http://www.federalreserve.gov/boarddocs/press/other/2004/20040130/default.htm
How to clean up the rock? New York clerks call the unreconciled difference between the custodians and DTC _the rock_ perhaps reflecting its size, but almost certainly also reflecting its resistence to resolution.
One way to deal with the rock is to write it off. Another way is to hide it or transfer it around like musical chairs, preferably in something like the book roll, that which gets rolled over every night to the next day's trading.
Up until recently, the rock's existence was a widely known secret amongst clerks, and the preferred way of dealing with it seemed to be to pretend the rock didn't exist. As a negative proof of the ostrich-like behaviour of the 'street, do a google on "rock unreconciled account" ... not a peep.
Unfortunately, when the WTC buildings were reduced to rubble, so did a lot of processing of security trades. As all the systems stopped for about 3 days, this opened up the unusual event of a systemic restart of the entire trading system.
Which meant that all traders had to declare the full and proper balance sheet - including the rock. As the total restart mean that there was no book roll, it was impossible to hide any more.
How big was it? Nobody's saying publically, but there are a smattering of banks and other intermediaries that are now for sale with books and claims that reveal the rock - curiously, attributed to 911 directly. Apparently it was big enough to ask for another restart, this time of the shareholders.
Which brings us to the Federal Reserve's rather odd intervention in the market for clearance and settlement - referenced above. Rumour has it that that Fed was a little surprised at the size of the rock, and has been moving to resolve it. Now, under the cover of a bunch of media sound bites, they have brought all the players together to start a new settlement system.
Call it a dormant bank, call it a third option, call it a challenge to DTC. Call it what you will, but players will be asked to walk in with clean books - this is a singularity, a once-off event that will permit the industry to divide itself between the rocked and the rolled.
http://www.federalreserve.gov/boarddocs/press/other/2004/20040130/default.htm
Posted by iang at February 3, 2004 04:52 PM | TrackBack