GlobeOp creates first automated buy-side payment matching link to DTCC for OTC credit derivatives trades

30 April 2008

GlobeOp Financial Services S.A. has launched the first automated buy-side payment matching link to the Depository Trust & Clearing Corporation’s (DTCC’s) payment reconciliation service for over-the-counter (OTC) credit default swaps (CDS). The service is offered through DTCC’s Deriv/SERV LLC subsidiary. GlobeOp’s proprietary electronic link - GoPayments™ - increases process automation, which helps to significantly increase efficiency while reducing credit derivative traders’ operational risk associated with manual payment matching.

Traditionally, CDS trades require bilateral reconciliation involving a significant number of manual operations. The absence of industry standards for payment request reconciliation, combined with the continued volume growth of OTC derivative trading, places considerable pressure on payment processing speed and reliability. According to ISDA operations benchmarking statistics released April 16th, credit derivatives remain the fastest growing class of OTC derivatives at 73 per cent by volume over the past year. According to the Federal Reserve Bank of New York, more than 90 per cent of OTC credit derivatives are now matched and confirmed electronically.

GlobeOp’s GoPayments launch responds to growing demands by hedge fund managers and other derivatives traders for fast, cost-efficient solutions and accurate, automated OTC derivatives trade processing. For instance, because GoPayments transforms trade payment matching turnaround from a multi-day to an intra-day process, counterparty discrepancies are more easily cleared on a daily, rather than weekly, basis.

GoPayments also sets the stage for GlobeOp’s buy-side clients to go live on Deriv/SERV’s central settlement service in 2009. The central settlement service, launched in late 2007, is currently used only by dealers.

“GoPayments’ live link to DTCC Deriv/SERV enables us to automate nearly 145,000 manual payment requests on a quarterly basis on behalf of our clients,” said Vernon Barback, president and COO of GlobeOp. “GoPayments’ centralized database generates and receives bundled requests from all clients linked to Deriv/SERV, eliminating manual processing of individual trades on a per client basis. This innovative service is scalable in terms of the number of clients and trade volume both GlobeOp and Deriv/SERV can accommodate."

He added: "As one of the industry’s leading OTC derivatives trade processors, we continue with GoPayments to further increase process automation and accuracy, which in turn helps to reduce the sector’s processing time and risk of errors. Faster, more reliable and more secure trade processing is an important industry goal as CDSs and other OTC derivatives continue to increase in volume and complexity.

“Deriv/SERV, as the leading automation platform for OTC credit transactions, is pleased to partner with GlobeOp in meeting the buy-side’s need for live linkage to our payment reconciliation service,” said Peter Axilrod, DTCC managing director, business development. “The GoPayments initiative is another example of how Deriv/SERV collaborates with third-party service providers to enhance operating efficiencies and reduce operating risks for market participants.”

Process automation and reduced operational risk were recently highlighted in best practice recommendations and guidelines by the Presidential Working Group in the US, and AIMA and the Hedge Fund Working Group in the UK.

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