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The Depository Trust & Clearing Corporation (DTCC) has begun aggregating each side of certain equities transactions that settle outside its systems into one receive and one deliver order to eliminate the need for financial firms to manually settle multiple transactions each day.
Through DTCC’s clearing agency subsidiary, National Securities Clearing Corporation (NSCC) aggregates only those “trade-for-trade” transactions that are executed between the same trading parties and in the same security. In addition, only transactions that NSCC designates to settle on a trade-for-trade basis are eligible for aggregation. NSCC typically designates transactions to settle trade-for-trade if they involve securities that have been chilled or globally locked for operational, risk management, or regulatory or compliance reasons.
For the week of May 17, NSCC successfully aggregated 67% of the 64,650 trade-for-trade transactions in its systems, reducing the number of trades requiring financial settlement to 20,834.
“While trade-for-trade transactions represent a small percentage of overall equity trading volume, they inject unnecessary inefficiencies into the system because each trade has to be manually settled,” said Susan Cosgrove, DTCC managing director, Clearance and Settlement/ Equities. “By aggregating these trades, we are able to reduce the total number of transactions that need to be settled each day, which helps our members reduce their own internal costs.”
How the Service Works
As transactions flow from the exchanges and trading venues into NSCC’s trade capture system each day, buy and sell orders between counterparties in a given security that are designated by the clearing corporation to settle trade-for-trade are aggregated into a single receive and a single deliver order. However, as is currently the case with trade-for-trade transactions, the aggregated obligations are not netted against each other and are not guaranteed by NSCC.
Here’s an example of how the service works: if Broker A had fifteen buys against Broker B in Security X, these items would be aggregated into one receive obligation for A and one deliver obligation for B for the total amount of shares for the 15 transactions in Security X. If Broker A also had 20 sells with Broker B on that same day for the same security, those items would also be aggregated into one deliver obligation for A and one receive obligation for B. In this example, A and B would each have two settlement obligations with the other for Security X rather than the 35 obligations they would each have without aggregation.
“Trade-for-trade aggregation further extends DTCC’s ability to leverage its core capabilities to develop solutions that automate securities processing and help reduce costs for financial firms while protecting the safety and soundness of the financial markets,” said Cosgrove.
