What was the Government Securities Clearing Corporation?
The Government Securities Clearing Corporation (GSCC) cleared and netted government and agency debt securities trades. The GSCC sold government securities and issued new ones. Founded in the 1980s by the National Securities Clearing Corporation (NSCC), In 2003, the GSCC and Mortgage-Backed Securities Clearing Corporation combined to establish the Fixed Income Clearing Corporation (FICC).
Understanding the Government Securities Clearing Corporation’s (GSCC)
The Government Securities Clearing Corporation provided centralized clearance and settlement services in the U.S. government securities market.
GSCC reported, validated, and matched securities buy-and-sell sides. For each net position, it compared transactions and served as the settlement counterparty. The company also provided the U.S. government securities market with automated trade comparison, risk management, and operational efficiency.
The GSCC handled securities transactions:
- Treasury bills
- Bonds from Treasury
- Treasury notes
- Bonds without coupons
- Government agency securities
- Bonds adjusted for inflation
Participants in GSCC had their net settlement obligations fulfilled by Fedwire Securities Service through their settlement bank. GSCC cleared $1.6 trillion in U.S. government securities trades daily until 2002.
In 2003, the GSCC and MBS Clearing Corporation became the Fixed Income Clearing Corporation, a subsidiary of DTCC.
The GSCC’s counterparty position was crucial for maintaining the liquidity and integrity of the U.S. government securities market.
Government Securities Clearing Corporation history
The GSCC began in 1986. The move followed concerns from significant dealers and the Federal Reserve over the safety and soundness of government securities operations. The move included dangers from a significant corporate collapse, manual paper trade confirmation inefficiencies, and bilateral trade-for-trade settlements.
The GSCC board of directors consisted of primary dealers, clearing banks, a management director (GSCC’s president), and two NSCC-designated directors.
GSCC vs. FICC
The GSCC and MBSCC united to establish the FICC. The move sought to reduce clearing and netting costs. The merger took place in 2003, and the FICC commenced operations.
The FICC offers the same services as the GSCC and MSBCC in two sections.
The Government Securities Division (GSD) matches transactions, manages risk, and nets government issues such as Treasury bills, bonds, notes, zero-coupon securities, government agency securities, and inflation-indexed securities in real-time.
The Mortgage-Backed Securities Division (MBSD) offers transaction matching, confirmation, risk management, netting, and electronic pool notification services to the MSB market. This market has players such as mortgage lenders, GSEs, banks, and other financial organizations.
These two DTCC subsidiaries function like the GSCC and MBSCC. They offer their services to members, but each has a collateral margin pool.
Conclusion
- The Government Securities Clearing Corporation cleared and netted government and agency debt securities trades.
- The National Securities Clearing Corporation founded GSCC.
- It reported, verified, and matched securities buy-and-sell sides.
- The GSCC board included principal dealers and clearing banks.
- In 2003, the GSCC and MBSCC became the Fixed Income Clearing Corporation.
