Fixed Income Clearing Corporation (FICC)
Overview
The Fixed Income Clearing Corporation (FICC) is the United States clearing agency that facilitates confirmation, netting, settlement, and delivery for U.S. government securities and mortgage‑backed securities (MBS). Established in 2003 as a subsidiary of the Depository Trust & Clearing Corporation (DTCC), FICC was formed by merging the Government Securities Clearing Corporation and the Mortgage‑Backed Security Clearing Corporation. It is registered with and regulated by the U.S. Securities and Exchange Commission (SEC).
FICC plays a central role in market stability by substituting itself for both sides of every transaction it clears — becoming the buyer to every seller and the seller to every buyer — and thereby guaranteeing settlement.
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How FICC operates
- Acts as a central counterparty (CCP), assuming counterparty credit risk and guaranteeing trade settlement for the transactions it clears.
- Provides trade matching, netting, and settlement services that reduce settlement risk and the amount of capital participants must post.
- Uses clearing banks (notably Bank of New York Mellon and JPMorgan Chase Bank) to facilitate fund and security movements.
- Supports standard settlement cycles (for example, many Treasury securities settle on a T+1 basis).
Structure and services
FICC is organized into two main divisions, each tailored to its market segment:
Government Securities Division (GSD)
– Processes trades in Treasury bills, notes, bonds, zero‑coupon securities, government agency securities, inflation‑indexed securities, and repo/reverse‑repo transactions.
– Provides real‑time trade matching and multilateral netting for U.S. government debt to reduce gross settlements and operational risk.
– Offers a platform for participants to monitor trade status in real time.
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Mortgage‑Backed Securities Division (MBSD)
– Handles agency mortgage‑backed securities and related instruments.
– Provides real‑time trade matching, automated trade comparison, trade confirmation, netting, and risk management for MBS.
– Uses real‑time trade matching (RTTM) to generate legally binding trade comparisons; once a trade is compared it becomes a binding contract and is guaranteed for settlement.
– Key market participants served include mortgage originators, government‑sponsored enterprises, broker‑dealers, institutional investors, investment managers, banks, insurers, and mutual funds.
Regulatory and risk considerations
- FICC is regulated by the SEC as a clearing agency and must maintain robust risk management, margining, and operational controls.
- In 2021 the SEC fined FICC $8 million for lapses in risk management within its Government Securities Division, citing failures in certain policies and procedures during 2015–2018. The enforcement action underscores the importance of effective oversight and margin practices at central counterparties.
Why FICC matters
- By substituting itself into cleared trades and providing multilateral netting, FICC reduces counterparty and settlement risk in the fixed‑income markets.
- Its services lower operational friction and capital requirements for participants, supporting liquidity and efficient price discovery in U.S. government and MBS markets.
- As the sole clearinghouse for U.S. government securities transactions, FICC is a critical infrastructure component of the U.S. financial system.
Key takeaways
- FICC ensures orderly, systematic settlement of U.S. government and mortgage‑backed securities as a central counterparty.
- It operates two divisions—GSD and MBSD—providing trade matching, netting, and settlement guarantees.
- Robust risk management at clearinghouses like FICC is essential; regulatory actions have highlighted the need for strong policies and procedures.