Thomas Murray Affirms the CSD Rating for DCC

LONDON – Thomas Murray has affirmed The Depository Clearing Company’s (DCC) rating at A, which means low risk. The outlook is Stable.

Although the overall rating has remained unchanged, DCC made significant progress during the past year in many areas of risk and, as a result, four of the six risk components have been upgraded.  Both Asset Commitment and Counterparty Risk have been upgraded to A, Operational Risk has been upgraded to A+ and Asset Servicing Risk has upgraded to AA-.

The improvement in the component ratings have stemmed from a number of developments undertaken by DCC or the related market infrastructural organisations during the past year.

The key contributing developments have been as follows:

• Introduction of a CCP for the anonymous market at RTS.
  The CCP began operating from 17 September 2007, although at this stage it only covers 8 stocks. The introduction of the CCP helps to reduce counterparty risk for the settlement of those stocks. The activities of the CCP are supported by the establishment of a USD 10 million guarantee fund for anonymous trades. This development, together with the proposed increase in the minimum capital requirements for market participants (brokers and dealers), to enter into force from 1 January 2008, helps to reduce the exposure to counterparties in the market.
• DCC has undertaken a SAS-70 external operational audit.
  The SAS-70 external audit involved a comprehensive review of DCC’s operational controls. The results of the audit were made available to participants. In addition, DCC has increased its resources involved in the internal control and risk management function.
• DCC upgraded the DRP and BCP arrangements.
  Significant improvements were made by DCC to its Disaster Recovery and Business Continuity arrangements involving new facilities and new data transfer arrangements.
• Development of new settlement system.
  DCC made considerable progress in phase 2 of the development of the new settlement system, in association with CMA Small Systems. The improved management of the project has helped to ensure that the project is on-track in terms of its budget from a time and cost perspective.
• Introduction of new FOP batch.
  DCC now operates six batches for the settlement of free of payment transactions. A new batch was introduced on a daily basis at 4.30pm.
• Links with registrars.
  DCC has continued to reach agreement with registrars on automating the data transfer process by establishing an Electronic Data Interchange (EDI) linkage. Nine new agreements were arranged in 2007.
• Increased automation.
  Improved levels of automation for accepting and sending corporate actions instructions and confirmations, especially via the SWIFT capabilities, have been achieved by DCC. The increased automation is important in providing for Straight-Through-Processing in the market. 

Simon Thomas, CEO and Chief Ratings Officer of Thomas Murray said: “During the past year, Thomas Murray has closely followed the developments and changes taking place at DCC and, given the progress made in some key risk areas, has decided to upgrade several of the risk components.  DCC has strong operational procedures in place and enjoys considerable market support but it is facing some challenges to meet the minimum capital requirements established in the CSD draft law. Overall, the upgrades reflect the achievements obtained by DCC in minimising the risk exposure faced by market participants”

Mikhail Laufer, President of The Depository Clearing Company, said “The Depository Clearing Company is satisfied with the rating upgrades given to DCC in four of the six risk components.  DCC has worked very hard in the last year to address the weaknesses identified in the initial assessment provided by Thomas Murray and will continue strengthening our processes and procedures.  The improvement in the rating should provide our participants with ongoing confidence in DCC”.

Attachments

DCC Press Release 21 Dec 2007

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