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January 2, 2014

DTCC Warning System

By By John D'antona

Red alert! No more going over your trading limits.

The Depository Trust & Clearing Corp. is readying a new real-time post-trade warning system that will alert member firms when they go over their predefined trading limits.

The proposed system, DTCC Limit Monitoring, comes in response to recent trading glitches, such as those involving Knight Capital and others, that cost firms millions of dollars or, in some cases, forced them to recapitalize. In response to these events and subsequent industry discussions, the clearing entity designed DTCC Limit Monitoring to monitor all broker-to-broker trading cleared from exchanges and self-regulatory organizations.

While other market participants may be developing additional risk management tools in connection with these recent industrywide efforts, the proposed DTCC Limit Monitoring would be separate from and would operate completely independently from any such tools, say DTCC officials.

Bill Kapogiannis, vice president of DTCC Equities Services, told Traders Magazine that the DTCC's system would differentiate itself from other monitoring solutions in that it covered all trading venues and not just one or a few.

"I think this system is more effective in that it provides a more holistic view of the markets-across all SROs and ATSs," Kapogiannis said, "rather than looking at a single specific trading platform or SRO."

According to Kapogiannis, the tool will enable firms to manage potential risk exposure for both their own accounts and their clients' accounts for trading in equities, corporate and municipal bonds, and unit investment trust instruments.

The DTCC proposal is subject to regulatory approval.

NSCC's Universal Trade Capture platform-a service that collates U .S. equity trade data through the clearing process-will feed the DTCC Limit Monitoring service. Real-time trade data from all broker-to-broker trades cleared from exchanges, alternative trading systems, ECNs, dark pools and other liquidity destinations in the U.S. will go through the system.

NSCC members that are either required to use the service under NSCC's rules or who elect to use the service will input trading alert criteria, specifically identifying trading limits based on the net-notional value for trading activity of their clients and for their own trading desks. If trading activity exceeds the preset early-warning levels, DTCC will deliver warning messages before limits are reached. In the case where a limit is exceeded, a breach message is sent.

The system provides three types of alerts: a systemic message sent to recipient; an email to the user; or a front-end Web-based user screen icon on the tool's website. Early warning alerts are sent at 50, 75 and 90 percent of a user's predefined limit.

 


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