SFT Clearing is designed to integrate into members’ existing post-trade workflows while providing a robust framework for risk mitigation, capital efficiency, and operational automation. The service supports both direct member activity and intermediary models through Sponsoring and Agent Clearing Members, offering flexibility for a wide range of institutional participants.
Below is a breakdown of how the service works, including required processes and optional features that may apply depending on the transaction:
1. Membership and Account Setup
- Full-service NSCC Clearing Members can participate directly or act as Sponsoring Members or Agent Clearing Members.
- Sponsored Clients (limited NSCC Members) may include hedge funds, asset managers, pension funds, non-member banks and broker-dealers, subsidiaries, and internal entities.
- Members must open dedicated NSCC accounts for SFT activity; CNS® activity cannot be commingled.
- A single NSCC account (0881) is used for all SFT activity, possibly eliminating the need for bilateral MSLA agreements.
- Onboarding is streamlined — existing DTC and/or FICC members can become NSCC members for CNS® and SFT Clearing.
2. Trade Submission and Matching
- Trades are submitted via Approved SFT Submitters, which pre-match executions and lifecycle events to eliminate breaks and reconciliation issues.
- ATS supports multiple models:
- Conduit Model: Sponsoring Member directs lending/borrowing activity.
- Lightweight Direct Access: Sponsored Members submit trades directly, with oversight from their sponsor.
3. Transaction Structure
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All SFTs are executed as overnight term trades and rolled daily unless otherwise instructed.
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NSCC calculates and processes daily MTM price differentials created by pair-offs.
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Members may also structure trades to support term and other configurations that help reduce Liquidity Coverage Ratio (LCR) and other regulatory capital ratios.
4. Novation and Guarantee
NSCC novates and guarantees the return leg of an SFT when:
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For bilaterally initiated SFTs and Sponsored transactions, when the trade is validated
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For SFTs that are not bilaterally initiated SFTs or Sponsored transactions, the underlying security for the on-leg is delivered at DTC; and For rolled SFTs, a daily pair-off occurs.
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This novation process ensures that NSCC becomes the counterparty to both sides of the transaction, reducing counterparty risk and enabling balance sheet netting.
5. Margining
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Full-service members receive net margining within proprietary accounts, where offsetting positions in the same CUSIP are netted down.
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Sponsoring and Agent Clearing Members are subject to gross margining for client activity, calculated as the sum of stand-alone volatility charges per client.
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Margining is a required part of every cleared SFT transaction and is central to NSCC’s risk management framework.
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For more information, see the Separation of Accounts section of the SFT Clearing General Service Guide available in the DTCC Learning Center.
6. Lifecycle and Interest Processing
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Daily debits and credits of interest replace monthly billing, improving liquidity and cash flow visibility.
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Daily marks and recalls are processed directly through NSCC, bypassing more costly mechanisms such as LAMS and ARMS.
7. Mandatory Corporate Action Processing
If a security involved in an SFT undergoes a corporate action (e.g., dividend, split, merger), NSCC supports STP of those events at the DTC level. This ensures that any entitlements or adjustments related to the underlying securities are handled efficiently and automatically.
8. Position Portability (Optional)
Members have the ability to novate existing positions in and out of clearing, offering flexibility in managing exposures and optimizing capital usage.