The Depository Trust & Clearing Corporation (DTCC) has announced the start of a new era of buyside participation in the cleared repo market as State Street Bank and Trust Company and funds managed by Capula Investment Management LLP, complete the first cleared sponsored repo transactions as a collateral provider.
This marks a significant step in furthering buyside participation in CCP clearing and bringing greater risk mitigation to the repo market. Although DTCC’s subsidiary Fixed Income Clearing Corporation (FICC) has operated its Sponsored DVP Repo Service since 2005, it only expanded participation in this service beyond Registered Investment Companies (RICs) in May 2017. Since then, this service has seen volumes double previous peaks. Historically, the involvement of cash providers has brought only one side of the institutional marketplace into the clearinghouse. Now, with the participation of the first collateral provider clients in the Sponsored DVP Repo Service, the buyside is fully represented in the clearinghouse.
“Today, with the addition of institutional participation as collateral providers, we have achieved our goal of providing a true cleared repo solution for the buyside, lowering risk in the market,” said Murray Pozmanter, DTCC Managing Director and Head of Clearing Agency Services. “As more firms take advantage of the new repo clearing solution, fire-sale risk and price degradation are reduced as result of centralized liquidation services.”
Centrally clearing these repo transactions by non-Registered Investment Companies at FICC also provides opportunities for members to see potential balance sheet netting and capital relief, which, in turn, may afford buyside clients increased capacity and income.
“We are excited to expand our partnership with DTCC,” said Gino Timperio, senior vice president and head of Funding and Collateral Transformation at State Street. “Through the sponsored service, our non-’40 Act clients will now benefit from the capacity and counterparty strength associated with a centrally cleared platform.”