Does FICC’S Agent Clearing Access Model offer the same benefits of central clearing as Client Clearing models offered in other asset classes (e.g., Derivatives)?

Yes. FICC’s Agent Clearing Service provides substantially the same benefits of central clearing, including centralized risk management, centralized default management, comparison and multilateral netting, and substantially the same guarantee of settlement as are offered under an FCM-style client clearing offering in the derivatives space.

Under FICC’s Agent Clearing Service, the indirect participant (referred to as an “Executing Firm Customer”) can enter into a trade with a third party that is a participant in FICC and give the trade up to its Agent Clearer, as applicable, to clear at FICC for the benefit of the Executing Firm Customer.

This structure is consistent with how a customer of an FCM can enter into a trade with a third party on an exchange or bilaterally and then give that trade up to its FCM for clearing on a Derivatives Clearing Organization (DCO).

Similarly, the direct participant of FICC in this structure does not function as the Executing Firm Customer’s bilateral counterparty in these models; rather, it acts in a similar manner to an FCM (or other clearing member) under a derivatives clearing model.

In the event the Executing Firm Customer’s Agent Clearer defaults, it is expected that Executing Firm Customers would have SIPA customer or similar custodial claims for the return of their assets and any amounts paid by FICC. It is also expected that Executing Firm Customers would not be treated as general creditors as would be the case upon a default in a bilateral transaction. Firms should consult counsel regarding the possible impacts of an Agent Clearing Member’s default under relevant bankruptcy law.

FICC has made enhancements to the GSD Rules to clarify the operation of the Agent Clearing Service. The enhancements make clearer that the service is substantially similar to custodial/FCM-style clearing with respect to FICC-cleared cash and repo transactions.