TIW: The Unsung Hero of the CDS Market

In just 5 minutes, we’ll explore the world of post-trade financial services by way of new ideas, insight snippets, emerging trends, and thought-provoking questions. In this episode, Marcus Denne, DTCC Product Manager, Trade Information Warehouse (TIW), talks about the unique position TIW plays in the credit default swap (CDS) market.

Episode Details:
Head to our podcast page to learn more and subscribe to our channel on all major podcast streaming platforms.

© 2023 DTCC. All rights reserved.  DTCC, DTCC (Stylized), TAKE 5, and Financial Markets. Forward. are registered and unregistered trademarks of The Depository Trust & Clearing Corporation DTCC. 
 
The information and views contained herein are provided for informational purposes only and should not be relied on for any other reason. This material is not intended to be relied upon as a forecast, research, legal or investment advice and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt an investment strategy. The information and views expressed are current as at the date of this document, but subject to change and do not necessarily reflect the views of DTCC and no assurances are made as to their accuracy. Any reliance upon information in this material is at the sole risk of the recipient. Where the information contained in this material is from third party sources, this information is from sources believed to be reliable, but DTCC has not independently verified any of the information contained herein and does not assume any liability for it nor any obligation to modify or update it. This Service is governed by applicable Rules, Procedures, and Services Guide for each DTCC subsidiary, which contain the full terms, conditions, and limitations applicable to this Service.

Transcript

Hi, my name is Marcus Denne. I'm the product manager for the Trade Information Warehouse here at the DTCC.

In the late 1990s, credit derivatives became an efficient way for banks, insurance companies and asset managers to manage credit risk of companies and countries without trading the underlying bonds and loans. However, it became clear the servicing of these derivatives contracts was very operationally burdensome for market participants. Given the explosive growth in the early 2000s of this market, industry participants and regulators called for the solution to this challenge. 

As a leading industry provider of post-trade processing solutions DTCC was a natural industry partner. We launched a payment reconciliation service in 2003, and that was followed by the Trade Information Warehouse in 2006 to provide a service for record retention and asset servicing for credit derivatives. We provide three key capabilities: warehousing of the trades themselves, providing a prime record of the confirmed transaction available to market participants, we provide life cycle event processing and a central settlement service through our partnership with the CLS bank. 

TIW is uniquely placed as a data source for both bilateral and clear transactions representing the overwhelming majority of CDS trades. And doing so, we can offer reports on CDS market activity and outstanding positions, making it an invaluable resource to firms, to regulators, academics and to the public at large. We also provide a critical role in supporting event processing, corporate actions such as succession events when companies merge or demerge, bankruptcy or failure to pay events and corporate debt restructuring.

Over the last few years, we've seen a significant increase in the volume of credit events due to both macroeconomic headwinds and, of course, the pandemic. The TIW has been uniquely placed to assist in supporting market participants with this high credit event volume. In June of 2022, we saw the Russian Federation default on its non-ruble denominated sovereign debt We were able to play a critical role in supporting market participants in that very significant sovereign default. Most recently, we've seen the first corporate debt restructuring event for several years. That was View Entertainment International Limited, which is one of the largest cinema chains in Europe. The TIW worked diligently with market partners, with industry bodies, as well as our clients to prepare for that event. With over six months' worth of preparations going on, including facilitating industry testing, and making sure that clients experienced the most efficient process through what is generally a very, very complex event. 

The fact is that these sorts of credit events involve a degree of optionality where parties in the transaction can choose whether or not to participate in the credit event processing. The TIW is uniquely placed to help market participants in exercising their optionality through the course of this event and ensuring that the transactions were amended to correctly refiect the decisions that they make. We're right now in the process of settling that event and again preparing to support the clients through the quarterly index roll that will be taking place in mid-September.

One of the reasons why we are so well prepared to support our clients in these activities and prepare ourselves for the future is the re-platforming that we went through in late 2022. We moved away from legacy mainframe technology and onto a robust and resilient cloud-hosted technology infrastructure that we expect will enable us to continue to innovate and provide the most efficient and cost-effective service to our clients in the years to come. We're continuously looking at ways in which we can serve as an industry leader and leverage our best-in-class technology to support our clients. 

We're looking at leveraging Snowflake, for example, in order to provide a repository for our reporting capabilities. We're also looking at providing APIs, new and exciting ways for clients to connect to the TIW and get information in real time and on demand when they need it, as well as providing a more modern solution to traditional messaging technologies which have supported the industry for so long. 

In addition to making these significant changes to our technology stack, we think this is going to position us to prepare for the further likely increase in credit events given where we are in the economic cycle. And we've seen this feed through to higher interest rates and higher levels of corporate bankruptcies and failure to service their debts. 

If you'd like more information on how the TIW can help you in processing credit default swaps, please reach out to us directly or visit DTCC.com/TIW to learn more.