Government Securities Clearing Corporation (GSCC)

What Is the Government Securities Clearing Corporation?

The Government Securities Clearing Corporation (GSCC) was a non-profit organization that cleared and netted U.S. government securities and agency debt securities. The GSCC was first established in 1986 by the National Securities Clearing Corporation (NSCC) to provide clearing and settlement of U.S. government securities. The GSCC handles both new issues and the reselling of government securities.

Understanding the Government Securities Clearing Corporation

Centralized clearance and settlement services in the U.S. government securities market was conducted through the Government Securities Clearing Corporation (GSCC). The corporation was established after several large primary dealers, and the Federal Reserve voiced concerns about the safety and soundness of the existing processes for clearing and settling government securities, which 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.

GSCC was tasked with reporting, validating, and matching the buy and sell sides of securities transactions. The GSCC compared transactions and acted as the counterparty for settlement purposes for each net position. This served an important role, as the organization maintained the liquidity and integrity of the market for U.S. government securities. In addition, the corporation provided 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, and inflation-indexed securities. The final net settlement obligations of GSCC participants were settled through the Fedwire Securities Service via the participants’ settlement bank. Up to 2002, GSCC cleared about $1.6 trillion a day in trades involving U.S. government securities

In 2003, GSCC merged with the MBS Clearing Corporation (MBSCC) to form the Fixed Income Clearing Corporation (FICC), a subsidiary of the Depository Trust & Clearing Corporation (DTCC). FICC provides the same services GSCC and MBSCC provided, but through separate divisions called the Government Securities Division (GSD) and Mortgage-Backed Securities Division (MBSD). These two divisions continue to operate essentially as GSCC and MBSCC did, respectively, offering their own services to their own members, with each maintaining a separate collateral margin pool.