The U.S. Depository Trust & Clearing Corporation has asked regulators for approval to extend the subsidiary’s clearing and risk management services to include direct participation by non-U.S. broker/dealers and banks, the DTCC said Tuesday.

Currently, only foreign firms with U.S. branches are eligible for membership in DTCC’s Fixed Income Clearing Corp. In a filing with the US Securities and Exchange Commission, it proposed that non-U.S. financial companies be allowed to join FICC directly so that the companies can take advantage of the risk management, balance-sheet netting and cost savings that membership provides. The FICC estimates that the proposed expansion of membership might push clearing volume up by 15%-20%.

“Foreign purchases of U.S. government securities are critical to the market,” said Murray Pozmanter, managing director, DTCC Fixed Income Clearance and Settlement Group. “This a global market that trades 24 hours a day, and the easier and safer we can make it for foreign firms to have their U.S. government securities trades cleared with guaranteed settlement within FICC, the better it will be for all participants.”

“If we expand the number of firms that are direct netting members, each individual firm will have, on average, less risk, lower clearing costs, more balance sheet relief and more capital released for additional investment,” Pozmanter said. “That’s a worthy goal, especially during this period of acute capital shortages for many institutions.”

It notes that recent changes to US bankruptcy laws have eased legal uncertainties about FICC’s rights in the event of a foreign member’s insolvency, which is one of the factors limiting membership in the company to non-U.S. banks with U.S. branches.

FICC’s rule filing with the SEC follows the agency’s decision last year to permit, for the first time ever, “well qualified” foreign broker/dealers and banks to become members of two other DTCC subsidiaries, National Securities Clearing Corporation and The Depository Trust Company, it notes. Membership will allow foreign firms to utilize the post-trade clearance and settlement services of the two companies for transactions in U.S. equity markets.

“Extending our membership to foreign firms for equity trading is really just a reflection of how global the securities industry has become,” said Susan Cosgrove, DTCC managing director, Equity Clearance and Settlement Group. “We’re simply preparing to operate in a world where it may be possible to execute trades in European markets, for example, and settle them in the U.S. market.”

IE