Sponsored Repo Goes Mainstream
Sponsored GC Overview
FICC has announced an expansion of their existing Sponsored Repo program. The new Sponsored General Collateral (“GC”) service will allow Sponsoring Members to act as processing agents on behalf of their Sponsored client base and transact financing trades with Sponsored members on a GC basis. Sponsoring FICC members will establish an autonomous Omnibus account, separate from the Sponsoring Members FICC/GSD netting account, for all Sponsored Member activities. The same Omnibus account can be used for both Sponsored Repo and Sponsored GC programs.
Broadridge is preparing for FICC’s new service and will fully support all aspects of the functionality. Here are the key highlights:
- Overnight, Term, and Forward Starting trades will be accepted. Executed trades will be submitted to the FICC Government Securities Division (GSD) RTTM system for trade matching.
- General Collateral CUSIPs will be established for each asset class that is currently available in the GCF Repo Service.
- Transactions will settle on a trade for trade basis in tri-party. There will be no netting.
- Each Sponsored member will need to have a tri-party account.
- Cash and securities will not pass through a FICC account.
- Sponsors will be required to “top up” shells when undercollateralized.
- Collateral substitutions will be permitted.
Enhanced Functionality and Key Features
An analysis is currently underway to determine the required changes in impact™ for clients to participate in FICC’s Sponsored General Collateral (“GC”) Repo program. Enhancements that have been identified are scheduled to be available in version 956. Features that will be implemented as part of this initiative include:
- Creation of new flip rule
- Flip trade creation
- Messaging changes
The new flip rule created in impact™ allows the Sponsoring Members to submit Sponsored Member GC repo and reverse overnight, Forward or Term repo in U.S. Treasury and Mortgaged-backed Agency securities to FICC.
Flip trade creation enables the main Sponsoring Account to book repo and reverse trades with specific Sponsored Members. The automated flip trades booked in the Sponsored Member entity will be linked to the Sponsored Members trading account.
New messaging changes reflect and report the counterparty symbol of sponsored members on the trade for FICC submission and comparison, as well as capture the Tri-party reference number.
If you are active in FI Sponsored Repo (FI SR), Sponsored GC Repo may align to your book of business, and ramp-up for the business and clients will be akin to the SR ramp-up. If you are not in FI SR, you should consider the competitive landscape with the growing marketplace interest among FI SR, Sponsored GC, and NSCC’s SFT (sponsored repo for equities). Broadridge platforms support these FICC/NSCC offerings (and soon-to-be offerings), which are changing the marketplace, and should be on your radar.