Along with the rapid growth of CMOs and ABS came a number of processing challenges and often late and inaccurate notifications related to these transactions. In an effort amend this situation, The Depository Trust & Clearing Corp. (DTCC) has proposed a series of new initiatives aimed at solving the processing problems of the structured securities market. These new initiatives were discussed in a new white paper issued on June 8 by DTCC.
According to James Balbo, managing director of asset services for DTCC, the average monthly distribution of principal and interest for securities by the company's depository increased to $52.5 billion in 2005, up from $9.5 billion in 2001.
"Thousands of these transactions fail to be processed in an accurate and timely manner each year. Last year alone, more than 5,300 CMO or ABS transactions had to be adjusted or reversed after payment," Balbo said, articulating the concerns. "This paper outlines steps to improve and expedite processing capabilities in 2006 and calls upon the industry to help resolve this difficult and growing problem."
But this is not the first time the issue has been discussed. DTCC first addressed CMO and ABS processing in a white paper issued to industry in 2003. Although some improvements have been made since then in terms of automation and process, little has occurred in improving the accuracy.
Thus, DTCC, in addition to working with the industry, hopes to: expand the distribution of monthly agent performance "report card" beyond the agency community; create a time limit for late adjustment; implement financial disincentives for failure to comply with established industry standards for accuracy and timeliness; and explore other recommendations to improve timeliness and accuracy, including establishing best practices for all parties involved in the processing chain.
According to the paper, which is titled, "Structured Securities Processing Challenges: A White Paper on the processing challenges posed by Collateralized Mortgage Obligations and other Asset-Backed Securities," DTCC believes the problem is largely structural and can only be solved through a concerted effort by the entire industry to change the terms of the deal structures and the time frame given to those involved in the payment process.
(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.