OTC derivatives

CLS and The Depository Trust & Clearing Corporation (DTCC) provide an integrated global payment processing infrastructure for the over-the-counter (OTC) credit derivatives market.

An integrated global payment processing infrastructure for the OTC credit derivatives market.

The service links DTCC Deriv/SERV's Trade Information Warehouse (Warehouse) with our settlement facility.

How It works

While most OTC credit derivative transactions are now matched and confirmed electronically through Deriv/SERV, market participants still bilaterally settle payments over the life of each contract in a fragmented manner. The Warehouse automates and centralizes the most up to date information about a derivative contract, and links this data with CLS’ electronic settlement process, so that payments take place automatically, resulting in more efficient, accurate and complete payment processing.

The Warehouse generates bilaterally netted payment instructions and sends them to CLS. CLS automatically notifies its Settlement Members, who process settlement through CLS on a multilateral, netted basis. Payments through the service are made in nine currencies: the Australian dollar, Canadian dollar, euro, Hong Kong dollar, Japanese yen, Singapore dollar, Swiss franc, UK pound sterling and US dollar.

Through CLS, Warehouse customers gain settlement certainty – all payment instructions generated by the Warehouse and settled by CLS are final and irrevocable.

Settling OTC credit derivatives through CLS also simplifies and streamlines the payment process for bilateral contracts. It also works with DTCC Deriv/SERV’s global centralized repository for OTC derivatives contracts, ensuring that record-keeping is automated and trading parties’ ability to track their contractual obligations is enhanced. Finally, the payment netting provided by the combination of the Warehouse netting of obligations and then further multilateral netting in CLS exceeds 99%.