Han, US FICC Associate Member Qualifications: Foreign Currency Asset Management
Bank of Korea Gains Access to US Treasury Market Clearing
Table of Contents
- Bank of Korea Gains Access to US Treasury Market Clearing
- Bank of Korea’s Access to U.S. Treasury Market Clearing: Your Questions answered
- What’s the big news regarding the Bank of Korea and the U.S. Treasury market?
- what is FICC, and what does it do?
- How does FICC membership benefit the Bank of Korea?
- What’s the difference between standard RPs and sponsored RPs?
- Why did the Bank of Korea pursue this FICC quasi-membership?
- How does the SEC’s role impact the U.S. Treasury RP market?
- What are the expected changes due to the new SEC regulations?
- What is the current trading volume in the sponsored RP market?
- What steps is the Bank of Korea taking to ensure a smooth transition?
- In Summary: The Key Takeaways
The Bank of korea has become a quasi-member of the U.S. Fixed Income Clearing Corporation (FICC), a move that allows it to participate in sponsored repurchase agreement (RP) transactions starting May 23. This access is expected to lower payment risks and potentially increase profitability.
What is FICC?
FICC, a subsidiary of the Depository Trust & Clearing Corporation (DTCC), specializes in clearing mortgage-backed securities (MBS) and U.S.Treasury securities. Unlike standard RPs, sponsored RPs offer reduced payment risks through central clearing and the potential for higher returns via expanded interest rates and transaction volumes. As an associate member, the Bank of Korea can now utilize central clearing services when engaging in RP transactions with regular FICC members.
According to an official from the Bank of Korea, the sponsorship RP was pursued to “earn excessive profits in the process of foreign currency asset management and reduce payment risks.” The official added that the process, which required an RP transaction relationship with a clearing member and final FICC approval, took approximately eight months of planning starting in the latter half of the previous year.
SEC Mandates Central Clearing
The U.S. Securities and Exchange Commission (SEC) is implementing new regulations to enhance oversight of the U.S. Treasury RP market. Starting in June 2027, central clearing of RP transactions will be mandatory for private participating organizations. This measure aims to improve risk management in a market characterized by a high volume of transactions between various entities.
An official noted that while most U.S. Treasury RP transactions currently bypass central clearing, the new regulations are expected to shift the majority of RP transactions between clearing members and associate members to sponsored RPs.
Impact on Treasury Market
Sponsored RP transactions in the U.S. government bond market have been steadily growing,with daily trading volumes reaching approximately $2 trillion by the end of 2024. The Bank of korea anticipates further growth in transaction volumes following the mandatory central clearing implementation.
The Bank of Korea plans to implement actual transactions and is taking additional steps, including system adjustments and test transactions, to ensure a smooth transition.
Bank of Korea’s Access to U.S. Treasury Market Clearing: Your Questions answered
What’s the big news regarding the Bank of Korea and the U.S. Treasury market?
The Bank of Korea has become a quasi-member of the U.S.Fixed Income Clearing Corporation (FICC). This means they can now participate in sponsored repurchase agreement (RP) transactions, starting May 23rd. This move is expected to lower payment risks and potentially boost profitability.
what is FICC, and what does it do?
FICC, a subsidiary of the Depository trust & Clearing Corporation (DTCC), specializes in clearing mortgage-backed securities (MBS) and U.S. Treasury securities. It provides central clearing services, reducing risk in the financial markets.
How does FICC membership benefit the Bank of Korea?
As an associate member, the Bank of Korea can utilize FICC’s central clearing services when engaging in RP transactions with regular FICC members. This is expected to help them:
Reduce payment risks
Potentially increase profitability through higher returns
What’s the difference between standard RPs and sponsored RPs?
Sponsored RPs, which the Bank of Korea will now use, offer several advantages over standard RPs:
Reduced Payment Risks: Central clearing through FICC mitigates risks.
Potential for Higher Returns: Expanded interest rates and transaction volumes can led to increased profitability.
Why did the Bank of Korea pursue this FICC quasi-membership?
An official from the Bank of Korea stated that the move was prompted to:
“Earn excessive profits in the process of foreign currency asset management.”
“Reduce payment risks.”
The entire process, including securing an RP transaction relationship with a clearing member and final FICC approval, took approximately eight months of planning.
How does the SEC’s role impact the U.S. Treasury RP market?
The U.S. Securities and Exchange Commission (SEC) is implementing new regulations starting in June 2027. These regulations mandate central clearing of RP transactions for private participating organizations, aimed at enhancing oversight and risk management in the market.
What are the expected changes due to the new SEC regulations?
While most U.S. Treasury RP transactions currently bypass central clearing, the new SEC regulations are expected to shift the majority of RP transactions to sponsored RPs. This is as central clearing will be mandatory for many participants.
What is the current trading volume in the sponsored RP market?
Sponsored RP transactions in the U.S. government bond market have been steadily growing, with daily trading volumes reaching roughly $2 trillion by the end of 2024.
What steps is the Bank of Korea taking to ensure a smooth transition?
The Bank of Korea is taking several proactive steps:
Implementing actual transactions
Making system adjustments
* Conducting test transactions
These measures help ensure a seamless transition into the new sponsored RP surroundings.
In Summary: The Key Takeaways
Here’s a swift overview of the core points:
| Key Aspect | details |
|---|---|
| Bank of Korea’s Access | Quasi-member of FICC, allowing participation in sponsored RPs |
| FICC’s Role | Provides central clearing for U.S. Treasury securities, reducing risk |
| benefits for Bank of Korea | Lower payment risks, potential for increased profitability |
| SEC Regulations | mandatory central clearing for RP transactions starting June 2027 |
| Market Impact | Anticipated further growth in sponsored RP transaction volumes |