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March 2, 2012

DTCC Goes Ahead with New Mortgage CCP

By Staff Reports

The securities industry's utility is once again asking for approval of its plan for a central counterparty and pool netting service for U.S. mortgage-backed securities.

The Depository Trust & Clearing Corp., which has filed an application for the CCP with the Securities and Exchange Commission, wants to offer the service through its Fixed Income Clearing Corp. division.

Murray Pozmanter

DTCC officials said the CCP would bring settlement guaranty to all matched MBS trades, even though settlement sometimes doesn't happen until months after a trade. They said the CCP would also bring netting to the pools that underlie the securities in a trade through netting offsetting pools.

This, DTCC officials added, would reduce the number of obligations that require settlement, which will lessen costs. Finally, they also argue that through the CCP, if a firm fails, there will be a centralized liquidation process.

"We're currently able to net more than 90 percent of all the MBS trades we handle, but with a CCP we'll be able to guarantee completion of 100 percent of all the trades that match," said Murray Pozmanter, managing director and general manager for DTCC clearing services.

"That's a major step toward reducing risk in this market," he added.

DTCC officials hope the system could be operating sometime this year.

A similar CCP mortgage-backed securities proposal was suggested by the DTCC several years ago. But it was rejected by the SEC, industry sources say.

This time approval is expected and could come as early as March. A DTCC spokesman recently noted that, in the public comment period, "there has only been one letter and it was positive."