Service Enhancements for Forward-Starting Repos

Transcription

1 December 9, 1997 Service Enhancements fr Frward-Starting Reps Service Overview GSCC is pleased t annunce that it is expanding its rep cmparisn, netting, and guaranteed settlement services t encmpass general cllateral and ther frward-starting reps n the day they are executed. The first submissin date fr these transactins will be December 15, Participants may begin submitting bth their new and previusly executed frward-starting reps n that date. GSCC intrduced netting services fr reps in Nvember 1995, and later expanded thse services t include blind-brkered reps in August Thrugh netting, a participant's reps are cmbined with its ther activity (buy/sell trades and auctin purchases) in the same security t arrive at a single net settlement psitin. GSCC prvides its settlement guarantee by becming the legal cunterparty fr all transactins that enter its net. GSCC recently filed, and received SEC apprval f, a rules change prpsal that enables GSCC t cmpare, net and prvide interest rate prtectin fr frwardstarting general cllateral and ther reps. The new service will prvide increased risk-management benefits t participants, with GSCC remaining adequately prtected frm any ptential expsure stemming frm the guarantee f these transactins. The fllwing bullets describe the key prcessing features f the new service: Participants can submit their general cllateral frward-starting reps t GSCC as early as their date f executin; Specific cllateral frward-starting reps will cntinue t be cmpared by matching transactin data submitted by bth parties t the transactin; General cllateral frward-starting reps will be cmpared using generic CUSIPs specifying acceptable cllateral fr the rep; GSCC will perfrm an interest rate mark-t-market and prvide interest rate prtectin fr the rep frm its submissin date until its start date; Participants will use GSCC's n-line cllateral substitutin facility t substitute specific cllateral at least ne business day prir t start date;

2 On start date, all frward-starting rep activity will be included in the net settlement bligatins generated fr that settlement date and GSCC's nrmal, full guarantee f settlement will becme effective; As is currently the case, rep clse legs will be carried in GSCC's system, and marked and margined accrdingly, until their clse leg settlement date, when they will be included in the net settlement bligatins generated fr that settlement date. Services fr general cllateral and ther frward-starting reps will enhance settlement efficiencies, prvide interest rate prtectin t participants frm trade executin thrugh start leg settlement date, and will mre adequately prtect GSCC and its participants frm ptential expsures arising frm this activity. Submissin and Cmparisn There are tw types f frward-starting reps: 1) "specific cllateral" reps, where the underlying CUSIP is knwn frm the date f rep executin; and 2) "general cllateral" reps, where the specific security and par amunt are nt knwn at the time f executin. In the past, general cllateral reps culd nt be matched under GSCC's current cmparisn prcess because the underlying CUSIP, a required data element, is nt knwn. T address this limitatin, GSCC will allw rep participants t submit ne f seventeen generic CUSIP numbers established by the CUSIP service bureau fr general cllateral rep transactins (see Attachment A fr a list f these generic general cllateral CUSIP numbers). These CUSIP numbers, btained wrking in cnjunctin with the Funding Divisin f the Bnd Market Assciatin, identify the type f Treasury r Nn-Mrtgage-Backed Agency security and the remaining length t maturity f cllateral that the parties agree will be acceptable fr the rep. Required fields fr submissin f frward-starting general cllateral reps will be the same as fr ther reps with the fllwing exceptins: 1) a generic general cllateral CUSIP must be submitted in the CUSIP field; and 2) the rep start amunt must be entered in the par amunt field. Frward- starting reps will be subject t GSCC's existing maximum transactin size f $50 millin (i.e., large transactins must be submitted in multiple pieces f $50 millin each). GSCC will cmpare and net frward-starting general cllateral reps using the generic CUSIP numbers. Specific cllateral reps will be cmpared and netted based upn actual security infrmatin.

3 The parties t a general cllateral frward-starting rep must ntify GSCC f the specific CUSIP(s) and the assciated par value(s) that will be used fr settlement purpses n later than the evening prir t the rep's start date. This will be dne using GSCC's cllateral substitutin ntificatin facility. GSCC will then mdify existing trade data in its system by canceling the "ld" generic CUSIP data and creating new, r replacement data based n the specific CUSIP and par. Fr brkered reps, substitutin ntificatin must be made by the brker. Fr dealer-t-dealer reps, substitutin ntificatin must be made by the rep (i.e., the delivering) participant. In either circumstance, the submissin f matching ntificatin by the transactin cunterparty is nt required. Failure t submit details regarding the specific cllateral by the evening prir t start date will result in the autmatic cancellatin f the rep in GSCC's system. Under these circumstances, participants wuld settle the start leg utside f the GSCC, and then resubmit the rep t GSCC n start date, nce specific transactin data fr the rep was knwn, fr the netting and guaranteed settlement f the clse leg. Netting and Interest Rate Guarantee Frward-starting general cllateral and ther reps will be eligible fr netting and guaranteed settlement nce they are cmpared by GSCC. Until a frward-starting rep actually starts, the frward margin requirements applied t it will differ frm thse applied t all ther reps. Because a frwardstarting rep has nt yet started, it presents nly interest rate expsure, and nt expsure t mvements in the value f the underlying cllateral; therefre nly an interest rate mark-t-market will be applied. This mark cmpnent will be determined by calculating the difference between the system and cntract rep rates fr the term f the rep. GSCC will cllect interest rate debit marks and pay thrugh interest rate credit marks fr frwarding starting reps as part f its nrmal frward mark prcess. Cntact Infrmatin ****** Please cntact GSCC using the infrmatin belw if yu have any questins r cmments regarding this new service.

4 Operatins Issues: Je Grima, Managing Directr Legal Issues: Jeff Ingber, General Cunsel (212) and Managing Directr (212) r jingber@gscc.cm Written cmments shuld be addressed t Sandy Manata, Managing Directr, GSCC Planning, (r sent by facsimile transmissin t (212) ). Thmas F. Csta Managing Directr Attachment A Generic General Cllateral Frward-Starting Rep CUSIPs CUSIP Descriptin AA 5 U.S. TREASURY BILLS AB 3 U.S. TREASURY SECURITIES AC 1 NON-MORTGAGE-BACKED U.S. AGENCY SECURITIES AD 9 AGENCY DISCOUNT NOTES AE 7 U.S. TREASURY SECURITIES UP TO & INCLUDING 1 YEAR AF 4 U.S. TREASURY SECURITIES WITH LESS THAN AG 2 U.S. TREASURY SECURITIES WITH LESS THAN 3

5 AH 0 U.S. TREASURY SECURITIES WITH LESS THAN AJ 6 U.S. TREASURY SECURITIES WITH LESS THAN AK 3 U.S. TREASURY SECURITIES WITH LESS THAN AL 1 U.S. TREASURY SECURITIES WITH LESS THAN AM 9 U.S. TREASURY SECURITIES WITH LESS THAN AN 7 U.S. TREASURY SECURITIES WITH LESS THAN AP 2 U.S. TREASURY SECURITIES WITH LESS THAN AQ 0 U.S. TREASURY SECURITIES WITH LESS THAN AR 8 U.S. TREASURY SECURITIES WITH LESS THAN AS 6 U.S. TREASURY STRIPS