Securities Financing Transactions (SFT) Clearing Service will offer the industry a new model for the central clearing and settlement of equities lending and borrowing transactions.
New York/London/Hong Kong/Singapore/Sydney, June 2, 2022 ‒ The Depository Trust & Clearing Corporation (DTCC), the premier market infrastructure for the global financial services industry, today announced that the U.S. Securities and Exchange Commission (SEC) has approved the Securities Financing Transaction (SFT) Clearing Service proposal of the National Securities Clearing Corporation (NSCC), the equity clearing subsidiary of DTCC, to operate a central clearing and settlement infrastructure for overnight borrows and loans of equity securities (collectively, securities financing transactions or “SFTs”).
The new NSCC SFT Clearing Service will support the central clearing of clients’ SFTs intermediated by Sponsoring Members or Agent Clearing Members as well as the central clearing of SFTs between NSCC full-service Members. The SFT Clearing Service will also allow lenders and borrowers to submit pre-established bilaterally-settled SFTs for clearing.
The SFT Clearing Service is designed to maximize capital efficiency and mitigate systemic risk by providing market participants with additional membership and cleared transaction opportunities. Specifically, the SFT Clearing Service provides Members with the ability to recognize balance sheet offsets on novated SFTs, including those with third-party NSCC Members and with their institutional clients. Through novation to NSCC, Members may benefit from lower capital charges on their SFTs than would otherwise be required if they engaged in the same activity outside of a central counterparty. By helping to lower balance sheet and capital constraints, NSCC Members and their clients may experience increased lending and borrowing capacity. At the same time, Agency Lending Disclosure (ALD) reporting would no longer be applicable.
“We’re pleased that the SEC has approved NSCC’s new SFT Clearing Service, which has the potential to significantly expand market access and liquidity while lowering overall systemic risk,” said Laura Klimpel, General Manager of Fixed Income Clearing Corporation (FICC) & Head of SIFMU Business Development at DTCC. “A central clearing model has the potential to transform the securities lending market for the better, with benefits including freed up credit lines, new borrowing and lending opportunities for a wide range of counterparties, and balance sheet and capital optimization.”
DTCC has been working closely with Broadridge and Provable Markets, who have committed to submitting transactions into the new service as Approved SFT Submitters. Both firms have established connectivity and are actively testing messaging in development. DTCC is also working with FIS (Loanet) who has committed to collaborating with Broadridge and Provable Markets to ensure seamless access and connectivity to the NSCC SFT Clearing Service for those Members who may wish to continue to leverage FIS for their books and records processing and for the submission of DTC Deliver Orders.
“We thank our partners for their contributions to the SFT Clearing Service and for helping us lay the groundwork for its upcoming launch,” added Klimpel.
DTCC's subsidiary, National Securities Clearing Corporation (NSCC), established in 1976, provides clearing, settlement, risk management, central counterparty services and a guaranty of completion for certain transactions for virtually all broker-to-broker trades involving equities, corporate and municipal debt, American depositary receipts, exchange-traded funds, and unit investment trusts.
With over 45 years of experience, DTCC is the premier post-trade market infrastructure for the global financial services industry. From 21 locations around the world, DTCC, through its subsidiaries, automates, centralizes and standardizes the processing of financial transactions, mitigating risk, increasing transparency and driving efficiency for thousands of broker/dealers, custodian banks and asset managers. Industry owned and governed, the firm simplifies the complexities of clearing, settlement, asset servicing, data management, data reporting and information services across asset classes, bringing increased security and soundness to financial markets. In 2021, DTCC’s subsidiaries processed securities transactions valued at nearly U.S. $2.4 quadrillion. Its depository provides custody and asset servicing for securities issues from 177 countries and territories valued at U.S. $87.1 trillion. DTCC’s Global Trade Repository service, through locally registered, licensed, or approved trade repositories, processes 16 billion messages annually. To learn more, please visit us at www.dtcc.com or connect with us on LinkedIn, Twitter, YouTube, Facebook, and Instagram.