Credit derivatives processing: A buy-side perspective on how to cope with rapidly increasing volumes

James P. Wallin

Journal of Securities Operations & Custody, 2007, vol. 1, issue 1, 7-20

Abstract: This paper addresses current issues in the over-the-counter (OTC) derivatives processing arena, with a focus on credit derivatives. It describes the approach that has been adopted by regulators and the industry to deal with the explosive growth of this market, along with the processing and infrastructure issues that have arisen in connection with this growth. It also describes the industry responses to input regarding these issues from regulators in the USA and the UK. In addition to describing the history of the market and the rapid growth it has experienced in recent years, particular focus is given to the steps taken by the major dealers in OTC derivatives, the Depository Trust and Clearing Corporation (DTCC) and vendors that support the market to address the processing backlog and to put in place a scalable infrastructure that will support this business going forward. In this context, the author attempts to present these issues from a buy-side perspective, both to illustrate the issues and solutions to a broad audience, and to encourage buy-side participants in this market, along with their service providers, to embrace fully the change that has taken place. Particular attention is paid to the development by DTCC of the DTCC Warehouse, the Deriv/SERV confirmation and maintenance platform for OTC derivative transactions, and emerging vendor solutions for OTC derivatives processing, along with suggestions as to how industry participants can utilise these services.

Keywords: credit default swap; over-the-counter (OTC) derivatives; credit derivatives (CDS) market; Depository Trust and Clearing Corporation (DTCC); Deriv/SERV; Federal Reserve; Federal Reserve Bank of New York (FRBNY); Bank of England; International Swaps and Derivatives Association Inc. (ISDA); novation; cash settlement; convergence; senior oversight group; steady state; Securities Industry and Financial Markets Association (SIFMA); Managed Funds Association (MFA); straight through processing (STP) (search for similar items in EconPapers)
JEL-codes: E5 G2 K22 (search for similar items in EconPapers)
Date: 2007
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