At the SIFMA show today, Frank De Maria, global head of derivative client services and operations at Merrill Lynch, offered an interesting quote from Alan Greenspan, made six weeks ago: "I was shocked to find credit derivatives settlement and clearing operated with 19th century technology." He was talking about trades being handled by phone, fax and paper. De Maria then Googled other 19th century inventions and found the stapler, barbed wire, dynamite and the zipper among them. Point being, it's time for modernization. Merrill Lynch and 13 other Wall Street firms have been working with the DTCC to build a data warehouse for derivatives, such that all derivatives trading data are in one place and there's one "golden copy" of every trade record."There will still be fails, but you will know the source of every fail," De Maria says. "You can proactively manage a fail, where today it's reactive."
So far, 850 firms are participating in the data warehouse, which is called Deriv/SERV. That includes 500 hedge funds, 150 asset managers and one custodian, according to Janet Wynn, managing director of the DTCC. "We will run heavy user acceptance tests this year," she says. The DTCC also hopes to add other types of instruments to the warehouse as well.
In a separate session, Noland Cheng, managing director of Morgan Stanley and chairman of SIFMA's operations committee, said the committee is working to build an industry data warehouse that will combine records processing for different types of investments, reduce overhead effort for a lot of firms, and help regulators perceive the industry as efficient.