The DTCC has been granted regulatory approval to expand the range of buy-side firms that can join as sponsored members for its fixed income clearing service.
The expansion will also change how the service is used, with sponsors now able to let their clients trade with counterparties other than themselves. This will provide sponsored members the same execution flexibility as they have in the bilateral Treasury market.
The US Securities Exchange Commission (SEC) granted the approval to the DTCC’s subsidiary, Fixed Income Clearing Corporation (FICC).
“The greatest benefit of allowing different types of firms to be sponsors is that FICC has now made it possible to bring a much larger percentage of the market into clearing while maintaining our robust risk management standards,” said Murray Pozmanter, DTCC managing director and head of clearing agency services.
“This should create needed capacity for the market, while at the same time reducing systemic risk.”
The approval comes two years after DTCC expanded the sponsored clearing service beyond money market and mutual funds to include new buy-side firms. DTCC added it has since received interest from dealers, non-US banks and prime brokers that were not previously able to be sponsors.
Last year, DTCC processed its first buy-side cleared repo collateral exchange, through the FICC sponsored repo clearing service between State Street and Capula Investment Management.
“In order to create a robust cleared market, you need to be able to provide access to as many participants as possible on both the long and short sides of the equation,” added Jim Hraska, general manager, FICC Services, DTCC.
“Buy-side participation, therefore, is crucial because they are the true cash lenders and cash borrowers the market needs, and many have struggled over the years to get capacity due to constraints on dealers’ balance sheets.”