The Depository Trust & Clearing Corporation Thursday took two steps to establish itself as the standards-bearer for collection and distribution of global counterparty data and over-the-counter derivatives data.
The umbrella organization for clearance and settlement of U.S. transactions said it acquired Avox,a global corporate entity information provider, from founders Ken Price and Steve French as well as majority owner Deutsche Borse.
Separately, DTCC also said that it will establish a London-based trade reporting repository which will maintain global credit default swap data identical to that held in its New York based-Trade Information Warehouse. The twin repositories will allow regulators on both sides of the Atlantic to have access to identical information, avoiding the danger of mismatching data that could emerge with regional warehouses. Bolsas y Mercados Espanoles, the operator of Spain’s stock exchange and derivatives market, already has announced plans to create a European repository which would expand beyond interest rate swaps.
"It is very common for counterparties to be located on different continents and to trade on underlying securities issued across borders,’’ said Stewart Macbeth, general manager of the Trade Information Warehouse, in a statement issued Thursday. “This means that repositories for any asset class need to maintain global information to be useful. It also means that steps need to be taken to ensure that the data is always available to regulators globally regardless of events and circumstances taking place in one location or another."
The acquisition of Avox is a natural fit with DTCC’s strategy to provide its customers – financial services firms—with a full set of data. “DTCC already offers corporate action and reference data through separate services so integrating corporate action data with reference data and Avox’s business entity data allows its participants to benefit from a single consolidated source of information,” said Patrick Kirby, managing director of DTCC’s asset services business who will be in charge of the Avox subsidiary.
Price and French will continue to head up Avox, now a subsidiary of DTCC , as chief executive officer and chief operating officer, respectively. DTCC did not specify the pricetag for the takeover of Avox, which provides two services. One is a fee-based service which scrubs business entity data provided by its customers to create an accurate golden copy for them by comparing it to original sources. Customers include Citigroup, Barclays Capital, Nomura International, Standard Bank, Mizuho, Allianz, Eurex, Mitsubishi UFJ and Royal Bank of Canada.
The second service is the delivery of a subset of business entity data records on a wiki, a collaborative database accessed over the World Wide Web. Financial firms logging onto Avox’s free service at www.wiki-data.com will find basic information on more than 200,000 business identifiers and an Avox-created identifier known as Avid.
“The need for accurate, well-maintained reference data on securities and legal entities is a growing priority for the financial services industry, to help manage credit exposure, meet new regulatory compliance requirements and to improve transparency from the issuer to the end investor” said Kirby.
One likely outcome: corporate actions and reference data administered by DTCC could flow into Avox’s business entity data. Corporate action notices – typically about income payments and corporate reorganizations – can easily affect a business entity and the securities it issues. DTCC already links information on corporate actions to its securities master file service.
“It [the acquisition] is an ideal solution for financial services firms who want a better handle on their data management requirements and for regulators who want more transparency into the transactions executed and securities held by firms worldwide,” says Michael Atkin, managing director of the New York-based trade group Enterprise Data Management (EDM) Council, which has been advocating improved enterprise-wide data management
The deal with Avox comes amidst regulatory interest on both sides of the Atlantic to mitigate systemic risk – the risk that the financial failure of a single corporation could have a domino effect on the overall global economy.
Regulators have called for the creation of repositories to store reference and other data that could end up either becoming a single repository or multiple interconnected ones.
Those repositories need to rely on accurate and standardized information on the securities held and transactions executed by financial firms. Poor reference and corporate actions data can lead to increased operational risk and big financial losses; so can incorrect information on the identity of a trading partner or customer and how it fits into the corporate hierarchy. As evidenced during the bankrupcy of Lehman Brothers in 2008, large corporations often have dozens of interrelated subsidiaries and affiliates but won’t necessarily make good on all their financial deals.
While there has been plenty of work on standardizing the data elements of corporate action and reference data, business entity data is still lagging. There is, for instance, no agreement on what should be included in business entity information or what code should be used to identify the organization.
Most buy- and sell-side firms typically depend on either their own proprietary codes, codes from data vendors or codes issued by messaging consortium, the Society for Worldwide Interbank Financial Telecommunications (SWIFT).
While it is unlikely that Avox’s Avid code will supplant SWIFT’s BIC identification codes for business entities or other business codes provided by vendors, buying Avox does give DTCC a strong influence in standardizing the information to be used to identify business entities.
DTCC could team up with SWIFT, says Atkin. Avox already helps SWIFT validate some of the underlying data for its BIC codes and DTCC will be creating a version of the International Standardization Organization-compliant 20022 codes for corporate actions developed by Swift and its participants. Those are many of the same global banks and brokers using DTCC.
DTCC needs to put aside any competitive strategies, one industry consultant said. “While DTCC is truly a dominant and highly valued infrastructure utility in the U.S. market, it is one of hundreds of such facilities globally,” said Allan D. Grody, president of Financial InterGroup, a New York firm specializing in data and risk management consulting. “Its willingness to collaborate with other infrastructure utilities must be mutual and the provisioning of universal identifiers should be a public good.”
This article can also be found at SecuritiesIndustry.com.
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