OREANDA-NEWS. December 29, 2009. International Agency Thomas Murray specializing in provision of ratings to financial infrastructural organizations, global and domestic custodians has raised The Depository Clearing Company's (DCC) rating from A to A+, which means low risk. The outlook is Stable.

Thomas Murray report mentions that within the last 12 months DCC showed a significant progress in risk mitigation. As a result, three of the six risk components have been upgraded. Liquidity Risk and Counterparty Risk have been upgraded from ‘A' to ‘A+' and Financial Risk has been upgraded from ‘A+' to ‘AA-'. The rest of the components remained unchanged: Asset Commitment Risk and Operational Risk at A+, Asset Servicing Risk at AA-.

The key contributing developments have been as follows:
DCC has developed an Enhanced Speedy Settlement Scheme (ESSS) with Citibank, ING and Deutschebank and further expansion of the scheme is planned. The ESSS arrangement involved DCC establishing security sub-accounts with custodians, to support near immediate direct transfer of securities between DCC and custodian clients on the books of the custodian. The success of the scheme is demonstrated by the reduced volume of transfers via the registers which as a consequence makes FOP transfers less dependent on the registrars and significantly reduces the time and cost of transfer for securities. Nevertheless this scheme is seen as a temporary arrangement that provides a more efficient method of transferring securities pending their acceptance of the safer and more effective DVP transfer arrangements.
USD and RUB settlement of the RTS classic market for quote driven and non-anonymous trades, and off-exchange OTC transactions has been rationalised through DCC's DVP net cash settlement multiple batch process. In comparison to FOP settlement, the DCC DVP and RTS CCP DVP settlement arrangements offer higher settlement efficiency and a lower cost and simpler settlement process and also reduce liquidity and counterparty risk. Furthermore, DCC DVP and RTS CCP DVP usage has been increasing.
DCC has continued to provide strong financial management during a period of difficult global financial conditions, maintaining a net profit similar to that achieved in the previous year and increasing its capital through retained earnings. . The level of DCC's capital, its ongoing profitability and strong cash reserves position together with a USD 50 million insurance coverage, has demonstrated that DCC is financially strong and accordingly Financial Risk has been upgraded from A+ to AA-.

:
the successful testing of the upgraded DRP arrangements in October 2009 that included DCC clients and RTS Settlement Chamber;
the successful testing of DEPO/X which will offer new functionality to execute instructions on-line, increase system flexibility through customisation, and increase the system capacity through a scalable platform; and
the review of all business processes and subsequent mapping of process risks through a set of documented control measures. Although the outlook is regarded as ‘Stable', which indicates that there are no imminent developments that may change the A+ rating at this stage, DCC has other activities underway that are likely to reduce its risk profile in the future.

These include:
a comprehensive programme to improve governance around the internal risk management framework and tighten internal controls;
the initiation of a project to develop a BCP response capacity based upon British Standard 25999; and
a market inclusive approach underway to support the further development of SWIFT type message formats in Russia.

Simon Thomas, CEO and Chief Ratings Officer of Thomas Murray commented on the results of DCC rating process: “Thomas Murray has noted the on-going changes that have taken place at DCC and the efforts made by DCC in some key risk areas, which has led to an upgrade in several of the risk componиска. DCC has promoted the adoption of DVP settlement in the Russian market although its DVP systems continue to be used sparingly by American investors. DCC also provides an alternative FOP option that is faster and less expensive through the ESSS arrangements. These developments help demonstrate DCC's strong management commitment to further reduce its risk profile and minimise the risk exposure faced by market participants.”


For complete Thomas Murray report please see the web-sites of Thomas Murray and DCC.