The Fixed Income Clearing Corporation is a highly rated CCP that specializes in the matching, clearing and netting of transactions in U.S. Treasuries and Agency debt securities, including repo trades involving U.S. Treasuries as collateral.
How Does Sponsored Membership Work?
In a typical bilateral repo, a cash borrower posts U.S. Treasuries to its dealer counterparty in exchange for cash. Similarly, cash investors seeking increased liquidity can lend cash in exchange for U.S. Treasuries via a reverse repo.
Since the transactions typically result in an increase in the dealer’s balance sheet, there is an increased capital requirement that drives the cost of repo higher, while also broadly reducing industry capacity.