SEC Approves NSCC’s Securities Financing Transaction Clearing Service Proposal
The U.S. Securities and Exchange Commission (SEC) has approved the securities financing transaction (SFT) clearing service proposal from National Securities Clearing Corporation (NSCC), the equity clearing arm of DTCC, to operate a central clearing and settlement infrastructure for equity borrowing and lending.
NSCC’s new SFT Clearing Service will support central clearing of client SFTs through sponsoring members or proxy clearing members, as well as central clearing of SFTs between NSCC’s full-service members.
The SFT clearing service will also allow lenders and borrowers to submit bilaterally settled pre-arranged SFTs for clearing.
The SFT clearing service is designed to maximize capital efficiency and mitigate systemic risk by providing market participants with additional opportunities for membership and cleared transactions.
The SFT Clearing Service offers members the ability to recognize balance sheet clearings on novated SFTs, including those with third-party NSCC members and with their institutional clients.
Thanks to the novation at NSCC, members are expected to benefit from lower capital charges on their SFTs than would otherwise be required if they were conducting the same business outside of a central counterparty, DTCC says.
A weaker balance sheet and capital constraints should allow NSCC members to benefit from increased lending and borrowing capacity. At the same time, agency loan disclosure reports would no longer be applicable, DTCC adds.
DTCC is also working with FIS (Loanet) who have committed to working with Broadridge and Provable Markets to provide access and connectivity to NSCC’s SFT clearing service for members who wish to continue to leverage FIS for processing of their books and records and for the submission of The Depository Trust Company’s delivery orders.
Laura Klimpel, Managing Director of the Fixed Income Clearing Company and Head of Systemically Important Financial Markets Utilities Business Development at DTCC, said, “We are pleased that the SEC has approved the new NSCC’s SFT clearing, which has the potential to significantly expand market access and liquidity while reducing overall systemic risk.
“A centralized clearing model has the potential to transform the securities lending market for the better, with benefits such as freed up lines of credit, new borrowing and lending opportunities for a wide range of counterparties, and a optimization of balance sheet and capital.”
Klimpel adds, “We thank our partners for their contributions to the SFT clearing service and for helping us lay the groundwork for its upcoming launch.