The Depository Trust & Clearing Corporation (DTCC) announced that its Fixed Income Clearing Corporation (FICC) subsidiary has formally filed with the US Securities and Exchange Commission (SEC) a rule filing to enhance FICC’s Sponsored Service with a new cleared tri-party offering known as the Sponsored General Collateral (GC) “Collateral-in-Lieu” service. FICC aims to launch the Collateral-in-Lieu service in December 2025.
The service designed to solve for critical industry concerns regarding the need for enhanced margin and capital efficiency to ensure a smooth implementation of the US Treasury clearing mandate. The proposed service is uniquely designed to leverage the haircut typically posted by dealers to money market funds and other cash investors in tri-party via a CCP lien that is applied “in lieu” of both a Sponsor guaranty of client performance and the posting of margin to the CCP (in most circumstances), thereby solving for the so-called “double-margining” challenge. This challenge is created because Sponsors typically post haircuts to money market funds to satisfy overcollateralization requirements as well as post CCP margin on their behalf.
“The Sponsored Service has been an incredibly popular buyside clearing solution, with over $2 (trillion) in volume flowing through the Service on a typical day,” said Laura Klimpel, managing director and head of DTCC’s Fixed Income and Financing Solutions, in a statement. “The proposed Collateral-in-Lieu service has been intentionally designed to build upon that success and allow Sponsors and their clients to leverage many of their existing legal agreements and operational processes for Sponsored repo, but take the margin and capital efficiencies of the product to the next level. We welcome SEC and public input as we advance this important initiative.”
The Collateral-in-Lieu service would be offered by FICC leveraging BNY’s tri-party infrastructure to support the collateral management and settlement of the Collateral-in-Lieu repo trades, with both “done-away” and “done-with” styles of trade execution to be supported in the service.
“The FICC’s Sponsored GC Collateral-in-Lieu service is precisely the type of solution the industry needs to meet the SEC’s central clearing rule in a capital- and margin-efficient way,” said Nate Wuerffel, BNY’s global head of Market Structure and Product Leader for the Global Collateral Platform, in a statement. “Built using BNY’s global collateral platform—the largest Treasury tri-party repo settlement venue—Collateral-in-Lieu offers Treasury market participants streamlined, efficient access to central clearing.”