There were two important market infrastructure developments in May:  (1) the approval of the Depository Trust and Clearing Corporation’s (DTCC) Centrally Cleared Institutional Triparty Service (CCIT Service); and (2) the establishment of BNY Mellon Government Securities Services Corp., a new wholly owned subsidiary of The Bank of New York Mellon Corporation (BNY Mellon).

CCIT Service

In early May, the Securities and Exchange Commission (SEC) approved rule changes proposed by the Fixed Income Clearing Corporation (FICC), DTCC’s fixed income clearing subsidiary, to establish the CCIT Service (see the SEC’s approval order and DTCC’s press release).  Under the CCIT Service, FICC will now allow certain institutional counterparties to participate in the GCF Repo Service and clear transactions in which such institutional counterparties are repo buyers (i.e., cash lenders).  Previously, the GCF Repo Service was limited to transactions in which both the buyer and seller were sell-side entities/dealers.  FICC believes that the new CCIT Service will result in certain benefits for its members, including more efficient collateral use and regulatory capital relief for dealer participants because of the larger pool of transactions to potentially offset existing positions.

Due to regulatory uncertainties, the CCIT Service is not available to money market mutual funds, a major part of the tri-party repo market’s cash lenders.[1]  Money market mutual funds will, however, still be able to participate in FICC’s Sponsored DVP Repo Service, which allows certain FICC members to sponsor eligible clients (including money market funds) into a limited-purpose membership whereby such clients can lend cash via FICC-cleared delivery-versus-payment repos.

BNY Mellon

BNY Mellon recently announced (see press release) the establishment of a new wholly owned subsidiary, BNY Mellon Government Securities Services Corp.  The new subsidiary is designed to further enhance the capabilities, governance, transparency and resiliency of BNY Mellon’s U.S. government securities clearance and U.S. tri-party repo businesses.  BNY Mellon’s role in the tri-party repo and government securities clearing functions will increase in importance as JPMorgan exits from FICC’s GCF Repo Service at the end of this year, leaving The Bank of New York Mellon as the only clearing bank in the GCF Repo Service (see our July 2016 post here).

The establishment BNY Mellon Government Securities Services Corp. seems to be a response to BNY Mellon’s increased role amidst a changing market, and the Board of Directors chosen to lead the new subsidiary includes the following three independent directors:

  • Elizabeth Robinson (Chair), former Global Treasurer and partner of Goldman Sachs, and previous board member of Goldman Sachs Bank USA, who currently serves as a member of the Board of Directors of BNY Mellon and Russell Reynolds Associates;
  • Richard Ketchum, who served as Chairman and Chief Executive Officer of the Financial Industry Regulatory Authority (FINRA), CEO of NYSE Regulation, Inc. and Chief Regulatory Officer of the NYSE. Ketchum also served as director of the division of Market Regulation at the SEC, had previous leadership roles at Citigroup, Inc. and NASDAQ, and currently serves as a member of the Board of Directors of MarketAxess Holdings, Inc.; and
  • David Weisbrod, who served as U.S. Country Head for the London Stock Exchange Group, and CEO of LCH.Clearnet LLC, the U.S. division of London-based LCH.Clearnet Group Ltd. Weisbrod was formerly Vice Chairman of Risk Management at JPMorgan, a former member of the Federal Reserve Bank of New York Payments Risk Committee and a former member of the board of the Depository Trust & Clearing Corp.

Good Day. DR2

[1] FICC cited regulatory uncertainty related to regulatory requirements under the Investment Company Act of 1940, as amended, including liquid asset requirements and counterparty diversification requirements.  See SEC Order at n. 11.