About a-team Marketing Services
The knowledge platform for the financial technology industry
The knowledge platform for the financial technology industry

A-Team Insight Blogs

DTCC Plans to Expand CCP Services and Streamline Netting Process for MBSs

Subscribe to our newsletter

The Depository Trust & Clearing Corporation (DTCC) is planning to introduce daily trade netting for mortgage backed securities (MBS) transactions to further expand its planned central counterparty services. It hopes to cut the high cost of processing these trades and bring greater risk protection to this traditionally risky market.

In a white paper recently published by DTCC’s Fixed Income Clearing Corporation (FICC) subsidiary, the vendor indicates that netting all to be announced MBS trades daily and then having FICC step in as the counterparty to each net position would reduce costs and risk. Murray Pozmanter, DTCC managing director of clearance and settlement and fixed income, explains: “The idea is to streamline the somewhat complex current ‘balance order’ netting process.”

He continues: “The industry’s process today requires trading firms to allocate pools of mortgages against the TBA obligations we establish, and then to settle all those pools with multiple counterparties at different prices. What we’re recommending – netting trades daily and then having FICC step in as the allocation and settlement counterparty – would sharply lower operational risks and expenses for the industry.”

FICC clears trades of MBS issued in the secondary market by government agencies or government sponsored enterprises such as Fannie Mae and Freddie Mac. Under current market practices, MBS trades are netted only once a month, beginning 72 hours prior to the monthly settlement date established for each particular kind of TBA security. As a result, trading firms must submit their TBA trade activity prior to the netting cut off on the associated “72 hour day”. DTCC claims this practice can sharply limit the number of trades incorporated in the current netting process.

If FICC becomes the central counterparty to all TBA obligations on a daily basis, the white paper says, it will then be the contra side to all the allocations, allowing for a substantial reduction in the number of allocations that must be performed, as well as the associated securities deliveries that need to be made.

“Eliminating the 72 hour cut off will let us wring far more costs and risk from the process as more trades are included in netting,” says Pozmanter. “This, in turn, will let us reduce the number of settlements stemming from TBA trading and that will help to stabilise the operation of the market, especially during periods of market uncertainty. Since all obligations will settle versus FICC as the central counterparty, the whole notification of settlement (NOS) process can be retired.”

In addition, the white paper states, with the revised netting procedures in place, FICC may be able to introduce blind brokering and comparison only services.

FICC is already preparing to launch a central counterparty and pool netting initiative later this year. It will introduce a settlement guarantee for TBA trades and will net actively traded pools allocated in satisfaction of those trades, functioning as the central counterparty for transaction settlement.

“In the course of introducing a general central counterparty protection later this year, we wanted to re-examine the entire trade clearing and settlement process from a risk perspective,” explains Pozmanter. “After all, this is a far different world from 30 years ago, and we need to streamline the process and reduce the window of risk as much as we can for our member companies. Achieving this goal will require their support. We hope the white paper will help us foster a dialogue within the industry and a consensus for moving forward.”

Once the industry has reached agreement about the proposal, FICC says it will submit the plan to the Securities and Exchange Commission (SEC) for review and approval.

Subscribe to our newsletter

Related content

WEBINAR

Upcoming Webinar: Hearing from the Experts: AI Governance Best Practices

9 September 2025 10:00am ET | 3:00pm London | 4:00pm CET Duration: 50 Minutes The rapid spread of artificial intelligence in the financial industry presents data teams with novel challenges. AI’s ability to harvest and utilize vast amounts of data has raised concerns about the privacy and security of sensitive proprietary data and the ethical...

BLOG

Predictions for 2025: Regulatory Climate to Impact Data Management as KYC Initiatives Evolve

By Cenk Ipeker, General Manager, Product Management, Cloud, NICE Actimize. As we enter 2025, financial institutions are likely to witness a shift toward more efficient, customer-friendly, and compliant Know Your Customer (KYC) practices. These changes will occur as institutions navigate an evolving regulatory landscape and technological advancements, with data management becoming a key focus area...

EVENT

Data Management Summit London

Now in its 16th year, the Data Management Summit (DMS) in London brings together the European capital markets enterprise data management community, to explore how data strategy is evolving to drive business outcomes and speed to market in changing times.

GUIDE

AI in Capital Markets: Practical Insight for a Transforming Industry – Free Handbook

AI is no longer on the horizon – it’s embedded in the infrastructure of modern capital markets. But separating real impact from inflated promises requires a grounded, practical understanding. The AI in Capital Markets Handbook 2025 provides exactly that. Designed for data-driven professionals across the trade life-cycle, compliance, infrastructure, and strategy, this handbook goes beyond...