Money Market Instrument Transaction Processing

Money Market Instruments (MMIs) are one of the largest asset classes in terms of value settled by DTC and play a critical role in the financial industry.

ABOUT

There are fourteen Money Market Instruments that are eligible to settle at DTC and they include Corporate Commercial Paper, Municipal Commercial Paper, Medium Term Notes, Institutional Certificates of Deposits and several others. Commercial Paper has the shortest maturity dates and is the most active from an issuance and maturing perspective since it allows corporate issuers to determine their cash flow needs on a daily basis if necessary.

Key participants in the MMI space include:

  • The Issuers of the Debt (Issuers): Issuers are typically financial institutions, large corporations, or state and local governments that use MMIs to finance their daily operations. Issuers are not direct participants of DTC and therefore employ the services of Issuing and Paying Agent (IPA) bank. Issuers represent the legal obligors on the issued MMI securities.
  • The Issuing and Paying Agents (IPAs): IPAs are commercial banks used by the issuer to facilitate MMI debt instructions including maturity obligations, Principle and Income Payment (P&I), and Reorganization (RP) payments to investors. The IPA does not have a legal obligation to honor maturing MMIs, P&I, or RP payments if they have not received funding from the issuer.
  • The Brokers and Dealers: These are securities firms that act as financial intermediaries in the distribution of MMI securities. Brokers typically act on behalf of their clients while dealers may acquire MMI securities for their own interests.
  • The Investor: The investor is the party that buys MMIs. MMIs are an attractive investment to a wide range of institutions including, but not limited to, money market mutual funds, banks, insurance companies, federal agencies, pension funds, Broker/dealers, as well as the Federal Reserve Bank.
  • The Custodian: These are banks that provide custodial services for securities held by the investor. The custodian “holds” investor positions and manages MMI transactions per the investor’s instructions.

Who Can Use the Service

All DTC participants eligible to settle may process MMI transactions; please consult DTC membership guidelines for details.

Benefits

  • Supports MMI issuance on a same-day basis, which issuers may value in order to finance day-to-day Treasury needs or maturing obligations,
  • Straight-through-process for MMI issuance by Issuing & Paying Agents acting on behalf of issuers with which they have a relationship outside of DTC,
  • Settlement of MMI instruments occur on a trade for trade basis between IPAs, Custodians and Dealers,
  • Includes Asset Servicing benefits.

How the Service Works

The MMI settlement process begins when the IPA sends issuance instructions to DTC electronically. These instructions result in a deposit of the applicable MMI position to the DTC account of the IPA. This position is then delivered from the IPA account to the receiving counterparties that purchased the issue. These counterparties typically include broker/dealers or custodian banks that are DTC participants. The IPA delivery instructions may be free of payment or versus payment (DVP).

Maturity payment (MP) procedures were designed to limit credit, liquidity, and operational risk for DTC and its participants while providing for maximum efficiency. To expedite the process, early on the maturity date, DTC systemically initiates deliveries of the maturing paper from the accounts of participants having position in the maturing paper to the MMI account of the applicable IPA. These MPs are processed as book-entry DVP transactions throughout the day, but debits and credits from processed issuances and MPs are provisional until 3:05 p.m. EST because the IPA has until 3:00 p.m. EST to refuse to pay (RTP) with respect to an issuer or an issuer’s program. If there was an RTP, DTC would reverse all of that day’s activities in the issuer’s MMI program, including any new issuances that day.

For More Information

Please contact Client Support at 1-888-382-2721, Option 2 then Option 1

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