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by Jim Conmy

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  • DTCC Fixed Income Services

  • DTCC’s Fixed Income Clearing Corporation (FICC) plans to introduce a number of significant changes to enhance its risk management processes while maximizing members’ capital efficiency. FICC is proposing these enhancements as it prepares for the launch of New York Portfolio Clearing (NYPC), an innovative joint venture with NYSE Euronext that will enable FICC members to cross-margin their cash positions with derivatives trades on the NYSE Liffe U.S. futures exchange.

    NYPC expects to become operational later this year, pending regulatory approval. While most changes will be implemented concurrently with the launch of NYPC, all FICC members will be affected, including those that choose not to join the joint venture.

    Summary of changes

    One key enhancement is the introduction of an intraday margining and mark-to-market cycle, which will supplement the current overnight risk management processes. Members may also be able to improve their capital efficiency by cross-margining securities positions held by multiple affiliated legal entities as a single portfolio, both between NYPC and FICC’s two divisions (Mortgage-Backed Securities Division and Government Securities Division).

    FICC Customers: Save the Date

    Fixed Income Clearing Corporation (FICC) has scheduled seven information sessions for members to learn more about changes in mar-gining and clearing fund requirements associated with the launch later this year of New York Portfolio Clearing. The sessions will be held at FICC’s New York location from 3 p.m. to 5 p.m. ET on:

    • Tuesday, Aug. 17
    • Wednesday, Aug. 18
    • Thursday, Aug. 19
    • Tuesday, Aug. 24
    • Thursday, Aug. 26
    • Tuesday, Aug. 31
    • Wednesday, Sept. 15
      (make-up session)

    For customers who cannot attend in person, FICC will make conference-call arrangements available. FICC will provide more details on the sessions prior to these dates. Additional times will be scheduled in September, if needed. To sign up for a session, contact your relationship manager or register at the following web address:

    In addition, FICC plans to consolidate its members’ margin collateral into a single Clearing Fund, thus providing further operational benefits and maximized capital efficiency. Currently, FICC holds collateral in separate funds for each of its divisions. In the same vein, FICC will simplify its members’ cash management by consolidating cash obligations across its divisions.

    “Based on our experience and that of our members, we think the changes in our margining procedures not only make economic sense because they will reduce costs in many instances, they also improve risk management because we will have the resources to protect our members better, especially in liquid and fast-moving markets,” said Murray Pozmanter, DTCC managing director, Fixed Income Clearing and Settlement.

    FICC has scheduled information sessions to further delineate these changes. Additionally, members can contact their DTCC relationship manager and set up one-on-one sessions to review how they will be impacted individually.

    Intraday risk management

    FICC plans to introduce a supplemental intraday risk management cycle based on a 12:00 p.m. ET snapshot of its members’ securities positions. These positions will be marked to the market (using 12:00 p.m. ET market prices) and they will also be used to calculate an intraday Clearing Fund requirement.

    Similar to current practice, FICC’s Mortgage-Backed Securities Division (MBSD) will include the results of the intraday mark-to-market in its members’ Clearing Fund requirements, while the Government Securities Division (GSD) will process them as a series of afternoon cash pass-throughs.

    The Federal Reserve’s National Settlement Service, which is currently used to handle daily cash payments to and from

    FICC members, will be employed to automate the processing of cash movements in the afternoon, as well.

    While members can continue to use a combination of cash and securities to meet their end-of-day Clearing Fund requirements, they must satisfy any intraday Clearing Fund deficits in cash by 2:45 p.m. ET. FICC will make hourly value-at-risk (VaR) reports available to its members each morning in order to help them anticipate their intraday Clearing Fund requirements.

    Operational benefits

    FICC plans to consolidate its parti-cipants’ margin collateral into a unified Clearing Fund with the launch of NYPC. As a result, members will be able to post collateral to a single margin account, even if they participate in both divisions. This will facilitate members’ collateral manage-ment and improve their capital efficiency.

    At the same time, FICC will consolidate all cash movements related to both government and mortgage-backed securities trades into a single net cash obligation. This means that members with a GSD debit cash obligation and a simultaneous MBSD credit cash obligation will make or receive a single net FICC-wide payment. “This is a logical step that follows the consolidation of clearing funds for the two divisions into a single fund,” Pozmanter noted.

    Loss allocation rule changes

    FICC plans to introduce a new unified loss allocation model that is applicable to both of its divisions.

    Under the revised rules, which are scheduled to go into effect with the launch of NYPC, a portion of FICC’s retained earnings would first be used to absorb any losses not covered by an insolvent member’s Clearing Fund. Any remaining losses may be prorated to solvent members based on a simplified set of rules. @

    Proposed Operation Timeline

    Time (ET)          Activity

    2:00 a.m.           Previous day's end-of-day Funds-Only Settlement and end-of-day Clearing Fund reports are made available.

    9:30 a.m.           Deadline for satisfaction of the previous day’s end-of-day Clearing Fund margin calls (in cash and securities).

    10:00 a.m.          A.M. funds-only (cash) obligations are processed via the Federal Reserve’s National Settlement Service.

    12:00 noon

    • a) Deadline to request return of excess Clearing Fund collateral.
    • b) Snapshot taken of members’ intraday positions.
    • c) Intraday mark-to-market and intraday Clearing Fund calculations begin.

      • 2:00 p.m.          Intraday mark-to-market and intraday Clearing Fund reports are made available.

        2:45 p.m.         Deadline for satisfaction of intraday Clearing Fund margin calls (in cash only).

        3:15 p.m.          P.M. funds-only (cash) obligations are processed via the Federal Reserve’s National Settlement Service.