Fixed Income Clearing Corporation’s (FICC) Automated Funds-Only Settlement Service provides a standardized, automated method for settling non-trade, funds-only obligations between FICC and its customers’ settling banks. FICC’s service eliminates manual processing and reduces costs by aggregating payments due to or from a customer and then automatically transferring the funds into or out of the customer’s settling bank.
Non-trade obligations that the service handles for U.S. Government securities can include cash payments to reflect changes in the value of securities when they’re marked to market, cash adjustments related to securities trades, and the pass-through of bond coupon payments for term repos or trade obligations that cross a coupon date. For mortgage-backed securities, non-trade cash obligations can include the net settlement balance order market differential (SBOMD) on the days of the month when mortgage-backed securities trades settle, as well as “housekeeping” matters, such as funds to cover cash adjustments, interest income rebates and routine billing matters.
The service is automatic and mandatory for FICC members that have funds-only settlement obligations. This includes both Government Securities Division (GSD) netting members and Mortgage-Backed Securities Division (MBSD) members.
To provide this service, FICC employs the Federal Reserve Bank’s National Settlement Service (NSS) to debit and/or credit net settlement obligations at the settling bank level of GSD netting participants and MBSD clearing members. The individual debits and credits of all participants using the same settling bank are totaled, and the net result established at the settling bank level will be settled using NSS. FICC has further leveraged systems and procedures already in place at The Depository Trust Company to perform this function by using it as the agent to interface with the Federal Reserve Bank for settlement. The Depository Trust Company is also a subsidiary of DTCC.
The service creates a funds-only settlement file containing all of the participants’ debits and credits for the current business day. This file is sent to DTCC’s Fed Funds Settlement (FFS) system. The DTCC Participant Browser Service (PBS) is then used to send broadcast messages containing net settlement figures to settling banks. GSD has two funds-only settlement cycles each day. Settling banks are required to acknowledge final settlement figures by 9:30 a.m. EST, for the morning cycle and 2:45 p.m. EST for the intraday cycle.
For MBSD, cash settlement is the accumulation and projection of aggregated payable/receivables resulting from the following cash obligation items: Settlement Balance Order Market Differential (SBOMD)
If you would like further information regarding Automated Funds-Only Settlement processing, please contact your DTCC relationship manager via the Relationship Services Group Hotline at (800) 422 0582, or by email at email@example.com.
Last updated March 23, 2011
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