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New MBSD Clearing System Helps Customers Limit Fails

"The number of fails in the mortgage-backed marketplace had been trending upward, so we decided to take a look at how we could tighten our internal processes to help the industry address this problem,” said Michele Hillery, DTCC vice president, MBSD.

One thing MBSD determined it could do was to push back its “a.m. pass,” which is the time on netting day when the netting process begins and is the effective deadline by which trades must be submitted for netting. Traditionally, the a.m. pass took place at 10:30 a.m. MBSD proposed extending the pass to 2 p.m. to give firms more time to submit trades for netting, which would bring more volume into the net.

Some customers were wary of changing the pass time because they were concerned about receiving netting output from MBSD too late in the day. When the pass time was 10:30 a.m., MBSD guaranteed output delivery no later than 2 p.m. (three-and-half hours after the pass time).

To accept a later pass time, customers needed to be assured that the output could be produced faster so that it would arrive in time for them to use it to prepare for allocation day, which takes place the day after netting day.

The new MBSD Distributed Clearing System made an accelerated timeline possible. Its speed and efficiency has allowed MBSD to extend the pass time to 2 p.m. and guarantee the delivery of the netting output to customers by 4 p.m. Since the pass time was changed on May 10, MBSD has been beating that timeframe, getting output to customers no later than 2:26 p.m. (or 26 minutes after the new pass time).

“If we had moved the pass to 2 p.m. with the legacy system, it would have been difficult to get members their output in the timeframe they wanted,” Hillery said. “The new system allowed us to speed up the output, which made it feasible to have a later pass.”

[Customers can learn more about the FICC’s Mortgage-Backed Securities Division and its products and services by visiting The site includes learning content and resources concerning Trade Matching and TBA Netting, Pool Netting, Electronic Pool Notification and Notification of Settlement.]