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SIFMA Plays Key Role In Solution That Will Reinstate Interbank Trading And Settlement Of General Collateral Financing Repo Transactions

Date 08/05/2008

The Securities Industry and Financial Markets Association (SIFMA) announces that the Government Securities Division of the Fixed Income Clearing Corporation (FICC) will restart interbank trading and settlement for its General Collateral Financing (GCF) Repurchase product today.

The shift from intrabank trading to interbank trading will offer dealers more access to liquidity. New rules and procedures have been developed that will address limitations in the settlement process that led to interbank GCF’s suspension in 2003. SIFMA played a key role in championing a solution that will utilize the net free equity (NFE) systems of the two clearing banks allowing for end-of-day net settlement of cross bank obligations.

“In 2006, a fortuitous combination of events finally presented the long sought solution,” said Robert Toomey, managing director of SIFMA’s funding division. In developing plans for the “NewBank” project, the SIFMA team realized that innovations being created and proposed for NewBank could be utilized to solve the problems in the interbank GCF process. The NewBank project is centered on protecting dealers’ ability to obtain access to tri-party financing (known as tri-party repurchase agreements) and has a global impact in ensuring that U.S. government securities markets function smoothly.

“The resolution of the interbank GCF issue is an excellent example of how DTCC, the clearing banks and the dealer community can work together to bring solutions to the industry,” said FICC’s managing director, Tom Costa. “We are particularly grateful to SIFMA for their vision in identifying the solution and bringing it to FICC.”

The SEC recently approved FICC’s proposal to allow dealers to resume trading of its GCF Repo® service with dealers using different clearing banks. Tim Keenan of Barclays Capital, who serves as chairman of the executive committee of SIFMA’s funding division, states that “the interbank trading of GCF Repo is essential if we are to have markets that have consistent and fair pricing for all market participants.”

The industry has responded positively to the reinstitution of trading. Steve Malekian of Citigroup, the past chairman of the executive committee added that: “The restoration of interbank GCF was a top priority of SIFMA’s funding division and it enhances the liquidity that firms may access and thus improves their ability to do term trades in this important market.”