Institutional investors are now able to accept Agency Mortgage-Backed Securities (AMBS) as collateral on overnight cleared repo transactions via Fixed Income Clearing Corporation’s (FICC’s) new Sponsored General Collateral (GC) Service through BNY Mellon’s market-leading sponsored member program (SMP).
In a market first, buy-side clients seeking to invest cash via repo facing the central counterparty can now do so using AMBS — commonly referred to as general collateral (GC) — enjoying the benefits of central clearing without the requirement of full-service FICC membership.
While full-service clearing members of FICC were previously able to clear AMBS repo, the expansion of BNY Mellon’s SMP represents the first time that sponsored members have been able to access cleared repo backed by these securities, opening up an $11.4 trillion asset class1 and significantly enhancing the collateralized investment financing potential for buy-side investors.
“BNY Mellon has been a market leader in developing US Treasury-backed sponsored cleared repo, so it is fitting that we are one of the first sponsors to offer GC cleared repo to clients via FICC’s Sponsored GC Service,” says Mark Haas, Head of Principal Securities Finance at BNY Mellon. “Agency MBS is one of the largest fixed-income asset classes in the world, so bringing these securities into the realm of cleared repo is yet another significant enhancement to our sponsored member program, following previous refinements such as dynamic margining, term and forward-settling repo and the ability to access cleared repo via our market-leading LiquidityDirect portal.”
Beyond its role as a sponsor, BNY Mellon will also provide the underlying clearance infrastructure for the new FICC Sponsored GC Service. All Sponsored GC repo transactions cleared at FICC will settle on BNY Mellon’s triparty platform, in a similar fashion to how triparty repo transactions are handled outside of central clearing today. By enabling sponsored members to access FICC through the triparty repo platform, clients will enjoy operational efficiency in clearing their overnight and term repo transactions.
“Triparty sits at the heart of BNY Mellon’s collateral management offering, providing operational efficiencies and promoting collateral optimization and mobilization for more than $3.6 trillion in balances on our platform,” adds Andrea Pfenning, President & COO of BNY Mellon Government Securities Services Corp. “In addition to our existing settlement role for FICC’s Sponsored Service where trades settle bilaterally, BNY Mellon will now provide settlement for FICC’s Sponsored GC Service transactions via triparty. We are pleased to be playing an integral role supporting this product for FICC and the broader market.”
Since BNY Mellon launched its sponsored member program at FICC in June 2017, the sponsored cleared repo market has gone from strength to strength. As of August 2021, there were 29 sponsors covering over 1,810 FICC-approved counterparts with peak sponsored notional of over $564 billion. Despite the growth in the number of competitors, BNY Mellon retains approximately 30% overall sponsored market share2 and approximately 45% of sponsored repo market share within the money market fund community.3
BNY Mellon’s sponsorship activities cover a broad range of counterparty types across many regions. These include hedge funds, regulated funds including 40 Act and Irish and Luxembourg UCITs funds, sovereign wealth funds, central banks, public sector entities, insurance companies, international banks and more.
FICC is a subsidiary of The Depository Trust & Clearing Corporation (DTCC).