The Depository Trust & Clearing Corporation (DTCC) is reporting that the Securities and Exchange Commission (SEC) has approved the Securities Financing Transaction (SFT) Clearing Service proposal of the National Securities Clearing Corporation (NSCC), the equity clearing subsidiary of DTCC, to operate a central clearing and settlement infrastructure for overnight borrows and loans of equity securities (SFTs).
The new Clearing Service will support the central clearing of clients’ SFTs intermediated by Sponsoring Members or Agent Clearing Members as well as the central clearing of SFTs between NSCC full-service Members. The SFT Clearing Service will also allow lenders and borrowers to submit pre-established bilaterally-settled SFTs for clearing.
The mission of the new service is to maximize capital efficiency and mitigate systemic risk by providing market participants with additional membership and cleared transaction opportunities. The SFT Clearing Service provides transparency to the financing process as Members gain the ability to recognize balance sheet offsets on novated SFTs, including those with third-party NSCC Members and with their institutional clients.
Laura Klimpel, General Manager of Fixed Income Clearing Corporation (FICC) & Head of SIFMU Business Development at DTCC, explained that the new service has the potential to significantly expand market access and liquidity while mitigating systemic risk:
“A central clearing model has the potential to transform the securities lending market for the better, with benefits including freed up credit lines, new borrowing and lending opportunities for a wide range of counterparties, and balance sheet and capital optimization.”
DTCC states that it has been working closely with Broadridge and Provable Markets, who have committed to submitting transactions into the new service as Approved SFT Submitters. DTCC is also working with FIS (Loanet) who has committed to collaborating with Broadridge and Provable Markets to ensure access and connectivity to the NSCC SFT Clearing Service for those Members who may wish to continue to leverage FIS for their books and records processing and for the submission of DTC Deliver Orders.