Nirvana drew a little closer today for broker-dealers trading across markets, borders and instruments. In the US, the Board of Trade Clearing Corporation and the Government Securities Corporation announced that firms trading in both markets will enjoy the benefits of a cross-margining arrangement from February 1 this year. The implementation date is subject to the anticipated approval of the rule filing by the Securities and Exchange Commission. This arrangement will enable members of both entities to cross-margin their buy-sell and repo activity in U.S. Government securities against Treasury and Agency futures and futures options traded on the Chicago Board of Trade and cleared at the Board of Trade Clearing Corporation.
“Cross-margining programs have long been recognized for both enhancing the safety and soundness of clearing systems and for allowing members to optimize their capital usage by viewing their positions at different clearing organizations as a combined portfolio,” said Jeff Ingber, general counsel and managing director at GSCC. “The GSCC/Board of Trade Clearing Corporation cross-margining relationship will create the potential for tremendous margin savings for participants given the magnitude of the U.S. Treasury market and the obvious correlation between Government security positions and Treasury futures and options.”
“In addition to providing significant cost savings to our clearing members and a reduction in settlement risk and enhanced financial safeguards with respect to both clearing organizations, I believe that this historical initiative marks the beginning of an era of further cooperation between our organizations,” said Tom Hammond, executive vice president at the Board of Trade Clearing Corporation.
In order to participate in the cross-margining program, a firm must either be both a GSCC netting member and a Board of Trade Clearing Corporation member, or be a member of one clearing corporation and have an affiliate that is a member of the other. The member must also sign (together with its affiliate, if applicable) a Cross-Margining Participant Agreement. Once a member executes the Agreement, it will have no further implementation requirements, as the cross-margining will take place automatically. The use of the cross-margining facility, which can only reduce a participating member’s margin requirement, will be virtually transparent to members from an operational standpoint.
The Board of Trade Clearing Corporation, a Delaware corporation, now in its 77th year of business, maintains a Standard & Poor’s AAA rating and approximately $185 million in capital. The company is owned by its clearing member stockholders and is the only active independent derivatives clearing house in the world.
The Government Securities Clearing Corporation (GSCC), an operating subsidiary of The Depository Trust & Clearing Corporation, is the leading provider of centralized trade comparison, netting and settlement services in the U.S. Government securities industry. It processed over $329 trillion in securities transactions in 2001. GSCC’s services provide risk-management and financial benefits and operational efficiencies to industry participants, who include the nation’s major brokers, dealers and banks, as well as a wide range of other entities that trade U.S. Government securities.