The Depository Trust & Clearing Corporation’s (DTCC) wholly-owned subsidiary, Fixed Income Clearing Corporation (FICC), announced today that the Securities and Exchange Commission (SEC) has approved FICC’s proposed rule change to establish minimum financial requirements for Registered Investment Companies (RICs) – “buy-side” market participants – to become members of its Government Securities Division (GSD). RICs are key participants in the market served by GSD.
“Enabling buy-side firms to become members of GSD will foster greater safety, efficiency, and transparency in the U.S. Government securities market by capturing a larger portion of activity from both current and new members,” said Murray Pozmanter, Managing Director and General Manager of DTCC’s Clearing Services. “These firms will benefit from GSD’s netting service and the associated operational efficiencies of a central counterparty service which drive down risks and costs in the trading of these instruments.”
The GSD rules now include RICs as a membership category with an established minimum financial requirement of $100 million in net asset value, enabling them to begin utilizing GSD’s Tier Two Netting membership type. As RICs are legally prohibited from participating in loss mutualization, such members are only subject to loss allocation based upon their trading activity with the defaulting member that resulted in a loss.
As GSD members, RICs will benefit from the GSD netting services and the related operational efficiencies of a central counterparty (CCP), which provides a guarantee of completion on eligible trades, even in the event of a member default. Other membership benefits include: a guaranteed trade at the point of comparison; guaranteed settlement with FICC as the central counterparty; automation and centralization of collateralization of counterparty exposures; daily risk management services; centralized liquidation of a failed counterparty, reducing the potential for market disruption; reduced settlements which will in turn reduce operational risk; lower operational costs; automated coupon tracking, and a complete audit trail of submitted activity and automated reporting.
RICs will not be permitted to utilize the GCF Repo® service, which falls within the scope of GSD services. As DTCC continues to work collaboratively with tri-party banks and supervisors on tri-party reform, it will revisit opening this service to the RICs.