Which is the Fixed Income Clearing Corporation?

Fixed Income Clearing Corporation (FICC) is a regulated clearing organization that confirms, settles, and delivers fixed-income assets in the U.S. The agency was founded in 2003 as a DTCC subsidiary. It efficiently determines and clears U.S. government and mortgage-backed securities (MBS) transactions in the market.

Learning about FICC

The Depository Trust and Clearing Corporation provides financial services. It was founded in 1999 by merging the Depository Trust Company and the National Securities Clearing Corporation. The DTCC clears and settles financial transactions.

As said, the FICC became a DTCC subsidiary in 2003. It emerged from the amalgamation of the Government Securities Clearing Corporation (GSCC) and the Mortgage-Backed Security Clearing Corporation. The SEC in the United States has registered and regulated the agency.

The agency settles U.S. government-backed securities and MBS efficiently. Example: Treasury notes and bonds drop on a T+1 basis. The FICC uses its two clearing institutions, Bank of New York Mellon and JPMorgan Chase Bank, to effectively decide deals.

According to the SEC, the FICC is the exclusive clearinghouse for U.S. government securities transactions. So, it “substitutes itself for both sides of every transaction that it clears, guaranteeing those transactions and making itself the buyer for every seller and the seller for every buyer.”

Special Considerations

In October 2021, the SEC penalized the FICC $8 million for failing to manage risk in its Government Securities Division. Between April 2017 and November 2018, the SEC found the division lacked proper risk management policies. The SEC also determined that the FICC violated industry standards by not establishing margin coverage review plans and processes between 2015 and 2016.

FICC structure

The Government Securities Division (GSD) and Mortgage-Backed Securities Division (MBSD) comprise the FICC. Below are some critical facts regarding both.

Government Securities Division

GSD handles new fixed-income issuance and government securities resales. The division nets trading in U.S. government debt, including repos and reverse repos.

The FICC’s GDS processes securities transactions, such as Treasury bills, bonds, notes, zero-coupons, government agencies, and inflation-indexed securities. The GSD’s interactive platform gathers and matches securities trades in real time, allowing participants to track their transactions.6

Mortgage-Backed Securities Division

The FICC MBS division offers real-time transaction matching, confirmation, risk management, netting, and electronic pool notification to the MBS market.

MBSD RTTM quickly verifies transaction executions legally and bindingly. When the MBSD gives both sides of a transaction output indicating that their trade data have been compared, a trade is considered compared. At the point of comparison, the MBSD guarantees trade settlements and makes a legitimate and enforceable contract.

In the MBS market, mortgage originators, government-sponsored enterprises, brokers, dealers, institutional investors, investment managers, mutual funds, banks, and insurance companies are key players.

Conclusion

• The Fixed Income Clearing Corporation clears specific U.S. fixed-income securities.
• Depository Trust and Clearing Corporation has a subsidiary.
• The FICC was formed in 2003 when the Government Securities Clearing Corporation and the Mortgage-Backed Security Clearing Corporation merged.
• The FICC’s main objective is to settle government and mortgage-backed securities effectively and methodically.
• The FICC has two primary divisions: government securities and mortgage-backed securities.