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CHAPTER SEVEN | TWIN STORMS
TRADE INFORMATION WAREHOUSE While the reasons for the 2008 financial crisis were many, the most widely used derivative product, known as a credit
market,” said Chris Childs, managing director, head of Repository & Derivatives Services. “At that time, the TIW was there purely to facilitate payments and transaction processing in between trading counterparties. It wasn’t there for the purpose of regulators.” During the crisis, DTCC realized it could provide helpful data. “We could actually see that a lot of the news reports were wrong,” Childs said. “The numbers were inflated because people were using gross numbers rather than net numbers, so we went to the industry and said, ‘We can calm the markets down by using information in our TIW to show an accurate reflection of exposure.’” In 2009, at the Pittsburgh Summit, G20 companies committed to expanding warehousing data in derivatives. “We were at the forefront of this concept. Warehousing this data and then providing it to regulators was a critical move for the industry,” Childs said. In 2012, TIW expanded its warehousing to the Global Trade Repository. Today, DTCC is the largest recipient of data from the market and the largest provider of that data to regulators.
default swap (CDS), played a significant role. A CDS serves as a form of insurance in a contract between two parties where the seller agrees to compensate the buyer in the event of a debt default or massive credit event. The risky nature of CDSs drew the attention of federal regulators, especially due to the fact that most CDSs were written on paper, meaning inaccurate records, manual inputs and a long time for trade confirmation. “Banks really didn’t know what exposure they had to other banks because of these credit default swaps,” said Peter Axilrod, former managing director of strategy/derivatives. “Risk managers were saying this was a big problem because they really couldn’t get a handle on what they owed other banks or what they were owed by other banks.” The Depository Trust & Clearing Corporation’s (DTCC) Trade Information Warehouse (TIW) was a solution. TIW calculates payments due on CDSs and, if an event occurs, it is processed through TIW. “The concern during the crisis was that the regulators had no access to data in that
default swaps. Its infrastructure provides automated operational capabilities for approximately $10 trillion of credit derivatives globally. TIW is a centralized electronic database holding the most current details on the official, or “gold,” record for virtually all cleared and bilateral credit default swap contracts outstanding in the marketplace. The warehouse contains more than 50,000 accounts representing derivatives counterparties across 95 countries. As a reflection of its success, in 2008, TIW managed 11 credit events in the over-the-counter derivatives market. Approximately $285 billion of credit default contracts were netted down to $12 billion in actual payments. In ways large and small, DTCC helped its member firms—and the global economy—navigate the myriad of financial institution failures, forced mergers and bailouts.
Intensifying the Risk Mindset
The 2008 recession and the instability on Wall Street provided tremendous lessons for DTCC in the years that followed. In 2010, the firm launched DTCC 3.0, which Donahue told stakeholders meant reshaping DTCC’s systems and services to lower its risk profile, further safeguarding the firm and the financial industry and making DTCC more efficient from a cost standpoint. It also meant reevaluating many assumptions behind the practices DTCC employed and the services the firm had been offering clients
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