Cynicism permeates S&P downgrades of US clearing houses
08 August 2011 New York
Image: Shutterstock
Standard & Poor's (S&P) downgraded three subsidiaries of Depository Trust & Clearing Corporation (DTCC) today. The National Securities Clearing Corporation, the Depository Trust Company and Fixed Income Clearing Corporation have dropped a notch from AAA to AA+.
According to S&P: “We have not changed our view of the fundamental soundness of [DTCC’s] depository or clearing operations. Rather, the downgrades incorporate potential incremental shifts in the macroeconomic environment and the long-term stability of the US capital markets as a consequence of the decline in the creditworthiness of the federal government.”
DTCC stated it does not anticipate any changes in operations as a result of this revision of its credit rating.
"I don't think the rating itself changed the market view," said a New York-based analyst at Equity Research Desk in response to the continuing ripple effects after the US downgrade. "It is a delayed response to something that the market has already priced into."
Though there are likely to be operational issues for firms that will need to change contracts, these firms have likely prepared or changed contracts in advance, he says, but from a market perspective the rating agencies are more reactive than proactive.
He notes that the best measure of default risk is in the CDS market, not in ratings set by agencies. "If you look at France, which still has AAA, its CDS is higher than the US," he said.
Options Clearing Corporation (OCC) was also downgraded by S&P today.
“This rating change will have no negative impact on OCC’s operations or our ability to meet our obligations to OCC’s clearing members,” said Wayne Luthringshausen, OCC chairman and CEO.
OCC's total volume for the first week of August, at just over 145 million contracts, is equal to 51 per cent of the total volume recorded in August of last year. On Friday, $16.2 billion in premium changed hands, wrote OCC.
According to S&P: “We have not changed our view of the fundamental soundness of [DTCC’s] depository or clearing operations. Rather, the downgrades incorporate potential incremental shifts in the macroeconomic environment and the long-term stability of the US capital markets as a consequence of the decline in the creditworthiness of the federal government.”
DTCC stated it does not anticipate any changes in operations as a result of this revision of its credit rating.
"I don't think the rating itself changed the market view," said a New York-based analyst at Equity Research Desk in response to the continuing ripple effects after the US downgrade. "It is a delayed response to something that the market has already priced into."
Though there are likely to be operational issues for firms that will need to change contracts, these firms have likely prepared or changed contracts in advance, he says, but from a market perspective the rating agencies are more reactive than proactive.
He notes that the best measure of default risk is in the CDS market, not in ratings set by agencies. "If you look at France, which still has AAA, its CDS is higher than the US," he said.
Options Clearing Corporation (OCC) was also downgraded by S&P today.
“This rating change will have no negative impact on OCC’s operations or our ability to meet our obligations to OCC’s clearing members,” said Wayne Luthringshausen, OCC chairman and CEO.
OCC's total volume for the first week of August, at just over 145 million contracts, is equal to 51 per cent of the total volume recorded in August of last year. On Friday, $16.2 billion in premium changed hands, wrote OCC.
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