Government Securities Clearing Corporation (GSCC) Overview

What Was the Government Securities Clearing Corporation?

The Government Securities Clearing Corporation (GSCC) was an organization that was responsible for clearing and netting trades for government and agency debt securities. The GSCC handled new issues and the sale of existing government securities. It was established in the 1980s by the National Securities Clearing Corporation (NSCC). The GSCC merged with the Mortgage-Backed Securities Clearing Corporation to form the Fixed Income Clearing Corporation (FICC) in 2003.

Understanding the Government Securities Clearing Corporation (GSCC)

Centralized clearance and settlement services in the U.S. government securities market were conducted through the Government Securities Clearing Corporation.

The GSCC was tasked with reporting, validating, and matching the buy and sell sides of securities transactions. It compared transactions and acted as the counterparty for settlement purposes for each net position. The corporation also served several other key areas, including automated trade comparison, risk management, and operational efficiency to the U.S. Government securities market.

Securities transactions processed by the GSCC included:

• Treasury bills
• Treasury bonds
• Treasury notes
• Zero-coupon securities
• Government agency securities
• Inflation-indexed securities

The final net settlement obligations of GSCC participants were settled through the Fedwire Securities Service via the participants’ settlement bank. The organization GSCC cleared about $1.6 trillion a day in trades involving U.S. government securities until 2002.

The GSCC merged with the MBS Clearing Corporation in 2003 to form the Fixed Income Clearing Corporation, which is a subsidiary of the Depository Trust & Clearing Corporation (DTCC).

History of the Government Securities Clearing Corporation (GSCC)

The GSCC was established in 1986. It came after several large primary dealers and the Federal Reserve voiced concerns about the safety and soundness of the existing processes for government securities. The move included the risks associated with the failure of a major firm, the inefficiencies of manual paper processing of trade confirmations, and bilateral trade-for-trade settlement.

The board of directors of GSCC was made up of representatives from primary dealers and clearing banks, plus a management director (GSCC’s president) and two directors designated by NSCC.

The Government Securities Clearing Corporation (GSCC) vs. the Fixed Income Clearing Corporation (FICC)

As mentioned above, the GSCC and the MBSCC merged to form the FICC. The move was an attempt to become more cost-efficient in clearing and netting services. The merger went into effect in 2003, at which time the FICC began its operations.

The FICC provides the same services that were previously offered by the GSCC and the MSBCC but under two separate divisions.

• The Government Securities Division: The GSD matches trades, clearing, risk management, and netting in real time for government issues, including Treasury bills, bonds, and notes, bonds, along with zero-coupon securities, government agency securities, and inflation-indexed securities.
• The Mortgage-Backed Securities Division: The MBSD provides the mortgage-backed securities (MSBs) market with services like trade matching, confirmation, risk management, netting, and electronic pool notification. Some of the players in this market include mortgage lenders, government-sponsored enterprises (GSEs), banks, and other financial institutions.

These two distinct subsidiaries of the DTCC essentially operate as the GSCC and MBSCC did in the past. While they do offer their own services to their own members, each maintains a separate collateral margin pool.