London & New York, October 3, 2005 â T-Zero, a platform dedicated to achieving operational efficiencies in the credit derivatives markets, announced that it has processed its first live trades between a major credit derivative dealer and a hedge fund. T-Zero is a post-trade processing system specifically designed to help combat the rising tide of operational issues affecting the growing credit derivative markets, including outstanding documentation. The dealer in the trade was Goldman Sachs and the hedge fund was KBC Alternative Investment Management.
"This is a major breakthrough in the credit derivatives markets," said Mark Beeston, president of T-Zero. "For the first time, trades have been executed between a bank and its client, processed by an independent third party and electronically documented by the bankâs supplier of legal execution, DTCC. T-Zero is demonstrating that its âagnosticâ affirmation model can play an integral role in post-trade handling of trades."
The trades on T-Zero, which allowed the participants to achieve immediate, or T+0 confirmation and settlement, comes as the credit derivatives market faces increasing scrutiny by regulators globally, who have directed the industry to take steps to alleviate the operational problems. T-Zero has been working with the dealer community to develop solutions to problems such as unconfirmed trades, cash breaks and margin management issues. By capturing the trade data correctly upfront T-Zero helps to address each of these areas.
One of the major benefits cited in using the T-Zero system is that it does not mandate which systems market participants must use in trade processing. "Interoperability has really arrived with T-Zero," said Simon Morris, head of European credit trading at Goldman Sachs. "This opens the way for true operational efficiency in the credit derivatives market, cutting through a multitude of unnecessary legacy risks".
"This product should quickly become the market standard," says Francisco Arcilla, Director of Trading at KBC Alternative Investment Management. "This mechanism will reduce operational risks, and enhance the transparency of the post-trading process with our counterparties. In addition, we are benefiting from access to a real-time link into DTCC."
In the trades between Goldman Sachs and KBC Alternative Investment Management, T-Zero processed multiple single-name credit default swaps. Within minutes of trade completion, the trade information was entered into Goldman Sachsâ trade capture system and routed electronically to the T-Zero platform. KBC Alternative Investment Management electronically affirmed the trade on T-Zero and, simultaneously, allocated it across multiple funds. The timeliness and accuracy of trade allocations, or "splits," are a major source of operational inefficiency in the credit derivatives market. Major dealers have seen delays of up to 10 days for receiving notification of allocations.
"T-Zero is about ensuring our clients capture trade data 100% accurately, on trade date, 100% of the time", says Beeston. "Our open architecture and standards-based model is not only unique, it is fundamental to unlocking operational efficiency. Our product offers symbiotic benefits to all participants in the trade and post-trade support environment."
T-Zero launched late in the summer and has received strong levels of interest from the dealer community globally. The firm has a number of additional dealers coming online in the near future.