Late yesterday, the DTCC, or Depository Trust & Clearing Corporation (DTCC) and SIFMA, or the Securities Industry and Financial Markets Association released "a task force report that proposes several short- and long-term solutions to mitigate systemic and credit risks in the processing of money market instruments (MMI)," according to a press release entitled, "SIFMA AND DTCC Release Task Force Report Identifying Opportunities to Mitigate Systemic and Credit Risks in Processing of Money Market Instruments. The full "Money Market Instruments Blue Sky Task Force Report" may be seen at

The release explains, "The report's short-term recommendations focus on addressing the credit risk exposure that Issuing and Paying Agent (IPA) banks face because of a lack of transparency around the amount an issuer must fund to cover its maturities. The proposal calls for: Requiring issuers to follow current industry guidelines to fund maturities by 1:00 p.m. if it has a net debit, and, Establishing new enforceable deadlines for the IPA (in its role as the issuing agent) to submit all new valued issuances to The Depository Trust Company (DTC) by 1:30 p.m. and for receivers of new valued issuances to accept delivery by 2:15 p.m. New valued issuances are transactions that are deliveries versus payment (DVP) at DTC."

DTCC and SIFMA say, "By implementing these cutoffs, the IPA (in its role as paying agent) would have sufficient time to calculate its exposure and, if a funding shortfall exists, work with the issuer to resolve the deficiency before 3:00 p.m., which is the deadline at DTC when the IPA must decide whether to fund the maturities or issue a Refusal to Pay (RTP). (A RTP reverses all MMI transactions for that day in the affected issuer’s paper.)"

Susan Cosgrove, DTCC managing director and general manager of Settlement and Asset Services, says, "While the current system operates safely and efficiently, the industry recognized the value of coming together to examine the MMI process with a fresh eye to see if there are opportunities to eliminate additional risk from the system. Over 91% of all MMI transactions already meet the new valued issuance deadline proposed by the task force, but IPAs still face a degree of uncertainty that leaves them with a difficult choice -- either accept an unknown degree of credit risk or cancel every transaction for that issuer that day."

Robert Toomey, managing director and associate general counsel at SIFMA, adds, "We look forward to engaging all the stakeholders on these proposals. We believe that both the short-term and long-term recommendations provide opportunities to mitigate risk."

The press release continues, "DTCC and SIFMA formed the MMI Blue Sky Task Force in October 2009 to review the functioning of the MMI settlement system following the financial crisis and to develop a series of options and recommendations for consideration that would reduce risk in the market. The Task Force is also comprised of representatives of IPAs, broker/dealers, custodian banks and issuers. MMI transactions are processed through DTC, the wholly owned depository subsidiary of DTCC and a registered clearing agency with the Securities Exchange Commission (SEC)."

It adds, "Under the current system, IPAs face an unknown degree of daily credit risk exposure because issuers and investors, respectively, can continue processing new valued issuance transactions until 3:20 p.m. and 3:30 p.m., creating the possibility that an IPA may issue an RTP even though an issuer has raised sufficient funding 20 minutes after the 3:00 p.m. RTP deadline.... The Task Force is actively soliciting industry feedback on the white paper and welcomes written comments from market participants. Comments can be submitted at

Finally, the release says, "The Task Force also offered several longer-term recommendations that would require major structural and system changes that could mitigate systemic risks in the MMI market and further intraday settlement finality.... Among these recommendations, the Task Force suggested the industry explore in more detail the benefits and cons of: Creating an MMI matching process that would match an issuer's new issuance credits to offset their own maturity obligations. Creating an 'MMI partial settlement' option that would permit an IPA to pay maturities to the extent that the IPA has received issuer funding via cash or valued new issuance. Separating MMI and non-MMI transactions for settlement purposes. Changing MMI settlement from net end-of-day settlement to a 'real time gross' process, whereby transactions are settled as soon as they are processed, on a one-to- one basis."

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