FICC Adds Basis Risk Haircut to Bond Clearing Models
Published Date: 10/1/2025
Notice
Summary
The Fixed Income Clearing Corporation (FICC) is adding a new charge called the basis risk haircut to some of its risk models for mortgage-backed securities. This change helps FICC better protect itself and its members from financial risks when trading these securities. The update was approved by the SEC and will start soon, making the market safer without extra costs for now.
Analyzed Economic Effects
3 provisions identified: 2 benefits, 1 costs, 0 mixed.
Clearing Members Likely Face Higher Margins
If FICC had applied this change for April 1, 2024 through March 31, 2025, aggregated start-of-day (SOD) VaR Charges would have risen by about $56.31 million (0.12%). The Impact Study also found that members' SOD VaR Charges would have increased about $0.27 million on average (0.31%), and under a Margin Proxy deployment the aggregated SOD VaR Charges would have increased about $2.13 billion (4.94%) with members' SOD VaR Charges rising about $10.32 million on average (4.04%); some individual member portfolios could have seen increases up to 110.5% ($175.30 million) or a largest dollar increase of $187.17 million (14.97%).
Less Chance of Mutualized Losses for Members
The Commission found that adding the MBS pool/TBA basis risk haircut charge should help FICC collect sufficient margin and thus reduce the likelihood that FICC would need to access the mutualized Clearing Fund. That means non-defaulting members would be less exposed to shared losses if a member defaults.
Risk Models Show Slightly Better Backtesting
The Impact Study shows model backtesting coverage would have been essentially unchanged at about 99.72% in one view and, under Margin Proxy, coverage would have risen from about 99.68% to 99.71% while backtesting deficiencies would have fallen from 130 to 119 (about an 8.5% reduction).
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