DTCC Connection

Dec 23, 2013 • DTCC Connection

MBSD Membership Helps Firms Meet New TMPG Recommendations

By Joseph King

Continuing its mission to provide risk management and mitigation to the financial industry, DTCC announced that it is helping clearing members of its Mortgage-Backed Securities Division (MBSD) comply with new Treasury Market Practices Group (TMPG) recommendations that forward-settling agency mortgage-backed securities (MBS) transactions be margined.

The TMPG recommendations, scheduled to become effective at the end of 2013, aim to reduce counterparty risk which may occur if the market value fluctuates significantly for agency MBS securities, which typically settle one month, or later, after the trade execution.

As a central counterparty (CCP), MBSD – a division of DTCC subsidiary Fixed Income Clearing Corporation (FICC) – margins all transactions including forward-settling agency MBS transactions for the benefit of its clearing members. As margining is less common in bilateral trading between dealers and customers that are not MBSD members, these parties are subject to counterparty credit risk.

Additionally, since forward settling trades will automatically be margined, MBSD clearing members are freed from the burdensome task of negotiating and executing multiple bilateral legal agreements with trading counterparties. To be in compliance with the TMPG recommendation, firms must have legal agreements with each of their trading counterparties.
In the event that the TMPG decides to extend its recommendations to include "fails" margining, FICC expects that MBSD clearing members will be in compliance because the MBSD margin calculation currently includes fails.

"MBSD membership enables firms to meet TMPG's requests for implementing margining best practices to help protect and preserve the resiliency of the Treasury, agency debt, and agency mortgage-backed securities market and foster overall integrity in the financial system,” said Murray Pozmanter, Managing Director and General Manager of DTCC's Clearing Services.

To learn more:

DTCC Helps Firms Comply with TMPG’s Best Practices for Margining of Agency MBS Transactions

DTCC Mortgage-Backed Securities

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