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DTCC-owned clearing entity National Securities Clearing Corporation (NSCC) has introduced an automated collateral management service for exchange-traded funds (ETFs).
This NSCC service improves STP rates when exchanging ETF collateral, processing ETF creation and redemption instructions, creating payment orders and handling collateral exchange within an automated process.
NSCC anticipates that this will deliver greater balance sheet efficiency for its members, reducing the amount of collateral that needs to be posted against cleared trades by taking advantage of netting options offered by the clearing house.
DTCC general manager of equity clearing and DTC settlement Michele Hillery says: “[this] innovative solution automates the exchange of ETF collateral, a previously manual process that was done outside of NSCC.
“With the ongoing volatility in the markets, this automated solution provides the industry much-welcome balance sheet relief and faster and simplified workflow to support ETF orders,” says Hillery.
NSCC has also extended its clearing coverage to include a number of fixed income ETFs, including municipal and corporate bonds. This offers credit risk mitigation and a broader range of other benefits offered by NSCC clearing, including continuous net settlement (CNS).
Commenting on this development, State Street Global ETF product specialist Frank Koudelka says: “State Street is excited to offer the enhanced clearing and settlement service for fixed income to its ETF clients. Offering CNS for fixed income ETFs aligns with the continuing modernisation that bond market ETFs provide, [bringing] enhanced efficiency, balance sheet relief and ultimately tighter bid-ask spreads for investors.”
These two developments are part of a programme of releases that DTCC has planned for the second half of the year, designed to deliver greater post-trade efficiency for ETF transactions.
This will include the extension of its NSCC clearing services to other fixed income ETFs, including government bonds and mortgage-backed securities.
