# Fixed Income Clearing Corporation (FICC): History

## What Is the Fixed Income Clearing Corporation (FICC)?

The term Fixed Income Clearing Corporation (FICC) refers to a regulatory clearing agency that deals with the confirmation, settlement, and delivery of [fixed-income assets](https://www.investopedia.com/terms/f/fixedincome.asp) in the U.S. Founded in 2003, the agency is a part of the Depository Trust & Clearing Corporation (DTCC). It facilitates the orderly and efficient settlement of U.S. government securities and [MBS transactions](https://www.investopedia.com/terms/m/mbs.asp).

It's the only agency that guarantees trade settlements in government securities, effectively acting as a buyer and seller to ensure market stability. The FICC’s structure, including the Government Securities Division and Mortgage-Backed Securities Division, facilitates comprehensive securities handling and trade confirmation.

### Key Takeaways

*   The Fixed Income Clearing Corporation acts as a clearinghouse to ensure the systematic settlement of U.S. government securities and mortgage-backed securities.
*   Established in 2003, the FICC emerged from the merger of the Government Securities Clearing Corporation and the Mortgage-Backed Security Clearing Corporation, operating as a subsidiary of the Depository Trust & Clearing Corporation.
*   It's divided into the Government Securities Division and the Mortgage-Backed Securities Division.   
*   Usage of the FICC is vital as it substitutes itself for both sides of every transaction, guaranteeing transactions.
*   In 2021, the FICC was fined $8 million by the SEC for lapses in risk management policies, spotlighting the critical importance of compliance with industry rules within financial clearinghouses.

## How the Fixed Income Clearing Corporation Operates

The [Depository Trust and Clearing Corporation](https://www.investopedia.com/terms/d/dtcc.asp) is a financial services company. Established in 1999, it brought together the functions of two other organizations, the Depository Trust Company and the National Securities Clearing Corporation. The goal of the DTCC is to provide clearing and settlement services for the financial market.

As noted above, the FICC was established as a subsidiary of the DTCC in 2003. It was created as a result of the merger between the [Government Securities Clearing Corporation (GSCC)](https://www.investopedia.com/terms/g/gscc.asp) and the Mortgage-Backed Security Clearing Corporation. The agency is registered with and regulated by the U.S. [Securities and Exchange Commission (SEC)](https://www.investopedia.com/terms/s/sec.asp).

The FICC ensures that U.S. government-backed securities and MBS are settled efficiently and systematically. For instance, [Treasury](https://www.investopedia.com/articles/investing/073113/introduction-treasury-securities.asp) notes and bonds settle on a T+1 basis. The FICC uses two clearing banks, Bank of New York Mellon and JPMorgan Chase Bank, to ensure efficient trade settlements.

> **Fast Fact**
>
> The SEC notes that the FICC is the sole clearinghouse for U.S. government securities transactions. As such, it "substitutes itself for both sides of every transaction that it clears, guaranteeing those transactions and making itself the buyer for every seller and the seller for every buyer."

## Important Considerations for FICC Operations

In October 2021, the SEC fined the FICC $8 million for not effectively managing risk in its Government Securities Division. The SEC noted that between April 2017 and November 2018, the division lacked proper [risk management](https://www.investopedia.com/terms/r/riskmanagement.asp) policies. The SEC also found that the FICC didn't comply with industry rules that required it to put policies and procedures in place relating to the review of its margin coverage between 2015 and 2016.

## Structure of the Fixed Income Clearing Corporation

The FICC is divided into two sections: the Government Securities Division (GSD) and the Mortgage-Backed Securities Division (MBSD). Below, we highlight key information about both divisions.

### Government Securities Division (GSD)

The GSD is responsible for handling new fixed-income issues and reselling government securities. The division provides netting for trades in U.S. government debt issues, including [repurchase agreements](https://www.investopedia.com/terms/r/repurchaseagreement.asp) (repos) or [reverse repurchase agreement](https://www.investopedia.com/terms/r/reverserepurchaseagreement.asp) transactions (reverse repos).

Securities transactions processed by the FICC's GDS include Treasury bills, bonds, notes, [zero-coupon securities](https://www.investopedia.com/terms/z/zero-couponbond.asp), government agency securities, and [inflation-indexed securities](https://www.investopedia.com/terms/i/inflation-indexedsecurity.asp). The GSD provides real-time trade matching through an interactive platform that collects and matches securities trades, enabling participants to monitor the status of their trades in real-time.

### Mortgage-Backed Securities Division (MBSD)

The MBS division of the FICC provides real-time automated and trade matching, trade confirmation, risk management, [netting](https://www.investopedia.com/terms/n/netting.asp), and electronic pool notification to the MBS market.

Through the RTTM service, the MBSD immediately confirms trade executions in a legal and binding manner. A trade is deemed compared by the MBSD at the point in time at which the division makes available to the members on both sides of a transaction output indicating that their trade data have been compared. A trade compared by the MBSD constitutes a valid and binding contract, and trade settlements are guaranteed by the MBSD at the point of comparison.

Key participants in the MBS market are mortgage originators, government-sponsored enterprises, registered [broker-dealers](https://www.investopedia.com/terms/b/broker-dealer.asp), [institutional investors](https://www.investopedia.com/terms/i/institutionalinvestor.asp), investment managers, [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp), commercial banks, insurance companies, and other financial institutions.

## The Bottom Line

The FICC provides vital clearing and settlement services for U.S. government securities and mortgage-backed securities, ensuring efficient and systematic trade processes. Established in 2003 as a subsidiary of the Depository Trust & Clearing Corporation, FICC emerged from the consolidation of the Government Securities Clearing Corporation and the Mortgage-Backed Security Clearing Corporation.

Recent regulatory actions highlight the importance of robust risk management policies within clearing agencies like the FICC. The FICC plays a unique role as the sole clearinghouse for U.S. government securities transactions, guaranteeing trade settlements by substituting itself in all transactions.

> **Article Sources**
>
> 1.  Depository Trust & Clearing Corporation. "[About DTCC: Fixed Income Clearing Corporation (FICC)](https://www.dtcc.com/about/businesses-and-subsidiaries/ficc)."
>     
> 2.  Depository Trust & Clearing Corporation. "[DTCC Digital Museum](https://www.dtcc.com/annuals/museum/index.html)," Select "1990s," "1999."
>     
> 3.  Depository Trust & Clearing Corporation. "[Our Capabilities](https://www.dtcc.com/capabilities/index.html)."
>     
> 4.  U.S. Securities and Exchange Commission. "[Fixed Income Clearing Corporation Exhibits to Form CA - 1: Exhibit J (Item 19)](https://www.sec.gov/rules/other/2013/ficc-clearing-agency-app-exhibit-j-thru-r.pdf)."
>     
> 5.  U.S. Securities and Exchange Commission. "[SEC Charges Fixed Income Clearing Corp. with Having Inadequate Risk Management Policies](https://www.sec.gov/news/press-release/2021-219)."
>     
> 6.  Depository Trust & Clearing Corporation. "[Fixed Income Clearing - GSD](https://www.dtcc.com/clearing-services/ficc-gov)."
>     
> 7.  Depository Trust & Clearing Corporation. "[Fixed Income Clearing - MBS Division](https://www.dtcc.com/clearing-services/ficc-mbsd)."
>     
> 8.  Depository Trust & Clearing Corporation. "[Real-Time Trade Matching](https://www.dtcc.com/clearing-services/ficc-mbsd/mbsd-rttm)."