The January issue of the DTCC's Corporate Newsletter features an article entitled, "DTCC Announces Plans to Reduce MMI Settlement Processing Risk," which says, "DTCC has announced plans to enhance the settlement processing of money market instruments (MMI) in ways that will help mitigate credit and systemic risks in this $363 billion-a-day market. DTCC is developing the initial round of enhancements, scheduled to take effect in May 2012 subject to Securities and Exchange Commission approval, as part of an industry-wide effort to reduce risks associated with the settlement of these instruments."
Susan Cosgrove, DTCC managing director and general manager, Settlement and Asset Services, comments in the newsletter, "After robust and thorough consultation with market participants, we are now poised to implement the first round of changes to The Depository Trust Company (DTC) MMI processing system. The goal is to strengthen and reduce risk associated with issuance and maturity settlement processing in the MMI market, a market that plays such a vital funding role in the U.S. economy."
DTCC writes, "In addition, discussions with the industry on longer-term and more structural enhancements to the MMI settlement process are under way and will continue in 2012. The daily MMI market accounts for approximately 55% of the gross value of settlement activity at DTCC's depository and includes a daily average of $122 billion in issuances, $125 billion in maturities and $116 billion in deliveries."
The issue explains, "The MMI initiative is being spearheaded by an MMI Blue Sky task force organized by DTCC and the Securities Industry and Financial Markets Association (SIFMA). The task force released a report in March 2011 proposing a series of short-term changes to the MMI processing system, along with ideas for long-term structural change. In response to feedback from a broad spectrum of MMI market participants, the task force revised the short-term recommendations, and DTCC now expects to implement them in May 2012. The task force will further discuss and prioritize the report's ideas for longer term enhancements with the goal of finalizing recommended proposals and implementation timelines by the end of 2012."
DTCC continues, "The short-term changes include the implementation of new cutoff times intended to give MMI Issuing and Paying Agents (IPAs) sufficient time to calculate their exposure to issuer credit risks and, if a funding shortfall exists, time to resolve the shortfall by 3 p.m., the time by which an IPA must determine whether it will issue a Refusal to Pay (RTP). An RTP reverses all transactions for that day in a given issuer's MMI and can trigger market concerns about the issuer's financial health. The planned short-term changes have garnered broad industry support, thanks to the task force's collaborative efforts and its active pursuit of industry input."
Christopher Buechner, executive director for commercial paper IPA services at JPMorgan Chase, says, "This is part of what we see as a necessary evolution of the money market process in the U.S." The piece tells us, "Buechner, a task force member who played a key role in the drafting of its report, said the overall proposed changes to the MMI process would help increase transparency and create more settlement finality in the MMI marketplace." He adds, "We see the revised cutoff times as a necessary first step." (For more information on the MMI Blue Sky Task force, write to mmibluesky@dtcc.com.)
