Intraday Funding in FICC Treasury Settlement

Summary

The document asks how the Fixed Income Clearing Corporation (FICC) handles a temporary cash gap in a Treasury delivery-versus-payment settlement. In its example, two members trade a Treasury note; after novation, the seller delivers the note to FICC and receives payment before FICC completes delivery to, and collects payment from, the buyer. This sequence raises the question of whether FICC supplies the cash itself or obtains intraday credit through its clearing bank.

The text lays out the settlement sequence and the resulting timing exposure, but it does not provide an answer or supporting evidence about FICC’s actual funding arrangements. It is therefore a useful prompt about clearinghouse liquidity and settlement mechanics, rather than a complete explanation. Readers would need authoritative clearing or bank documentation to determine how the temporary funding is arranged and what controls apply.

Key ideas

• Novation places FICC between the original Treasury trade counterparties.
• The described delivery-versus-payment sequence has the seller paid before the buyer pays FICC.
• This timing creates a temporary funding question for the clearinghouse.
• The document raises, but does not resolve, whether FICC or its clearing bank supplies intraday funds.

Tags

# Does FICC pay the seller out of its own pocket before it gets paid by the buyer?


# Does FICC pay the seller out of its own pocket before it gets paid by the buyer?












Dealer A and Dealer B are both FICC members. A sells $100mm of a Treasury note to B. After novation, FICC owes B the note and A owes FICC the note.

On settlement day, A delivers the note to FICC first (DVP, so A gets paid immediately). Only after that can FICC deliver the note to B and get paid by B.

So for a moment, FICC has paid $100mm and hasn't received anything yet.

Does FICC actually fund that $100mm itself, or does its clearing bank (BNY Mellon) just lend it the money intraday until B pays ?

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.