Fixed Income Clearing Corporation (FICC)

What Is the Fixed Income Clearing Corporation (FICC)?

The Fixed Income Clearing Corporation (FICC) is a regulatory agency that deals with the confirmation, settlement, and delivery of fixed-income assets in the U.S. The FICC ensures the systematic and efficient settlement and clearing of U.S. government securities and mortgage-backed security (MBS) transactions in the market.

Understanding the Fixed Income Clearing Corporation (FICC)

The FICC started operations at the start of 2003 and was created when the Government Securities Clearing Corporation (GSCC) and the Mortgage-Backed Security Clearing Corporation (MBSCC) merged. The clearing corporation is a subsidiary of the Depository Trust and Clearing Corporation (DTCC) and is divided into two sections: the Government Securities Division (GSD) and Mortgage-Backed Securities Division (MBSD).

Through both divisions, the FICC helps to ensure that U.S. government-backed securities and MBS are systematically and efficiently settled. Treasury notes and bonds settle on a T+1 basis, while Treasury bills settle at T+0.

To ensure that trades are settled consistently and efficiently, the FICC employs the services of its two clearing banks: the Bank of New York Mellon and JPMorgan Chase Bank. The FICC is registered with and regulated by the U.S. Securities and Exchange Commission (SEC).

The Functions of the Fixed Income Clearing Corporation (FICC)

The GSD

The GSD is responsible for handling new fixed-income issues and reselling government securities. The division provides netting for trades in U.S. government debt issues, including repurchase agreements (repos) or reverse repurchase agreement transactions (reverse repos).

Securities transactions processed by the FICC's GDS include Treasury bills, bonds, notes, zero-coupon securities, government agency securities, and inflation-indexed securities. The GSD provides real-time trade matching (RTTM) through an interactive platform that collects and matches securities trades, enabling participants to monitor the status of their trades in real-time.

The MBSD

The MBS division of the FICC provides real-time automated and trade matching, trade confirmation, risk management, netting, and electronic pool notification (EPN) to the MBS market.

Through the RTTM service, the MBSD immediately confirms trade executions in a legal and binding manner. A trade is deemed compared by the MBSD at the point in time at which the division makes available to the members on both sides of a transaction output indicating that their trade data have been compared. A trade compared by the MBSD constitutes a valid and binding contract, and trade settlements are guaranteed by the MBSD at the point of comparison.

Key participants in the MBS market are mortgage originators, government-sponsored enterprises, registered broker-dealers, institutional investors, investment managers, mutual funds, commercial banks, insurance companies, and other financial institutions.