New York-based Depository Trust & Clearing Corp. (DTCC) has announced that the mortgage-backed securities division (MBSD) of its Fixed Income Clearing Corp. (FICC) subsidiary has filed an application with the U.S. Securities and Exchange Commission to provide central counterparty (CCP) and pool netting services for trades in U.S. mortgage-backed securities. According to DTCC, this initiative is designed to reduce the risks and costs associated with trading in the $100 trillion-a-year market.
According to the company, MBSD covers the risk of default by a member firm by collecting and holding collateral from its members in a clearing fund. With the introduction of a CCP, the company adds, MBSD's current clearing fund risk management process will be modified to account for two additional components: potential intraday exposure and the results of daily back testing.
FICC offers the MBSD's services to market participants trading mortgages held by various government agencies, including Ginnie Mae, Fannie Mae and Freddie Mac.
‘We anticipate that our CCP services will reduce risk by greatly streamlining the settlement of mortgage-backed securities trades,’ says Murray Pozmanter, DTCC managing director and general manager of clearing services.