The Depository Trust & Clearing Corporation (DTCC), the premier post-trade market infrastructure for the global financial services industry, today announced that the new Centrally Cleared Institutional Tri-Party (CCIT) Service of its Fixed Income Clearing Corporation (FICC) subsidiary is live, and the first trade has been executed between Citadel and Morgan Stanley.
Since the U.S. Securities and Exchange Commission (SEC) approved rule changes last month that allow institutional investors to participate directly in the clearinghouse through CCIT membership, FICC has been working with dealers and cash lenders - including corporations, asset managers, insurance companies, sovereign wealth funds, pension funds, municipalities and state treasuries - to prepare all the necessary documentation and agreements to begin this next stage in the evolution of the repo market.
“We are very pleased to have been able to work with Citadel and Morgan Stanley to take this next step to make CCIT a reality,” said Murray Pozmanter, DTCC Managing Director and Head of Clearing Agency Services. “With a greater number of market participants leveraging the clearinghouse through the CCIT Service, we are able to strengthen both the safety and efficiency of the tri-party repo marketplace.”
The new CCIT membership expands the availability of central clearing in the repo market and extends central counterparty (CCP) services and the guaranty of the completion of eligible tri-party repo transactions between its dealer members and eligible institutional cash lenders. Expanding the CCP guaranty to a broader number of participants would lower the risk of diminished liquidity in the tri-party repo market caused by a large scale exit of participants in a market stress situation. The expanded membership also means more trading activity with a failed counterparty can be centrally liquidated in an orderly manner by FICC, which would reduce the risk of “fire sales” that drive down asset prices and spread stress across the financial system.
Tom Wipf, Vice Chairman of Institutional Securities at Morgan Stanley, commented, “We congratulate FICC on this important enhancement to the structure of the repo market. The combination of expanded market access for our clients and the overall reduction in counterparty credit risk is a major step forward for all participants in the repo market. FICC has worked diligently over the past several years to bring this strategic product to market and we at Morgan Stanley are proud to partner with Citadel on this inaugural cleared repo trade.”
Additionally, centrally clearing these transactions at FICC provides opportunities for members to see potential balance sheet netting and capital relief, which, in turn, may afford institutional investors increased lending capacity and income.¬
“We are excited to execute together with Morgan Stanley the first ever trade on FICC’s new CCIT Service,” said Dan Dufresne, Managing Director and Global Treasurer at Citadel. “This marks an important milestone in the evolution of repo clearing and is a critical first step toward extending the benefits of clearing to a broader set of repo market participants. We commend FICC on this accomplishment and look forward to continue partnering on improving the structure of this critical segment of the financial markets.”
FICC is at various stages of discussion with a number of institutional cash lenders and is actively on-boarding new members to the new CCIT Service.