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DTCC Launches New Central Counterparty for MBS

The March 12 announcement that the Securities and Exchange Commission had approved DTCC’s plan to launch a central counterparty for mortgage backed securities received coverage in several major media outlets.

‘DTCC to Create Clearinghouse for U.S. Mortgage-Backed Securities Trading’– Bloomberg, March 12

Unlike the company’s division that handles government-securities transactions, the mortgage-bond unit didn’t previously back trades while providing netting and margining services, according to Murray Pozmanter, Managing Director and General Manager for Clearing Services at the DTCC.

“This is part of a long-standing plan to harmonize the services across the two asset classes,” Pozmanter said.

‘Depository Trust set to clear debt trades’ – The Financial Times, March 13

From April 2 the DTCC will guarantee settlement of all matched trades for bundled mortgage debt backed by Ginnie Mae, Freddie Mac and Fannie Mae, the government-related housing groups. This guarantee will ensure completion of these MBS trades even if one of the trading parties fails on its initial trade commitment or its obligation to deliver the underlying loans backing the bonds….

“Having a trade guarantor for this market will reduce operational and systemic risk in the MBS market,” said Murray Pozmanter, the Managing Director and and General Manager of Clearing Services at the DTCC. “It makes it much more efficient if there is a member failure.”