The GCF Repo® service enables dealers to trade general collateral repos, based on rate, term, and underlying product, throughout the day without requiring intra-day, trade-for-trade settlement on a Delivery-versus-Payment (DVP) basis.
The service helps foster a highly liquid market for securities financing. To participate, dealers must be netting members of FICC’s Government Securities Division (GSD).
Dealers execute GCF Repos through inter-dealer brokers, who are also members of FICC, on an anonymous, or “blind,” basis. FICC guarantees settlement as soon as it receives the data from the broker and compares the transaction. GCF Repo transactions settle on a tri-party basis, which requires dealer participants to have an account with the participating clearing bank: The Bank of New York Mellon.
GCF Repo participants can trade in generic CUSIP numbers throughout the day and then, after the netting process at the end of the day, allocate specific securities to their net settlement obligations.
Who Can Use the Service
Netting members of FICC’s Government Securities Division are eligible to participate. Access to the GCF Repo service is also available to non-GSD members through FICC’s Executing Firm feature. It permits current GSD netting members, when they function as “introducing members,” to submit trades on behalf of non-FICC members such as institutions and correspondent firms.
The GCF Repo service provides valuable benefits to participants in the U.S. Government securities market. These include:
- Financing Flexibility—Dealers have an additional borrowing source beyond tri-party and DVP repos. This flexibility has brought greater depth to the general collateral marketplace.
- Increased Liquidity—The GCF Repo service has removed the trading constraints that result from having to negotiate individual collateral arrangements between borrowing and lending dealers for each transaction. Additionally, the large range of acceptable collateral generates more liquidity. Dealers also have a longer time period during the day to trade general collateral repos.
- Increased Efficiency/Lower Costs—Collateral allocation is more cost-efficient because participants do not have to assign collateral for each specific trade. The elimination of trade-by- trade DVP delivery requirements has reduced participants’ operational costs.
- Guaranteed Settlement—FICC’s settlement guarantee and risk management protections provide maximum safety for the general collateral repo marketplace. GCF Repos are guaranteed as soon as FICC receives the trade data, thus minimizing intra-day counterparty credit risk.
- Balance Sheet Relief—FICC members may be eligible for “balance sheet netting” based on FASB Interpretation No. 41 (FIN 41). The key factor for eligibility is that, through netting by novation, FICC becomes the common counterparty for a member’s repo transactions done with any other netting member.
- Tri-party Mechanism—GCF Repo transactions are supported by the clearing banks’ tri-party repo mechanisms, which allow cash and securities movements between FICC and participating dealer members.
How the Service Works
Through its Real-Time Trade Management (RTTM®) service, FICC’s GSD provides an online, information system for GCF Repos that is capable of displaying up-to-the-minute trade information and netting results throughout the day. After trades are completed, brokers are required to submit them promptly to FICC electronically or by screen input. Upon receipt of the data, FICC immediately reports the transaction details to dealers. Dealer positions are automatically updated, and may be viewed on-line via GCF Repo’s dynamic display screens. The most recent trades and position information are displayed simultaneously. Position information is available both at the individual CUSIP level and the cumulative, overall level.
Individual GCF Repo transactions may be submitted via interactive messaging in amounts of up to $9.999 billion. Individual GCF Repo trades submitted via RTTM's Web application, however, are limited to $2 billion in size. The size of each DVP repo trade that can be submitted is $50 million.
After trading ends, GSD conducts an afternoon net exclusively for GCF Repo activity. To establish a single net receive or deliver position in each generic CUSIP, the netting process combines each dealer’s new GCF activity eligible for settlement with the dealer’s carry-over activity, including previous term and previously submitted forward-starting activity that has reached its start leg settlement date.
For each such CUSIP, a dealer member is either a net securities borrower (i.e., money lender) or a net securities lender (i.e., money borrower). The Bank of New York Mellon and JPMorgan Chase provide the mechanism for allowing a chain of simultaneous collateral and cash movements to occur between GSD and its dealer members. The collateral is returned the following afternoon after the Fedwire has closed for settlement.
Eligible Collateral Types
Collateral currently accepted for GCF Repos include:
- U.S. Treasury Bills, Bonds and Notes,
- U.S. Treasury Inflation Protected Securities
- Fixed- and adjustable-rate mortgage-backed securities issued by Fannie Mae, Ginnie Mae and Freddie Mac,
- Non-mortgage backed securities issued by government-sponsored enterprises, such as the Federal Home Loan Bank, Federal Farm Credit Banks and Federal Home Loan Mortgage Corporation (Freddie Mac), and
- STRIPS (STRIPS are U.S. Treasury and agency securities that have had the interest-payment coupons separated or “stripped” from the principal, creating zero-coupon securities and separate payment securities from what was originally a single Treasury bond or note).
For More Information
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