DTCC Receives Regulatory Approval To Launch ID Net
On June 2, DTCC subsidiaries, The Depository Trust Company (DTC) and National Securities Clearing Corporation (NSCC), received approval from the U.S. Securities and Exchange Commission (SEC) of rule changes allowing them to launch ID Net, a new joint service that combines and nets the broker side of affirmed institutional equity trades.
ID Net is expected to streamline clearance and settlement, cut customer costs and reduce fails in this growing segment of the market. The service leverages the netting and settlement capabilities of DTCC’s equities clearance and settlement subsidiary, NSCC, with the existing processing of DTCC’s depository subsidiary, DTC.
“Over the past couple years, we’ve seen marked growth in institutional trades, which has meant an increased number of steps, risks and costs in the overall clearance and settlement process,” said Susan Cosgrove, DTCC managing director, Clearance and Settlement Group. “This service will benefit all parties involved in institutional trading by increasing the overall certainty of settlement for matched institutional trades, encouraging early affirmation and reducing risks. In addition, banks and broker/dealers will realize cost savings with the ID fee reduced in half for all who participate.”
More netting
Unlike exchange trades and most prime broker trades, institutional delivery transactions do not currently flow through NSCC’s Continuous Net Settlement (CNS) automated book-entry accounting system. Rather, these transactions usually settle at DTC without the benefits of netting.
The new ID Net service will allow broker/dealer customers to net all eligible affirmed ID transactions against any other CNS transactions they may have, reducing the movements to and from a firm’s account and extending the benefits of netting to another industry segment.
With the new ID Net screens available for customers in early June, the first trades eligible to settle via the service were on the settlement date of Monday, June 16.
Initially, only equity CUSIPs eligible for CNS – which have also been affirmed before 9 p.m. on T+1 – will flow into the ID Net service. Corporate and municipal bonds and unit investment trust (UIT) issues will be excluded. Also excluded are the first day of new issues, issues undergoing a mandatory or voluntary reorganization, CUSIPs with a CNS buy-in and securities appearing on the SEC’s Reg SHO list. Even excluding these securities, it is estimated that more than 250,000 trades a day could be eligible for ID Net.
Collaborative offering
A voluntary service, ID Net will be offered jointly by DTCC’s NSCC and DTC subsidiaries. Broker/dealers must be participants of both subsidiaries and banks must be DTC participants.
All ID Net customers will be required to enter into “ID Net Subscriber” agreements with NSCC and/or DTC, as applicable, governing their use of the service. These new membership forms are available on www.dtcc.com under Customer Center in the Access Coordinator Form section.
DTCC developed the ID Net service in collaboration with its global joint venture company, Omgeo LLC, at the request of, and in consultation with, industry participants, including an active working group of broker/dealers and bank customers. @
[To learn more about ID Net, contact Steve Wasserman, DTCC product manager, Clearance and Settlement, at swasserman@dtcc.com or 212.855.3270.]