The Fixed Income Clearing Corporation ( FICC ) has proposed a new cleared tri-party offering known as the Sponsored General Collateral ( GC ) “Collateral-in-Lieu” service.

In a filing with the US Securities and Exchange Commission ( SEC ), the FICC states that the proposal aims to address industry concerns regarding margin and capital efficiency, thereby ensuring a smooth implementation of the US treasury clearing mandate.

The service will use the standard dealer haircut for money market funds and cash investors in tri-party transactions. A central counterparty lien will replace both sponsor guarantees and, in most cases, margin postings to the central counterparty.

The proposal seeks to solve the “double-margining” challenge, which arises because sponsors typically post haircuts to money market funds to satisfy overcollateralization requirements and post counterparty margin on behalf of clients.

“The sponsored service has been an incredibly popular buyside clearing solution, with over US$2 trillion in volume flowing through the service on a typical day,” says Laura Klimpel, managing director and head of fixed income and financing solutions at the Depository Trust and Clearing Corporation ( DTCC ).

“The proposed Collateral-in-Lieu service has been intentionally designed to build upon that success and allow sponsors and their clients to leverage many of their existing legal agreements and operational processes for sponsored repo, but take the margin and capital efficiencies of the product to the next level.”

The FICC would leverage BNY’s tri-party infrastructure to support the collateral management and settlement of the Collateral-in-Lieu repo trades. The service will support both “done-away” and “done-with” styles of trade execution.

“The FICC’s sponsored GC Collateral-in-Lieu service is precisely the type of solution the industry needs to meet the SEC’s central clearing rule in a capital- and margin-efficient way,” says Nate Wuerffel, BNY’s global head of market structure and product leader for the global collateral platform. “Built using BNY’s global collateral platform – the largest treasury tri-party repo settlement venue – Collateral-in-Lieu offers treasury market participants streamlined, efficient access to central clearing.”

The filing is set to be published in the Federal Register, which will open a period for public comment. The FICC aims to launch the service in December, subject to regulatory approval of the filing.