SEC approves DTCC and NYSE project
02 March 2011 New York
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The Securities and Exchange Commission (SEC) has approved the “one-pot” cross-margining arrangement between fixed income positions cleared by DTCC’s Fixed Income Clearing Corporation (FICC) subsidiary.
The SEC approval permits FICC, for the first time ever, to participate in a cross-margining arrangement that brings together fixed income cash and derivatives positions in a single margin calculation. The “one-pot” model will produce significant capital efficiencies by margining the actual economic risk of combined portfolios of cash and derivatives positions. By offering a single combined view of risk across asset classes, “one-pot” margining also enhances market and regulatory transparency with respect to the clearing of fixed income portfolios, which can be used to identify and moderate systemic market risks, facilitating more orderly risk mitigation and reduction in settlement risks.
“Since the financial crisis, we’ve been intensely focused at DTCC on mitigating risk and increasing market transparency for regulatory authorities while introducing new efficiencies into the clearing system,” said Murray Pozmanter, DTCC managing director, Fixed Income Clearing and Settlement. “In fixed income markets, where firms routinely use futures to provide a natural offset or hedge to cash market trades, we’re confident that ‘one-pot’ margining will help achieve these goals, and we’re grateful that the SEC has approved this expeditiously.” In 2010, FICC cleared and settled transactions valued at average of about $4.6 trillion daily.
The SEC rule filing also enhances risk mitigation procedures for FICC member firms that trade government securities by implementing twice-a-day margin calls instead of the single margin call currently in place.
The SEC approval permits FICC, for the first time ever, to participate in a cross-margining arrangement that brings together fixed income cash and derivatives positions in a single margin calculation. The “one-pot” model will produce significant capital efficiencies by margining the actual economic risk of combined portfolios of cash and derivatives positions. By offering a single combined view of risk across asset classes, “one-pot” margining also enhances market and regulatory transparency with respect to the clearing of fixed income portfolios, which can be used to identify and moderate systemic market risks, facilitating more orderly risk mitigation and reduction in settlement risks.
“Since the financial crisis, we’ve been intensely focused at DTCC on mitigating risk and increasing market transparency for regulatory authorities while introducing new efficiencies into the clearing system,” said Murray Pozmanter, DTCC managing director, Fixed Income Clearing and Settlement. “In fixed income markets, where firms routinely use futures to provide a natural offset or hedge to cash market trades, we’re confident that ‘one-pot’ margining will help achieve these goals, and we’re grateful that the SEC has approved this expeditiously.” In 2010, FICC cleared and settled transactions valued at average of about $4.6 trillion daily.
The SEC rule filing also enhances risk mitigation procedures for FICC member firms that trade government securities by implementing twice-a-day margin calls instead of the single margin call currently in place.
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