Leading Swap Dealers Join DTCC-Euroclear Margin Transit Utility

The joint venture between the Depository Trust & Clearing Corp. (DTCC) and Euroclear has added the world’s leading swap dealers to its Margin Transit Utility (MTU) community. The utility was in pilot, but this move will allow them to bring it to full production and will allow for the possible expansion of the service.

Leading swap dealers Goldman Sachs, JP Morgan, Morgan Stanley, Societe Generale, UBS, and Wells Fargo, have joined more than 30 buy-side firms and custodians that were piloting the utility. Previously announced companies who have adopted the service include Fidelity International, Franklin Templeton, Vanguard, and Brown Brothers Harriman.

The MTU provides transfer of margin and collateral through a centralized avenue for communications and settlement instructions. Ideally, users of the utility will have only one point of contact and have a golden record of settlements. It is also expected to let the buy-side easily scale up automated clearing and provide better credit and risk management.

Val Wotton, managing director of product development and strategy for derivatives and collateral management at DTCC, says benefits of the MTU will be more fully realized with the addition of the dealers.

“It takes three to tango actually and without all three sides—dealers, clients, and custodians—you won’t get the full benefits,” says Wotton. “It is critical to have dealers onboard to cover all bases of a transaction. We are in production now.”

Wotton says the MTU has reached critical mass but the joint venture is still in the process of adding more users. It is in the integration and testing process with nine global custodians and is hoping for four more dealers to join the utility. After first focusing on global dealers and custodians, Wotton notes the next step is to onboard regional firms.

Companies that want to join the MTU will need to test out if their messaging formats are configured to the standards of the utility. Wotton says this is also part of why the MTU has a longer onboarding process for interested parties.

The MTU’s aim is to cut down on much of the manual work related to clearing collateral, particularly across borders. Having many of the leading swap dealers also lets DTCC work on expanding the reach of the MTU.

“In the longer term, we’re looking to extend to other asset classes, like repos, stock loans, and exchange-traded derivatives, and maybe to derivative and securities cash flows,” says Wotton. “We have learned where we can minimize the cost of change for all our clients and firms now have a better understanding of the value the MTU service can provide.” 

The MTU was first announced in 2014 and while it has gained more users in the past few years, it was imperative that more dealers join the network before full production can begin. The service had one dealer with a client, says Wotton, but it was definitely key to get custodians and the biggest dealers onto the service.

Wotton notes the MTU took some time to really hit critical mass as it is generally more complicated than other utilities. He says some utilities do not need to have three different parties in a transaction to realize the value in the service—in the MTU’s case the dealer, custodian, and client—so time to market is much faster.