The Depository Trust & Clearing Corporation (DTCC) responded to the completion of the Securities Industry and Financial Markets Association’s (SIFMA’s) Accounting Committee Working Group’s review of the Fixed Income Clearing Corporation’s (FICC’s) Agent Clearing Service (ACS) model, and has made certain accounting conclusions.
In a letter to the SEC, SIFMA wrote to confirm non-objection from Staff of the Office of the Chief Accountant of the US Securities and Exchange Commission (SEC) that FICC is the principal counterparty to the agent clearing member’s (ACM’s) customer’s repo agreement upon novation to FICC, and that upon such novation, the ACM is not counterparty to the customer’s repo, but rather has provided FICC with a financial guarantee of the ACM’s customer’s obligations to FICC.
FICC’s Agent Clearing Service (ACS) model enables ACS Members to submit transactions to FICC for novation on behalf of their executing firm customers. ACS delivers the same benefits of central clearing as offered in other asset classes, such as the futures and derivatives clearing models. Launched in March 2025, today, the ACS service successfully clears a daily average of $174 billion in US Treasury transactions.
“FICC worked closely with outside counsel and SIFMA’s Accounting Committee Working Group on its conclusions and we look forward to advancing industry efforts in this area through further dialogue with our members and their clients,” DTCC said in a statement.
“We remain keenly focused on assisting market participant firms on their paths to adopting central clearing capabilities as they work towards compliance with the SEC’s expanded U.S. Treasury clearing requirements. As the leader in the central clearing of government securities, FICC offers a range of direct and indirect access models as well as robust support for done-with and done-away transactions, ensuring best in class support for the cleared US Treasury market,” DTCC said in a statement.
In a separate statement, Kevin Zambrowicz, managing director and deputy general counsel at SIFMA, said: “On behalf of our members, SIFMA is working to advance multiple workstreams and short-term deliverables in the Treasury clearing space that will set the stage for long-term implementation. These include development of market standard documentation, enhancements to market structure, further needed regulatory reforms, and an operations timeline. We look forward to continuing our work with market participants on these important preparations ahead of the effective date of the SEC’s clearing rules.”
Among the points in its review, SIFMA’s working group concluded that:
- Submitting a customer repo transaction to FICC for clearing is not a transfer under ASC 860
- Post-novation, FICC is legally principal to the customer’s repo transactions
- The ACM, in its capacity providing clearing services to its customer, is legally considered an agent of the customer with respect to the customer’s repo transaction based on the following factors: a
- A “would” level legal opinion issued by Cleary Gottlieb Steen & Hamilton LP confirming that a court applying New York Law would conclude that novation of the trades extinguishes the payment and delivery obligations between the pre-novation counterparties and replaces them with new identical payment and delivery obligations between each party and FICC;
- A “would” level legal opinion issued by Cleary Gottlieb confirming that a court applying New York law would conclude that in submitting, carrying, and clearing the customer’s repo transaction, the ACM acts as agent for the customer;
- The ACM does not have market risk to the customer’s repo transaction;
- The ACM only has “one-sided” credit risk with respect to the customer’s repo transaction.
- The ACM does not guarantee FICCs performance on the repo transaction to its customer. Additionally, its credit risk arising from its clearing and margin obligations to FICC under the Rulebook is substantively mitigated based on the terms of the bilateral agreement between the ACM and the customer; and
- The ACM’s role is to submit the customer’s repo transactions to FICC for clearing and provide clearing services during the life of the repo transaction.