DTCC and Swift eye FX trade repository

New York-based group set to develop trade repository for every other OTC asset class and has pitched for foreign exchange in partnership with Swift

The chance the New York-based Depository Trust & Clearing Corporation (DTCC) will be selected to operate a foreign exchange trade repository appeared to increase last week, after it emerged the DTCC would develop the commodity derivatives trade repository, granting it a near-monopoly of the nascent business of trade repositories for over-the-counter derivatives.

The DTCC's Deriv/Serv unit has operated the trade information warehouse to hold a central record of trades in the credit derivatives market since November 2006. In the wake of the financial crisis, legislators in Europe and the US have demanded that reporting to a trade repository be extended to all OTC asset classes, including foreign exchange.

Through selection processes facilitated by the International Swaps and Derivatives Association, the DTCC has now been selected to operate, either by itself or in partnership with another entity, the trade repository for equity derivatives and interest rate derivatives. On June 14, Isda announced DTCC Deriv/Serv had also been selected to develop a commodity derivatives repository, in partnership with German energy trading software company EFETnet.

Foreign exchange is the last remaining asset class for which a trade repository has to be selected. The global foreign exchange division of the Association for Financial Markets in Europe (Afme) has been carrying out the selection process, and ended a public request for proposal (RFP) on May 6. It is understood six entities have entered the RFP, and the DTCC last week confirmed it had submitted a proposal in partnership with Brussels-based networking specialist Swift.

"The DTCC and Swift have jointly responded to an RFP from Afme to build a trade repository for foreign exchange. We understand Afme is running a process reviewing potential providers, so it wouldn't be appropriate to elaborate at this time. In general, we believe we have a design that can support multiple asset classes," says a spokesperson for the DTCC.

Having reviewed the proposals, Afme began formal vendor presentations late last week as it moves forward with the process. James Kemp, managing director of Afme's global foreign exchange division in London, declined to comment specifically on the DTCC/Swift alliance, but said observers should be aware of the differences between foreign exchange and other asset classes - a factor that will certainly weigh on the choice of repository provider.

"Let us absolutely not prejudge who will be the best entity to run the foreign exchange repository. The foreign exchange industry is slightly different in that it is global - much more so than other asset classes. The number of participants and the number of tickets is also much higher than other asset classes, so the sheer amount of data a repository will need to handle is of a greater magnitude as well," says Kemp.

Some market participants share Kemp's concern about the size of the foreign exchange market, but others suggest the DTCC's experience in operating a repository in other asset classes make it a natural choice for foreign exchange.

"My sense is that the DTCC is well geared up and it obviously has a head start. It would be strange if, just because of volume issues, it didn't move into this space. For any entity not already operating as a repository, this will be a big challenge," says one London-based lawyer close to the discussions.

Last month, it emerged central settlement provider CLS Bank had decided not to pitch to operate the repository, having suggested publicly last November that it would do so. "The size, scope and scale of building a trade repository are beyond our core business and expertise," CLS told Afme earlier this year.

In selecting the most appropriate provider of a repository, Afme's global foreign exchange division has identified a number of criteria the provider should meet, which include the functionality and underlying technology capabilities for storing data and reporting it to regulators, data resilience, disaster recovery, governance structure and business model.

Time to market is also likely to be an important factor. Afme has not yet indicated when it plans to finalise the selection, but the repository will need to be up and running in time to meet an end-of-2012 deadline set by the Group of 20 leading economies for reporting and clearing rules to come into force.

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