Best Clearing House, Fixed Income: FICC

Best Clearing House, Fixed Income: FICC

Fixed Income Clearing Corporation, a subsidiary of DTCC, won Best Clearing House, Fixed Income in the 2020 Markets Choice Awards.  Markets Media caught up with Jim Hraska, Managing Director, General Manager at FICC, to learn more.

What is your reaction to FICC winning Best Clearing House, Fixed Income in the 2020 Markets Choice Awards?

Jim Hraska, FICC

We’re thrilled to receive the Best Clearing House Award for FICC. It’s a tremendous honor to be recognized as a leader, and really showcases the level of excellence that we strive to achieve for our clients and for the industry.

What is the ‘story’ of FICC, and what have been major milestones since it was created in 2003?

DTCC’s Fixed Income Clearing Corporation (FICC), was created in 2003 to reduce costs and give clients a common approach to fixed income transaction processing.

The Government Securities Division (GSD), originally established in 1986 as the Government Securities Clearing Corporation (GSCC), was created to provide real-time trade matching, clearing, risk management and netting for trades in US Government debt issues, including repurchase agreements (repos). Securities transactions processed by FICC’s GSD include Treasury bills, bonds, notes, zero-coupon securities, government agency securities and inflation-indexed securities.

The Mortgage-Backed Securities Division (MBSD), originally established in 1979 as the Mortgage Backed Securities Clearing Corporation (MBSCC), provides real-time automated trade matching, trade confirmation, risk management, netting and electronic pool notification to the mortgage-backed securities market.

Some of the most significant accomplishments have been the launch of central counterparty (CCP) and pool netting services for trades in U.S. mortgage-backed securities in 2011, as well as MBS Novation in 2018. On the government securities side, a major milestone that shaped our business was the creation of the Sponsored membership program in 2005, which offers eligible clients the ability to engage in FICC-cleared cash lending and cash borrowing transactions, as well as outright purchases and sales in U.S. Treasury and Agency Securities. The Sponsored service has since expanded several times. In 2017, we expanded member participation, moving from RICs to Qualified Institutional Buyers, increasing the number of cash providers eligible for the program and welcoming collateral providers. Most recently, in 2019, the program was expanded again to broaden the category of market participants who can participate as a Sponsor.

How do you help financial firms achieve capital and operational efficiencies and systemic risk reduction?

FICC automates clearing, netting, and settlement for the government and mortgage-backed securities markets, the world’s largest and most-liquid fixed income markets, processing between $4.5 and $6 trillion in transactions daily. Last year, GSD’s value of transactions processed was almost $1.5 quadrillion, and the par value netting destined for MBS was $67 trillion.

FICC provides services including Real-Time Matching, Novation, Netting, Allocation and Settlement to foster capital and operational efficiencies as well as reduce systemic risk. As just one example of how we effectively reduce risk for the industry, in 2008, we cleared the largest closeout in DTCC history during the liquidation of Lehman Brothers. This involved liquidating and resolving over $500 billion in assets, without any loss to membership.

What have been recent accomplishments, and/or what are primary current initiatives at FICC?

There are several initiatives and proposals in the works. Recently we’ve been working on a Start Leg Repo Settlement initiative, which will redirect the bi-lateral settlement of same-day settling GSD Start Leg repurchases to a trade-for-trade FICC settlement and create an automated pair-off process to reduce systemic fails.

What specific opportunities/challenges has 2020 presented for FICC, especially with regard to spikes in trading volume and volatility?

The global COVID-19 pandemic drove tremendous spikes in trading volumes and market volatility. On a peak day in March, FICC processed over $6 trillion in dollar value, without missing a beat. Despite the shift in work environments, with almost all of DTCC’s employees working virtually since March, we’ve been able to continue to operate “business as usual.”

What does the future hold for FICC?

FICC continues to advance a number of projects that, upon completion, will further solidify the increasing value we provide to the industry. We are continually exploring ways to make our processes more efficient for our clients and the industry.

Related articles

  1. Buy Side Forced to Review Collateral Arrangements

    Initial margin for centrally cleared markets increased by $300bn over March 2020.

  2. Basel Committee Consults on Interest-Rate Risk

    LCH SwapAgent said trade highlights its coordination of the transition to risk free rates for non-cleared OTC ...

  3. Regulators Defend MiFID II Transparency

    CPMI and IOSCO encourage work to enhance transparency regarding new access models and facilitate porting.

  4. CCP clearing will be particularly advantageous for capital treatment.

  5. Users can further consolidate their CDS portfolios in the clearing space.