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Fixed Income Clearing Corporation (FICC)

Fixed Income Clearing Corporation (FICC)
TradingFixed Income Trading

What Is the Fixed Income Clearing Corporation (FICC)?

The term Fixed Income Clearing Corporation (FICC) alludes to a regulatory clearing agency that arrangements with the confirmation, settlement, and delivery of fixed-income assets in the U.S. The agency was established in 2003 as a subsidiary of the Depository Trust and Clearing Corporation (DTCC). It guarantees the systematic and efficient settlement and clearing of U.S. government securities and mortgage-backed security (MBS) transactions in the market.

Understanding the Fixed Income Clearing Corporation (FICC)

The Depository Trust and Clearing Corporation is a financial services company. Established in 1999, it brought together the functions of two other organizations, the Depository Trust Company and the National Securities Clearing Corporation. The goal of the DTCC is to give clearing and settlement services to the financial market.

As noted over, the FICC was established as a subsidiary of the DTCC in 2003. It was created as a result of the merger between the Government Securities Clearing Corporation (GSCC) and the Mortgage-Backed Security Clearing Corporation. The agency is registered with and regulated by the U.S. Securities and Exchange Commission (SEC).

The job of the agency is to guarantee that U.S. government-backed securities and MBS are systematically and efficiently settled. For instance, Treasury notes and bonds settle on a T+1 basis. To guarantee that trades are settled consistently and efficiently, the FICC utilizes the services of its two clearing banks: the Bank of New York Mellon and JPMorgan Chase Bank.

As indicated by the SEC, the FICC is the main agency that acts as a clearinghouse for U.S. government securities transactions. Accordingly, it "substitutes itself for both sides of each and every transaction that it clears, guaranteeing those transactions and making itself the buyer for each seller and the seller for each buyer."

Special Considerations

In October 2021, the SEC announced it fined the FICC $8 million for neglecting to oversee risk in its Government Securities Division. The SEC stated that the division missing the mark on appropriate risk management policies between April 2017 and November 2018. The SEC additionally found that the FICC didn't agree with industry rules that required it to put policies and procedures in place relating to the survey of its margin coverage between 2015 and 2016.

Fixed Income Clearing Corporation (FICC) Structure

The FICC is separated into two sections: the Government Securities Division (GSD) and the Mortgage-Backed Securities Division (MBSD). We've highlighted the absolute most important information about both below.

Government Securities Division (GSD)

The GSD is responsible for taking care of new fixed-income issues and exchanging government securities. The division gives netting to trades in U.S. government debt issues, including repurchase agreements (repos) or reverse repurchase agreement transactions (reverse repos).

Securities transactions handled by the FICC's GDS incorporate Treasury bills, bonds, notes, zero-coupon securities, government agency securities, and inflation-indexed securities. The GSD gives real-time trade matching through an interactive platform that collects and matches securities trades, empowering participants to monitor the status of their trades in real-time.

Mortgage-Backed Securities Division (MBSD)

The MBS division of the FICC gives real-time automated and trade matching, trade confirmation, risk management, netting, and electronic pool notification to the MBS market.

Through the RTTM service, the MBSD immediately affirms trade executions in a legal and binding way. A trade is considered compared by the MBSD at the point in time at which the division makes accessible to the individuals on both sides of a transaction output indicating that their trade data have been compared. A trade compared by the MBSD constitutes a substantial and binding contract, and trade settlements are guaranteed by the MBSD at the point of comparison.

Key participants in the MBS market are mortgage originators, government-sponsored enterprises, registered [broker-dealers](/agent seller), institutional investors, investment managers, mutual funds, commercial banks, insurance companies, and other financial institutions.

Highlights

  • The FICC's two fundamental divisions are the Government Securities Division and the Mortgage-Backed Securities Division.
  • The FICC was established in 2003 as a result of the merger of the Government Securities Clearing Corporation and the Mortgage-Backed Security Clearing Corporation.
  • The Fixed Income Clearing Corporation is a clearinghouse for certain fixed-income securities traded in the U.S.
  • The agency functions as a subsidiary of the Depository Trust and Clearing Corporation.
  • The primary goal of the FICC is to guarantee that government securities and mortgage-backed securities are settled efficiently and systematically.