Buy/sell transactions of U.S. Government Securities can be netted for next day and up to 365 days extended settlement.
Trade Comparison of buy/sell transactions occurs through bilateral comparison. Bilateral comparison requires that the two trade counterparties submit trades to GSD, in which certain mandatory details either match or fall within predefined parameters, to affect a match. Bilateral comparison is used for all buy/sell transactions. It is the primary comparison type for dealer-to-dealer and interdealer broker-to-dealer trades. Submission of buy/sell transactions can be submitted via Real-time. GSD deems a trade compared at the point when it makes available to the Netting Members on both sides of the transaction a report indicating that the trade data has been compared.
Money Tolerances for buy/sell transactions of U.S. Government securities settlement amount is $2 per $1 million (applicable in RTTM®).
Take a look at the DVP Buy/Sell Flow Chart below. Click the image to enlarge.
Steps in the process are:
1. GSD Members submit trades to RTTM® (manually or through MQ swift messaging).
2. RTTM then collects and matches the trade data. Then through netting, GSD establishes a single net long or short position per Member per CUSIP.
3. From this point settlement obligations are communicated to the members.
4. Members will communicate receive and delivery instructions to their settling banks*.
5. All deliveries are made against full payment over the FedWire.
6. Finally, notice of settlement is communicated back to GSD.
*JP Morgan recently announced its plans to exit the government bond clearance business.