Sponsoring Members facilitate the submission of their Sponsored Members’ trading activity to FICC. For operational and administrative purposes, FICC interacts solely with the relevant Sponsoring Member as processing agent for purposes of the day-to-day satisfaction of its Sponsored Members’ obligations to or from FICC, including their securities and funds-only settlement obligations.
Sponsored Service includes two offerings:
Sponsored DVP service – offers eligible clients the ability to lend cash or eligible collateral via FICC-cleared DVP repo transactions in U.S. Treasury and Agency Securities on an overnight and term basis, as well as outright purchases and sales of such securities, to be settled on a Delivery-vs-Payment (DVP) basis, and
Sponsored General Collateral (GC) service – offers eligible clients the ability to execute general collateral repo transactions (in the same asset classes currently eligible for Netting Members to transact in via FICC’s existing GCF Repo® Service) with each other and settle such repo transactions on the tri-party repo platform of BNY Mellon.
Benefits
FICC’s Sponsored Service has made it possible to bring a much larger percentage of the market into clearing, while still maintaining robust risk management standards.
The Sponsored service offers the following benefits to Sponsoring Members, Sponsored Members and the U.S. financial market:
Reduction of Counterparty Risk: Central clearing reduces counter-party risk through FICC’s guarantee of the completion of settlement in a Member default scenario.
Balance Sheet and Capital Relief Opportunities: Central clearing of repo transactions at FICC could alleviate constraints on Members by enabling them to reduce capital usage via novation and balance sheet netting. The Sponsored Service provides Sponsoring Members with the ability to offset on their balance sheets their obligations to FICC on Sponsored Member Trades with their Sponsored Members against their obligations to FICC on other eligible FICC-cleared activity, including trades with other Netting Members.
Market Liquidity: The service may allow eligible institutional firms to engage in greater activity than otherwise feasible outside of central clearing, thereby promoting greater market liquidity and helps to mitigate the risk of a large-scale exit by institutional firms from the U.S. financial market in a stress scenario. Furthermore, enabling more term (rather than overnight) repo activity in the service can serve to help reduce repo rate volatility in the market.
Eligibility
Risk Management
The Sponsoring Member is responsible to FICC for posting all of the Clearing Fund associated with the activity of its Sponsored Members. This activity is captured in the Sponsoring Member Omnibus Account. The Clearing Fund requirement for the Sponsoring Member Omnibus Account is calculated twice daily on a gross basis. For Clearing Fund calculation purposes, each Sponsored Member’s trading activity is risk margined separately and the sum of the individual Sponsored Member risk charges constitutes the Clearing Fund requirement for the Sponsoring Member Omnibus Account, which is collected and held by FICC separate from the Clearing Fund posted by the Sponsoring Member for its Sponsoring Member netting account.
While the Sponsored Members are principally liable to FICC for their securities and funds-only settlement obligations, the Sponsoring Member is required to provide a guaranty to FICC with respect to all obligations of its Sponsored Members, so that if a Sponsored Member does not satisfy any of its obligations to FICC, FICC can invoke the Sponsoring Member’s guaranty.
Liquidity needs created by activity in the Sponsoring Member Omnibus Account are considered when calculating the Sponsoring Member’s Capped Contingent Liquidity Facility (CCLF) requirement. Because Sponsored Member Trades between a Sponsoring Member and its Sponsored Member do not independently create liquidity risk for FICC, FICC recognizes for the Sponsoring Member’s CCLF calculations any offsetting settlement obligations as between a Sponsoring Member’s netting account and its Sponsoring Member Omnibus Account.
Sponsored DVP Service
Sponsored GC Service
TLDRS:
FICC announces that effective 10/19/23 CITADEL FNGE LTD. will be added as a Sponsored Member of the Government Securities Division.
FICC’s Sponsored Service allows certain Netting Members to sponsor, as Sponsoring Members, eligible legal entities, as Sponsored Members, into FICC/GSD Membership.
A Sponsoring Member is permitted to submit to FICC on behalf of its Sponsored Members, transactions in eligible securities for comparison and novation.
Central clearing reduces counter-party risk through FICC’s guarantee of the completion of settlement in a Member default scenario.
The service may allow eligible institutional firms to engage in greater activity than otherwise feasible outside of central clearing, thereby promoting greater market liquidity and helps to mitigate the risk of a large-scale exit by institutional firms from the U.S. financial market in a stress scenario.
