DTCC, through its depository, The Depository Trust Company (DTC), plans to enhance its current settlement model to eliminate risks associated with intraday reversals of transactions in DTC’s MMI system that are the result of issuer failure. The proposed MMI settlement model will require changes to DTC’s “refusal to pay” procedures and to current market practices by investors, issuers, custodians, placement agents dealers and Issuing Paying Agents (IPAs). These changes will allow MMI transactions to be processed intraday without the risk of transaction reversal prior to end-of-day settlement.
Phased-in implementation is planned for Q4 2016/Q1 2017.
For more information see MMI Finalitiy Through Optimiztion which includes links at the bottom to this MMI Service description as well as batch and ISO message format documentation.
MMIs are subject to, and are processed in accordance with, Rule 9(A), Rule 9(B), Rule 9(C) of DTC and the Procedures set forth in this Settlement Service Guide.
MMI Funding Acknowledgment by the IPA
Subject to DTC risk controls, DTC processes maturing Presentments for delivery versus payment to the applicable IPA with respect to an Acronym in the Rules and these Procedures only after an acknowledgment (“MMI Funding Acknowledgment”) is made by the IPA to DTC whereby either: (i) the value of issuances approved by receivers via Receiver Authorized Delivery (RAD) alone1 or a combination of receiver-approved issuances plus an amount the IPA(s) has been funded by the issuer exceed the Acronym’s Presentments, or (ii) the IPA acknowledges it will fund the entire amount for the gross value of an Acronym, regardless of issuances.2 An IPA must make an MMI Funding Acknowledgment using the Decision Making Application (DMA). When an MMI Funding Acknowledgement has occurred, it constitutes the IPA’s instruction to DTC to attempt to process transactions in the Acronym.
Testing for Position and Risk Management Controls
After an IPA has acknowledged that it will fully fund the Acronym, then the transactions are sent to the processing system and attempted against position and Risk Management Controls. If the IPA provides an MMI Funding Acknowledgement for only partial funding of the entire amount of Presentments for an Acronym, DTC tests Risk Management Controls of deliverers and receivers with respect to that Acronym to determine whether Risk Management Controls would be satisfied by all deliverers and receivers of the Acronym and all parties maintain adequate position to complete the applicable transactions, i.e., “MMI Optimization”. In the case that the aggregate amount of RAD approved Issuances of an Acronym exceeds the aggregate amount of Presentments, Risk Management Controls for all deliverers and receivers are tested using MMI Optimization as well.
As indicated above, when partial funding from the IPA is necessary, transactions are routed to MMI Optimization. In MMI Optimization, it is generally required that all deliverers and receivers of the Acronym must satisfy risk management controls and delivering Participants hold sufficient position, in order for the transactions in that Acronym be processed. However, as long as the Issuances that can satisfy Deliverer and Receiver risk controls for that Acronym are equal to or greater than the Maturing Presentments of that Acronym, the applicable transactions (i.e., those that pass risk controls) are processed.
Note: If there are multiple IPAs for an Acronym, DTC determines funding based on the satisfaction of conditions for all deliverers and receivers with respect to all Presentments, Issuances and applicable DOs in the Acronym and MMI Funding Acknowledgements for all IPAs with Issuances and Presentments in the Acronym. No instruction of an IPA to DTC to process the subject MMI transactions shall be effective until MMI Optimization is satisfied with respect to all transactions in the Acronym.
1 An affirmative MMI Funding Acknowledgement by the IPA is not required in the case that the aggregate amount of RAD approved Issuances of an Acronym exceeds the aggregate amount of Presentments. In this instance, the IPA is deemed to provide a standing instruction to process transactions in the Acronym, subject to Risk Management Controls. Any such instruction or deemed instruction by the IPA is irrevocable once given.
2 In the case where an affirmative MMI Funding Acknowledgment by the IPA is required for Presentments to be processed, the MMI Funding Acknowledgement must be a notification provided by an IPA to DTC with respect to an Acronym, that the IPA acknowledges and affirms its funding obligation for a maturing Acronym either (i) in the entire amount of the Acronym or (ii) for an amount at least equal to the difference between the value of Issuances and the value of the Presentments. In the case of (ii) above, the IPA may (later that day) increase the funding amount it acknowledges, but in no event may the IPA reduce the amount of its obligation previously acknowledged that day.