Derivatives operations and processing standard

Derivatives operations and processing standards continue to be key issues in the financial markets today.

1.    Whatare the minimum processing standards for credit derivatives?

Industryparticipants should use electronic confirmation services for all eligiblecredit derivatives trades and match as many trades as possible on trade date,with the remainder submitted by T+1. By July 2008, participants should submit90% of eligible trades to DTCC Deriv/SERV or MarkitWire by T+1. These tradesshould be submitted accurately, with 90% of trades matched (directly or througha service provider) without amendment.

A majority ofthe trades should be matched on T+0 with the goal of 92% of the trades matchedby T+5.

Standardidentifiers(RED codes) should be submitted accurately for Reference Entitiesand Reference Obligations. RED subscribers should submit RED codes accuratelyon 100% of index trades and 90% of single name trades.

All allocationsshould be provided on T+0.

Novation consentrequests should be processed through electronic platforms rather than via emailby the end of 2008.

JSDA, MFA andSIFMA have published a one-page document that summarized the industry goals.

2.    Whatdo these commitments mean for entities that are not regulated by the Fed?

Although thecommitments in the letter do not constitue formal regulation, the commitmentsare an important form of self-regulation and were developed in response to specificregulatory demands to improve market structure. In addition, complying withthese commitments constitutes sound business practices and will further enhanceoperational processing within the OTC market.

3.    Whatsteps do firms need to take now to meet these standards?

Firms can meetthese standards only by using electronic confirmation services such as DTCCDeriv/SERV or MarkitWire(formerly known as SwapsWire) to confirm creditderivative trades.

4.    Whatis the DTCC Trade Information Warehouse?

The TradeInformation Warehouse(TIW) is a centralized and secure global infrastructurefor processing OTC derivatives throughout their lifecycle, which could extendfor years. It consists of two components:

A comprehensivetrade database containing the primary record of each contract.

A centraltechnology infrastructure that automates and standardizes trade processing,such as record keeping, payment calculations and settlement, notionaladjustments and contract term changes over a contract’s life.