Citadel and Morgan Stanley have christened the Fixed Income Clearing Corp.'s Centrally Cleared Institutional Tri-Party Service with its first trade, officials from the Depository Trust & Clearing Corp. announced today.
“This marks an important milestone in the evolution of repo clearing and is a critical first step toward extending the benefits of clearing to a broader set of repo market participants," said Dan Dufresne, managing director and global treasurer at Citadel.
Since the U.S. Securities and Exchange Commission approved rule changes that allow institutional investors to participate directly in the clearinghouse through CCIT membership in May, FICC has been working with dealers and cash lenders - including corporations, asset managers, insurance companies, sovereign wealth funds, pension funds, municipalities and state treasuries - to prepare all the necessary documentation and agreements to begin this next stage in the evolution of the repo market.
“We are very pleased to have been able to work with Citadel and Morgan Stanley to take this next step to make CCIT a reality,” said Murray Pozmanter, managing director and head of clearing agency services at the DTCC. “With a greater number of market participants leveraging the clearinghouse through the CCIT Service, we are able to strengthen both the safety and efficiency of the tri-party repo marketplace.”
The new CCIT membership expands the availability of central clearing in the repo market and extends central counterparty (CCP) services and the guaranty of the completion of eligible tri-party repo transactions between its dealer members and eligible institutional cash lenders. Expanding the CCP guaranty to a broader number of participants would lower the risk of diminished liquidity in the tri-party repo market caused by a large-scale exit of participants in a market stress situation.
The expanded membership also means more trading activity with a failed counterparty can be centrally liquidated in an orderly manner by FICC, which would reduce the risk of “fire sales” that drive down asset prices and spread stress across the financial system.
