Overview:

We have seen a growing trend among market participants in the repo market, with many opting to integrate the Fixed Income Clearing Corporation (“FICC”)’s Sponsored Service into their existing bilateral repo arrangements. Through this Sponsored Service, FICC offers these clients an avenue to transact in overnight and term repo involving certain U.S. Treasury and Agency securities, with FICC serving as the central clearing counterparty.  This strategic decision reflects a growing recognition of the benefits espoused by the Depository Trust and Clearing Company (“DTCC”), the parent organization of FICC including reduced counterparty risk, increased liquidity, and enhanced operational efficiency.

What is the sponsored service?

FICC’s Sponsored Service provides clients with a secure and efficient avenue for engaging in repo transactions in U.S. Treasury and Agency Securities, backed by the infrastructure and oversight of FICC. By leveraging the Sponsored Service, clients can benefit from reduced counterparty risk, as transactions are cleared through FICC, which acts as a guarantor for the performance of both parties. The Sponsored Service enhances liquidity by providing a centralized marketplace for repo transactions. The Sponsored Service also streamlines operational processes by offering standardized agreements and settlement procedures, thereby improving overall efficiency and reducing administrative burdens for market participants.

How to participate in the sponsored service

To participate in FICC’s Sponsored Service, a client must become a “Sponsored Member” through a relationship with a Sponsoring Member.

Transactions utilizing FICC’s Sponsored Service are documented pursuant to an agreement between the Sponsored Member and the Sponsoring Member, many of which are banks and broker-dealers. These agreements are often in the form of an annex to a Master Repurchase Agreement (“MRA”) or Global Master Repurchase Agreement (“GMRA”) (any such agreement, “Sponsored Repo”).

Eligible Securities for the Sponsored Service

Securities that are eligible to be transacted on currently include U.S. Treasury and Agency securities, including:

• U.S. Treasuries (T-BILLS, T-BONDS, T-NOTES, TIPS, STRIPS);
• Floating Rate Notes (FRNs); and
• Non Mortgage-Backed Agency Securities.

Becoming a Sponsored Member

• The client must be a legal entity from a jurisdiction approved by FICC; and
• The client must meet the Qualified Institutional Buyer (a.k.a. “QIB”) standard.

Clients must also complete and submit required documentation, as provided by their Sponsoring Member during the onboarding process, including:

• A Sponsored Member Application form;
• The Sponsored Repo forms issued by the Sponsoring Member.*

*Clients with existing MRAs or GMRAs with Sponsoring Members can amend their agreements to cover Sponsored Repo transactions.

Who are sponsoring members?

Sponsoring Members facilitate the submission of transactions from Sponsored Members to FICC and manage the operational and administrative processes of Sponsored Members’ trading activities. Sponsoring Member serve as processing agents, communicating with FICC on behalf of the Sponsored Members regarding the Sponsored Members’ obligations to FICC.

Sponsoring Members are often banks and broker-dealers among other financial institutions. A current list of Sponsoring Members can be accessed through the DTCC website or downloaded via this link.

How can quadrangle help

Quadrangle has assisted many of its clients with onboarding Sponsored Member relationships and negotiating Sponsored Repo terms.

Please reach out to your Quadrangle Contact or click the link below to request a call and leverage us for such services.