The Depository Trust & Clearing Corporation’s (DTCC) subsidiary Fixed Income Clearing Corporation (FICC) has achieved another milestone in the transformation of the US Treasury market toward central clearing having successfully executed and cleared both cash and repo trades via FICC’s recently expanded Sponsored Service model.
The 2019 expansion of the Sponsored Service broadened the category of market participants who can participate as sponsors, and enabled sponsor member clients to transact in clearing with market participants other than their sponsors (ie “done-away” activity). It is through this expansion that Palafox, part of the Citadel organisation, became the first sponsor to facilitate centrally cleared “done away” cash and repo trades on behalf of its affiliated sponsored member client, Citadel’s Global Fixed Income Master Fund Ltd.
“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,” says Murray Pozmanter (pictured), 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 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 continue to support FICC’s efforts to expand the accessibility of central clearing for cash and repo trading and are excited to be a part of this important milestone in the evolution of the US Treasury markets,” says Dan Dufresne, Managing Director and Global Treasurer at Citadel. “There is significant momentum building behind clearing and that benefits all market participants.”