The Depository Trust & Clearing Corporation (DTCC) has confirmed that its proposal to expand the Sponsored Service of its subsidiary Fixed Income Clearing Corporation (FICC) has been approved by the Securities and Exchange Commission (SEC). DTCC views this as the latest milestone in the transformation of the Treasury market.
DTCC says the expansion broadens the category of market participants who can participate as sponsors. It also changes how the service can be used, with sponsors now able to let their clients trade with counterparties other than themselves, providing sponsored members with the same execution flexibility they have in the bi-lateral market today.
“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.”
Following the 2017 expansion, which allowed Buy Side firms beyond Money Funds and Mutual Funds to participate in the service as sponsored members, DTCC says it received increased interest from Dealers, Non-US Banks, and Prime Brokers that were not previously able to be sponsors. The rise of interest across market participants prompted FICC to propose its latest approved expansion.
“We anticipate this expansion will have a positive impact on the Treasury market,” said Jim Hraska, DTCC Managing Director and General Manager, FICC Services. “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. 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,” he added.