Fixed Income Clearing Corporation (FICC) is a registered clearing agency and central counterparty that operates two divisions - Government Securities Division (GSD) is the leading provider of netting, novation, clearing and settlement for the Government securities marketplace, and Mortgage-Backed Securities Division (MBSD) provides the same services for the U.S. mortgage-backed securities market.

FICC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (DTCC). DTCC is a non-public holding company that owns three registered clearing agencies that have been designated as Systemically Important Financial Market Utilities (SIFMUs), as well as related businesses. In addition to FICC, DTCC also owns The Depository Trust Company (DTC), the world’s largest CSD and a registered clearing agency for the settlement of securities transactions for eligible securities and other financial assets, and National Securities Clearing Corporation (NSCC), a registered clearing agency and CCP that provides clearing, netting, settlement, risk management and CCP services for trades involving equities, corporate and municipal debt, exchange-traded funds and unit investment trusts in the U.S. As noted, FICC, DTC and NSCC have all been designated as SIFMUs.

FICC was established in 2003 with the merger of the Government Securities Clearing Corporation (GSCC), which was established in 1986, and the Mortgage-Backed Securities Clearing Corporation (MBSCC), which was founded in 1979.

Through its holding company structure and governance, FICC is essentially owned and governed by the market participants that it serves. Specifically, the common stock of DTCC, FICC’s non-public parent company, is owned by the financial institutions that are participants of its three registered clearing agency subsidiaries.

DTCC’s governance arrangements—and those of its clearing agency subsidiaries—are designed to promote the safety and efficiency of its clearing agency subsidiaries, support the stability of the broader financial system and promote the objectives of its participants. DTCC’s and FICC’s boards of directors are primarily composed of representatives of the clearing agency participants, including buy- and sell-side market participants, as well as representatives from other self-regulatory organizations and independent directors. This governance structure is designed to align incentives between FICC and the industry.

The Government Securities Division of FICC and its predecessor the Government Securities Clearing Corporation (GSCC) have been providing clearing, netting and settlement services to the U.S. Treasury market since 1986.

No. FICC is wholly-owned by DTCC, a non-public holding company, which is owned exclusively by the participants of FICC and its other registered clearing agency subsidiaries.

Essentially, a Systemically Important Financial Market Utility (SIFMU) is a market utility that is so vital to the U.S. financial system that its failure or a disruption to its operations could threaten the stability of the U.S. markets.

FICC was designated a SIFMU in 2012 by the Financial Stability Oversight Council of the US Treasury Department and pursuant to Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Today, only 8 financial market utilities – including FICC and its affiliates, DTC and NSCC – have been designated SIFMUs.

As a SIFMU and as a SEC covered clearing agency, FICC is required to meet prescribed risk management standards and heightened oversight by the SEC and the Federal Reserve Board, designed to promote robust risk management and safety and soundness, reduce systemic risk, and support the stability of the broader financial system.

Yes. Pursuant to applicable federal securities law regulations, FICC’s rules and procedures are publicly available on its website. Proposed changes to those rules must be filed with the SEC in a proposed rule change filing, which is published in the Federal Register for public comment. Proposed rule change filings are also posted to the FICC website. Any proposed changes cannot be made to the rules until the SEC has approved those changes. While some immaterial changes may become effective upon filing, those changes are also subject to both a public comment period and may be reversed upon review by the SEC.

In addition, material changes to FICC’s risk management, including changes that do not modify its rules and procedures, are subject to similar filing requirements, including a public comment period, and may not be implemented until regulatory action is taken.

FICC offers a variety of different direct and indirect participation offerings for buy-side and sell-side market participants to allow firms to tailor their access to FICC to the manner that best meets their business and regulatory needs.

Please visit USTClearing.com to learn more about the various ways to access FICC as direct participant or as an indirect participant.

• The rulebook of the Government Securities Division of FICC, which clears Treasury transactions, is publicly available on the DTCC.com website. Click here to view the rulebook.

• You may also find public disclosures that provide a general description of FICC’s business, operations, risk management and other matters on the DTCC.com website. Click here to view the public disclosures.

Yes, cross-margining as between FICC-cleared cash and repo activity and CME-cleared futures has been available since 2004 for common members of both CCPs (as well as for pairs of affiliated members). FICC and CME are actively working on enhancements to the existing arrangement and are also committed to expanding the benefits of that cross-margining arrangement to a broad scope of end-user clients, subject to the required regulatory approvals.

No. All FICC-cleared transactions settle on a delivery-versus-payment basis either over the Fedwire or at FICC’s Clearing Bank, The Bank of New York Mellon.

FICC offers a variety of different direct and indirect participation offerings for buy-side and sell-side market participants to allow firms to tailor their access to FICC to the manner that best meets their business and regulatory needs.

No. There may be instances where firms are acquiring Treasury securities to, for example, post margin pursuant to the uncleared swaps margin rules (the “UMR”). However, unlike derivatives transactions, FICC-cleared Treasury transactions are short-dated and physically-settled. Accordingly, a firm acquiring a U.S. Treasury security for the UMR will do so quickly (typically T+1). Once the firm performs its obligation to deliver the purchase price and receives the security, margin requirements associated with that transaction will be available for return by FICC. Thus, by the time the security is posted to the swap counterparty under the UMR, margin requirements to FICC will no longer apply to the transaction to acquire the Treasury security.

In addition, settlement risk presented by acquiring a Treasury security through clearing at FICC or acquiring such Treasury security on a bilateral un-cleared basis are both dependent on the settlement infrastructure of The Bank of New York Mellon or Fedwire.

FICC maintains plans that address the loss of people, premises and/or technology as additional measures to ensure the continuing operation of critical services, including proactive and reactive measures that help ensure that enterprise and business functions have resilience and recovery capabilities to continue, should a serious event occur.

These business continuity and resiliency plans establish requirements for how DTCC as a whole, including FICC, will effect and maintain controls that address defined threats which, if not otherwise implemented, could result in a high level of risk to the continuity of enterprise operations. Given the nature and breadth of significant business disruptive events, FICC’s business continuity and resiliency plans are aligned at the global, regional, site, legal entity, product, business line, and support function levels. In support of FICC’s business, DTCC has multiple data centers, including in-region and out-of-region sites, and all critical clearance and settlement transactions utilize private non-Internet networks.

Additionally, FICC maintains a Recovery and Wind-down (R&W) Plan to be used by the Board and management in the event FICC encounters scenarios that could potentially prevent it from being able to provide its critical services as a going concern. The R&W Plan identifies FICC’s services, and GM041223the criteria used to determine which services are considered critical; the recovery tools available to address the risks of (a) uncovered losses or liquidity shortfalls resulting from the default of one or more Members, and (b) losses arising from non-default events (e.g., cyber-attack, or custody or investment losses), and the strategy for implementation of such tools.

The R&W Plan also establishes the strategy and framework for the orderly wind-down of FICC and the transfer of its critical services in the remote event the implementation of the available recovery tools does not successfully return FICC to financial viability. In the event the Board determines that FICC’s recovery efforts have not been, or are unlikely to be, successful in returning FICC to financial viability, FICC would seek to identify a third party that is willing and able, as a successor financial market utility, to acquire, and continue to provide to the market, the critical services currently provided by FICC.

No. FICC only clears transactions in Treasury securities, Agency Debentures and Agency Mortgage-Backed Securities and would not experience any losses related to asset classes that it does not clear. FICC’s loss mutualization, which it has never triggered to date, is only utilized to address unsatisfied losses related to transactions in securities it clears after depletion of its other liquidity resources, including the defaulter’s resources as well as FICC’s own corporate contribution to those losses.

Required Fund Deposits may be satisfied by depositing either cash, or a combination of cash and eligible securities (subject to haircuts and concentration limits). To view the list of eligible securities and respective haircuts, which are available on the DTCC.com website, click here.

To view the Clearing Fund Methodology for the Government Securities Division of FICC, which is available on the FICC US Treasury microsite, click here. This document contains descriptions and formulas for components of the Clearing Fund.

The VaR charge is the latest component at FICC, and FICC makes available for Netting Members a Value-at-Risk (VaR) calculator that can be used to estimate their Clearing Fund requirements based on proposed changes (I.e., Addition or substraction of positions) to their FICC-cleared portfolios. By using the VaR calculator, or a separate in-house implementation of sensitivity VaR using the provided parameters under the methodology document, it is possible to replicate the calculation and approximate margin requirements at FICC.

For market participants that do not have access to the VaR calculator, a schedule of indicative haircut and risk factor rates is available to approximate the VaR charge. Click here to view.

Yes. Intraday margining limits FICC’s exposures to intraday market movements, trading activity and settlements. In the absence of intraday margining, FICC and its membership could be exposed to market risk until the next regular margin collection is completed.

Yes. The investment of cash deposits to the Clearing Fund is done with compliance with an investment policy, that has been filed with, and approved by, the SEC as a rule of FICC. Persuant to that policy, cash deposits to the Clearing Fund are held at approved commercial banks that meet prescribed credit standards or at FICC’s cash deposit account at the Federal Reserve Bank of New York (FRBNY). All eligible Clearing Fund securities are held on deposit at a custodian bank for GSD.

Consistent with its regulatory obligations, FICC has established clear and objective membership requirements for each category of membership. Its minimum membership standards are designed to provide fair and open access for firms seeking membership and are robust to allow FICC to manage the material risks presented from membership activities. FICC has taken steps, wherever possible, to facilitate the ability of different types of market participants to access clearing at FICC through a wide array of direct and indirect participation models. The different access models allow market participants to tailor their clearing arrangements at FICC to their specific business and regulatory needs.

In times of stress, market volatility may cause the Clearing Fund to increase, which is inherent in the risk management process of FICC. However, consistent with the anti-procyclicality tools recommended under the European Market Infrastructure Regulation, FICC addresses the procyclicality of its value-at-risk (VaR) charge formula by applying a 10-year lookback period that incorporates an additional stress period if FICC determines that the historical look-back period does not contain adequate shocks.

Procyclical impacts of its margining are also mitigated through FICC’s ongoing member engagement, including through members’ use of FICC’s VaR calculator and Clearing Fund reporting, which help members manage their market risk on an ongoing basis and increase their awareness of related impacts.

The procedures FICC may take after it has ceased to act for a defaulting member, including the process for closing out unsettled, open positions of the defaulting Member, are provided for and described in rule 22A of the GSD rules, available for viewing on the DTCC.com website, click here.

To view FICC’s default procedures, which are also described in public disclosures (see “Principle 13: Participant-default rules and procedures; CCAS 17Ad-22(e)(13)”) available on the DTCC.com website, click here.

No. Market participants that are unable to become full-service Netting Members of the Government Securities Division (GSD) have a wide range of options for accessing clearing at FICC through one of FICC’s client clearing models and/or one of FICC’s limited direct access models.

A market participant looking to clear either Treasury cash activity or Treasury repo activity through FICC that is unable to become a full-service GSD Netting Member could access FICC through one of FICC’s client clearing models. More specifically, a firm could (i) become a Sponsored Member of one or more FICC-approved Sponsoring Members, and/or (ii) become an indirect participant (referred to as an “Executing Firm”) of one or more FICC-approved Prime Brokers or Correspondent Clearers. Both of these client clearing models offer futures commission merchant (“FCM”)-style clearing capabilities for Treasury cash activity and Treasury repo activity. Please refer to the response to FAQ 4 for further information comparing the Prime Broker and Correspondent Clearing Services to FCM-style clearing.

In addition, if a market participant is a Registered Investment Company (“RIC”), it is also eligible to clear Treasury cash activity and Treasury repo activity directly through FICC. RICs are eligible to be GSD Netting Members that are designated as Tier Two Members for purposes of the application of FICC’s loss allocation rules. As a Tier Two Member, a RIC Netting Member would be subject to the allocation of losses based on the transactions it executed in clearing with a defaulting member, but would be excluded from loss mutualization applicable to a full-service GSD Netting Member that has been designated as a Tier One Netting Member.

Moreover, if the market participant is looking specifically at being a cash lender into FICC-cleared tri-party Treasury repo, it could become a direct limited member of FICC’s Centrally Cleared Institutional Tri-Party Service.

Yes. FICC’s Sponsored Service provides Sponsored Members with substantially the same benefits of clearing, including centralized risk management, centralized default management, comparison and multilateral netting, and substantially the same guarantee of settlement as direct Netting Members receive from FICC.

The principal differences between the services offered to Sponsored Members and those offered to direct Netting Members are the following: (a) a Sponsored Member acts through its Sponsoring Member, rather than acting directly with FICC; and (b) if a Sponsoring Member defaults, FICC has the option, under the GSD Rules, to terminate or settle the Sponsored Member’s trades. More information regarding a Sponsoring Member default is available on the FICC’s US Treasury Clearing microsite at FICC's Sponsored Program - Default Scenarios.

These features of the Sponsored Service are consistent with client clearing models in other asset classes as well (e.g., derivatives). For example, under an FCM-style client clearing model, the FCM’s client does not have a direct relationship with the CCP and if the clearing member defaults, the CCP can terminate the customer’s trades.

Yes. FICC’s Sponsored Service provides Sponsored Members with 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.

In the event a Sponsoring Member defaults, it is expected that Sponsored Members 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 Sponsored Members would not be treated as general creditors as would be the case upon a default in a bilateral transaction. However, firms should consult counsel regarding the possible impacts of a Sponsoring Member default under applicable bankruptcy law.

Yes. FICC’s Prime Broker and Correspondent Clearing Services provide 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 Prime Broker and Correspondent Clearing Services, the indirect participant (referred to as an “Executing Firm”) can enter into a trade with a third party that is a participant in FICC and give the trade up to its Prime Broker or Correspondent Clearer, as applicable, to clear at FICC for the benefit of the Executing Firm.

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’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’s Prime Broker or Correspondent Clearer, as applicable, defaults, it is expected that Executing Firms 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 Firms 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 a Prime Broker or Correspondent Clearer, as applicable, default under relevant bankruptcy law.

FICC is considering enhancements to the GSD Rules to clarify the operation of the Prime Brokerage and Correspondent Clearing Services. The enhancements should make clearer that these services are substantially similar to custodial/FCM-style clearing with respect to FICC-cleared cash and repo transactions.

No. Repos submitted to FICC under the Sponsored GC Service (a Sponsored GC Repo) are centrally cleared transactions. FICC’s guarantee of settlement, comparison, centralized risk management, centralized default management, and other benefits apply to Sponsored GC Repos to the same extent as they apply to all other FICC-cleared transactions.

Although Sponsored GC Repos are not subject to multilateral settlement netting, they are subject to multilateral close-out netting and therefore are expected to provide substantially the same balance sheet, capital, and risk mitigation benefits as other FICC-cleared transactions.

No. All FICC-cleared transactions settle DVP, either on a bilateral or tri-party basis. FICC does not hold any property for participants other than Clearing Fund. As described in response to FAQ 12 (below), Clearing Fund deposits for indirect participants’ activity are made by the direct Netting Member responsible for that indirect participant, i.e., the Sponsoring Member, Prime Broker or Correspondent Clearer.

The start legs of many types of repo transactions cleared by FICC are novated to and settled by FICC, including the start legs of all repos transactions between two Netting Members of FICC, the start leg of any repo under Sponsored DVP Service (a Sponsored DVP Repo) where the Sponsored Member’s pre-novation counterparty is a third-party member of FICC (i.e., “done-away” from the Sponsoring Member), as well as any Sponsored DVP Repo where the start leg of such repo is scheduled to settle on some business day in the future.

FICC currently does not novate and settle the start legs of same-day settling Sponsored DVP Repos where the Sponsored Member’s pre-novation counterparty is its Sponsoring Member (i.e., “done-with” Sponsored DVP Repo as well as Sponsored GC Repos). FICC’s decision not to novate and settle those particular start legs was deliberate and made in consultation with the industry based on the operational complexities that novation and settlement by FICC presented to both Sponsoring Members and Sponsored Members. It was also driven by the legal complexities that clearing the start leg presented to Sponsored Members, particularly Sponsored Members that are cash providers who would be faced with a new obligation to deliver cash to FICC and where failure to satisfy such obligation on time would be grounds for FICC to deem such Sponsored Member insolvent and cease to act for them.

Nonetheless, FICC is willing and capable of novating and settling the start legs of any repo transaction that it clears, subject to the required regulatory approvals and to the extent the industry deems it appropriate for FICC to do so.

No. The fact that FICC does not clear the start leg of certain Sponsored Member repo transactions (i.e., same-day settling Sponsored DVP Repos executed with a Sponsoring Member as well as Sponsored GC Repos) has no effect on the guarantee of settlement, comparison, centralized risk management, centralized default management, multilateral netting, and other benefits provided by FICC on the end leg of such repo transaction.

FICC would also note that it only began novating and settling the start legs of same-day settling DVP repos between its Netting Members in 2021. Prior to that time, the industry did not raise any concerns that the end legs of such repo transactions were not centrally cleared by FICC.

To view GSD Rule 3A, Sections 7 and 9, available on the DTCC.com website, click here.

FICC is willing and capable of novating and settling the start legs of any repo transaction that it clears, subject to the required regulatory approvals and to the extent the industry deems it appropriate for FICC to do so.

No. FICC does not hold the purchased securities received by a repo buyer (cash provider) in connection with a cleared repo transaction. Rather, such securities are delivered out to the repo buyer (cash provider) in the start leg of the trade or, in the case of Sponsored GC Trades, held in the repo buyer’s (cash provider’s) triparty account.

No. FICC does not impose any limitations on the ability of a cash provider to use the securities it purchased in connection with a repo transaction, even in the cash provider’s default. For details, please see FICC’s US Treasury Clearing microsite at FICC’s Sponsored Program - Default Scenarios.

The procedures FICC may take after it has ceased to act for a defaulting member, including the process for closing out unsettled, open positions of the defaulting Member, are also provided for and described in Rule 22A of the GSD Rules, available for viewing on the DTCC.com website, click here.

Finally, to view FICC’s default procedures, which are described in public disclosures (see “Principle 13: Participant-default rules and procedures; CCAS 17Ad-22(e)(13)”) available on the DTCC.com website, click here.

No. Satisfying FICC’s Clearing Fund requirements is the responsibility of the direct Netting Member responsible for the indirect participants’ activity, i.e., the Sponsoring Member, Prime Broker or Correspondent Clearer, as applicable. For example, Netting Members that are Sponsoring Members are required to make separate deposits to the Clearing Fund for their Netting Member activity and Sponsoring Member activity. FICC does not require any of its indirect participants to post margin and, at this time, does not expect this practice to change to the extent the SEC’s proposed rule regarding central clearing of U.S. Treasury cash and repurchase transactions is adopted in its proposed form.

However, FICC’s rules do not preclude indirect participants from contributing to their direct participant’s Clearing Fund requirements. With respect to its Sponsoring Service, see Section 2(c) of GSD Rule 3A, which express states, “Nothing in these Rules shall prohibit a Sponsoring Member from seeking reimbursement from a Sponsored Member for payments made by the Sponsoring Member (whether pursuant to the Sponsoring Member Guaranty, out of Clearing Fund deposits or otherwise) with respect to obligations as to which the Sponsored Member is a principal obligor under these Rules, or as otherwise may be agreed by the Sponsored Member and Sponsoring Member.” To view the GSD Rules, click here.

Yes. FICC records positions of Sponsored Members and positions of Executing Firms of a Prime Broker as long as the Prime Broker submits the trades to FICC using a unique client identifier called the “Executing Firm symbol.”

While it is not currently clear that GSD is a qualified custodian for registered advisers, GSD would explore the possibility of seeking relief from the SEC to clarify its status as such if appropriate based on industry need and/or regulatory requirement.

We note the SEC has separately proposed amendments to the existing qualified custodian requirements.

Please note that firms should consult counsel regarding the UCC treatment of securities in connection with the Sponsored DVP and Sponsored GC Services.

However, it is not expected that there would be any difference in such treatment. In both a FICC-cleared Sponsored DVP Repo and a FICC-cleared Sponsored GC Repo (i.e., a tri-party repo), the cash provider perfects its interest in the transferred securities through the same mechanism cash providers use in the uncleared space, i.e., by obtaining “control” of the securities within the meaning of the UCC. Intermediated securities, like Treasury securities, cannot be subject to “possession” within the meaning of the UCC since that refers to physical tangible possession (i.e., holding certificates).

In the case of a DVP repo transaction (whether a FICC-cleared Sponsored DVP Repo or a bilateral, uncleared DVP repo), the collateral provider “delivers out” the securities to the cash provider (i.e., it causes the securities to be transferred to the cash provider’s account at the cash provider’s broker/bank).

In the case of a tri-party repo transaction (whether a FICC-cleared Sponsored GC Repo or a bilateral, uncleared tri-party repo), BNYM or another bank acts as triparty custodian pursuant to a custodial undertaking, control, or similar agreement, and the collateral provider instructs BNYM to have the securities transferred to the triparty account in the cash provider’s name. In both cases, the cash provider obtains “control” within the meaning of the UCC by becoming the “entitlement holder,” i.e., the customer to whose account the securities are credited.

Importantly, FICC does not hold the securities that are posted under a cleared Sponsored DVP Repo or a Sponsored GC Repo. Rather, those securities are delivered out to the cash provider (in the case of a Sponsored DVP Repo) or credited to the cash provider’s triparty account (in the case of a Sponsored GC Repo).

Yes. FICC lays out the process for what occurs in the event a Sponsoring Member defaults, a Sponsored Member defaults or in the unlikely event, FICC defaults on its US Treasury Clearing microsite at FICC’s Sponsored Program - Default Scenarios.

The procedures FICC may take after it has ceased to act for a defaulting member, including the process for closing out unsettled, open positions of the defaulting Member, are also provided for and described in Rule 22A of the GSD Rules, available for viewing on the DTCC.com website, click here.

Finally, to view FICC’s default procedures, which are described in public disclosures (see “Principle 13: Participant-default rules and procedures; CCAS 17Ad-22(e)(13)”), available on the DTCC.com website, click here.

Yes. FICC provides background in its PFMI disclosures regarding how the multilateral netting provisions of the Federal Deposit Insurance Corporation Improvement Act (FDICIA) support the enforceability of FICC’s close-out netting rules, including in the event of the default of a participant or FICC.  See “Principle 1: Legal Basis; CCAS 17Ad-22(e)(1)”), available on the DTCC.com website, click here.

Briefly, the provisions of FDICIA applicable to clearing organization netting are expected to override any conflicting provisions of state or federal law, including the Bankruptcy Code, except where expressly provided. The netting provisions of FDICIA were designed to reduce systemic risk to the financial markets.

FICC also produces netting opinions, available to its members upon request, explaining how FDICIA will give effect to FICC’s close-out rules in the event of a default of a FICC member and in the unlikely default of FICC.

FICC and CME Clearing each submitted rule changes to their respective regulatory authorities in July 2023, which were approved in September 2023. FICC and CME Clearing intend to implement the enhanced cross-margining arrangement on January 22, 2024.

1. The information and examples provided in these FAQs are for general informational and indicative purposes only. Such information may not be relied on by any party for any purpose. Any statements in these FAQs, like any statements regarding hypothetical scenarios, are subject to inherent uncertainties. Neither FICC nor CME undertakes to update these FAQs to reflect changes or events that occur after the date of publication. The range of available actions described in this document and the discussion of actions that could be taken in certain scenarios are hypothetical only and not binding on any parties in any forum, including but not limited to FICC, CME or any of its or their affiliates.
2. Pursuant to the Restated Agreement, “Cross-Margining Participant” “means a Joint Clearing Member that has become, or a Clearing Member that is part of a pair of affiliated Clearing Members each of which has become, a participant in the cross-margining arrangement between FICC and CME established pursuant to this Agreement. In the latter case, the term “Cross-Margining Participant” shall, where the context requires, refer collectively to the pair of Cross-Margining Affiliates. CME-FICC Cross Margining Arrangement Financial Markets. Forward.™

The client testing process is available today to allow clearing members to become familiar with the daily operation of the enhanced program within CME’s test environment, as well as view mock-up margin reporting within FICC’s and CME’s test environments.

Under the current, as well as the new CME-FICC Cross-Margining arrangement, eligible participants include (i) entities that are clearing members of both CME and FICC/GSD and (ii) pairs of clearing members where one is a clearing member of CME and an affiliate is a clearing member of FICC/GSD (or vice versa).

The new arrangement will require new agreements for which signatures will be required by all parties (including currently eligible participants). Copies of the new agreement will be distributed to current participants in September 2023. New participants should contact their Relationship Managers at FICC and CME Group to discuss eligibility and obtain the necessary agreement. .

The new CME-FICC Cross-Margining arrangement looks to add CME Group listed interest rate futures products, Ultra-10, Ultra-Bond, Fed Funds, and SOFR, and the flexibility to add future products as markets evolve. Please note, however, that the addition of other products into the program will require applicable governance and model validation approvals and possible regulatory filings.

FICC-Cleared US Treasury Notes and Bonds that have a time to maturity greater than 1 year,3 resulting from a buy/sell or repo/reverse repo transaction, will be eligible for the new arrangement. Other Treasury securities, including When Issued Securities prior to settlement date and TIPS, may be considered for inclusion in the program in a later phase.

No changes are required to any clearing members settlement accounts to accommodate participation in the enhanced arrangement.

No changes to the acceptable collateral schedules at either clearing agency are anticipated due to the enhancements to the CME-FICC Cross-Margining arrangement.

No, neither CME Group nor FICC envision charging separately for participation in this arrangement.

FICC and CME Group believe that these enhancements will encourage greater utilization of centralized clearing, thereby facilitating systemic risk reduction.

Yes, at CME Clearing, the operational process for the new arrangement will be modernized to allow additional flexibility in managing the program by allowing clearing members to select which interest rate futures to include in the program.

At CME Clearing, the arrangement will become ‘actively’ managed by clearing members, versus the ‘passive’ approach today. A new separate eligible position sub-account will be available for clearing members where they can choose which interest rate futures to include for potential offset with their FICC cleared positions.

At FICC, Clearing Members will not need to actively manage which FICC eligible positions are included for purposes of cross-margining and will see results reported in their daily margin requirements.

Yes, in the new arrangement, to the extent applicable, the margin reductions will be calculated during both intra-day and end of day processing cycles. Whereas, currently, the margin reductions at each clearing agency are only calculated once daily during the end of day process.

Please note that for purposes of FICC’s formal noon intraday margining process, FICC will look at all novated, unsettled positions (including newly traded positions since the last margin cycle) when determining positions eligible for cross-margining.

Under the new arrangement, FICC and CME Clearing will each treat a participant’s relevant products as a single portfolio (a “Combined Portfolio”). Treatment as a Combined Portfolio provides the ability for the FICC and CME Clearing to assess risk at a security level and eliminates the need to use separate margin calculations and apply offset classes and conversions of eligible products. Both CME Clearing and FICC will use their own margin models on the combined Treasuries and futures portfolios, to the extent applicable, and jointly apply a margin savings percentage to each account based on the more conservative result.

Yes, currently on an ad hoc basis FICC and CME Clearing can analyze a hypothetical portfolio under the new arrangement. Please note, however, that Clearing Members should not rely upon the results of the hypothetical portfolios, as neither CME Clearing nor FICC guarantee the same results in an actual portfolio. Additionally, the FICC calculator, enabling members to run various scenarios on cash positions paired against the latest available position file provided by CME Clearing is anticipated to be available in November 2023.

Each participating Clearing Member at CME will be required to establish a dedicated crossmargin position account for any futures eligible under the program.

Futures eligible for the program can be moved into this position account either by trading directly in this account or by allocating position transfers or give-ups to CME Clearing.

Once in this account, these futures positions will be offset against FICC positions and margined as if the positions were a combined portfolio, as set out above in FAQ No. 8, to determine any potential margin reductions.

CME is engaged with several Clearing Members to evaluate the potential for tools which could help automate and expedite the determination of any futures positions to move into these CME Clearing accounts.

FICC will determine which eligible positions within the clearing member’s FICC/GSD account are available for the CME-FICC cross-margining arrangement and thus no affirmative determination by the clearing member is required.

Yes, initially, CME Clearing will create a report of equivalent CME Group Treasury positions to offset FICC eligible positions on a daily basis. Clearing members may use this report to determine transfers of futures into the CME Clearing cross-margin position account.

CME Group has also built a “rules-based” tool to help streamline identification and transfer of interest rate futures into the cross-margin position account which is available through the CME CORE platform.

As part of a future phase deliverable, CME Clearing, with assistance from FICC, is exploring a margin optimizer to further minimize risk and streamline the transfer process for the arrangement.

No, as described above, cross-margining is only available for house (proprietary accounts) of (i) entities that are clearing members of both CME and FICC/GSD and (ii) pairs of clearing members where one is a clearing member of CME and an affiliate is a clearing member of FICC/GSD (or vice versa).

However, increased eligibility for participation in this program is being contemplated for a future phase subject to regulatory approval, and both CME Group and FICC would be receptive to requests for access in order to help us gauge and prioritize future efforts.

Yes, the implementation date of the enhanced program is January 22, 2024 at which point the current arrangement will no longer operate and the new enhanced arrangement will replace it and be the only one available. Both CME and FICC issued advisories (FICC issued an Important Notice on December 5, 2023) to members providing notice of the January 22, 2024 implementation date.

In order to participate, all eligible participants, including those that are already participants in the current arrangement, will need to execute a new common member and/or affiliate member agreement, as applicable.