The Depository Trust & Clearing Corporation (DTCC) announced today that the Mortgage-Backed Securities Division (MBSD) of its Fixed Income Clearing Corporation (FICC) subsidiary has filed an application with the U.S. Securities and Exchange Commission to provide central counterparty (CCP) and pool netting services for trades in U.S. mortgage-backed securities. This initiative is designed to reduce the risks and costs associated with trading in the $100 trillion-a-year market.

“We anticipate that our central counterparty services will reduce risk by greatly streamlining the settlement of mortgage-backed securities trades,” said Murray Pozmanter, DTCC managing director and general manager, Clearing Services.

Once it has regulatory approval and implements the service, MBSD will guarantee settlement on all matched trades, a critical step for the mortgage-backed securities industry where the settlement of a trade often doesn’t take place until months after the trade itself was made.  The guarantee will ensure the completion of these long-settling trades if either of the trading parties defaults on its initial trade commitment or pool delivery obligations.

Although MBSD is currently able to net down more than 90 percent of the MBS trades it handles, in its role as a central counterparty it will introduce an additional netting process--pool netting--that will further streamline settlement on any remaining obligations.

Mortgage-backed securities are made up of the pools of mortgages that underlie each security.  Because pools are frequently allocated and reallocated against numerous settlement obligations, these multiple redeliveries are operationally inefficient and potentially error-prone.  By netting down redeliveries of allocated pools, MBSD’s new pool netting process will substantially reduce the number of settlement deliveries and thus help to lower operational risk while easing settlement costs.

To cover the risk of default by a member firm, MBSD collects and holds collateral from its members in a clearing fund.  With the introduction of a CCP, MBSD’s current clearing fund risk management process will be modified to account for two additional components: potential intraday exposure and the results of daily back testing.  To show its member firms the impact these new components will have on their daily clearing fund requirement, FICC is running a two-month “parallel” reporting program.

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Poland's national securities depository KDPW has now made it a lot easier for foreign investors to do business in that eastern European market.

MarkitServ has teamed up with global messaging network provider SWIFT to compete in the burgeoning post-trade processing market for foreign exchange derivatives.

Alternative trading platform Turquoise, owned by the London Stock Exchange Group, has accepted Dutch clearinghouse EMCF as the fourth option traders have to clear trades executed on its system.

Euroclear Bank will soon be offering over one thousand bank and brokerage members an easy way to settle their trades in Russian equities as well as government and corporate bonds with Russian counterparties on the books of the international securities depository.