Depository Trust Co. of New York has joined the international Swift communications network in a move to improve its electronic trade confirmation service.
Officials at Depository Trust, a joint venture of major banks and investment banks, said membership in Swift will ease its securities settlements and lower risk in advance of the move to the T+3 settlement schedule later this spring.
Depository Trust's electronic trade confirmation system, the Interactive Institutional Delivery System, will thus be linked with Swift, a global bank-owned cooperative that is the largest international carrier of financial information.
More than 4,000 users of the Swift network get access to the trust company's IID system, while the 10,000 users of IID gain access to Swift's messaging service.
The improvements to participating institutions come from what a spokesman called the "seamless interface" between the two systems.
"We would like to see, as much as possible, an efficient global electronic trade confirmation system,"said Neil Brander, vice president with Depository Trust. "We feel that it's to the betterment of our memberships to have this sort of interface."
The move comes at a crucial time for both organizations. They face a June 1 deadline for implementing the three-business-day settlement cycle for securities trades, reduced from the current five-day, or T+5, cycle.
The Securities and Exchange Commission mandated a move to T+3, which was originally recommended by the Group of 30 operating standards committee in 1992 to reduce the inherent risks of failures to settle within the necessary time frame.
"This allows brokers, institutions, and global custodians to have an efficient and economic method of reducing trading and settlement risk," Mr. Brander said.
Charles H.S. Mallis, global marketing executive with Chase Manhattan Bank and a member of the U.S. Swift steering committee, said Depository Trust's membership application won widespread approval, including support from many European countries.
"We strongly supported DTC's joining Swift," said Mr. Mallis, whose bank is also the largest global custodian bank. "This greatly increases the overall efficiency in the securities industry."
Depository Trust, a limited-purpose New York trust company, is more than 20 years old. DTC warehouses and keeps computerized records on stock and bond certificates for their owners.
Securities transfers are performed electronically. The trust company acts as a clearing and settling agent, netting credits and debits to members' accounts on a daily basis.
In 1994, the trust company's IID system processed 78.5 million confirmations, affirmations, and scheduled deliveries of securities. Volume on the company's book-entry delivery system totaled $33.5 trillion.
Swift - an acronym for Society for Worldwide Interbank Financial Telecommunication - was founded in Belgium in 1973 and is owned by 2,400 financial institutions in 115 countries.
The network routes messages among commercial and investment banks, exchanges, and clearing associations. Interbank funds transfer messages total 2.2 million a day, representing more than $2 trillion.
Swift and Depository Trust officials negotiated their membership agreement over an 18-month period in discussions that centered on how they could mutually improve their services.
Mr. Mallis said that over the past four years, banks that own Swift have gradually softened their stance of prohibiting nonbanks such as broker- dealers and institutional fund managers to join the network.
"I think it's fair to say that there used to be a mentality that this is a network for banks and run by banks," Mr. Mallis said. "I think DTC would have loved to join earlier, but the open mentality of Swift wasn't there yet. It is now."
Mr. Mallis also said Swift may consider opening up network membership, on a limited basis, to corporations in an effort to enhance its capabilities of reducing settlement risk.
"I think you are going to see open access to Swift more and more, whether it be in cash management for corporates, or for corporations on the securities side of the business," Mr. Mallis said. "The information flow is what reduces the risk.''
