Fixed Income Transaction System

Overview

The Fixed Income Transaction System (FITS) standardizes and automates the processing of transactions in municipal and corporate bonds and Unit Investment Trusts (UITs)

Who can use the service

All dealer banks and broker/dealers in the fixed-income market who are qualified NSCC members are eligible to use the service. Among those are traders of corporate bonds, including new-issue and baby bonds; municipal bonds, including new-issue and syndicates; and UITs.

Benefits

By providing participants with timely trade comparisons and resolutions of discrepancies early in the settlement period, FITS helps reduce risk and inefficiency in the clearing and settlement process. FITS is flexible, clearing and settling different types of fixed-income securities transactions; and it is a powerful information tool, reporting information on comparison and netting to participants and industry regulators as requested.

How the service works

FITS receives both sides of participant transactions in municipals, OTC corporate bonds and UITs. Listed corporate bond trades are matched automatically by systems at the New York Stock Exchange and then routed to FITS. After comparing and matching the buy and sell sides of transactions entered into the system, and recording compared trade obligations from the securities exchanges, FITS creates a binding contract for settlement and reports the results of that process to participants.

FITS can accommodate a multi-batch, multi-cycle environment and provides three daily output files (1 p.m., 3 p.m. and 5 p.m.) in addition to the final contract output. This allows participants to submit, review and/or adjust trades on trade date. It then arranges the exchange of money and securities to settle trade obligations.

Firms using multi-batch FITS can see compared trades on T. Once trades are compared, they settle on T+3 in the appropriate settlement system. Participants receive reports of unmatched trades and correct them using standardized procedures developed by NSCC.

FITS was enhanced in 2001 to accept locked-in, one-sided corporate, municipal and UIT trades from participants who use the Qualified Special Representative (QSR) functionality. This enhancement allows participants who operate, or clear for firms that operate, an electronic fixed income Alternative Trading System (ATS) with the capability to submit one-sided, pre-matched trades to NSCC for firms who subscribe to their systems. QSR processing expedites trade recording of fixed income trades and supports future T+1 settlement.

Information services:

FITS provides monthly analytical reports to participants, regulators and the Municipal Securities Rulemaking Board (MSRB) on comparison rate performance which help improve marketplace efficiencies. In addition, NSCC supports the MSRB's Transaction Reporting System, including time of trade and price transparency information, and provides a link for participants to use in transmitting customer transaction data. Responding to the National Association of Securities Dealers' requirement that is designed to ensure trades are submitted on trade date, NSCC uses FITS data to generate a Municipal Comparison Rate for the industry, as well as individual report cards to dealers and regulators. NSCC provides a similar efficiency report for OTC corporate bond transactions. These transactions are submitted to FITS as mandated by NASD. UITs are monitored by FITS, but industry reports are not required.

Settlement:

Compared transactions enter NSCC's Continuous Net Settlement System (CNS), Balance Order or the Trade-for-Trade Accounting System. The vast majority of trades settle in CNS, which for each participant nets transactions and facilitates book-entry movement of depository-eligible securities in a centralized, controlled and automated environment.

Future Fixed Income Direction

NSCC plans to implement a Real-Time Trade Matching (RTTM) system in the future to provide participants with straight through processing (STP) capabilities and to meet T+1 settlement initiatives. RTTM has been developed by the Government Securities Clearing Corporation (GSCC) and is in production for U.S. Government securities that settle in a T+1 cycle. RTTM will provide a single pipeline to the clearing corporations and use standardized, interactive messaging formats via an MQ communications link.

For more information:

Please call Relationship Management at (800) 422-0582.

The Fixed Income Transaction System is a service offering of National Securities Clearing Corporation, the nation's leading provider of centralized clearance, settlement and information services to more than 2,500 brokers, dealers, banks, mutual funds, insurance carriers and other organizations. NSCC develops standardized, automated solutions that promote connectivity, efficiency and lower risk in the financial services marketplace. NSCC is a subsidiary of The Depository Trust & Clearing Corporation (DTCC).