FICC files for central clearing in tri-party repo
16 October 2014 New York
Image: Shutterstock
The Fixed Income Clearing Corporation (FICC), subsidiary of the Depository Trust and Clearing Corporation (DTCC), intends to submit a rule filing with the Securities Exchange Commission (SEC) and an Advance Notice filing to both the SEC and the Federal Reserve to provide central clearing for over $1.6 trillion institutional tri-party repo market.
The rule filing with outline FICC’s proposal to leverage its existing risk management and trade guarantee services for the institutional tri-party repo market in the US.
By implementing FICC’s central counterparty services for these transactions there would be an increase in operational efficiencies, guarantee completion of eligible trades, and lower the risk of a liquidity drain in the event of a dealer failure by extending netting services.
Murray Pozmanter, DTCC managing director and head of clearing agency services, said centralising the clearing and settlement of repo transactions through FICC could potentially “help to prevent another squeeze in tri-party funding such as the one observed in 2008 when funds sharply reduced their lending during the run up to the Lehman failure”.
He added: “It would also provide regulators with a broader and more comprehensive view of the repo market for the monitoring and management of systemic risk as well as mitigate risks associated with a fire-dale in the tri-party marketplace.”
FICC provides the only central clearing function for tri-party repo trades in the US.
The rule filing with outline FICC’s proposal to leverage its existing risk management and trade guarantee services for the institutional tri-party repo market in the US.
By implementing FICC’s central counterparty services for these transactions there would be an increase in operational efficiencies, guarantee completion of eligible trades, and lower the risk of a liquidity drain in the event of a dealer failure by extending netting services.
Murray Pozmanter, DTCC managing director and head of clearing agency services, said centralising the clearing and settlement of repo transactions through FICC could potentially “help to prevent another squeeze in tri-party funding such as the one observed in 2008 when funds sharply reduced their lending during the run up to the Lehman failure”.
He added: “It would also provide regulators with a broader and more comprehensive view of the repo market for the monitoring and management of systemic risk as well as mitigate risks associated with a fire-dale in the tri-party marketplace.”
FICC provides the only central clearing function for tri-party repo trades in the US.
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