The DTCC subsidiary wants to help firms comply with SEC clearing requirements to come.
The DTCC’s Fixed Income Clearing Corp. (FICC) is launching an interactive, public-facing calculator, dubbed the Capped Contingency Liquidity Facility (CCLF), to help financial services firms comply with SEC requirements to come for expanded U.S. Treasury clearing, officials say.
The “novel tool simulates estimated CCLF obligations associated with FICC GSD [Government Securities Division] membership,” officials say.
The CCLF calculator will aid increased transparency “into our financial risk management program, empowering potential members to understand their role and obligations as a FICC GSD member,” says Tim Hulse, managing director, financial risk and governance at DTCC, in a prepared statement.
“CCLF provides a critical backstop to address the financial impact of volatility and stress across repo markets while safeguarding the industry and individual members,” Hulse adds.
The CCLF calculator is “a rules-based liquidity resource facility that would provide FICC with additional liquid financial resources to meet its cash settlement obligations in the event of a default of the largest GSD family of affiliated netting members,” according to DTCC officials.
“To anticipate this potential funding need, GSD netting members incorporate their individually determined CCLF obligation amounts into their own liquidity plans,” according to the DTCC. “While the CCLF obligation is a committed obligation for the netting members, FICC does not require pre-funding or deposits of the obligation amount. Instead, as an ongoing FICC membership requirement netting members provide up-front attestations regarding their ability to provide such CCLF amounts.”
“With the expansion of central clearing in U.S. Treasuries on the horizon and given the size of transactions in the U.S. Treasury market — now exceeding USD $7 trillion daily — CCLF is a critical risk management tool,” according to the DTCC. The tool is intended to help firms manage “FICC liquidity risk arising from settlement activity.”
“Market participants can input their current unique settlement activity into the calculator to estimate and understand the CCLF-related liquidity obligations that could arise from membership,” DTCC officials add.
FICC provides trade comparison, netting, and settlement for the government securities marketplace, officials say. DTCC officials will continue “to assess calculators, tools, and enhanced access methods to best support the expansion of U.S. Treasury clearing activity.”
The SEC’s rule amendments will take effect in two phases, “with the changes regarding the separation of house and customer margin, the broker-dealer customer protection rule, and access to central clearing required to be completed first, by March 31, 2025,” according to the SEC. “After that time, the requirement to clear specific transactions would go into effect in two phases, with cash transactions being required to be cleared before repurchase transactions are required to be cleared.”
Direct participants of U.S. Treasury securities central clearing agencies with “eligible secondary market transactions” would not be required to clear until December 31, 2025. Cash and repurchase transactions would have to be cleared by June 30, 2026, according to the SEC.
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