trade repositories for three different classes of OTC derivative products and providing reporting to regulators to monitor that trading and systemic risk globally, as well as greater public transparency," said Stewart Macbeth, President and Chief Executive Officer of DTCC Deriv/SERV LLC.

"Members of the GFXD, along with others, have been extremely proactive with efforts to ensure that an industry-wide, global solution exists to meet multiple reporting requirements," said James Kemp, managing director of GFMA's Global FX Division. "The rapid development of this trade repository is excellent progress towards achieving the FX markets' transparency objectives for both regulators and the public."

DTCC developed the first trade repository in the world for OTC credit derivatives, initially called the Trade Information Warehouse. That warehouse now houses trade information on more than 98% of all the OTC credit derivatives globally. The company then subsequently received industry approval, following a competitive process, to develop global trade repository services for equity, interest rate, commodity (with the European Federation of Energy Traders) and foreign exchange (with SWIFT) OTC markets.

As part of its support for the markets, DTCC also developed a separate, web-based regulatory portal that permits regulatory agencies from around the world, based on voluntary reporting agreements and supervisory authority entitlements, to obtain near real-time information on credit derivatives trading. That portal was later expanded to include OTC equity derivatives and interest rate derivatives, and will also be used for commodities and foreign exchange trading reporting beginning in the fourth quarter. Some 40 regulatory agencies globally currently use the portal for derivatives monitoring.

DTCC's global trade repository service for FX will be offered by its UK-based subsidiary, DTCC Derivatives Repository Limited. DTCC's swap data repository service for Dodd-Frank FX reporting will be offered by its US-based subsidiary, DTCC Data Repository (U.S.) LLC, subject to regulatory approval.

OTC FX products have not been directly associated with any major mishaps like the credit crisis or flash crash, although there is no central market place initiatives like CLS and Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term Clear are pushing the market to greater transparency and confidence.