By submitting repo trades to GSD for matching, comparison, netting and settlement, participants derive a full range of benefits, including:
- Minimized Risk Through Guaranteed Settlement—By acting as the common counterparty to all repos that enter its netting system, FICC guarantees settlement for both participants of the transaction.
- Reduced Capital Requirements Through Balance Sheet Offsets—FICC’s netting and settlement procedures for repos facilitate the ability of members to maximize the availability, per the requirements set forth in FASB Interpretation No. 41, of balance sheet netting.
- Automated Coupon Tracking—FICC passes the coupon payment from the holder of a security (reverse participant) to the funds borrower (repo participant) when the repo term crosses coupon payment date.
- Reduction in Securities Transfer Activity—As a result of netting, the total daily settlement obligations of participants are substantially lowered. Fewer Fedwire movements translate into reduced costs for securities transfers, less participant exposure to daylight overdraft charges, and less risk from operational failure.
- Complete Audit Trail and Automated Reporting—A detailed report of all repos submitted to FICC’s Real-Time Trade Matching (RTTM®) system by participants is available as interactive output, and an Internet User Interface is being developed for GSD activity.
Through its trade guarantee, FICC guarantees that participants will receive their repo collateral back at the close of the repo transaction, while reverse participants will receive the start amount paid at the repo’s inception, plus interest. Trade details for the start and close legs are submitted as a single transaction, reducing errors and improving efficiency.