MBS Novation

MBS Novation, a conversion to operational novation and a simplification of the netting and settlement process, enables the Mortgage-Backed Securities Division (“MBSD”) of the Fixed Income Clearing Corporation (FICC) to retire certain inefficient processing.

MBS Novation expands and extends the services rolled out with Pool Netting, which introduced the comparison, trade guarantee, netting and central counterparty settlement of pool allocations submitted in satisfaction of members’ outstanding to-be-announced (TBA) obligations. MBSD still requires bilateral matching and supports dealer-to-dealer and broker-to-dealer trade submission.


One of the benefits is the overall reduction in settlement costs and volumes. Approximately 50 – 55% of the pool allocations are eliminated with the introduction of Novation. Highlights of the services and benefits below:
• Trade Novation with FICC as the operational Central Counterparty (CCP)
• Balance Sheet Netting
• Odd-lot processing in the TBA Net
• Do-Not-Allocate (DNA) service
• Elimination of Notification of Settlement (NOS)
• Elimination of the Give-up process
• Introduction of Trades with Stipulations
• Automatic Pool Instruct (PID) generation

All MBSD input, output, systems and processes are impacted and changed, to varying degrees, by Novation; FICC is changing a process that has been virtually the same for decades. As a result, new SWIFT-based Interactive Messaging Specifications, Machine Readable Output (“MRO”) file layouts, and reports have been created, as well as any requisite member reference documentation and training materials.

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