To reduce the counterparty and settlement risks associated with trading and settling U.S. mortgages. As the financial industry emerges from this downturn a new central counterparty model is taking form that both removes counterparty risk while at the same time significantly decreases the margin costs associated with trading TBA’s.
TBA's have proven to be the primary driver of liquidity and price support for mortgages. Read a whitepaper that discusses why....issued by the NY-Federal Reserve Bank in August 2010.
The Fixed Income Clearing Corporation (FICC) is set to bring forth a central counterparty model in 2010-2011 timeframe. Read more about the CCP initiative at the FICC.
In an offering through the New York Portfolio Clearing (NYPC), a 50/50 joint venture between NYSE Euronext and DTCC, once a trade is confirmed between the buy and sell-side firms, the FICC/NYPC will step into the middle of the TBA trade and face-off against both counterparties, thus guaranteeing trade settlement. Allocations processing will continue to employ EPN with other risk mitigation techniques like pool-netting and cross-margining
Read more about the NYPC and FICC Central CounterParty roll out expected in Q'2 2011