Skip to main content

MBS Operational Novation Drives down Cost and Risk for Clients

By Crystal Bueno | January 26, 2018

MBS Operational Novation Drives down Cost and Risk for Clients

The Depository Trust & Clearing Corporation (DTCC) has completed its MBS Operational Novation initiative, a multi-year project to create a central counterparty (CCP) model. DTCC’s Mortgage-Backed Securities Division (MBSD) clients can now use the Fixed Income Clearing Corporation (FICC) as a single counterparty for their transactions in all MBSD to-be-announced (TBA) eligible CUSIPs.

This conversion to operational novation enables MBSD clients to reduce the overall number of electronic pool notification (EPN) messages, leading to less cleared trade volumes and, ultimately, driving down cost and risk.

“MBS Operational Novation has significantly simplified the MBS netting and settlement process and enabled the retirement of certain inefficient bilateral processing while enhancing other processes that have otherwise been virtually unchanged for decades,” said Jim Hraska, DTCC Managing Director and FICC General Manager. “In the first 4 months of production, over 60% of transactions settled for cash, which eliminated securities settlements, fails and other costs for clients.”

New MBS Novation Guide Available on DTCC Learning

MBSD has introduced eight new reports with the launch of MBS Operational Novation. A new guide, MBS Operational Novation Report Guide v 1.0, available for clients on DTCC Learning, explains the purpose of each report, the formats in which it is available, the report headers and its data elements. An accompanying quick-reference tool, MBS Novation Reports Explained, also provides screen shots and a brief walk-though of the reports.

MBS Operational Novation is unique among DTCC’s recent business initiatives because of a decision made at the outset to work with clients to completely pre-fund all the work (with a monthly charge spread over three years). With tight fiscal controls and accountability, more funding was ultimately collected than was required, which means DTCC will give almost $2 million back to firms during Q1 2018.

To learn more about MBS Operational Novation, click here.