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 triparty repo transactions between dealer members and eligible institutional cash lenders.
The first trade comes a month after the US Securities and Exchange Commission (SEC) approved rule changes that allow institutional investors to participate directly in the clearinghouse through CCIT membership.
According to DTCC, expanding the CCP guaranty to a broader number of participants would lower the risk of diminished liquidity in the triparty repo market caused by a large scale exit of participants in a market stress situation.
It would also mean that a failed counterparty can be centrally liquidated ‘in an orderly manner’ by FICC, thereby reducing the risk of fire sales that drive down asset prices and spread stress across the financial system.
CCIT comes under the umbrella of DTCC’s Fixed Income Clearing Corporation (FICC) subsidiary.
FICC works with asset managers, pension funds, insurance companies, state treasuries, along with other dealers and cash lenders.
Murray Pozmanter, DTCC managing director and head of clearing agency services, said: “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.”
“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.”
Tom Wipf, vice chairman of institutional securities at Morgan Stanley, added: “We congratulate FICC on this important enhancement to the structure of the repo market. The combination of expanded market access for our clients and the overall reduction in counterparty credit risk is a major step forward for all participants in the repo market.”
“FICC has worked diligently over the past several years to bring this strategic product to market and we at Morgan Stanley are proud to partner with Citadel on this inaugural cleared repo trade.”