The US Government Securities Clearing Corporation (GSCC) and MBS Clearing Corporation (MBSCC) have filed with the Securities and Exchange Commission (SEC) for permission to create a new comined operation, to be called the Fixed Income Clearing Corporation (FICC).
Under the proposal, FICC would provide the same services both organisations provide now, but through two separate divisions which will continue to operate as GSCC and MBSCC do now. Each division will continue to offer services to its own memebers and each will maintain a separate collateral margin pool.
The GSCC currently clears about $1.6 trillion a day in trades involving US government securities, while MBSCC clears an average of about $200 billion a day
in mortgage-backed securities trades. Both have shared a single senior management group since shortly after they became subsidiaries of the DTCC at the beginning of the year.
Tom Costa, president, GSCC/MBSCC, says the clearing services for both products have common elements: "Having them handled by different clearing corporations hinders the development of uniform standards for the fixed income services industry."
Costa adds that combining the two organisations would help lead to the development of uniform standards for messaging, reporting, netting and settlement, as well as standardised settlement practices and coordinated cash and mark-to-market flows.
It also would achieve important membership and risk management goals, such as building a consolidated risk management platform, optimising cross-margining among various fixed income products and establishing uniform membership standards, says Costa.
The parent DTCC Board, as well as the boards of GSCC and MBSCC, have approved the proposed merger.
The DTCC has also indicated there is a possibility that corporate and municipal bonds now cleared by National Securities Clearing Corporation (NSCC), may also be folded into FICC operations in the future.
MBSCC recently adopted a modified version of GSCC's real-time trade matching (RTTM) system for mortgage-backed securities. GSCC introduced real-time trade matching for US Government securities in December 2000 and more than 80% of all GSCC volume is now submitted in real-time either interactively or by multi-batch, with an average daily value of approximately $1.2 trillion.