Agency mortgage-backed securities trades that are submitted to Fixed Income Clearing Corporation (FICC) for processing are traded on a “to-be-announced” or TBA basis. While some of these are “specified pool trades” (transactions based on a particular set of underlying mortgages) most are not.
For most trades, a critical step in the trading and settlement of the TBA contracts is informing the buyers what pools of mortgages will be delivered to satisfy that trade.
EPN is the industry standard for agency mortgage-backed securities pool notification. It brings the benefits of automation and innovation to the mortgage-backed securities (MBS) marketplace, and it enables users to reduce risk and streamline their operations by providing an automated way for sellers to transmit MBS pool information to buyers in a quick, efficient and reliable fashion.
Who Can Use this Service
EPN is intended for all firms that are engaged in the MBS pool allocation and notification process, including broker/dealers, inter-dealer brokers, commercial banks, Government Sponsored Enterprises (GSEs), mortgage originators, insurance companies, investment companies, investment managers/ advisors, mutual funds, trust companies, pension funds, international organizations and organizations that act as principal to the underlying trade and maintain direct FICC accounts. Firms do not have to be members of FICC’s Mortgage-Backed Securities Division (MBSD) clearing services in order to use EPN.
EPN enables users to:
- Exchange information online and in real time;
Substantially reduce clearance failures caused by late pool notification delivery;
Re-allocate employee time associated with manual procedures;
Obtain access to an equitable platform for delivery of MBS pool information;
Provide additional and more detailed data; and
Reduce risk and overall transaction costs.
How the Service Works
48 hours prior to settlement, the seller is required to inform the buyer of the specific pools related to a TBA position. EPN supports allocation information and trade details, including trade terms and the securities intended for delivery on settlement date. The codes used to identify each security in the pool (e.g., MBS agency, product, coupon and maturity) are identical to those in the MBSD’s clearing system.
EPN users may exchange four different types of business messages to accomplish their notification needs. Two of the message types are for sellers. The others are for buyers. Sellers use the ON (Original Notification) message type to notify the buyer of an outstanding TBA allocation. Sellers also use the CX (Cancel) message to notify a buyer to disregard the terms of a previously sent ON. Sellers can also use a CC (Cancel and Correct) message, which allows the seller to notify a buyer to disregard the terms of a previously sent ON and to replace those pools with new pool details provided in the message. Buyers use the DK (Don’t Know) message type to notify a seller that they do not concur with the terms of a previously sent ON.
The successful delivery of EPN messages is denoted by the EPN time stamp, and is independent of whether or not the recipient is logged on to the system. As a result, the number of failed trades and their associated costs has been dramatically reduced.
In addition to the Computer-to-Computer Interface (CTCI) offered to members, the MBSD has also implemented EaSy Pool (ESP) as a communications front-end to the EPN system to provide a Web-based solution for the real-time exchange of pool information. Using a TCP/IP dial-up connection or a leased line through DTCC’s SMART communications network, ESP provides for a “turnkey” implementation, with low start-up costs and a user-friendly message “turnaround” feature. CTCI typically is used by high-volume organizations willing to develop or purchase custom application interfaces between EPN and their internal allocation (optimization) systems.
The EPN system processes all messages real-time. As users submit messages to EPN, EPN performs basic edits and validation checks to ensure essential data integrity. Subsequently, EPN timestamps each message and forwards the message to the outbound queue of the recipient so that it can be returned to the sender. The time stamp placed by EPN on the message is the sender’s evidence of “good delivery,” that is, that notification was sent within the 48-hour timeframe (by 15:00:00 EST, and before 12:15:00 EST for CC messages).
Since EPN is a queue-based system, a sender cannot receive a busy signal. Message recipients may connect to EPN at any time throughout the day to retrieve messages from their queues or submit messages to EPN. Volume and/or turn-around objectives determine how much connect time is necessary.
In addition to the real-time reporting of pool notification, which occurs for both CTCI and ESP users, EPN also provides batch reports available in two formats:
Message Detail Report, which includes the details of all messages received and delivered prior to Close of Business (COB) at 3:00 p.m. EST, and when messaging closes at End of Day (EOD) at 5:30 p.m. EST on the current day.
Message Summary Report, which as its name indicates, provides summary information for all messages received and delivered prior to COB and EOD on the current business day.
Both the Message Detail and Summary Reports provide totals of the day’s activity, which can be used to reconcile with user internal totals.
For More Information
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