Laura Klimpel discusses DTCC’s proposed clearing service for SFTs
09 September 2021 US
Image: Laura Klimpel
The Depository Trust & Clearing Corporation (DTCC), through its equities clearing subsidiary, National Securities Clearing Corporation (NSCC), is looking to roll out central clearing for securities financing transactions (SFTs).
The new SFT clearing service, which is subject to regulatory approval, will leverage NSCC’s and DTC’s existing systems, explains Laura Klimpel, head of DTCC’s Systemically Important Financial Market Utilities (SIFMU) business development.
Klimpel highlights that the new service will deliver a number of benefits to the industry including opportunities for increased capital efficiency for both borrowers and agent lenders and a reduction in counterparty risk by novating to NSCC the completion of settlement obligations.
Commenting on the key features of the service, Klimpel tells SFT: “To capture maximum capital and balance sheet efficiencies, SFTs eligible for clearing through NSCC will have a one business day term (such as overnight SFTs) and be entered into by NSCC members or by beneficial owners that are agented or sponsored into NSCC membership by a full-service NSCC member.”
“Settlements would be allowed to pair off daily against new activity, with NSCC calculating and processing price differential payment amounts that are created by the daily pair off and processed through DTC,” Klimpel comments.
Additionally, Klimpel highlights that SFT clearing activities will have the ability to settle delivery versus payment (DVP) / receive versus payment (RVP) at DTC, and NSCC will support recall and buy-in processing. Corporate action processing will be supported for most mandatory events and cash dividend processing.
SFTs are securities lending transactions where parties exchange equity securities against cash and simultaneously agree to exchange the same securities and cash, plus or minus a rate payment, on a future date.
Central clearing of equities lending and borrowing transactions through NSCC leverages DTCC’s existing clearing capabilities, risk management and efficient infrastructure to provide the market with a centrally cleared stock loan service.
This service lowers risk, offers opportunities for increased capital efficiency and drives transparency, Klimpel says.
In July, NSCC bolstered its exchange traded fund (ETF) solution to streamline and simplify the ETF collateral management process and add new fixed income ETF capabilities.
The new SFT clearing service, which is subject to regulatory approval, will leverage NSCC’s and DTC’s existing systems, explains Laura Klimpel, head of DTCC’s Systemically Important Financial Market Utilities (SIFMU) business development.
Klimpel highlights that the new service will deliver a number of benefits to the industry including opportunities for increased capital efficiency for both borrowers and agent lenders and a reduction in counterparty risk by novating to NSCC the completion of settlement obligations.
Commenting on the key features of the service, Klimpel tells SFT: “To capture maximum capital and balance sheet efficiencies, SFTs eligible for clearing through NSCC will have a one business day term (such as overnight SFTs) and be entered into by NSCC members or by beneficial owners that are agented or sponsored into NSCC membership by a full-service NSCC member.”
“Settlements would be allowed to pair off daily against new activity, with NSCC calculating and processing price differential payment amounts that are created by the daily pair off and processed through DTC,” Klimpel comments.
Additionally, Klimpel highlights that SFT clearing activities will have the ability to settle delivery versus payment (DVP) / receive versus payment (RVP) at DTC, and NSCC will support recall and buy-in processing. Corporate action processing will be supported for most mandatory events and cash dividend processing.
SFTs are securities lending transactions where parties exchange equity securities against cash and simultaneously agree to exchange the same securities and cash, plus or minus a rate payment, on a future date.
Central clearing of equities lending and borrowing transactions through NSCC leverages DTCC’s existing clearing capabilities, risk management and efficient infrastructure to provide the market with a centrally cleared stock loan service.
This service lowers risk, offers opportunities for increased capital efficiency and drives transparency, Klimpel says.
In July, NSCC bolstered its exchange traded fund (ETF) solution to streamline and simplify the ETF collateral management process and add new fixed income ETF capabilities.
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