Trade Comparison is the first step in the clearance and settlement process for securities transactions under the DVP Service.
Comparison consists of the receipt, validation and reporting of data received from GSD Members on the long and short sides of a securities transaction evidencing a match of trade terms. Comparison is critical because, under FICC GSD Rules, it results in evidence of a valid, binding and enforceable contract between counterparties whose trades have been compared. For GSD Netting Members, it is at the time of comparison that FICC provides a guaranty of settlement through novation of the compared trade*.
For the DVP Service, GSD provides for three types of trade comparison:
Bilateral comparison requires that the two trade counterparties submit trades to GSD, in which certain mandatory details either match or fall within predefined parameters, to affect a match. Bilateral comparison is used for buy/sell transactions and for certain repo transactions, including brokered repo transactions submitted after 4:00 PM**. To view a series of bilateral comparison flow charts, click here.
Locked-in comparison requires only a designated Locked-in Trade Source to submit trade details to affect a match. The Locked-in Trade Source must be authorized by the parties on whose behalf it will be submitting trade data. GSD must be provided with prior authorization in the form and manner acceptable by GSD to receive any trade data submitted by the Locked-in Trade Source. Eligible trade data submitted to GSD for locked-in comparison are deemed compared when GSD receives the data from the locked-in trade source. An example of a locked-in trade in DVP would be Treasury auction awards trades submitted by the Federal Reserve Bank of New York (or other regional Federal Reserve banks), a Locked-in Trade Source. GCF-Authorized Inter-Dealer Brokers are also considered a Locked-in Trade Source and submit locked-in trades on behalf of their GCF Counterparties in the GCF Repo® Service. You can find out more about locked-in trades for the GCF Repo Service here.
Demand comparison is designed to give Netting Members flexibility and control over the comparison process for trades executed via intermediaries. GSD deems a trade compared upon receipt of the trade data from the Demand Trade Source. GSD has designated the Repo Brokers as Demand Trade Sources with respect to Brokered Repo Transactions (other than GCF Repo Transactions) that are submitted to GSD by the deadline established in the Schedule of Timeframes in the FICC GSD Rulebook. Upon receipt of the trade data from the Demand Trade Source, such trades are deemed matched and novated. However, Netting Members are still obligated to submit and affirm/match their trades per FICC GSD Rules. If a Netting Member who is a counterparty to a Brokered Repo Transaction, fails to match such transaction during the day, GSD’s system as part of its nightly netting process will establish a contra side trade on behalf of the Netting Member based on the trade terms submitted by said Repo Broker. Trades submitted by Repo Brokers after 4:00 PM, are submitted for bilateral comparison.
To view a series of brokered demand comparison flow charts, click here.
* Regarding Sponsored GC trades, novation and guarantee of settlement of the end leg of the trade will not occur at the time of comparison, but will occur at the time that it is reported to GSD that the start leg of such transaction has settled.