Automated Funds-Only (Cash-Only) Settlement Service

Fixed Income Clearing Corporation’s (FICC) Automated Funds-Only Settlement Service provides a standardized, automated method for settling non-trade, funds-only obligations each day between FICC and its customers’ settling banks.

FICC’s service eliminates manual processing and reduces costs by aggregating payments due to or from a customer and then automatically transferring the funds into or out of the customer’s settling bank.

For U.S. Government securities the service covers non-trade obligation cash payments to reflect changes in the value of securities when they’re marked to market, cash adjustments related to securities trades, and the pass-through of bond coupon payments for term repos or trade obligations that cross a coupon date. For mortgage-backed securities, non-trade cash obligations can include the net settlement balance order market differential (SBOMD) derived from the TBA Netting process on the days of the month when mortgage-backed securities trades traditionally settle, cash adjustments related to net pool obligation settlements, principal and interest payments for failing net pool settlement obligations, (to the extent that they are not handled by the Fedwire Securities Service Automated Claims Adjustment Process (ACAP) ), charges assessed by the Federal Reserve Bank of New York, the Treasury Market Practices Group (TMPG) for delivery fails, as well as other items, such as , interest income rebates and routine billing matters.

• Who Can Use the Service

  The service is automatic and mandatory for FICC members that have funds-only settlement obligations. This includes both Government Securities Division (GSD) netting members and Mortgage-Backed Securities Division (MBSD) clearing members.

• Benefits

  • Automates the  process for the settlement of funds owed to and from the Government Securities Division and Mortgage-Backed Securities Division, respectively;
  • Provides a tool for market participants to ensure that obligations due to FICC are made on a timely basis; and
  • Mitigates operational risk by automating the funds-only settlement process while streamlining and standardizing the collection of funds across clearing corporations

• How the Service Works

  FICC utilizes the Federal Reserve Bank’s National Settlement Service (NSS) to debit and/or credit net settlement obligations at the settling bank level of GSD netting participants and MBSD clearing members. The individual debits and credits of all participants using the same settling bank are totaled, and the net result established at the settling bank level will be settled using NSS. FICC has further leveraged systems and procedures already in place at The Depository Trust Company to perform this function by using it as the agent to interface with the Federal Reserve Bank for settlement. The Depository Trust Company is also a subsidiary of DTCC.

  The service creates a funds-only settlement file containing all of the participants’ debits and credits for the current business day. This file is sent to DTCC’s Fed Funds Settlement (FFS) system. The DTCC Participant Browser Service (PBS) is then used to send broadcast messages containing net settlement figures to settling banks. GSD and MBSD participants will also receive report output in advance of the cash settlement due date.

  Please refer to the MBS schedule and Time Frames and GSD rules regarding the timelines for funds-only settlement.

• What the Service Covers

  For MBSD, cash settlement is the accumulation and projection of aggregated payable/receivables resulting from the following cash obligation items:

  • Pool Transaction Adjustment Payments
  • Clearance Adjustments
  • Principal Payments
  • Interest Payments
  • Broker Commissions
  • MBSD Clearing Billing Fee
  • Electronic Pool Notification (EPN) Billing Fee
  • TMPG Charges
  • Conditional Prepayment Rate (CPR) Claims
  • TMPG Financing Amounts
  • Miscellaneous from To-Be-Announced (TBA) Clearing
  • Miscellaneous from Pool Netting
  • Variance Transaction Adjustment Payments
  • Do Not Allocate Transaction Adjustment Payments
  • Expanded Pool Net Transaction Adjustment Payments
  • Repriced Transaction Adjustment Payments
  • TBA Transaction Adjustment Payments

  For GSD, the major components of the funds-only settlement process are:

  • Transaction Adjustment Payment (TAP)
  • Forward Mark Adjustment Payment
  • Forward Mark Adjustment Payment Return
  • Interest Adjustment Payment
  • Maturity/Coupon Adjustment Payment
  • Fail Mark Adjustment Payment
  • Clearance Difference Amount
  • Delivery Differential Amount
  • Invoice Amount
  • Miscellaneous Adjustment Amount or Fees
  • GCF Repo/CCIT Funds Settlement

• For More Information

  To request additional information, please click here.