Does FICC pay the seller out of its own pocket before it gets paid by the buyer?
Does FICC pay the seller out of its own pocket before it gets paid by the buyer?
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Giorgi Lagidze · External communityPost link
External question — Quantitative Finance Stack Exchange
Author: Giorgi Lagidze
Original post: https://quant.stackexchange.com/questions/85838
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
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Dealer A and Dealer B are both FICC members. A sells $100mm of a Treasury note to B. After novation, FICC owes B the note and A owes FICC the note.
On settlement day, A delivers the note to FICC first (DVP, so A gets paid immediately). Only after that can FICC deliver the note to B and get paid by B.
So for a moment, FICC has paid $100mm and hasn't received anything yet.
Does FICC actually fund that $100mm itself, or does its clearing bank (BNY Mellon) just lend it the money intraday until B pays ?
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Quoted from Forex.com.bd-Editorial External question — Quantitative Finance Stack Exchange Author: Giorgi Lagidze Source score (net votes, not local likes): 0 Original post: https://quant.stackexchange.com/questions/85838 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Dealer A and Dealer B are both FICC members. A sells $100mm of a Treasury note to B. After novation, FICC owes B the note and A owes FICC the note. On settlement day, A delivers the note to FICC first (DVP, so A gets paid immediately). Only after that can FICC deliver the note to B and get paid by B. So for a moment, FICC has paid $100mm and hasn't received anything yet. Does FICC actually fund that $100mm itself, or does its clearing bank (BNY Mellon) just lend it the money intraday until B pays ?
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